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 GROWTH SERIES
--------------------------------------------------
(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 Small Cap
Growth Fund. No filing fee is due in reliance on Section 24(f) of the Investment
Company Act of 1940.
(AIM LOGO)
AIM SMALL COMPANY GROWTH FUND,
A PORTFOLIO OF AIM STOCK 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 Small Company
Growth Fund (the "Fund") to AIM Small Cap Growth 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 Stock 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 SMALL COMPANY GROWTH FUND,
A PORTFOLIO OF AIM STOCK 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 Small Company Growth Fund (the "Fund"), an
investment portfolio of AIM Stock Funds ("Trust"), will be transferred to AIM
Small Cap Growth Fund ("Buying Fund"), an investment portfolio of AIM Growth
Series ("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 SMALL COMPANY GROWTH FUND, AIM SMALL CAP GROWTH FUND,
A PORTFOLIO OF A PORTFOLIO OF
AIM STOCK FUNDS AIM GROWTH SERIES
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 Small Company 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 Small Company
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 Stock Funds ("Trust"), with AIM Small Cap
Growth Fund ("Buying Fund"), an investment portfolio of AIM Growth Series
("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 October 25, 2005, together with the
related Statement of Additional Information dated October 25, 2005, and the
Prospectus for your Fund's Institutional Class shares dated October 25, 2005
(collectively, the "Selling Fund Prospectuses"), are on file with the Securities
and Exchange Commission (the "SEC"). The Selling Fund Prospectuses are
incorporated by reference into this Proxy Statement/Prospectus. The Prospectus
of Buying Fund dated December 14, 2005, (the "Buying Fund Prospectus"), and the
related Statement of Additional Information dated December 14, 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
i
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.
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...........................................................................................................2
The Reorganization.......................................................................................3
Comparison of Investment Objectives and Principal Strategies.............................................4
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........................................4
The Board's Recommendation...............................................................................4
RISK FACTORS......................................................................................................4
Risks Associated with Buying Fund........................................................................4
Comparison of Risks of Buying Fund and Your Fund.........................................................4
INFORMATION ABOUT BUYING FUND.....................................................................................4
Description of Buying Fund Shares........................................................................4
Management's Discussion of Fund Performance..............................................................4
Financial Highlights.....................................................................................4
ADDITIONAL INFORMATION ABOUT THE AGREEMENT........................................................................4
Terms of the Reorganization..............................................................................4
The Reorganization.......................................................................................4
Board Considerations.....................................................................................4
Other Terms..............................................................................................4
Federal Income Tax Consequences..........................................................................4
Accounting Treatment.....................................................................................4
RIGHTS OF SHAREHOLDERS............................................................................................4
CAPITALIZATION....................................................................................................4
LEGAL MATTERS.....................................................................................................4
ADDITIONAL INFORMATION ABOUT BUYING FUND AND YOUR FUND............................................................4
INFORMATION FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.....................................................4
INFORMATION ABOUT THE SPECIAL MEETING AND VOTING..................................................................4
Proxy Statement/Prospectus...............................................................................4
Time and Place of Special Meeting........................................................................4
Voting in Person.........................................................................................4
Voting by Proxy..........................................................................................4
Voting by Telephone or the Internet......................................................................4
Quorum Requirement and Adjournment.......................................................................4
Vote Necessary to Approve the Agreement..................................................................4
Proxy Solicitation.......................................................................................4
Other Matters............................................................................................4
Ownership of Shares......................................................................................4
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 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 and utilize similar investment strategies. The Board believes that
the 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 and
invest in similar types of securities. Both your Fund and Buying Fund seek
long-term growth of capital and normally invest at least 80% of their net assets
in small-capitalization companies.
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>
<Caption>
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
- --------------------------------------------------------------------------------------------------------------------
o Invests at least 80% of its net assets in o Invests at least 80% of its net assets in
securities of small-capitalization companies. securities of small-capitalization companies.
- --------------------------------------------------------------------------------------------------------------------
o The advisor actively manages the fund in the o In complying with the 80% investment requirement,
growth style focusing on small cap growth the fund may invest primarily in marketable equity
companies with high growth potential as securities, including convertible securities, but its
demonstrated by quantitative and qualitative investments may include other securities, such as
analysis. synthetic instruments.
o The adviser selects stocks for the fund based
on an analysis of individual companies, focusing
on company fundamentals and growth prospects. The
advisor uses a three-step process that includes
quantitative, fundamental and evaluation analysis.
The proprietary quantitative models and screening
tools reduce an investment universe of thousands
of companies down to a more manageable list of
investment candidates. The fundamental research
includes careful financial statement analysis and
meetings with company management teams to define a
company's key drivers of success and to access its
durability. The goal is to ascertain the level,
quality and duration of a Company's growth prospects,
and to gain confidence in the management team. The
valuation analysis assesses the degree to which
expected future growth is discounted in the stock
price. The adviser also carefully scrutinizes the
risks/reward of each holding to ensure a continued
fit in the fund. The stock that successfully passes
this selection process is a viable candidate for the
fund's portfolio.
- --------------------------------------------------------------------------------------------------------------------
2
<Table>
<Caption>
AIM SMALL COMPANY GROWTH FUND AIM SMALL CAP GROWTH FUND
(YOUR FUND) (BUYING FUND)
- ------------------------------------------------------------- ------------------------------------------------------
o No corresponding strategy o The fund may also invest up to 20% of its
assets in equity securities of issuers that
have market capitalizations, at the time of
purchase, in other market capitalization
ranges, and in investment-grade non-convertible
debt securities, U.S. government securities and
high-quality money market instruments.
- --------------------------------------------------------------------------------------------------------------------
o May invest up to 25% of its total assets in o May invest up to 25% of its total assets in
securities of non-U.S. issuers. foreign securities.
- --------------------------------------------------------------------------------------------------------------------
COMPARISON OF PERFORMANCE
A bar chart showing the annual total returns for calendar years ended
December 31, for Investor Class shares of your Fund and for Class A 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 July 31, 2005, and Buying Fund, as of
December 31, 2004, 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 December 31, 2004 as part of Exhibit C.
Based on the combined assets of the two funds, the advisory fee
schedule of your Fund would result in lower effective fee rates than the
advisory fee schedule of Buying Fund. However, because the effective advisory
fee rate and the pro forma total net expense ratio of the combined fund are
lower than that of your Fund at your Fund's current asset levels, your Fund's
Board of Trustees determined that it is appropriate for the combined fund to
adopt the higher advisory fee schedule of Buying Fund.
Therefore, effective on the closing of the Reorganization, the current
advisory fee schedule applicable to Buying Fund will remain in effect for the
combined fund, as follows:
<Table>
<Caption>
Annual Rate Net Assets
----------- ----------
0.725% First $500 million
0.70% Next $500 million
0.675% Next $500 million
0.65% Excess over $1.5 billion
</Table>
Because the investment advisory fee schedule applicable to Buying Fund
after the Reorganization is higher than the investment advisory fee currently
applicable to your Fund at certain asset levels, shareholders of your Fund must
approve the Reorganization by a "1940 Act Majority." The 1940 Act Majority
requirements are explained more fully below under "Vote Necessary to Approve the
Agreement."
3
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 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 o not subject to an o not subject to an
sales charge* initial sales charge initial sales charge
-------------------------------- --------------------------------- -------------------------------
o may be subject to a o subject to a CDSC on o subject to a CDSC on
CDSC on redemptions made certain redemptions certain redemptions
within 12 or 18 months
from the date of certain
purchases
-------------------------------- --------------------------------- -------------------------------
</Table>
<Table>
<Caption>
CLASS R INVESTOR CLASS INSTITUTIONAL CLASS
o not subject to an o not subject to an o not subject to an
initial sales charge initial sales charge initial sales charge
-------------------------------- --------------------------------- -------------------------------
o may be subject to a o not subject to a CDSC o not subject to a CDSC
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. Since March 2002, Buying Fund has been engaged in a
limited offering of its shares that permits existing shareholders to continue to
purchase shares of Buying Fund.
4
After the Reorganization, the combined fund will continue to be engaged in a
limited offering of its shares, however, shareholders of your Fund will also be
permitted to continue to purchase shares of the combined fund.
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.
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.
There is a risk that you could lose all or a portion of your investment
in Buying Fund. 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
equity securities 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.
This is especially true with respect to equity securities of smaller companies,
whose prices may go up and down more than equity securities of larger, more
established companies. Also, since equity securities of smaller companies may
not be traded as often as equity securities of larger, more established
companies, it may be difficult or impossible for Buying Fund to sell securities
at a desirable price.
Foreign securities have additional risks, including exchange rate
changes, political and economic upheaval, the relative lack of information about
these companies, relatively low market liquidity and the potential lack of
strict financial and accounting controls and standards.
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 two funds have identical
investment objectives and similar investment strategies.
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
5
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
semi-annual report to shareholders for the semi-annual period ended June 30,
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 for Buying Fund in Appendix III attached to this Proxy
Statement/Prospectus.
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 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 July 31,
2005 and for the short taxable year beginning on August 1, 2005 and ending on
the Closing and (b) all of your Fund's net capital gain recognized in its
taxable year ended July 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
6
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 following: the availability of suitable
merger candidates, current litigation, contingent assets and liabilities, the
advantage (if any) of structuring the Reorganizations 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 Reorganizations that shows the actual cost 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.
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' small cap growth product offerings. In considering the
Reorganization, the Board noted that the funds have identical investment
objectives and utilize similar investment strategies. Both Funds are managed by
the same lead portfolio manager with support from the same portfolio management
team. In addition, the expenses of the combined fund are expected to be lower
than those of your Fund.
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 $1.7 billion, compared to net assets for your Fund of
approximately $450 million. The Board determined that it was appropriate for
Buying Fund to be the surviving fund in the Reorganization primarily because the
investment portfolio of the combined fund is expected to be more like Buying
Fund's current portfolio 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.
As of July 31, 2005, the funds had relatively low portfolio overlap of
approximately 11%. Further, Buying Fund has been engaged in a limited offering
of its shares. The Board noted that AIM represented that the Reorganization
should not negatively impact capacity, in the small cap growth space that led to
the limited offering of Buying Fund's shares because of the funds' low portfolio
overlap.
7
The Board considered the performance of Buying Fund in relation to the
performance of your Fund, noting that although your Fund has recently provided
better returns, Buying Fund has provided better long-term returns to its
shareholders than your Fund. As of July 31, 2005, the relative performance of
Investor Class shares of your Fund and Class A shares of Buying Fund (without
sales loads) was as follows:
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
<Table>
<Caption>
One Five Ten Since Inception
Year Years Years Inception Date
---- ----- ----- --------- ----------
Your Fund 26.12% N/A N/A 4.97% 03/28/02
Buying Fund 22.01% -2.97% N/A 12.45% 10/18/95
</Table>
The performance information in Exhibit B supports the Board's
determination that Buying Fund's long-term performance has been better than that
of your Fund. See "Exhibit B -- Comparison of Performance of Your Fund and
Buying Fund."
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, before giving effect to the Reorganization, are lower than the
total annual operating expenses of your Fund.
The Board noted that AIM has proposed that the combined fund continue
the current investment advisory fee schedule applicable to Buying Fund. The
investment advisory fee schedule for your Fund is lower at certain asset levels
than the investment advisory fee schedule of Buying Fund. However, the Board
noted that under Buying Fund's investment advisory fee schedule, the effective
advisory fee rate at combined fund asset levels would be lower than your Fund's
current advisory fee rate at your Fund's current asset levels. 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 ratios
of Buying Fund, at combined asset levels, are expected to be approximately 0.12%
lower than those of your Fund for Class A, Class B, Class C and Investor shares
and approximately 0.02% lower for Institutional Class shares. Because both the
effective advisory fee rate and the pro forma net expense ratio of the combined
fund would be lower than that of your Fund at your Fund's current asset levels,
the Board determined that it would be appropriate for the combined fund to
continue the higher investment advisory fee schedule of Buying Fund. As a
result, shareholders of your Fund must approve the Reorganization by a "1940 Act
Majority," which is explained more fully below under "Vote Necessary to Approve
the Agreement."
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 79% 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. Such retained
capital loss carryforwards, however, are estimated to be substantially less than
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 $450,000. The Board noted that
AIM had agreed to pay 75% of the total amount or approximately $337,500. 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
8
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 two 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 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;
9
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 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.
10
<Table>
<Caption>
PRO FORMA
YOUR FUND BUYING FUND PRO FORMA BUYING FUND
CLASS A SHARES CLASS A SHARES ADJUSTMENTS CLASS A SHARES
-------------- -------------- ----------- --------------
Net Assets...................................... $15,002,694 $1,105,853,477 $(4,286) $1,120,851,811
Shares Outstanding.............................. 1,192,842 39,207,237 (152) 39,739,020
Net Asset Value Per Share....................... $12.58 $28.21 $28.21
</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...................................... $3,898,810 $117,240,078 $(1,114) $121,137,502
Shares Outstanding.............................. 317,106 4,486,161 (43) 4,635,256
Net Asset Value Per Share....................... $12.29 $26.13 $26.13
</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...................................... $2,339,857 $31,198,582 $(668) $33,537,697
Shares Outstanding.............................. 199,024 1,194,389 (26) 1,283,967
Net Asset Value Per Share....................... $11.76 $26.12 $26.12
</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...................................... $10,001 $19,624,953 - $19,634,954
Shares Outstanding.............................. 795 701,944 - 702,302
Net Asset Value Per Share....................... $12.58 $27.96 $27.96
</Table>
<Table>
<Caption>
PRO FORMA
YOUR FUND BUYING FUND BUYING FUND
INVESTOR INVESTOR PRO FORMA INVESTOR
CLASS SHARES CLASS SHARES ADJUSTMENTS CLASS SHARES
------------ ------------ ----------- ------------
Net Assets...................................... $353,671,207 - $(101,036) $353,564,695
Shares Outstanding.............................. 28,089,614 - (3,582) 28,081,154
Net Asset Value Per Share....................... $12.59 - $12.59
</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...................................... $20,640,577 $100,754,072 $(5,896) $121,394,649
Shares Outstanding.............................. 1,634,538 3,507,051 (205) 4,225,611
Net Asset Value Per Share....................... $12.63 $28.73 $28.73
</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.
11
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
Prospectuses and related Statement of Additional Information is Registration No.
811-1474. Such Selling Fund Prospectuses are 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. 811-2699. 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
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
12
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.
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
Approval of the Agreement and, in connection therewith, the sale of all
of your Fund's assets and the termination of your Fund as a designated series of
the Trust, requires a 1940 Act Majority, which is the lesser of (a) the
affirmative vote of 67% or more of the voting securities of your Fund present or
represented by proxy at the
13
Special Meeting, if the holders of more than 50% of the outstanding voting
securities of your Fund are present or represented by proxy, or (b) the
affirmative vote of more than 50% of the outstanding voting securities of your
Fund. Abstentions and broker non-votes are counted as present but are not
considered votes cast at the Special Meeting. As a result, they have the same
effect as a vote against the Agreement because approval of the Agreement
requires the affirmative vote of a percentage of the voting securities present
or represented by proxy or a percentage of the outstanding voting securities.
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. AIM will bear
75% of your Fund's costs and expenses incurred in connection with the
reorganization, including solicitation costs. Solicitation costs are expected to
be approximately $21,000.
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,
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.
14
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
Investor Class Investor Class
Institutional Class Institutional Class
</Table>
A-1
EXHIBIT B
COMPARISON OF PERFORMANCE OF YOUR FUND AND BUYING FUND
(Your Fund)
AIM SMALL COMPANY 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
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 30.02%
1996 11.62%
1997 18.31%
1998 14.90%
1999 81.64%
2000 -12.19%
2001 -20.91%
2002 -31.38%
2003 33.49%
2004 13.04%
</Table>
During the periods shown in the bar chart, the highest quarterly return
was 46.68% (quarter ended December 31, 1999) and the lowest quarterly return was
- -28.70% (quarter ended September 30, 2001). The year-to-date return of AIM Small
Company Growth Investor Class shares as of September 30, 2005 was 2.47%.
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.
B-1
AVERAGE ANNUAL TOTAL RETURNS
<Table>
<Caption>
SINCE INCEPTION
(FOR THE PERIODS ENDED DECEMBER 31, 2004) 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- ----------------------------------------- ------ ------- -------- --------- --------
INVESTOR CLASS 12/26/91
Return Before Taxes 13.04% (6.38)% 9.93% --
Return After Taxes on Distributions 13.04% (6.80)% 7.58% --
Return After Taxes on Distributions
and Sale of Fund Shares 8.48% (5.53)% 7.27% --
CLASS A 03/28/02
Return Before Taxes 6.71% -- -- 2.00
CLASS B 03/28/02
Return Before Taxes 7.27% -- -- 2.40
CLASS C 02/14/00
Return Before Taxes 11.16% -- -- (9.67%)
CLASS R(1) 10/25/05
Return Before Taxes -- -- -- --
S&P 500 Index(2) 10.87% (2.30%) 12.07%
Russell 2000 Growth Index(2), (3) 14.31% (3.57)% 7.12%
Lipper Small-Cap Growth Fund Index(2), (4) 10.79% (1.51)% 10.36%
</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 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 & 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 also included the Russell 2000
Growth Index, which your Fund believes more closely reflects the
performance of the types of securities in which your Fund invests. In
addition, the Lipper Small-Cap Growth Fund Index (which may or may not
include your Fund) is included for comparison to a peer group.
3 The Russell 2000 Growth Index is an unmanaged index that measures the
performance of those Russell 2000 companies with higher price-to-book
ratios and higher forecasted growth values.
4 The Lipper Small-Cap Growth Fund Index is an equally weighted
representation of the 30 largest funds in the Lipper Small-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 250% of the dollar-weighted median market
capitalization of the smallest 500 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. Small-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 Small Cap 600
Index. The S&P Small Cap 600 Index consists of 600 small cap domestic
stocks chosen for market size, liquidity, (bid-asked spread, ownership,
share turnover and number of no trade days) and industry group
representation. It is a market-value weighted index, with each stock's
weight in the Index proportionate to its market value.
B-2
(Buying Fund)
AIM SMALL CAP GROWTH FUND
The bar chart and table shown below provide an indication of the risks
of investing in Buying Fund. Buying 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 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 %
----- -------
1996 13.81%
1997 16.22%
1998 23.15%
1999 90.64%
2000 -0.74%
2001 -13.79%
2002 -28.01%
2003 39.12%
2004 6.81%
</Table>
During the periods shown in the bar chart, the highest quarterly return
was 38.10% (quarter ended December 31, 1999) and the lowest quarterly return was
- -24.41% (quarter ended September 30, 2001). The year-to-date return of AIM Small
Cap Growth Class A shares as of September 30, 2005 was 6.41%.
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.
B-3
AVERAGE ANNUAL TOTAL RETURNS(1)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SINCE INCEPTION
(FOR THE PERIODS ENDED DECEMBER 31, 2004) 1 YEAR 5 YEARS INCEPTION DATE
- ----------------------------------------- ------ ------- --------- ---------
CLASS A ..................................... 10/18/95
Return Before Taxes ...................... 0.92% (2.85)% 11.72%
Return After Taxes on Distributions ...... 0.92 (3.21) 10.84
Return After Taxes on Distributions and
Sale of Fund Shares....................... 0.60 (2.58) 9.86
CLASS B ..................................... 10/18/95
Return Before Taxes ...................... 1.05 (2.85) 11.72
CLASS C ..................................... 05/03/99
Return Before Taxes ...................... 5.05 (2.48) 6.91
CLASS R(2) .................................. 10/18/95(2)
Return Before Taxes ...................... 6.52 (1.95) 12.21
INVESTOR CLASS(3) ........................... -- -- --
S&P 500(4) .................................. 10.87 (2.30) 10.11 10/31/95(7)
Russell 2000(R) Growth Index(5) ............. 14.31 (3.57) 5.40 10/31/95(7)
Lipper Small-Cap Growth Fund Index(6) ....... 10.79 (1.51) 8.35 10/31/95(7)
</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 Buying Fund shares through tax-deferred arrangements, such as
401(k) plans or individual retirement accounts. After-tax returns are shown for
Class A shares only and after-tax returns for Class B, C, R and Investor shares
will vary.
(1) Buying Fund's return during certain periods was positively impacted by its
investments in IPOs. There can be no assurance that Buying Fund will have
favorable IPO investment opportunities in the future. For additional
information regarding Buying Fund's performance, please see the "Financial
Highlights" section of Buying Fund's prospectus.
(2) The return shown for the one year period are the historical returns of
Buying Fund's Class R shares. The returns shown for the five year period
and since inception are the blended returns of the historical performance
of the Buying Fund's Class R shares since their inception and the restated
historical performance of Buying 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 Buying Fund's Class A shares. The
inception date of Buying Fund's Class R shares is June 3, 2002.
(3) The expected inception date of Buying Fund's Investor Class is December 14,
2005.
(4) The Standard & Poor's 500 Index measures the performance of the 500 most
widely held common stock and is considered one of the best indicators of
U.S. stock market performance. The Buying Fund has also included the
Russell 2000(R) Growth Index, which Buying Fund believes more closely
reflects the performance of the securities in which it invests. In
addition, the Lipper Small-Cap Growth Fund Index (which may or may not
include Buying Fund) is included for comparison to a peer group.
(5) The Russell 2000(R) Growth Index measures the performance of those Russell
2000(R) Index companies with higher price-to-book ratios and higher
forecasted growth values.
(6) The Lipper Small-Cap Growth Fund Index is an equally weighted
representation of the 30 largest funds in the Lipper Small Cap Growth
Classification. 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 250% of the dollar-weighted median
market capitalization of the smallest 500 of the middle 1,000 securities of
the S&P SuperComposite 1500 Index. Small-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 SmallCap 600 Index.
(7) The average annual total return given is since the month end closest to the
inception date of the classes with the longest performance history.
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, Investor Class and Institutional Class shares of AIM Small
Company Growth Fund ("Your Fund") and Class A, Class B, Class C, Class R, and
Institutional Class shares of AIM Small Cap Growth 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 SMALL COMPANY GROWTH FUND
YOUR FUND
(AS OF 07/31/05)
------------------------------------------------------------------------------
INVESTOR INSTITUTIONAL
CLASS A CLASS B CLASS C CLASS R CLASS CLASS
SHARES SHARES SHARES SHARES SHARES 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 .................... 0.72% 0.72% 0.72% 0.72% 0.72% 0.72%
Distribution and/or Service
(12b-1) Fees(5) .................... 0.25% 1.00% 1.00% 0.50% 0.25% --
Other Expenses(6) .................. 0.42% 0.42% 0.42% 0.42% 0.42% 0.18%
Total Annual Fund Operating
Expenses(7), (8), (9), (10) ........ 1.39% 2.14% 2.14% 1.64% 1.39% 0.90%
</Table>
<Table>
<Caption>
AIM SMALL CAP GROWTH FUND
BUYING FUND
(AS OF 12/31/04)
----------------------------------------------------------------------
INSTITUTIONAL
CLASS A CLASS B CLASS C CLASS R CLASS
SHARES SHARES SHARES SHARES 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 .................... 0.69% 0.69% 0.69% 0.69% 0.69%
Distribution and/or Service
(12b-1) Fees(5) .................... 0.25% 1.00% 1.00% 0.50% --
Other Expenses(6) .................. 0.34% 0.34% 0.34% 0.34% 0.17%
Total Annual Fund Operating
Expenses(7), (8), (9), (10) ........ 1.28% 2.03% 2.03% 1.53% 0.86%
</Table>
<Table>
<Caption>
AIM SMALL CAP GROWTH FUND
BUYING FUND
PRO FORMA COMBINED
(AS OF 12/31/04)
-------------------------------------------------------------------------------------
INVESTOR INSTITUTIONAL
CLASS A CLASS B CLASS C CLASS R CLASS CLASS
SHARES SHARES SHARES SHARES SHARES 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 .................... 0.68% 0.68% 0.68% 0.68% 0.68% 0.68%
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% 0.17%
Total Annual Fund Operating
Expenses(7), (8), (9), (10) ........ 1.28% 2.03% 2.03% 1.53% 1.28% 0.85%
</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.
(4) There is no guarantee that actual expenses will be the same as those
shown in the tables.
C-1
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. Other Expenses have been restated to reflect the
changes in fees under the new agreement. Other Expenses for Class R shares
for AIM Small Company Growth Fund are based on estimated average net assets
for the current fiscal year.
7 The advisor for AIM Small Company Growth 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) for the fund's Class A, Class B, Class C, Class R, Investor Class and
Institutional Class shares to 1.90%, 2.65%, 2.65%, 2.15%, 1.90% 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 limits stated above: (i) interest; (ii)
taxes; (iii) dividend expenses 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 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. Upon closing of the Reorganization, the investment advisor has
contractually agreed to continue these limitations.
8 The advisor for AIM Small Company Growth Fund 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 1.50%, 2.25%, 2.25%, 1.75%, 1.50% and 1.25% on Class A, Class B,
Class C, Class R, Investor Class and Institutional Class 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. Upon closing of the Reorganization, the
investment advisor has voluntarily agreed to continue these limitations.
9 At the request of the Board of Trustees, AMVESCAP (as defined herein) has
agreed to reimburse AIM Small Company Growth Fund and AIM Small Cap Growth
Fund for expenses related to market timing matters.
10 AIM Small 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 SMALL COMPANY GROWTH FUND (YOUR FUND)
Class A ....................................................... $ 684 $ 966 $1,269 $2,127
Class B ....................................................... 717 970 1,349 2,282
Class C ....................................................... 317 670 1,149 2,472
Class R ....................................................... 167 517 892 1,944
Investor Class ................................................ 142 440 761 1,669
Institutional Class ........................................... 92 287 498 1,108
AIM SMALL CAP GROWTH FUND (BUYING FUND)
Class A ....................................................... $ 673 $ 934 $1,214 $2,010
Class B ....................................................... 706 937 1,293 2,166
Class C ....................................................... 306 637 1,093 2,358
Class R ....................................................... 156 483 834 1,824
Institutional Class ........................................... 88 274 477 1,061
AIM SMALL CAP GROWTH FUND (BUYING FUND) -- PRO FORMA COMBINED
Class A ....................................................... $ 673 $ 934 $1,214 $2,010
Class B ....................................................... 706 937 1,293 2,166
Class C ....................................................... 306 637 1,093 2,358
Class R ....................................................... 156 483 834 1,824
Investor Class ................................................ 130 406 702 1,545
Institutional Class ........................................... 87 271 471 1,049
</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 SMALL COMPANY GROWTH FUND (YOUR FUND)
Class A ....................................................... $ 684 $ 966 $1,269 $2,127
Class B ....................................................... 217 670 1,149 2,282
Class C ....................................................... 217 670 1,149 2,472
Class R ....................................................... 167 517 892 1,944
Investor Class ................................................ 142 440 761 1,669
Institutional Class ...........................................
AIM SMALL CAP GROWTH FUND (BUYING FUND)
Class A ....................................................... $ 673 $ 934 $1,214 $2,010
Class B ....................................................... 206 637 1,093 2,166
Class C ....................................................... 206 637 1,093 2,358
Class R ....................................................... 156 483 834 1,824
Institutional Class ...........................................
AIM SMALL CAP GROWTH FUND (BUYING FUND) -- PRO FORMA COMBINED
Class A ....................................................... $ 673 $ 934 $1,214 $2,010
Class B ....................................................... 206 637 1,093 2,168
Class C ....................................................... 206 637 1,093 2,358
Class R ....................................................... 156 483 834 1,824
Investor Class ................................................ 130 406 702 1,545
Institutional Class ........................................... 87 271 471 1,049
</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:
Investor Class 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.
NUMBER OF PERCENT OWNED OF
NAME AND ADDRESS CLASS OF SHARES SHARES OWNED RECORD*
- ---------------- --------------- ------------ ----------------
- ----------
* 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.
CLASS OF NUMBER OF PERCENT OWNED
NAME AND ADDRESS SHARES SHARES OWNED OF RECORD*
- ---------------- -------- ------------ -------------
- ----------
* 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 SMALL COMPANY GROWTH FUND,
A SEPARATE PORTFOLIO OF
AIM STOCK 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.................................................................................10
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.................................................................12
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................................................................13
SECTION 4.1. Organization; Authority.................................................................13
SECTION 4.2. Registration and Regulation of Buyer....................................................13
SECTION 4.3. Financial Statements....................................................................13
i
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.................................................................15
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...................................................................................16
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..............................................................................................18
SECTION 5.1. Conduct of Business.....................................................................18
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.........................................................19
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.......................................................................20
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.........................................................23
SECTION 8.5. Amendments..............................................................................23
SECTION 8.6. Enforcement.............................................................................23
SECTION 8.7. Interpretation..........................................................................23
SECTION 8.8. Counterparts............................................................................24
SECTION 8.9. Entire Agreement; Exhibits and Schedules................................................24
SECTION 8.10. Notices.................................................................................24
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 Stock Funds, a Delaware statutory trust
("Seller"), acting on behalf of AIM Small Company Growth Fund ("Selling Fund"),
a separate series of Seller, AIM Growth Series, a Delaware statutory trust
("Buyer"), acting on behalf of AIM Small Cap Growth 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 Growth Series, 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. 811-2699.
"Buying Fund" means AIM Small Cap Growth 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 December 31, 2004, and the
Buying Fund Semiannual Report to Shareholders dated June 30, 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.
2
"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.
"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
3
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.
"Required Shareholder Vote" means, if a quorum is present, a 1940 Act
Majority, which is the lesser of (a) the affirmative vote of 67% or more of the
voting securities of Selling Fund present or represented by proxy at the Special
Meeting, if the holders of more than 50% of the outstanding voting securities of
such Selling Fund are present or represented by proxy, or (b) the affirmative
vote of more than 50% of the outstanding voting securities of such Selling Fund.
"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 Stock 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. 811-1474.
"Selling Fund" means AIM Small Company Growth Fund, a separate series
of Seller.
"Selling Fund Auditors" means PricewaterhouseCoopers LLP.
"Selling Fund Financial Statements" means the audited financial
statements of Selling Fund for the fiscal year ended July 31, 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,
4
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.
"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
5
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.
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
6
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
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
7
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.
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.
8
(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 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 July 31, 2005,
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.
9
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 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
10
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 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 July 31, 2005 and
for the short taxable year beginning on August 1, 2005 and ending on the Closing
Date and (B) all of Selling Fund's net capital gain recognized in its taxable
year ended July 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.
11
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.
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.
12
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.
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.
13
(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
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 December 31,
2004, 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).
14
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 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
15
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 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"
16
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).
(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.
17
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 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. Buying Fund shall bear all of its costs and expenses
incurred in connection with this Agreement and the Reorganization without any
reimbursement therefor. Prior to the submission of the Agreement to the Boards
of Trustees of Buyer and Seller for approval, the Investment Adviser, in the
ordinary course of its business as a registered investment advisor operating
under the Advisors Act, agreed to bear 75% of the costs and expenses of Selling
Fund incurred in connection with this Agreement and the Reorganization and other
transactions contemplated hereby; provided that any such expenses incurred by
Selling Fund shall not be reimbursed or paid for by the Investment Advisor or
any other Person unless those expenses are solely and directly related to the
Reorganization.
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
18
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
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
19
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 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
20
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.
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:
21
(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.
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.
22
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 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.
23
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):
(a) If to Seller:
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
(b) If to Buyer:
AIM Growth Series
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.
24
(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.
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 STOCK FUNDS, acting on behalf of AIM
SMALL COMPANY GROWTH FUND
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
AIM GROWTH SERIES, acting on behalf of AIM
SMALL CAP GROWTH 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 Small Company Growth Fund AIM Small Cap Growth 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 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 Mid Cap Growth Fund into AIM Dynamics 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 SMALL CAP GROWTH FUND
PROSPECTUS
DECEMBER 14, 2005
AIM Small Cap Growth Fund seeks to provide long-term growth of capital.
- --------------------------------------------------------------------------------
This prospectus contains important information about the Class A, B, C, R and
Investor Class shares of the fund. Please read it before investing and keep it
for future reference.
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.
An investment in the fund:
- - is not FDIC insured;
- - may lose value; and
- - is not guaranteed by a bank.
As of the end of business on March 18, 2002, the fund has limited public sales
of its shares to certain investors.
-------------------------
AIM SMALL CAP GROWTH FUND
-------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<Table>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- ------------------------------------------------------
PRINCIPAL RISKS OF INVESTING IN THE FUND 1
- ------------------------------------------------------
PERFORMANCE INFORMATION 2
- ------------------------------------------------------
Annual Total Returns 2
Performance Table 3
FEE TABLE AND EXPENSE EXAMPLE 4
- ------------------------------------------------------
Fee Table 4
Expense Example 4
Hypothetical Investment and Expense
Information 5
DISCLOSURE OF PORTFOLIO HOLDINGS 6
- ------------------------------------------------------
FUND MANAGEMENT 6
- ------------------------------------------------------
The Advisor 6
Advisor Compensation 7
Portfolio Manager(s) 7
OTHER INFORMATION 7
- ------------------------------------------------------
Sales Charges 7
Dividends and Distributions 7
Limited Fund Offering 7
FINANCIAL HIGHLIGHTS 9
- ------------------------------------------------------
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-15
OBTAINING ADDITIONAL INFORMATION Back Cover
- ------------------------------------------------------
</Table>
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 SMALL CAP GROWTH FUND
-------------------------
INVESTMENT OBJECTIVE AND STRATEGIES
- --------------------------------------------------------------------------------
The fund's investment objective is long-term growth of capital. The investment
objective of the fund may be changed by the Board of Trustees without
shareholder approval.
The fund seeks to meet its objective by investing, normally, at least 80% of
its assets in securities of small-capitalization companies. In complying with
this 80% investment requirement, the fund will invest primarily in marketable
equity securities, including convertible securities, but its investment may
include other securities, such as synthetic instruments. Synthetic instruments
are investments that have economic characteristics similar to the fund's direct
investments, and may include warrants, futures, options, exchange-traded funds
and American Depositary Receipts. The fund considers a company to be a
small-capitalization company if it has a market capitalization, at the time of
purchase, no larger than the largest capitalized company included in the Russell
2000--Registered Trademark-- Index during the most recent 11-month period (based
on month-end data) plus the most recent data during the current month. The
Russell 2000--Registered Trademark-- Index is a widely recognized, unmanaged
index of common stocks that measures the performance of the 2,000 smallest
companies in the Russell 3000--Registered Trademark-- Index, which measures the
performance of the 3,000 largest U.S. companies based on total market
capitalization.
The fund may also invest up to 20% of its assets in equity securities of
issuers that have market capitalizations, at the time of purchase, in other
market capitalization ranges, and in investment-grade non-convertible debt
securities, U.S. government securities and high-quality money market
instruments. The fund may also invest up to 25% of its total assets in foreign
securities. 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 selecting investments, the portfolio managers seek to identify those
companies that have strong earnings momentum or demonstrate other potential for
growth of capital. The portfolio managers anticipate that the fund, when fully
invested, will generally be comprised of companies that are currently
experiencing a greater than anticipated increase in earnings. The portfolio
managers allocate investments among fixed-income securities based on their views
as to the best values then available in the marketplace. The portfolio managers
consider whether to sell a particular security when any of these factors
materially changes.
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
- --------------------------------------------------------------------------------
There is a risk that you could lose all or a portion of your investment in the
fund. 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 equity
securities 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. This is
especially true with respect to equity securities of smaller companies, whose
prices may go up and down more than equity securities of larger, more-
established companies. Also, since equity securities of smaller companies may
not be traded as often as equity securities of larger, more-established
companies, it may be difficult or impossible for the portfolio to sell
securities at a desirable price.
Foreign securities have additional risks, including exchange rate changes,
political and economic upheaval, the relative lack of information about these
companies, relatively low market liquidity and the potential lack of strict
financial and accounting controls and standards.
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.
1
-------------------------
AIM SMALL CAP GROWTH 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(1)
- --------------------------------------------------------------------------------
The following bar chart shows changes in the performance of the 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>
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURNS
- ----------- -------
1996................................................................... 13.81%
1997................................................................... 16.22%
1998................................................................... 23.15%
1999................................................................... 90.64%
2000................................................................... -0.74%
2001................................................................... -13.79%
2002................................................................... -28.01%
2003................................................................... 39.12%
2004................................................................... 6.81%
</Table>
The Class A shares' year-to-date total return as of September 30, 2005 was
%.
During the periods shown in the bar chart, the highest quarterly return was
38.10% (quarter ended December 31, 1999) and the lowest quarterly return was
- -24.41% (quarter ended September 30, 2001).
(1) The fund's return during certain periods was positively impacted by its
investments in Initial Public Offerings (IPOs). There can be no assurance
that the fund will have favorable IPO investment opportunities in the
future. For additional information regarding the fund's performance, please
see the "Financial Highlights" section of this prospectus.
2
-------------------------
AIM SMALL CAP GROWTH FUND
-------------------------
PERFORMANCE INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
PERFORMANCE TABLE(1)
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 payments 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.
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
- -------------------------------------------------------------------------------
(for the periods ended 5 SINCE INCEPTION
December 31, 2004) 1 YEAR YEARS INCEPTION DATE
- -------------------------------------------------------------------------------
Class A 10/18/95
Return Before Taxes 0.92% (2.85)% 11.72%
Return After Taxes
on Distributions 0.92 (3.21) 10.84
Return After Taxes
on Distributions
and Sale of Fund
Shares 0.60 (2.58) 9.86
Class B 10/18/95
Return Before Taxes 1.05 (2.85) 11.72
Class C 05/03/99
Return Before Taxes 5.05 (2.48) 6.91
Class R(2) 10/18/95(2)
Return Before Taxes 6.52 (1.95) 12.21
Investor Class(3) -- -- -- --
- -------------------------------------------------------------------------------
S&P 500(4) 10.87 (2.30) 10.11 10/31/95(7)
Russell
2000--Registered
Trademark-- Growth
Index(5) 14.31 (3.57) 5.40 10/31/95(7)
Lipper Small-Cap
Growth Fund Index(6) 10.79 (1.51) 8.35 10/31/95(7)
- -------------------------------------------------------------------------------
</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 fund shares through tax-deferred arrangements, such as
401(k) plans or individual retirement accounts. After-tax returns are shown for
Class A shares only and after-tax returns for Class B, C and R shares will vary.
(1) The fund's return during certain periods was positively impacted by its
investments in IPOs. There can be no assurance that the fund will have
favorable IPO investment opportunities in the future. For additional
information regarding the fund's performance, please see the "Financial
Highlights" section of this prospectus.
(2) The return shown for the one year period is the historical performance of
the fund's Class R shares. The returns shown for other periods and since
inception are the blended returns of the historical performance of the
fund's Class R shares since their inception and the restated historical
performance of the 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-1 fees applicable to the Class R shares. The inception date shown in the
table is that of the fund's Class A shares. The inception date of the fund's
Class R shares is June 3, 2002.
(3) The expected inception date of the fund's Investor Class shares is December
14, 2005.
(4) The Standard & Poor's 500 Index measures the performance of the 500 most
widely held common stock and is considered one of the best indicators of
U.S. stock market performance. The fund has also included the Russell
2000--Registered Trademark-- Growth Index, which the fund believes more
closely reflects the performance of the securities in which the fund
invests. In addition, the Lipper Small-Cap Growth Fund Index (which may or
may not include the fund) is included for comparison to a peer group.
(5) The Russell 2000--Registered Trademark-- Growth Index measures the
performance of those Russell 2000--Registered Trademark-- Index companies
with higher price-to-book ratios and higher forecasted growth values.
(6) The Lipper Small-Cap Growth Fund Index is an equally weighted representation
of the 30 largest funds in the Lipper Small Cap Growth Classification. 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 250% of the dollar-weighted median market capitalization of the
smallest 500 of the middle 1,000 securities of the S&P SuperComposite 1500
Index. Small-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 SmallCap 600 Index.
(7) The average annual total return given is since the month end closest to the
inception date of the classes with the longest performance history.
3
-------------------------
AIM SMALL CAP GROWTH 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.
<Table>
<Caption>
SHAREHOLDER FEES
- ---------------------------------------------------------------------------------------
(fees paid directly from CLASS CLASS CLASS CLASS INVESTOR
your investment) A B C R CLASS
- ---------------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) 5.50% None None None None
Maximum Deferred
Sales Charge (Load)
(as a percentage of
original purchase price
or redemption proceeds,
whichever is less) None(1,2) 5.00% 1.00% None(3) None
- ---------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
ANNUAL FUND OPERATING EXPENSES(4)
- --------------------------------------------------------------------------------------
(expenses that are deducted CLASS CLASS CLASS CLASS INVESTOR
from fund assets) A B C R CLASS
- --------------------------------------------------------------------------------------
Management Fees 0.69% 0.69% 0.69% 0.69% 0.69%
Distribution and/or
Service (12b-1) Fees(5) 0.25 1.00 1.00 0.50 0.25
Other Expenses(6,7) 0.34 0.34 0.34 0.34 0.34
Total Annual Fund
Operating Expenses(8) 1.28 2.03 2.03 1.53 1.28
- --------------------------------------------------------------------------------------
</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 bought $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 table.
(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.
(7) Other expenses are based on estimated average assets for the current fiscal
year.
(8) 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.
Net Annual Fund Operating Expenses restated for the items in Note 5 and
Note 6 and net of this arrangement were 1.27%, 2.02%, 2.02% and 1.52% on
Class A, Class B, Class C and Class R shares, respectively, for the year
ended December 31, 2004.
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
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:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Class A $673 $934 $1,214 $2,010
Class B 706 937 1,293 2,166
Class C 306 637 1,093 2,358
Class R 156 483 834 1,824
Investor Class 130 406 702 1,545
- --------------------------------------------------------------------------------
</Table>
You would pay the following expenses if you did not redeem your shares:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Class A $673 $934 $1,214 $2,010
Class B 206 637 1,093 2,166
Class C 206 637 1,093 2,358
Class R 156 483 834 1,824
Investor Class 130 406 702 1,545
- --------------------------------------------------------------------------------
</Table>
4
-------------------------
AIM SMALL CAP GROWTH 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 current 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.
<Table>
<Caption>
CLASS A--ANNUAL EXPENSE
RATIO 1.28% 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 3.72% 7.58% 11.58% 15.73% 20.04% 24.50% 29.13% 33.94%
End of Year Balance $10,372.00 $10,757.84 $11,158.03 $11,573.11 $12,003.53 $12,450.16 $12,913.31 $13,393.68
Estimated Annual Expenses $ 130.28 $ 135.23 $ 140.26 $ 145.48 $ 150.89 $ 156.50 $ 162.33 $ 168.36
- -----------------------------------------------------------------------------------------------------------------------------------
<Caption>
CLASS A--ANNUAL EXPENSE
RATIO 1.28% YEAR 9 YEAR 10
- ------------------------------------------------------
Cumulative Return Before
Expenses 55.13% 62.89%
Cumulative Return After
Expenses 38.92% 44.09%
End of Year Balance $13,891.93 $14,408.71
Estimated Annual Expenses $ 174.63 $ 181.12
- ------------------------------------------------------
</Table>
<Table>
<Caption>
CLASS B--ANNUAL EXPENSE
RATIO 2.03% 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 2.97% 6.03% 9.18% 12.42% 15.76% 19.20% 22.74% 26.38%
End of Year Balance $10,297.00 $10,602.82 $10,917.72 $11,241.98 $11,575.87 $11,919.67 $12,273.69 $12,638.21
Estimated Annual Expenses $ 206.01 $ 212.13 $ 218.43 $ 224.92 $ 231.60 $ 238.48 $ 245.56 $ 252.86
- -----------------------------------------------------------------------------------------------------------------------------------
<Caption>
CLASS B--ANNUAL EXPENSE
RATIO 2.03% YEAR 9 YEAR 10
- ------------------------------------------------------
Cumulative Return Before
Expenses 55.13% 62.89%
Cumulative Return After
Expenses 31.08% 35.96%
End of Year Balance $13,108.36 $13,595.99
Estimated Annual Expenses $ 164.78 $ 170.91
- ------------------------------------------------------
</Table>
<Table>
<Caption>
CLASS C--ANNUAL EXPENSE
RATIO 2.03% 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 2.97% 6.03% 9.18% 12.42% 15.76% 19.20% 22.74% 26.38%
End of Year Balance $10,297.00 $10,602.82 $10,917.72 $11,241.98 $11,575.87 $11,919.67 $12,273.69 $12,638.21
Estimated Annual Expenses $ 206.01 $ 212.13 $ 218.43 $ 224.92 $ 231.60 $ 238.48 $ 245.56 $ 252.86
- -----------------------------------------------------------------------------------------------------------------------------------
<Caption>
CLASS C--ANNUAL EXPENSE
RATIO 2.03% YEAR 9 YEAR 10
- ------------------------------------------------------
Cumulative Return Before
Expenses 55.13% 62.89%
Cumulative Return After
Expenses 30.14% 34.00%
End of Year Balance $13,013.57 $13,400.07
Estimated Annual Expenses $ 260.37 $ 268.10
- ------------------------------------------------------
</Table>
<Table>
<Caption>
CLASS R--ANNUAL EXPENSE
RATIO 1.53% 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 3.47% 7.06% 10.78% 14.62% 18.60% 22.71% 26.97% 31.38%
End of Year Balance $10,347.00 $10,706.04 $11,077.54 $11,461.93 $11,859.66 $12,271.19 $12,697.00 $13,137.59
Estimated Annual Expenses $ 155.65 $ 161.06 $ 166.64 $ 172.43 $ 178.41 $ 184.60 $ 191.01 $ 197.63
- -----------------------------------------------------------------------------------------------------------------------------------
<Caption>
CLASS R--ANNUAL EXPENSE
RATIO 1.53% YEAR 9 YEAR 10
- ------------------------------------------------------
Cumulative Return Before
Expenses 55.13% 62.89%
Cumulative Return After
Expenses 35.93% 40.65%
End of Year Balance $13,593.46 $14,065.15
Estimated Annual Expenses $ 204.49 $ 211.59
- ------------------------------------------------------
</Table>
<Table>
<Caption>
INVESTOR CLASS--ANNUAL
EXPENSE RATIO 1.28% 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 3.72% 7.58% 11.58% 15.73% 20.04% 24.50% 29.13% 33.94%
End of Year Balance $10,372.00 $10,757.84 $11,158.03 $11,573.11 $12,003.63 $12,450.16 $12,913.31 $13,393.68
Estimated Annual Expenses $ 130.38 $ 135.23 $ 140.26 $ 145.48 $ 150.89 $ 156.50 $ 162.33 $ 168.36
- -----------------------------------------------------------------------------------------------------------------------------------
<Caption>
INVESTOR CLASS--ANNUAL
EXPENSE RATIO 1.28% YEAR 9 YEAR 10
- ------------------------------------------------------
Cumulative Return Before
Expenses 55.13% 62.89%
Cumulative Return After
Expenses 38.92% 44.09%
End of Year Balance $13,891.93 $14,408.71
Estimated Annual Expenses $ 174.63 $ 181.12
- ------------------------------------------------------
</Table>
5
-------------------------
AIM SMALL CAP GROWTH FUND
-------------------------
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:
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------------------------------------
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 30 days after calendar quarter end For one year
calendar quarter end
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
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).
FUND MANAGEMENT
- --------------------------------------------------------------------------------
THE ADVISOR
A I M Advisors, Inc. (the advisor or AIM) serves as the investment advisor. 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.
6
-------------------------
AIM SMALL CAP GROWTH FUND
-------------------------
ADVISOR COMPENSATION
During the fiscal year ended December 31, 2004, the advisor received
compensation of 0.69% 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 semi-annual
report to shareholders for the six month period ended June 30, 2005.
PORTFOLIO MANAGER(S)
The following individuals are jointly and primarily responsible for the
day-to-day management of the fund's portfolio:
- - Juliet S. Ellis (lead manager), Senior Portfolio Manager, who has been
responsible for the fund since 2004 and has been associated with the advisor
and/or its affiliates since 2004. From 2000 to 2004, she was Managing Director
and from 1993 to 2004, she was a senior portfolio manager with JPMorgan
Fleming Asset Management. As the lead manager, Ms. Ellis 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
Ms. Ellis may perform these functions, and the nature of these functions, may
change from time to time.
- - Juan R. Hartsfield, Portfolio Manager, who has been responsible for the fund
since 2004 and has been associated with the advisor and/or its affiliates
since 2004. From 2000 to 2004, he was a co-portfolio manager with JPMorgan
Fleming Asset Management. From 1999 to 2000, he was a management consultant
with Booz Allen & Hamilton.
They are assisted by the advisor's Small Cap Core/Growth 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.
OTHER INFORMATION
- --------------------------------------------------------------------------------
SALES CHARGES
Purchases of Class A shares of AIM Small Cap Growth 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 primarily 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.
LIMITED FUND OFFERING
Due to the sometimes limited availability of common stocks of smaller companies
that meet the investment criteria for the fund, the fund limited public sales of
its shares to certain investors, effective as of the close of business on March
18, 2002. Investors should note that the fund reserves the right to refuse any
order that might disrupt the efficient management of the fund.
The following types of investors may continue to invest in the fund if they
were invested in the fund on March 18, 2002 and remain invested in the fund
after that date:
(i) Existing shareholders of the fund;
(ii) Existing shareholders of the fund who open other accounts in their
name;
(iii) The following plans and programs:
- Retirement plans maintained pursuant to Section 401 of the Internal
Revenue Code ("the Code");
- Retirement plans maintained pursuant to Section 403 of the Code, to the
extent they are maintained by organizations established under Section
501(c)(3) of the Code;
- Retirement plans maintained pursuant to Section 457 of the Code;
- Non qualified deferred compensation plans maintained pursuant to
Section 83 of the Code; and
- Qualified Tuition Programs maintained pursuant to Section 529 of the
Code.
7
-------------------------
AIM SMALL CAP GROWTH FUND
-------------------------
OTHER INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
Future investments in the fund made by existing brokerage firm wrap programs
are at the discretion of A I M Distributors, Inc. (the distributor). Please
contact the distributor for approval.
The following types of investors may open new accounts in the fund, if
approved by the distributor:
- - Retirement plans maintained pursuant to Section 401 of the Code;
- - Retirement plans maintained pursuant to Section 403 of the Code, to the extent
they are maintained by organizations established under Section 501(c)(3) of
the Code;
- - Retirement plans maintained pursuant to Section 457 of the Code;
- - Non qualified deferred compensation plans maintained pursuant to Section 83 of
the Code;
- - Qualified Tuition Programs maintained pursuant to Section 529 of the Code; and
- - Portfolio management team, including analysts.
Such plans and programs that are considering the fund as an investment
option should contact the distributor for approval.
At the advisor's discretion, proprietary asset allocation funds may open new
accounts in the fund.
The fund may resume sales of shares to other new investors on a future date
if the advisor determines it is appropriate and the Board of Trustees approves.
8
-------------------------
AIM SMALL CAP GROWTH 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.
For a discussion of how investments in IPOs affected the fund's performance,
see the "Performance Information" section of this prospectus.
Investor Class shares commenced operations on the date of this prospectus
and, therefore, financial information for such shares is not available.
<Table>
<Caption>
CLASS A
----------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ---------------------------------------------------------------------
2005 2004 2003 2002 2001 2000
---------- ---------- ---------- -------- -------- --------
(UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 27.46 $ 25.71 $ 18.47 $ 25.67 $ 29.81 $ 31.87
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.14)(a) (0.32) (0.21)(a) (0.19)(a) (0.18)(a) (0.13)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 0.65 2.07 7.45 (7.01) (3.93) (0.12)
=================================================================================================================================
Total from investment operations 0.51 1.75 7.24 (7.20) (4.11) (0.25)
=================================================================================================================================
Less distributions:
Distributions from net realized gains -- -- -- -- (0.03) (1.81)
=================================================================================================================================
Net asset value, end of period $ 27.97 $ 27.46 $ 25.71 $ 18.47 $ 25.67 $ 29.81
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 1.86% 6.81% 39.20% (28.05)% (13.79)% (0.74)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $1,317,363 $1,491,940 $1,602,724 $790,700 $679,104 $566,458
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets:
With fee waivers and/or expense
reimbursements 1.49%(c) 1.40% 1.27% 1.35% 1.31% 1.13%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.59%(c) 1.51% 1.37% 1.43% 1.39% 1.23%
=================================================================================================================================
Ratio of net investment income (loss)
to average net assets (1.04)%(c) (1.12)% (0.98)% (0.91)% (0.70)% (0.40)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(d) 24% 69% 32% 22% 37% 62%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</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 net assets of $1,369,815,685.
(d) Not annualized for periods less than one year.
9
-------------------------
AIM SMALL CAP GROWTH FUND
-------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS B
---------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, --------------------------------------------------------------------
2005 2004 2003 2002 2001 2000
---------- -------- -------- -------- -------- --------
(UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 25.61 $ 24.15 $ 17.49 $ 24.48 $ 28.64 $ 30.92
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.22)(a) (0.52) (0.35)(a) (0.33)(a) (0.35)(a) (0.40)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.59 1.98 7.01 (6.66) (3.78) (0.07)
=================================================================================================================================
Total from investment operations 0.37 1.46 6.66 (6.99) (4.13) (0.47)
=================================================================================================================================
Less distributions from net realized
gains -- -- -- -- (0.03) (1.81)
=================================================================================================================================
Net asset value, end of period $ 25.98 $ 25.61 $ 24.15 $ 17.49 $ 24.48 $ 28.64
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 1.44% 6.05% 38.08% (28.55)% (14.42)% (1.48)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $128,150 $149,400 $182,700 $152,577 $212,958 $231,293
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 2.24%(c) 2.15%(d) 2.02% 2.08% 2.03%(d) 1.88%
=================================================================================================================================
Ratio of net investment income (loss) to
average net assets (1.79)%(c) (1.87)% (1.73)% (1.64)% (1.43)% (1.15)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 24% 69% 32% 22% 37% 62%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</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 $134,388,574.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements for
2004 and 2001 was 2.16% and 2.04%, respectively.
(e) Not annualized for periods less than one year.
10
-------------------------
AIM SMALL CAP GROWTH FUND
-------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS C
----------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ---------------------------------------------------------------
2005 2004 2003 2002 2001 2000
---------- ------- ------- ------- ------- -------
(UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 25.60 $ 24.14 $ 17.48 $ 24.47 $ 28.63 $ 30.91
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.22)(a) (0.52) (0.35)(a) (0.33)(a) (0.35)(a) (0.39)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.59 1.98 7.01 (6.66) (3.78) (0.08)
=================================================================================================================================
Total from investment operations 0.37 1.46 6.66 (6.99) (4.13) (0.47)
=================================================================================================================================
Less distributions from net realized gains -- -- -- -- (0.03) (1.81)
=================================================================================================================================
Net asset value, end of period $ 25.97 $ 25.60 $ 24.14 $ 17.48 $ 24.47 $ 28.63
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 1.45% 6.05% 38.10% (28.57)% (14.43)% (1.48)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $33,702 $40,904 $50,031 $41,693 $46,833 $41,738
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 2.24%(c) 2.15%(d) 2.02% 2.08% 2.03%(d) 1.88%
=================================================================================================================================
Ratio of net investment income (loss) to
average net assets (1.79)%(c) (1.87)% (1.73)% (1.64)% (1.43)% (1.15)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 24% 69% 32% 22% 37% 62%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</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 $35,914,542.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements for
2004 and 2001 was 2.16% and 2.04%, respectively.
(e) Not annualized for periods less than one year.
11
-------------------------
AIM SMALL CAP GROWTH FUND
-------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS R
-----------------------------------------------------------
JUNE 3, 2002
SIX MONTHS YEAR ENDED (DATE SALES
ENDED DECEMBER 31, COMMENCED) TO
JUNE 30, -------------------- DECEMBER 31,
2005 2004 2003 2002
---------- ------- ------ -------------
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 27.28 $ 25.61 $18.44 $ 22.64
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.17)(a) (0.27) (0.28)(a) (0.13)(a)
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.64 1.94 7.45 (4.07)
=========================================================================================================================
Total from investment operations 0.47 1.67 7.17 (4.20)
=========================================================================================================================
Net asset value, end of period $ 27.75 $ 27.28 $25.61 $ 18.44
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(b) 1.72% 6.52% 38.88% (18.55)%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $19,119 $19,506 $9,029 $ 1,301
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets 1.74%(c) 1.65%(d) 1.52% 1.61%(e)
=========================================================================================================================
Ratio of net investment income (loss) to average net assets (1.29)%(c) (1.37)% (1.23)% (1.17)%(e)
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate(f) 24% 69% 32% 22%
_________________________________________________________________________________________________________________________
=========================================================================================================================
</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 $18,829,781.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
1.66%.
(e) Annualized.
(f) Not annualized for periods less than one year.
12
-------------
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.
<Table>
<Caption>
CLASS A(1) CLASS A3 CLASS B(4) CLASS C CLASS R INVESTOR CLASS
- ---------------------------------------------------------------------------------------------------------------
- - Initial sales - No initial - No initial sales - No initial - No initial - No initial
charge sales charge charge sales charge sales charge sales charge
- - Reduced or waived - No contingent - Contingent - Contingent - Generally, no - No contingent
initial sales deferred sales deferred sales deferred sales contingent deferred sales
charge for charge charge on charge on deferred sales charge
certain redemptions redemptions charge(2)
purchases(2) within six years within one
year(7)
- - Generally, lower - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of
distribution and 0.35% 1.00% 1.00% 0.50% 0.25%(3)
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 orders - Generally more - Generally, - Closed to new
appropriate for for a limited limited to appropriate only available investors,
long-term number of amount less than for short-term to employee except as
investors funds $100,000(6) investors benefit described in
- Purchase plans(9) the
orders limited "Purchasing
to amount less Shares -- Grandfathered
than Investors"
$1,000,000(8) section of
your
prospectus
- ---------------------------------------------------------------------------------------------------------------
</Table>
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.
(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.
MCF--10/05
A-1
-------------
THE AIM FUNDS
-------------
(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
- -------------------------------------------------------------
<Table>
<Caption>
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
- ------------------------------------------------------------------------------
</Table>
CATEGORY II INITIAL SALES CHARGES
- -------------------------------------------------------------
<Table>
<Caption>
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
- ------------------------------------------------------------------------------
</Table>
CATEGORY III INITIAL SALES CHARGES
- -------------------------------------------------------------
<Table>
<Caption>
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
- ------------------------------------------------------------------------------
</Table>
AIM SHORT TERM BOND FUND INITIAL SALES CHARGES
- -------------------------------------------------------------
<Table>
<Caption>
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
- ------------------------------------------------------------------------------
</Table>
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%.
MCF--10/05
A-2
-------------
THE AIM FUNDS
-------------
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:
<Table>
<Caption>
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
- --------------------------------------------------------------------------------
</Table>
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.
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.
MCF--10/05
A-3
-------------
THE AIM FUNDS
-------------
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 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
MCF--10/05
A-4
-------------
THE AIM FUNDS
-------------
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.
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
MCF--10/05
A-5
-------------
THE AIM FUNDS
-------------
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.
MCF--10/05
A-6
-------------
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:
<Table>
<Caption>
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
- -------------------------------------------------------------------------------------------------------------------------
Employer-Sponsored Retirement Plans (includes section 401, $ 0 ($25 per fund investment for $25
403 and salary deferrals from
457 plans, and SEP, SARSEP and SIMPLE IRA plans) 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.
- -------------------------------------------------------------------------------------------------------------------------
</Table>
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
- --------------------------------------------------------------------------------
<Table>
<Caption>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- -------------------------------------------------------------------------------------------------------------------------
Through a Financial Advisor Contact your financial advisor. Same
By Mail Mail completed account application and Mail your check and the remittance slip
check to the transfer agent, AIM from your confirmation statement to the
Investment Services, Inc., P.O. Box transfer agent.
4739, Houston, TX 77210-4739.
By Wire Mail completed account application to Call the transfer agent to receive a
the transfer agent. Call the transfer reference number. Then, use the wire
agent at (800) 959-4246 to receive a instructions at left.
reference number. Then, use the
following wire instructions:
Beneficiary Bank ABA/Routing #:
021000021
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 of the Select the AIM Bank
methods described above. Connection--Servicemark-- option on
your 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 of the Access your account at
methods described above. www.aiminvestments.com. The proper bank
instructions must have been provided on
your account. You may not purchase
shares in retirement accounts on the
internet.
- -------------------------------------------------------------------------------------------------------------------------
</Table>
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.
MCF--10/05
A-8
-------------
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:
<Table>
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 European Small Company AIM International Growth Fund
Fund AIM International Small Company Fund
AIM Global Aggressive Growth AIM S&P 500 Index Fund
Fund AIM Trimark Fund
AIM Global Equity Fund
AIM Global Growth Fund
AIM Global Real Estate Fund
</Table>
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.
<Table>
<Caption>
SHARES
INITIALLY SHARES HELD CDSC APPLICABLE UPON
PURCHASED AFTER AN EXCHANGE REDEMPTION OF SHARES
--------- ----------------- --------------------
- - Class A shares of Category - Class A shares of Category I - 1% if shares are redeemed
I or II Fund or AIM Short or II Fund or AIM Short Term within 18 months of initial
Term Bond Fund Bond Fund purchase of Category I or II
- Class A shares of Category III Fund or AIM Short Term Bond
Fund(2) Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
- - Class A shares of Category - Class A shares of Category I - 1% if shares are redeemed
III Fund(1) or II Fund or AIM Short Term within 18 months of initial
Bond Fund purchase of Category III Fund
shares
- - Class A shares of Category - Class A shares of Category III - No CDSC
III Fund(1) Fund(2)
- Class A shares of AIM Tax-
Exempt Cash Fund
- AIM Cash Reserve Shares of AIM
Money Market
</Table>
(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
- --------------------------------------------------------------------------------
<Table>
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.
</Table>
- --------------------------------------------------------------------------------
MCF--10/05
A-10
-------------
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.
<Table>
<Caption>
- ------------------------------------------------------------------------------------------------------------------------------------
EXCHANGE FROM EXCHANGE TO ALLOWED PROHIBITED
- ------------------------------------------------------------------------------------------------------------------------------------
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, X
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. X
- ------------------------------------------------------------------------------------------------------------------------------------
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 X
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. X
- ------------------------------------------------------------------------------------------------------------------------------------
Class B Class B. Exceptions are:
- Class B Shares of other funds cannot be exchanged for X
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. X
- ------------------------------------------------------------------------------------------------------------------------------------
Class C Class C. Exceptions are:
- Class C shares of other funds cannot be exchanged for X
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. X
- ------------------------------------------------------------------------------------------------------------------------------------
Class R Class R X
- ------------------------------------------------------------------------------------------------------------------------------------
Class R Class A, A3, B, C, P, AIM Cash Reserve Shares,
Institutional or Investor Class shares. X
- ------------------------------------------------------------------------------------------------------------------------------------
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 X
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. X
- ------------------------------------------------------------------------------------------------------------------------------------
Institutional Class Institutional Class X
- ------------------------------------------------------------------------------------------------------------------------------------
Institutional Class Class A, A3, B, C, P, R, AIM Cash Reserve Shares or
Investor Class shares. X
- ------------------------------------------------------------------------------------------------------------------------------------
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 X
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. X
- ------------------------------------------------------------------------------------------------------------------------------------
Class P Class A, A3, or AIM Cash Reserve Shares. Exceptions
are:
- Class A shares of AIM Limited Maturity Treasury Fund X
and AIM Tax-Free Intermediate Fund are currently closed
to new investors.
- ------------------------------------------------------------------------------------------------------------------------------------
Class P Class B, C, R, Institutional or Investor Class shares. X
- ------------------------------------------------------------------------------------------------------------------------------------
</Table>
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.
MCF--10/05
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THE AIM FUNDS
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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.
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
MCF--10/05
A-13
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THE AIM FUNDS
-------------
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 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
MCF--10/05
A-14
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THE AIM FUNDS
-------------
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.
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
MCF--10/05
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THE AIM FUNDS
-------------
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.
MCF--10/05
A-16
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 the
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. Beginning with
fiscal periods ending after July 9, 2004, 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--Registered Trademark-- 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
<Table>
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.
</Table>
You can also 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 Small Cap Growth Fund
SEC 1940 Act file number: 811-2699
- ----------------------------------------
AIMinvestments.com SCG-PRO-1
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
APPENDIX III
AIM SMALL CAP GROWTH FUND
<Table>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE 3. Technical analysis: identifying the
"timeliness" of a stock purchase. We
====================================================================================== review trading volume characteristics and
trend analysis to make sure there are no
PERFORMANCE SUMMARY ========================================= signs of the stock deteriorating. This
also serves as a risk management measure
Despite a market rally at the close of FUND VS. INDEXES that helps us confirm our high conviction
the reporting period, stock indexes candidates.
generally posted lackluster returns for TOTAL RETURNS 12/31/04-6/30/05 EXCLUDING
the half year, amid investor concerns APPLICABLE FRONT END AND CONTINGENT We consider selling or trimming a
about higher oil prices and rising DEFERRED SALES CHARGES. IF SALES CHARGES stock when:
interest rates. During this volatile WERE INCLUDED, RETURNS WOULD BE LOWER
market environment, the Fund had positive o the company's fundamental business
returns, faring better than the broad Class A Shares 1.86% prospects deteriorate
U.S.stock market, as represented by the
S&P 500 Index,and its style-specific and Class B Shares 1.44 o a stock hits its target price
peer group benchmarks.
Class C Shares 1.45 o the company's technical profile
The Fund outperformed the large-cap deteriorates
oriented S&P 500 Index as small cap Class R Shares 1.72
stocks outperformed large-cap stocks for MARKET CONDITIONS AND YOUR FUND
the period. The Fund also outperformed Standard & Poor's Composite
the Russell 2000 Growth Index as its Index of 500 Stocks The S&P 500 Index declined at the
holdings in consumer discretionary and (S&P 500 Index) beginning of the reporting period amid
health care generally outperformed those (Broad Market Index) -0.81 concerns about increasing oil prices and
in the index. rising interest rates. The Federal
Russell 2000 Growth Index Reserve (the Fed) continued raising
(Style-specific Index) -3.58 interest rates to slow economic growth
and curb potential inflation. The market
Lipper Small-Cap Growth Fund generally rebounded in the last two
Index (Peer Group Index) -1.21 months of the period as oil prices fell
in May--before rising again in June--and
SOURCE: LIPPER,INC. many companies in the S&P 500 Index
reported strong earnings.
=========================================
Value stocks generally outperformed
====================================================================================== growth stocks over the period. In this
environment, our strategy of investing in
HOW WE INVEST by staying fully diversified in all those small-cap growth stocks of companies that
sectors. exhibit consistent, sustainable
Wefocus on small-cap companies with above-average earnings growth potential
visible and long-term growth We select stocks based on analysis of helped the Fund outperform its
opportunities, as demonstrated by individual companies. Our three-step style-specific benchmark.
consistent and accelerating earnings selection process includes:
growth. For the reporting period, consumer
1. Fundamental analysis: building discretionary was the best-performing
We align the Fund with the Russell financial models and conducting in-depth sector for the Fund. We increased our
2000 Growth Index, the benchmark we interviews with company management. holdings in this sector,
believe represents the small-cap-growth
asset class. We seek to control risk by 2. Valuation analysis: identifying
keeping the Fund's sector weightings in attractively valued stocks given their
line with the benchmark and growth potential over a one- to two-year
horizon. (continued)
========================================= ========================================= =========================================
TOP 5 INDUSTRIES*
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS*
1. Health Care Equipment 6.5%
By sector 1. Macromedia,Inc. 1.4%
2. Restaurants 4.3
[PIE CHART] 2. Jos. A. Bank Clothiers,Inc. 1.3
3. Apparel Retail 4.2
Financials 7.8% 3. Cerner Corp. 1.3
4. Regional Banks 4.0
Health Care 19.2% 4. LifePoint Hospitals,Inc. 1.2
5. Application Software 3.5
Telecommunication Services 1.2% 5. JLG Industries,Inc. 1.2
Money Market Funds plus TOTAL NET ASSETS $1.6 BILLION 6. Mentor Corp. 1.1
Other Assets Less Liabilities 1.9% TOTAL NUMBER OF HOLDINGS* 134 7. Cal Dive International,Inc. 1.1
Materials 3.6% 8. Eagle Materials Inc. 1.1
Industrials 15.8% 9. Nautilus,Inc. 1.1
Consumer Discretionary 21.6% 10. P. F. Chang's China Bistro,Inc. 1.1
Consumer Staples 2.5% ========================================= =========================================
Energy 5.4%
Information Technology 21.0%
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>
3
AIM SMALL CAP GROWTH FUND
<Table>
which benefited from healthy consumer Information technology was the sector JULIET S. ELLIS,
spending. Consumer discretionary stocks that had the most negative impact on Fund [ELLIS Chartered Financial
that enhanced Fund performance included: performance. We reduced our holdings in PHOTO] Analyst and senior
this sector, which was adversely affected portfolio manager, is lead
o JOS. A. BANK CLOTHIERS, a men's by reduced business spending on portfolio manager of AIM
clothing chain with 270 outlets in 37 technology upgrades. Detracting from Small Cap Growth Fund. Ms. Ellis joined
states. We observed that the company's performance was RSA SECURITY, a AIM in 2004. She previously served as
new spring product line was well received technology company that develops security senior portfolio manager of two small-cap
by its customers. The firm continues to software to help organizations protect funds for another company and was
benefit from strong demand for men's their information. The company saw its responsible for the management of more
tailored clothing and the trend toward stock decline due to increased than $2 billion in assets. Ms. Ellis
more formal workplace attire. competition and a disappointing earnings began her investment career in 1981 as a
report. We sold the stock. financial consultant. She is a cum laude
o PANERA BREAD, which has nearly 800 and Phi Beta Kappa graduate of Indiana
bakery-cafes in about 25 states. The Other sectors that detracted from Fund University with a B.A. in economics and
company reported a 44% increase in performance included industrials, which political science.
earnings for the first quarter of 2005 were adversely affected by weak domestic
compared to the same quarter for the demand, and financials, which were hurt JUAN R. HARTSFIELD,
previous year and raised its earnings by rising interest rates. [HARTSFIELD Chartered Financial
estimates for the remainder of 2005. We PHOTO] Analyst and portfolio
observed that the company has benefited IN CLOSING manager, is portfolio
from a decline in the popularity of manager of AIM Small Cap
low-carbohydrate diets. As always, we remain committed to our Growth Fund. Prior to joining AIM in
bottom-up stock selection process of 2004, he began his investment career in
Health care was the second-best identifying attractively valued 2000 as an equity analyst and most
performing sector for the Fund as demand small-cap growth companies' with high recently served as a portfolio manager.
for medical products and services tends growth potential while endeavoring to Mr. Hartsfield earned a B.S. in petroleum
to remain constant regardless of economic avoid high-risk stocks. We believe our engineering from The University of Texas
conditions. A stock in this sector that disciplined investment strategy has the and his M.B.A. from the University of
enhanced performance was ACCREDO HEALTH, potential to provide shareholders with Michigan.
which provides drugs for the recurring consistent, attractive returns over a
treatment of chronic and potentially long-term investment horizon with Assisted by the Small Cap Core/Growth
life-threatening diseases. The stock below-market risk. We appreciate your Team
surged after the company agreed to a continued participation in AIM Small Cap
merger with a pharmacy benefit management Growth Fund.
firm earlier this year. We took profits
and sold our holdings before the The views and opinions expressed in
reporting period closed. Management's Discussion of Fund
Performance are those of A I M Advisors,
While Accredo Health was the Inc. These views and opinions are subject
best-performing stock for the Fund, to change at any time based on factors
another health care holding, EYETECH such as market and economic conditions.
PHARMACEUTICALS, detracted the most from These views and opinions may not be
performance. Eyetech Pharmaceuticals relied upon as investment advice or
specializes in the development and recommendations, or as an offer for a
commercialization of therapeutics to particular security. The information is
treat eye diseases. The stock declined not a complete analysis of every aspect
due to concerns about a competitor's of any market, country, industry,
experimental drug which produced positive security or the Fund. Statements of fact
results in late-stage trials in treating are from sources considered reliable, but
blindness in older adults. Given the lack A I M Advisors, Inc. makes no
of certainty of Eyetech's earnings representation or warranty as to their
growth, we sold the stock. completeness or accuracy. Although
historical performance is no guarantee of
Energy also enhanced Fund performance future results, these insights may help
as this sector benefited from rising oil you understand our investment management
prices. While materials was generally a philosophy.
weak-performing sector, the portfolio's
materials holdings, such as EAGLE See important Fund and index
MATERIALS, a maker of wallboard and other disclosures inside front cover.
construction products, recorded positive
returns and fared significantly better
than those in the Russell 2000 Growth
Index.
</Table>
4
AIM SMALL CAP GROWTH FUND,
A PORTFOLIO OF AIM GROWTH SERIES
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
Toll Free: (800) 959-4246
AIM SMALL COMPANY GROWTH FUND,
A PORTFOLIO OF AIM STOCK 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 Small Company 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 Small Cap Growth Fund for use in connection with the
Special Meeting of Shareholders of AIM Small Company 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 Growth Series dated
December 14, 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.........................................................................................................3
DESCRIPTION OF PERMITTED INVESTMENTS..............................................................................3
TRUSTEES AND OFFICERS OF THE TRUST................................................................................3
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES...............................................................3
ADVISORY AND MANAGEMENT RELATED SERVICES AGREEMENTS AND PLANS OF DISTRIBUTION.....................................3
PORTFOLIO TRANSACTIONS............................................................................................3
DESCRIPTION OF SHARES.............................................................................................3
DETERMINATION OF NET ASSET VALUE..................................................................................4
TAXES.............................................................................................................4
PERFORMANCE DATA..................................................................................................4
FINANCIAL INFORMATION.............................................................................................4
</Table>
Appendix I - Statement of Additional Information of the Trust
Appendix II - Audited Financial Statements of AIM Small Company Growth
Fund (7/31/05)
Appendix III - Pro Forma Financial Statements of AIM Small Cap Growth Fund
S-2
THE TRUST
This Statement of Additional Information relates to AIM Growth Series (the
"Trust") and its investment portfolio, AIM Small Cap Growth 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 "Description of
the Funds and Their Investments 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 Trust" 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 "Investment Advisory and
Other Services" 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 Small Cap Growth 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 unaudited financial statements of AIM Small Cap Growth Fund 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 Small Company Growth Fund, and the
report thereon by PricewaterhouseCoopers LLP, are set forth as Appendix II.
The pro forma financial statements of AIM Small Cap Growth Fund are set forth as
Appendix III.
S-4
APPENDIX I
STATEMENT OF
ADDITIONAL INFORMATION
AIM GROWTH SERIES
11 Greenway Plaza
Suite 100
Houston, Texas 77046-1173
(713) 626-1919
----------------------------------
This Statement of Additional Information relates to the Class A, Class B, Class
C, Class R and Investor Class shares of each portfolio (each a "Fund,"
collectively the "Funds") of AIM Growth Series listed below. This Statement of
Additional Information is not a Prospectus, and it should be read in conjunction
with the Prospectuses for the Class A, Class B, Class C and Class R shares 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 December 14, 2005, relates to
the Class A, Class B, Class C, Class R and Investor Class shares of the
following Prospectuses:
<Table>
<Caption>
FUND DATED
---- -----
AIM Basic Value Fund April 29, 2005
AIM Conservative Allocation Fund April 29, 2005
AIM Global Equity Fund October 31, 2005
AIM Growth Allocation Fund April 29, 2005
AIM Income Allocation Fund October 31, 2005
AIM International Allocation Fund October 31, 2005
AIM Mid Cap Core Equity Fund April 29, 2005
AIM Moderate Allocation Fund April 29, 2005
AIM Moderate Growth Allocation Fund April 29, 2005
AIM Moderately Conservative Allocation Fund April 29, 2005
AIM Small Cap Growth Fund December 14, 2005
</Table>
AIM GROWTH SERIES
Statement of Additional Information
Table of Contents
PAGE
GENERAL INFORMATION ABOUT THE TRUST.............................................................................. 1
Fund History............................................................................................ 1
Shares of Beneficial Interest........................................................................... 2
DESCRIPTION OF THE FUNDS AND THEIR INVESTMENTS AND RISKS......................................................... 4
Classification.......................................................................................... 4
Investment Strategies and Risks......................................................................... 4
Asset Allocation Funds......................................................................... 4
Equity Investments............................................................................. 11
Foreign Investments............................................................................ 12
Debt Investments............................................................................... 14
Other Investments.............................................................................. 20
Investment Techniques.......................................................................... 22
Derivatives.................................................................................... 27
Additional Securities or Investment Techniques................................................. 34
Fund Policies........................................................................................... 35
Temporary Defensive Positions........................................................................... 38
Portfolio Turnover...................................................................................... 38
Policies and Procedures for Disclosure of Fund Holdings................................................. 38
MANAGEMENT OF THE TRUST.......................................................................................... 41
Board of Trustees....................................................................................... 41
Management Information.................................................................................. 41
Trustee Ownership of Fund Shares............................................................... 44
Approval of Investment Advisory Agreements and Summary of Independent Written Fee Evaluation... 44
Compensation............................................................................................ 69
Retirement Plan For Trustees................................................................... 69
Deferred Compensation Agreements............................................................... 70
Purchases of Class A Shares of the Funds at Net Asset Value.................................... 70
Codes of Ethics......................................................................................... 70
Proxy Voting Policies................................................................................... 71
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.............................................................. 71
INVESTMENT ADVISORY AND OTHER SERVICES........................................................................... 71
Investment Advisor...................................................................................... 71
Portfolio Managers............................................................................. 73
Securities Lending Arrangements................................................................ 74
Service Agreements...................................................................................... 74
Other Service Providers................................................................................. 74
BROKERAGE ALLOCATION AND OTHER PRACTICES......................................................................... 75
Brokerage Transactions.................................................................................. 75
Commissions............................................................................................. 76
Broker Selection........................................................................................ 76
Directed Brokerage (Research Services).................................................................. 79
Regular Brokers......................................................................................... 79
Allocation of Portfolio Transactions.................................................................... 79
ii
PAGE
Allocation of Equity Initial Public Offering ("IPO") Transactions...................................... 79
PURCHASE, REDEMPTION AND PRICING OF SHARES...................................................................... 80
Transactions through financial intermediaries.......................................................... 80
Purchase and Redemption of Shares...................................................................... 80
Offering Price......................................................................................... 100
Redemptions In Kind.................................................................................... 101
Backup Withholding..................................................................................... 101
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS........................................................................ 102
Dividends and Distributions............................................................................ 102
Tax Matters............................................................................................ 103
DISTRIBUTION OF SECURITIES...................................................................................... 111
Distribution Plans..................................................................................... 111
Distributor............................................................................................ 113
CALCULATION OF PERFORMANCE DATA................................................................................. 114
PENDING LITIGATION.............................................................................................. 120
APPENDICES:
RATINGS OF DEBT SECURITIES...................................................................................... A-1
EXAMPLES OF PERSONS TO WHOM AIM PROVIDES NON-PUBLIC PORTFOLIO HOLDINGS ON AN ONGOING BASIS...................... B-1
TRUSTEES AND OFFICERS........................................................................................... C-1
TRUSTEE COMPENSATION TABLE...................................................................................... D-1
PROXY POLICIES AND PROCEDURES................................................................................... E-1
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES............................................................. F-1
MANAGEMENT FEES................................................................................................. G-1
PORTFOLIO MANAGERS.............................................................................................. H-1
ADMINISTRATIVE SERVICES FEES ................................................................................... I-1
BROKERAGE COMMISSIONS .......................................................................................... J-1
DIRECTED BROKERAGE (RESEARCH SERVICES) AND PURCHASES OF SECURITIES OF REGULAR BROKERS OR DEALERS................ K-1
AMOUNTS PAID TO A I M DISTRIBUTORS, INC. PURSUANT TO DISTRIBUTION PLANS......................................... L-1
ALLOCATION OF ACTUAL FEES PAID PURSUANT TO DISTRIBUTION PLANS................................................... M-1
TOTAL SALES CHARGES............................................................................................. N-1
PERFORMANCE DATA................................................................................................ O-1
PENDING LITIGATION ............................................................................................. P-1
FINANCIAL STATEMENTS............................................................................................ FS
iii
GENERAL INFORMATION ABOUT THE TRUST
FUND HISTORY
AIM Growth Series (the "Trust") is a Delaware statutory trust which is
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company. The Trust currently
consists of eleven separate portfolios: AIM Basic Value Fund, AIM Conservative
Allocation Fund, AIM Global Equity Fund, AIM Growth Allocation Fund, AIM Income
Allocation Fund, AIM International Allocation Fund, AIM Mid Cap Core Equity
Fund, AIM Moderate Allocation Fund, AIM Moderate Growth Allocation Fund, AIM
Moderately Conservative Allocation Fund and AIM Small Cap Growth Fund (each a
"Fund" and collectively, the "Funds"). Under the Amended and Restated Agreement
and Declaration of Trust, dated May 15, 2002, as amended (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.
The Trust was originally organized on February 19, 1985 as a
Massachusetts business trust. The Trust reorganized as a Delaware business trust
on May 29, 1998. The following Funds were included in the reorganization: AIM
Basic Value Fund, AIM Mid Cap Core Equity Fund and AIM Small Cap Growth Fund.
All historical financial and other information contained in this Statement of
Additional Information for periods prior to May 29, 1998 relating to these Funds
(or a class thereof) is that of the predecessor funds (or the corresponding
class thereof) of GT Global Growth Series, the Trust's predecessor. Effective
June 5, 2000, AIM Basic Value Fund no longer invests all of its investable
assets in the Value Portfolio and directly invests in the securities in which it
previously indirectly invested by virtue of its interests in the Value
Portfolio. Effective September 11, 2000, AIM Small Cap Growth Fund no longer
invests all of its investable assets in the Small Cap Portfolio and directly
invests in the securities in which it previously indirectly invested by virtue
of its interests in the Small Cap Portfolio. Prior to September 8, 1998, AIM
Basic Value Fund was known as AIM America Value Fund and AIM Small Cap Growth
Fund was known as AIM Small Cap Equity Fund. Prior to July 1, 2002, AIM Mid Cap
Core Equity Fund was known as AIM Mid Cap Equity Fund (which was known as AIM
Mid Cap Growth Fund prior to September 8, 1998). Prior to March 31, 2004, AIM
Global Equity Fund was known as AIM Global Trends Fund. AIM Global Equity Fund
succeeded to the assets and assumed the liabilities of a series portfolio with a
corresponding name (the "Predecessor Fund") of AIM Series Trust, a Delaware
statutory trust, on November 4, 2003. All historical information and other
information contained in this Statement of Additional Information for periods
prior to November 4, 2003, relating to AIM Global Equity Fund (or a class
thereof) is that of the Predecessor Fund (or a corresponding class thereof).
Prior to April 29, 2005, AIM Growth Allocation Fund was known as AIM Aggressive
Allocation Fund. Each of the other Funds commenced operations as a series of the
Trust.
Effective as of March 18, 2002, AIM Small Cap Growth Fund limited
public sales of its shares to certain investors. Also, effective as of the close
of business on February 27, 2004, AIM Mid Cap Core Equity Fund limited public
sales of its shares to certain investors. The following types of investors may
continue to invest in either Fund if they are invested in the Fund as of the
date on which the Fund limited public sales of its shares to certain investors
and remain invested in the Fund after that date: existing shareholders of the
Fund; existing shareholders of the Fund who open other accounts in their name;
retirement plans maintained pursuant to Section 401 of the Internal Revenue Code
("the Code"); retirement plans maintained pursuant to Section 403 of the Code,
to the extent they are maintained by organizations established under Section
501(c)(3) of the Code; retirement plans maintained pursuant to Section 457 of
the Code; non-qualified deferred compensation plans maintained pursuant to
Section 83 of the Code; and Qualified Tuition Programs maintained pursuant to
Section 529 of the Code. Future investments in the Fund made by existing
brokerage firm wrap programs will be at the discretion of A I M Distributors,
Inc. ("AIM Distributors"). Please contact AIM Distributors for approval. The
following types of investors may open new accounts in either Fund, if approved
by AIM Distributors: retirement plans maintained pursuant to Section 401 of the
Code; retirement plans maintained pursuant to Section 403 of the Code, to the
extent they are maintained by organizations established under Section 501(c)(3)
of the Code; retirement plans maintained pursuant to Section 457 of the Code;
non-qualified deferred compensation plans maintained pursuant to Section 83 of
the Code; Qualified Tuition Programs
maintained pursuant to Section 529 of the Code; and the portfolio management
team, including analysts. Such plans and programs that are considering AIM Small
Cap Growth Fund or AIM Mid Cap Core Equity Fund as an investment option should
contact AIM Distributors for approval. At A I M Advisors, Inc.'s ("AIM")
discretion, proprietary asset allocation funds may open new accounts in the
Fund.
SHARES OF BENEFICIAL INTEREST
Shares of beneficial interest of the Trust 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 the Trust in
certain circumstances.
The Trust allocates moneys and other property it receives from the
issue or sale of shares of each of its series of shares, and all income,
earnings and profits from such issuance and sales, subject only to the rights of
creditors, to the appropriate Fund. These assets constitute the underlying
assets of each Fund, are segregated on the Trust's books of account, and are
charged with the expenses of such Fund and its respective classes. The Trust
allocates any general expenses of the Trust not readily identifiable as
belonging to a particular Fund by or under the direction of the Board, primarily
on the basis of relative net assets, or other relevant factors.
Each share of each Fund represents an equal proportionate interest in
that Fund with each other share and is entitled to such dividends and
distributions out of the income belonging to such Fund as are declared by the
Board. Each Fund offers separate classes of shares as follows:
<Table>
<Caption>
INVESTOR INSTITUTIONAL
FUND CLASS A CLASS B CLASS C CLASS R CLASS CLASS
- ---- ------- ------- ------- ------- -------- -------------
AIM Basic Value Fund X X X X X
AIM Conservative Allocation Fund X X X X X
AIM Global Equity Fund X X X X X
AIM Growth Allocation Fund X X X X X
AIM Income Allocation Fund X X X X X
AIM International Allocation Fund X X X X X
AIM Mid Cap Core Equity Fund X X X X X
AIM Moderate Allocation Fund X X X X X
AIM Moderate Growth Allocation Fund X X X X X
AIM Moderately Conservative Allocation Fund X X X X X
AIM Small Cap Growth Fund X X X X X X
</Table>
This Statement of Additional Information relates solely to the Class A,
Class B, Class C, Class R and Investor Class shares, if applicable, of the
Funds. The Institutional Class shares of the Funds which are discussed in a
separate Statement of Additional Information are intended for use by certain
eligible institutional investors and are available to the following:
o banks and trust companies acting in a fiduciary or similar
capacity;
o bank and trust company common and collective trust funds;
o banks and trust companies investing for their own account;
o entities acting for the account of a public entity (e.g.
Taft-Hartley funds, states, cities of government agencies);
2
o retirement plans; and
o platform sponsors with which AIM Distributors has entered into
an agreement.
Each class of shares represents interests in the same portfolio of
investments. Differing sales charges and expenses will result in differing net
asset values and dividends and distributions. Upon any liquidation of the Trust,
shareholders of each class are entitled to share pro rata in the net assets
belonging to the applicable Fund allocable to such class available for
distribution after satisfaction of outstanding liabilities of the Fund allocable
to such class.
Each share of a Fund generally has the same voting, dividend,
liquidation and other rights; however, each class of shares of a Fund is subject
to different sales loads, conversion features, exchange privileges and
class-specific expenses. Only shareholders of a specific class may vote on
matters relating to that class' distribution plan.
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 1940 Act requires that Class B
shareholders must also approve any material increase in distribution fees
submitted to Class A or shareholders of that Fund. A pro rata portion of shares
from reinvested dividends and distributions convert along with the Class B
shares.
Except as specifically noted above, shareholders of each Fund are
entitled to one vote per share (with proportionate voting for fractional
shares), irrespective of the relative net asset value of the shares of a Fund.
However, on matters affecting an individual Fund or class of shares, a separate
vote of shareholders of that Fund or class is required. Shareholders of a Fund
or class are not entitled to vote on any matter which does not affect that Fund
or class but that requires a separate vote of another Fund or class. An example
of a matter that would be voted on separately by shareholders of each Fund is
the approval of the advisory agreement with AIM, and an example of a matter that
would be voted on separately by shareholders of each class of shares is approval
of the distribution plans. When issued, shares of each 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, there are no conversion rights. Shares do not have cumulative voting
rights, which means that in situations in which shareholders elect trustees,
holders of more than 50% of the shares voting for the election of trustees can
elect all of the trustees of the Trust, and the holders of less than 50% of the
shares voting for the election of trustees will not be able to elect any
trustees.
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
3
or amounts paid in settlement in an action 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.
SHARE CERTIFICATES. Shareholders of the Funds do not have the right to
demand or require the Trust to issue share certificates.
DESCRIPTION OF THE FUNDS AND THEIR INVESTMENTS AND RISKS
CLASSIFICATION
The Trust is an open-end management investment company. Each of the
Funds is "diversified" for purposes of the 1940 Act.
INVESTMENT STRATEGIES AND RISKS
The table on the following pages identifies various securities and
investment techniques used by AIM in managing The AIM Family of
Funds--Registered Trademark--. The table has been marked to indicate those
securities and investment techniques that AIM may use to manage a Fund. A Fund
may not use all of these techniques at any one time. A Fund's transactions in a
particular security or use of a particular technique is subject to limitations
imposed by a Fund's investment objective, policies and restrictions described in
that Fund's Prospectus and/or this Statement of Additional Information, as well
as federal securities laws. The Funds' investment objectives, policies,
strategies and practices are non-fundamental unless otherwise indicated. A more
detailed description of the securities and investment techniques, as well as the
risks associated with those securities and investment techniques that the Funds
utilize, follows the table. The descriptions of the securities and investment
techniques in this section supplement the discussion of principal investment
strategies contained in each Fund's Prospectus; where a particular type of
security or investment technique is not discussed in a Fund's Prospectus, that
security or investment technique is not a principal investment strategy.
Asset Allocation Funds
AIM Conservative Allocation Fund, AIM Growth Allocation Fund, AIM
Income Allocation Fund, AIM International Allocation Fund, AIM Moderate
Allocation Fund, AIM Moderate Growth Allocation Fund and AIM Moderately
Conservative Allocation Fund (the "Asset Allocation Funds") are "funds of funds"
which invest in other underlying funds and do not directly invest in the
securities or use the investment techniques indicated in the table.
Following is the list of the Asset Allocation Funds' Underlying Funds
("Underlying Funds") and their related percentage allocations. The Underlying
Funds and their percentage allocations have been selected for use over longer
time periods, but may be changed in the future without shareholder approval. The
actual percentage allocations will vary from the target weightings in the
underlying funds due to factors such as market movements and capital flows. AIM
automatically rebalances the Asset Allocation Funds' investments in the
Underlying Funds on an annual basis to bring them back within their percentage
allocations. AIM has the ability to rebalance on a more frequent basis if
necessary. Some portion of each Asset Allocation Fund's portfolio may be held in
cash due to purchase and redemption activity and other short term cash needs and
the percentage allocations do not reflect the Asset Allocation Funds' working
cash balances. Cash flows will be managed to help maintain target percentage
allocations. AIM may change an Underlying Fund or its percentage allocation
without shareholder approval.
4
<Table>
<Caption>
AIM AIM
AIM AIM AIM AIM AIM MODERATE MODERATELY
CONSERVATIVE GROWTH INCOME INTERNATIONAL MODERATE GROWTH CONSERVATIVE
ALLOCATION ALLOCATION ALLOCATION ALLOCATION ALLOCATION ALLOCATION ALLOCATION
FUND FUND FUND FUND FUND FUND FUND
------------ ---------- ---------- ------------- ---------- ---------- ------------
AIM Capital Development Fund 0% 0% 0% 0% 5% 0% 2.5%
AIM Charter Fund 5% 0% 0% 0% 0% 0% 0%
AIM Developing Markets Fund 0% 0% 0% 5% 0% 0% 0%
AIM Diversified Dividend Fund 0% 0% 15% 0% 0% 0% 0%
AIM Dynamics Fund 0% 5% 0% 0% 0% 5% 0%
AIM Global Value Fund 0% 0% 0% 27.5% 0% 0% 0%
AIM High Yield Fund 0% 5% 15% 0% 10% 10% 5%
AIM Income Fund 0% 0% 10% 0% 0% 0% 0%
AIM International Core Equity Fund 2.5% 12.5% 5% 35% 10% 11% 5%
AIM Intermediate Government Fund 0% 0% 10% 0% 0% 0% 15%
AIM International Growth Fund 0% 12.5% 0% 22.5% 7.5% 11% 2.5%
AIM International Small Company Fund 0% 0% 0% 10% 0% 0% 0%
AIM Large Cap Basic Value Fund 5% 17.5% 0% 0% 10% 14% 11.25%
AIM Large Cap Growth Fund 5% 20% 0% 0% 12.5% 16.5% 11.25%
AIM Limited Maturity Treasury Fund 15% 0% 0% 0% 0% 0% 0%
AIM Mid Cap Basic Value Fund 0% 0% 0% 0% 5% 5% 5%
AIM Multi-Sector Fund 2.5% 12.5% 0% 0% 5% 7.5% 2.5%
AIM Real Estate Fund 0% 5% 7% 0% 0% 2.5% 0%
AIM Small Cap Equity Fund 0% 0% 0% 0% 0% 7.5% 0%
AIM Small Company Growth Fund 0% 10% 0% 0% 0% 0% 0%
AIM Short Term Bond Fund 25% 0% 10% 0% 5% 0% 15%
AIM Total Return Bond Fund 25% 0% 20% 0% 25% 10% 25%
AIM Trimark Endeavor Fund 5% 0% 0% 0% 0% 0% 0%
AIM Trimark Small Companies Fund 0% 0% 0% 0% 5% 0% 0%
AIM Utilities Fund 0% 0% 8% 0% 0% 0% 0%
A money market fund or direct
investments in cash equivalents
and U.S. Government securities 10% 0% 0% 0% 0% 0% 0%
</Table>
5
AIM GROWTH SERIES
SUMMARY OF SECURITIES AND INVESTMENT TECHNIQUES
FUND AIM MID AIM AIM AIM
- ---------- AIM AIM AIM AIM AIM AIM CAP AIM MODERATE MODERATELY SMALL
SECURITY/ BASIC CONSERVATIVE GLOBAL GROWTH INCOME INTERNATIONAL CORE MODERATE GROWTH CONSERVATIVE CAP
INVESTMENT VALUE ALLOCATION EQUITY ALLOCATION ALLOCATION ALLOCATION EQUITY ALLOCATION ALLOCATION ALLOCATION GROWTH
TECHNIQUE FUND FUND* FUND FUND* FUND* FUND* FUND FUND* FUND* FUND* FUND
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
EQUITY INVESTMENTS
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock X X X X X X X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Preferred Stock X X X X X X X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Convertible
Securities X X X X X X X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Alternative Entity
Securities X X X X X X X X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
FOREIGN INVESTMENTS
- -----------------------------------------------------------------------------------------------------------------------------------
Foreign Securities X X X X X X X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Foreign Government
Obligations X X X X X X X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Foreign Exchange
Transactions X X X X X X X X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
DEBT INVESTMENTS FOR FIXED INCOME FUNDS
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Government
Obligations X X X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Rule 2a-7
Requirements X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Mortgage-Backed and
Asset-Backed
Securities X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Collateralized
Mortgage
Obligations X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Bank Instruments X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Commercial
Instruments X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Participation
Interests X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Municipal
Securities X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Municipal Lease
Obligations X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
6
AIM GROWTH SERIES
SUMMARY OF SECURITIES AND INVESTMENT TECHNIQUES
FUND AIM MID AIM AIM AIM
- ---------- AIM AIM AIM AIM AIM AIM CAP AIM MODERATE MODERATELY SMALL
SECURITY/ BASIC CONSERVATIVE GLOBAL GROWTH INCOME INTERNATIONAL CORE MODERATE GROWTH CONSERVATIVE CAP
INVESTMENT VALUE ALLOCATION EQUITY ALLOCATION ALLOCATION ALLOCATION EQUITY ALLOCATION ALLOCATION ALLOCATION GROWTH
TECHNIQUE FUND FUND* FUND FUND* FUND* FUND* FUND FUND* FUND* FUND* FUND
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Investment Grade
Corporate Debt
Obligations X X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Junk Bonds X X X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
DEBT INVESTMENTS FOR EQUITY FUNDS
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Government
Obligations X X X X X X X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Mortgage-Backed and
Asset-Backed
Securities X X X X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Collateralized
Mortgage
Obligations X X X X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Investment Grade
Corporate Debt
Obligations X X X X X X X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Junk Bonds X X X X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Liquid Assets X X X X X X X X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER INVESTMENTS
- -----------------------------------------------------------------------------------------------------------------------------------
REITs X X X X X X X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Other Investment
Companies X X X X X X X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Defaulted
Securities X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Municipal Forward
Contracts
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Variable or
Floating Rate
Instruments X X X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Indexed Securities X X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Zero-Coupon and
Pay-in-Kind
Securities X X X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Synthetic Municipal
Instruments
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
7
AIM GROWTH SERIES
SUMMARY OF SECURITIES AND INVESTMENT TECHNIQUES
FUND AIM MID AIM AIM AIM
- ---------- AIM AIM AIM AIM AIM AIM CAP AIM MODERATE MODERATELY SMALL
SECURITY/ BASIC CONSERVATIVE GLOBAL GROWTH INCOME INTERNATIONAL CORE MODERATE GROWTH CONSERVATIVE CAP
INVESTMENT VALUE ALLOCATION EQUITY ALLOCATION ALLOCATION ALLOCATION EQUITY ALLOCATION ALLOCATION ALLOCATION GROWTH
TECHNIQUE FUND FUND* FUND FUND* FUND* FUND* FUND FUND* FUND* FUND* FUND
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
INVESTMENT TECHNIQUES
- -----------------------------------------------------------------------------------------------------------------------------------
Delayed Delivery
Transactions X X X X X X X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
When-Issued
Securities X X X X X X X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Short Sales X X X X X X X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Margin Transactions
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Swap Agreements X X X X X X X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Interfund Loans X X X X X X X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Borrowing X X X X X X X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Lending Portfolio
Securities X X X X X X X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Repurchase
Agreements X X X X X X X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Reverse Repurchase
Agreements X X X X X X X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Dollar Rolls X X X X X X X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Illiquid Securities X X X X X X X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Rule 144A
Securities X X X X X X X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Unseasoned Issuers X X X X X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Sale of Money
Market Securities X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Standby Commitments
- -----------------------------------------------------------------------------------------------------------------------------------
DERIVATIVES
- -----------------------------------------------------------------------------------------------------------------------------------
Equity-Linked
Derivatives X X X X X X X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Bundled Securities X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
8
AIM GROWTH SERIES
SUMMARY OF SECURITIES AND INVESTMENT TECHNIQUES
FUND AIM MID AIM AIM AIM
- ---------- AIM AIM AIM AIM AIM AIM CAP AIM MODERATE MODERATELY SMALL
SECURITY/ BASIC CONSERVATIVE GLOBAL GROWTH INCOME INTERNATIONAL CORE MODERATE GROWTH CONSERVATIVE CAP
INVESTMENT VALUE ALLOCATION EQUITY ALLOCATION ALLOCATION ALLOCATION EQUITY ALLOCATION ALLOCATION ALLOCATION GROWTH
TECHNIQUE FUND FUND* FUND FUND* FUND* FUND* FUND FUND* FUND* FUND* FUND
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Put Options X X X X X X X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Call Options X X X X X X X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Straddles X X X X X X X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Warrants X X X X X X X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Futures Contracts
and Options on
Futures Contracts X X X X X X X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Forward Currency
Contracts X X X X X X X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Cover X X X X X X X X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL SECURITIES OR INVESTMENT TECHNIQUES
- -----------------------------------------------------------------------------------------------------------------------------------
Commercial Bank
Obligations X X X X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Loan Participations
and Assignments X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Indexed Commercial
Paper X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Premium Securities X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Structured
Investments X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Stripped Income
Securities X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Privatizations X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Samurai and Yankee
Bonds X X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
9
AIM GROWTH SERIES
SUMMARY OF SECURITIES AND INVESTMENT TECHNIQUES
FUND AIM MID AIM AIM AIM
- ---------- AIM AIM AIM AIM AIM AIM CAP AIM MODERATE MODERATELY SMALL
SECURITY/ BASIC CONSERVATIVE GLOBAL GROWTH INCOME INTERNATIONAL CORE MODERATE GROWTH CONSERVATIVE CAP
INVESTMENT VALUE ALLOCATION EQUITY ALLOCATION ALLOCATION ALLOCATION EQUITY ALLOCATION ALLOCATION ALLOCATION GROWTH
TECHNIQUE FUND FUND* FUND FUND* FUND* FUND* FUND FUND* FUND* FUND* FUND
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Master Limited
Partnerships X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
Investments with
Entities
with Relationships
with the
Funds/Advisors X X X X X
- ------------------- ----- ------------ ------ ---------- ---------- ------------- ------ ---------- ---------- ------------ ------
* AIM Conservative Allocation Fund, AIM Growth Allocation Fund, AIM Income
Allocation Fund, AIM International Allocation Fund, AIM Moderate Allocation
Fund, AIM Moderate Growth Allocation Fund and AIM Moderately Conservative
Allocation Fund are "funds of funds" which invest in other underlying funds and
do not directly invest in the securities or use the investment techniques
indicated in the table. The investment techniques discussed in the table above
are those of the Underlying Funds.
10
The language below discusses investment strategies of AIM Basic Value
Fund, AIM Global Equity Fund, AIM Mid Cap Core Equity Fund and AIM Small Cap
Growth Fund and of the Underlying Funds in which the Asset Allocation Funds may
invest.
Equity Investments
COMMON STOCK. Common stock is issued by companies principally to raise
cash for business purposes and represents a residual interest in the issuing
company. A Fund participates in the success or failure of any company in which
it holds stock. The prices of equity securities 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.
PREFERRED STOCK. Preferred stock, unlike common stock, often offers a
stated dividend rate payable from a corporation's earnings. If interest rates
rise, the fixed dividend on preferred stocks may be less attractive, causing the
price of preferred stocks to decline. Preferred stock may have mandatory sinking
fund provisions, as well as call/redemption provisions prior to maturity, a
negative feature when interest rates decline. Dividends on some preferred stock
may be "cumulative," requiring all or a portion of prior unpaid dividends to be
paid before dividends are paid on the issuer's common stock. Preferred stock
also generally has a preference over common stock on the distribution of a
corporation's assets in the event of liquidation of the corporation, and may be
"participating," which means that it may be entitled to a dividend exceeding the
stated dividend in certain cases. In some cases an issuer may offer auction rate
preferred stock, which means that the interest to be paid is set by auction and
will often be reset at stated intervals. The rights of preferred stocks on the
distribution of a corporation's assets in the event of a liquidation are
generally subordinate to the rights associated with a corporation's debt
securities.
Certain Funds will not acquire equity securities, other than preferred
stocks, except when (a) attached to or included in a unit with income-generating
securities that otherwise would be attractive to the Fund; (b) acquired through
the exercise of equity features accompanying convertible securities held by the
Fund, such as conversion or exchange privileges or warrants for the acquisition
of stock or equity interests of the same or a different issuer; or (c) in the
case of an exchange offer whereby the equity security would be acquired with the
intention of exchanging it for a debt security issued on a "when-issued" basis.
CONVERTIBLE SECURITIES. Convertible securities include bonds,
debentures, notes, preferred stocks and other securities that may be converted
into a prescribed amount of common stock or other equity securities at a
specified price and time. The holder of convertible securities is entitled to
receive interest paid or accrued on debt, or dividends paid or accrued on
preferred stock, until the security matures or is converted.
The value of a convertible security depends on interest rates, the
yield of similar nonconvertible securities, the financial strength of the issuer
and the seniority of the security in the issuer's capital structure. Convertible
securities may be illiquid, and may be required to convert at a time and at a
price that is unfavorable to a Fund.
Certain Funds will invest in a convertible debt security based
primarily on the characteristics of the equity security into which it converts,
and without regard to the credit rating of the convertible security (even if the
credit rating is below investment grade). To the extent that a Fund invests in
convertible debt securities with credit ratings below investment grade, such
securities may have a higher likelihood of default, although this may be
somewhat offset by the convertibility feature. See also "Debt Investments for
Equity Funds -- Junk Bonds" below.
ALTERNATIVE ENTITY SECURITIES. Companies that are formed as limited
partnerships, limited liability companies, business trusts or other
non-corporate entities may issue equity securities that are similar to common or
preferred stock of corporations.
11
Foreign Investments
FOREIGN SECURITIES. Foreign securities are equity or debt securities
issued by issuers outside the United States, and include securities in the form
of American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"),
or other securities representing underlying securities of foreign issuers.
Depositary Receipts are typically issued by a bank or trust company and evidence
ownership of underlying securities issued by foreign corporations.
Each Fund (except for the Asset Allocation Funds and AIM Global Equity
Fund) may invest up to 25% of their total assets in foreign securities. AIM
Global Equity Fund may invest a significant amount of its total assets in
foreign securities.
AIM Growth Allocation Fund, AIM Moderate Allocation Fund and AIM
Moderate Growth Allocation Fund may invest up to 25%, 22% and 20%, respectively,
of their total assets in global or international equity funds. AIM Conservative
Allocation Fund and AIM Moderately Conservative Allocation Fund may invest up to
25% and 40%, respectively, of their total assets in equity funds, some of which
may invest up to 25% of their total assets in foreign securities. AIM Income
Allocation Fund may invest up to 35% of its assets in equity funds, most of
which can invest up to 25% in foreign securities, some of which may invest more
than 25% of their total assets in foreign securities. AIM International
Allocation Fund invests 100% of its total assets in equity funds, all of which
invest more than 80% of their total assets in foreign securities, some of which
may invest 100% in foreign securities.
Investments by a Fund in foreign securities, whether denominated in
U.S. dollars or foreign currencies, may entail all of the risks set forth below.
Investments by a Fund in ADRs, EDRs or similar securities also may entail some
or all of the risks described below.
Currency Risk. The value of the Funds' foreign investments will be
affected by changes in currency exchange rates. The U.S. dollar value of a
foreign security decreases when the value of the U.S. dollar rises against the
foreign currency in which the security is denominated, and increases when the
value of the U.S. dollar falls against such currency.
Political and Economic Risk. The economies of many of the countries in
which the Funds may invest may not be as developed as the United States' economy
and may be subject to significantly different forces. Political or social
instability, expropriation or confiscatory taxation, and limitations on the
removal of funds or other assets could also adversely affect the value of the
Funds' investments.
Regulatory Risk. Foreign companies are not registered with the
Securities and Exchange Commission ("SEC") and are generally not subject to the
regulatory controls imposed on United States issuers and, as a consequence,
there is generally less publicly available information about foreign securities
than is available about domestic securities. Foreign companies are not subject
to uniform accounting, auditing and financial reporting standards, corporate
governance practices and requirements comparable to those applicable to domestic
companies. Income from foreign securities owned by the Funds may be reduced by a
withholding tax at the source, which tax would reduce dividend income payable to
the Funds' shareholders.
Market Risk. The securities markets in many of the countries in which
the Funds invest will have substantially less trading volume than the major
United States markets. As a result, the securities of some foreign companies may
be less liquid and experience more price volatility than comparable domestic
securities. Increased custodian costs as well as administrative costs (such as
the need to use foreign custodians) may be associated with the maintenance of
assets in foreign jurisdictions. There is generally less government regulation
and supervision of foreign stock exchanges, brokers and issuers which may make
it difficult to enforce contractual obligations. In addition, transaction costs
in foreign securities markets are likely to be higher, since brokerage
commission rates in foreign countries are likely to be higher than in the United
States.
12
Risks of Developing Countries. AIM Global Equity Fund may invest up to
20% and AIM Basic Value Fund, AIM Mid Cap Core Equity Fund and AIM Small Cap
Growth Fund may each invest up to 5%, of their respective total assets in
securities of companies located in developing countries. Developing countries
are those countries which are not included in the MSCI World Index. The Funds
consider various factors when determining whether a company is in a developing
country, including whether (1) it is organized under the laws of a developing
country; (2) it has a principal office in a developing country; (3) it derives
50% or more of its total revenues from business in a developing country; or (4)
its securities are traded principally on a stock exchange, or in an
over-the-counter market, in a developing country. Investments in developing
countries present risks greater than, and in addition to, those presented by
investments in foreign issuers in general. A number of developing countries
restrict, to varying degrees, foreign investment in stocks. Repatriation of
investment income, capital, and the proceeds of sales by foreign investors may
require governmental registration and/or approval in some developing countries.
A number of the currencies of developing countries have experienced significant
declines against the U.S. dollar in recent years, and devaluation may occur
subsequent to investments in these currencies by a Fund. Inflation and rapid
fluctuations in inflation rates have had and may continue to have negative
effects on the economies and securities markets of certain emerging market
countries. Many of the developing securities markets are relatively small or
less diverse, have low trading volumes, suffer periods of relative illiquidity,
and are characterized by significant price volatility. There is a risk in
developing countries that a future economic or political crisis could lead to
price controls, forced mergers of companies, expropriation or confiscatory
taxation, seizure, nationalization, or creation of government monopolies, any of
which may have a detrimental effect on a Fund's investments.
FOREIGN GOVERNMENT OBLIGATIONS. Debt securities issued by foreign
governments are often, but not always, supported by the full faith and credit of
the foreign governments, or their subdivisions, agencies or instrumentalities,
that issue them. These securities involve the risks discussed above with respect
to foreign securities. Additionally, the issuer of the debt or the governmental
authorities that control repayment of the debt may be unwilling or unable to pay
interest or repay principal when due. Political or economic changes or the
balance of trade may affect a country's willingness or ability to service its
debt obligations. Periods of economic uncertainty may result in the volatility
of market prices of sovereign debt obligations, especially debt obligations
issued by the governments of developing countries.
FOREIGN EXCHANGE TRANSACTIONS. Foreign exchange transactions include
direct purchases of futures contracts with respect to foreign currency, and
contractual agreements to purchase or sell a specified currency at a specified
future date (up to one year) at a price set at the time of the contract. Such
contractual commitments may be forward contracts entered into directly with
another party or exchange traded futures contracts.
Each Fund has authority to deal in foreign exchange between currencies
of the different countries in which it will invest as a hedge against possible
variations in the foreign exchange rates between those currencies. A Fund may
commit the same percentage of its assets to foreign exchange hedges as it can
invest in foreign securities.
The Funds may utilize either specific transactions ("transaction
hedging") or portfolio positions ("position hedging") to hedge foreign currency
exposure through foreign exchange transactions. Transaction hedging is the
purchase or sale of foreign currency with respect to specific receivables or
payables of a Fund accruing in connection with the purchase or sale of its
portfolio securities, the sale and redemption of shares of the Fund, or the
payment of dividends and distributions by the Fund. Position hedging is the
purchase or sale of foreign currency with respect to portfolio security
positions (or underlying portfolio security positions, such as in an ADR)
denominated or quoted in a foreign currency. Additionally, foreign exchange
transactions may involve some of the risks of investments in foreign securities.
13
Debt Investments
U.S. GOVERNMENT OBLIGATIONS. Obligations issued or guaranteed by the
U.S. Government, its agencies and instrumentalities include bills, notes and
bonds issued by the U.S. Treasury, as well as "stripped" or "zero coupon" U.S.
Treasury obligations representing future interest or principal payments on U.S.
Treasury notes or bonds. Stripped securities are sold at a discount to their
"face value," and may exhibit greater price volatility than interest-bearing
securities since investors receive no payment until maturity. Obligations of
certain agencies and instrumentalities of the U.S. Government, such as the
Government National Mortgage Association ("GNMA"), are supported by the full
faith and credit of the U.S. Treasury; others, such as those of the Federal
National Mortgage Association ("FNMA"), are supported by the right of the issuer
to borrow from the U.S. Treasury; others, such as those of the Student Loan
Marketing Association ("SLMA"), are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; still others, though
issued by an instrumentality chartered by the U.S. Government, like the Federal
Farm Credit Bureau ("FFCB"), are supported only by the credit of the
instrumentality. 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, in which case, if the issuer were to default, the Funds
holding securities of such issuer might not be able to recover their investment
from the U.S. Government.
RULE 2A-7 REQUIREMENTS. Money market instruments in which a Fund will
invest will be "Eligible Securities" as defined in Rule 2a-7 under the 1940 Act,
as such Rule may be amended from time to time. An Eligible Security is generally
a rated security with a remaining maturity of 397 calendar days or less that has
been rated by the Requisite NRSROs (as defined below) in one of the two highest
short-term rating categories, or a security issued by an issuer that has
received a rating by the Requisite NRSROs in one of the two highest short-term
rating categories with respect to a class of debt obligations (or any debt
obligation within that class). Eligible Securities may also include unrated
securities determined by AIM (under the supervision of and pursuant to
guidelines established by the Board) to be of comparable quality to such rated
securities. If an unrated security is subject to a guarantee, to be an Eligible
Security, the guarantee generally must have received a rating from a NRSRO in
one of the two highest short-term rating categories or be issued by a guarantor
that has received a rating from a NRSRO in one of the two highest short-term
rating categories with respect to a class of debt obligations (or any debt
obligation within that class). Since the Fund may invest in securities backed by
banks and other financial institutions, changes in the credit quality of these
institutions could cause losses to the Fund and affect their share price. The
term "Requisite NRSRO" means (a) any two nationally recognized statistical
rating organizations (NRSROs) that have issued a rating with respect to a
security or class of debt obligations of an issuer, or (b) if only one NRSRO has
issued a rating with respect to such security or issuer at the time a Fund
acquires the security, that NRSRO.
The money market fund in which AIM Conservative Allocation Fund and AIM
Moderately Conservative Allocation Fund invests will limit investments in money
market obligations to those which are denominated in U.S. dollars and which at
the date of purchase are "First Tier" securities as defined in Rule 2a-7 under
the 1940 Act, as such Rule may be amended from time to time. Briefly, "First
Tier" securities are securities that are rated in the highest rating category
for short-term debt obligations by two NRSROs, or, if only rated by one NRSRO,
are rated in the highest rating category by the NRSRO, or if unrated, are
determined by the Fund's investment advisor (under the supervision of and
pursuant to guidelines established by the Board) to be of comparable quality to
a rated security that meets the foregoing quality standards, as well as
securities issued by a registered investment company that is a money market fund
and U.S. Government securities.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. Certain Funds may invest
in mortgage-backed and asset-backed securities. Mortgage-backed securities are
mortgage-related securities issued or guaranteed by the U.S. Government, its
agencies and instrumentalities, or issued by nongovernment entities.
Mortgage-related securities represent pools of mortgage loans assembled for sale
to investors by various government agencies such as GNMA and government-related
organizations such as FNMA and the Federal Home Loan Mortgage Corporation
("FHLMC"), as well as by nongovernment issuers such as commercial banks, savings
and loan institutions, mortgage bankers and private mortgage
14
insurance companies. Although certain mortgage-related securities are guaranteed
by a third party or otherwise similarly secured, the market value of the
security, which may fluctuate, is not so secured.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities they issue. Mortgage-related securities issued by GNMA
include GNMA Mortgage Pass-Through Certificates (also known as "Ginnie Maes")
which are guaranteed as to the timely payment of principal and interest. That
guarantee is backed by the full faith and credit of the U.S. Treasury. GNMA is a
corporation wholly owned by the U.S. Government within the Department of Housing
and Urban Development. Mortgage-related securities issued by FNMA include FNMA
Guaranteed Mortgage Pass-Through Certificates (also known as "Fannie Maes") and
are guaranteed as to payment of principal and interest by FNMA itself and backed
by a line of credit with the U.S. Treasury. FNMA is a government-sponsored
entity wholly owned by public stockholders. Mortgage-related securities issued
by FHLMC include FHLMC Mortgage Participation Certificates (also known as
"Freddie Macs") guaranteed as to payment of principal and interest by FHLMC
itself and backed by a line of credit with the U.S. Treasury. FHLMC is a
government-sponsored entity wholly owned by public stockholders.
Other asset-backed securities are structured like mortgage-backed
securities, but instead of mortgage loans or interests in mortgage loans, the
underlying assets may include such items as motor vehicle installment sales or
installment loan contracts, leases of various types of real and personal
property, and receivables from credit card agreements. Regular payments received
in respect of such securities include both interest and principal. Asset-backed
securities typically have no U.S. Government backing. Additionally, the ability
of an issuer of asset-backed securities to enforce its security interest in the
underlying assets may be limited.
If a Fund purchases a mortgage-backed or other asset-backed security at
a premium, that portion may be lost if there is a decline in the market value of
the security whether resulting from changes in interest rates or prepayments in
the underlying collateral. As with other interest-bearing securities, the prices
of such securities are inversely affected by changes in interest rates. However,
though the value of a mortgage-backed or other asset-backed security may decline
when interest rates rise, the converse is not necessarily true, since in periods
of declining interest rates the mortgages and loans underlying the securities
are prone to prepayment, thereby shortening the average life of the security and
shortening the period of time over which income at the higher rate is received.
When interest rates are rising, though, the rate of prepayment tends to
decrease, thereby lengthening the period of time over which income at the lower
rate is received. For these and other reasons, a mortgage-backed or other
asset-backed security's average maturity may be shortened or lengthened as a
result of interest rate fluctuations and, therefore, it is not possible to
predict accurately the security's return.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOs"). Certain Funds may invest
in CMOs. These Funds can also invest in mortgage-backed bonds and asset-backed
securities. A CMO is a hybrid between a mortgage-backed bond and a mortgage
pass-through security. Similar to a bond, interest and prepaid principal is
paid, in most cases, semiannually. CMOs may be collateralized by whole mortgage
loans, but are more typically collateralized by portfolios of mortgage
pass-through securities guaranteed by GNMA, FHLMC, or FNMA, and their income
streams.
CMOs are structured into multiple classes, each bearing a different
stated maturity. Actual maturity and average life will depend upon the
prepayment experience of the collateral. CMOs provide for a modified form of
call protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
retired. An investor is partially guarded against a sooner than desired return
of principal because of the sequential payments.
In a typical CMO transaction, a corporation ("issuer") issues multiple
series (e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering
are used to purchase mortgages or mortgage
15
pass-through certificates ("Collateral"). The Collateral is pledged to a third
party trustee as security for the Bonds. Principal and interest payments from
the Collateral are used to pay principal on the Bonds in the order A, B, C, Z.
The Series A, B, and C Bonds all bear current interest. Interest on Series Z
Bond is accrued and added to principal and a like amount is paid as principal on
the Series A, B, or C Bond currently being paid off. When the Series A, B, and C
Bonds are paid in full, interest and principal on the Series Z Bond begins to be
paid currently. With some CMOs, the issuer serves as a conduit to allow loan
originators (primarily builders or savings and loan associations) to borrow
against their loan portfolios.
CMOs that are issued or guaranteed by the U.S. government or by any of
its agencies or instrumentalities will be considered U.S. government securities
by the Funds, while other CMOs, even if collateralized by U.S. government
securities, will have the same status as other privately issued securities for
purposes of applying the Fund's diversification tests.
FHLMC CMOs. FHLMC CMOs are debt obligations of FHLMC issued in multiple
classes having different maturity dates which are secured by the pledge of a
pool of conventional mortgage loans purchased by FHLMC. Unlike FHLMC
Participation Certificates ("PCs"), payments of principal and interest on the
CMOs are made semiannually, as opposed to monthly. The amount of principal
payable on each semiannual payment date is determined in accordance with FHLMC's
mandatory sinking fund schedule, which, in turn, is equal to approximately 100%
of FHA prepayment experience applied to the mortgage collateral pool. All
sinking fund payments in the CMOs are allocated to the retirement of the
individual classes of bonds in the order of their stated maturities. Payment of
principal on the mortgage loans in the collateral pool in excess of the amount
of FHLMC's minimum sinking fund obligation for any payment date are paid to the
holders of the CMOs as additional sinking fund payments. Because of the
"pass-through" nature of all principal payments received on the collateral pool
in excess of FHLMC's minimum sinking fund requirement, the rate at which
principal of the CMOs is actually repaid is likely to be such that each class of
bonds will be retired in advance of its scheduled maturity date.
If collection of principal (including prepayments) on the mortgage
loans during any semiannual payment period is not sufficient to meet FHLMC's
minimum sinking fund obligation on the next sinking fund payment date, FHLMC
agrees to make up the deficiency from its general funds.
Risks of Mortgage-Related Securities. Investment in mortgage-backed
securities poses several risks, including prepayment, market, and credit risk.
Prepayment risk reflects the risk that borrowers may prepay their mortgages
faster than expected, thereby affecting the investment's average life and
perhaps its yield. Whether or not a mortgage loan is prepaid is almost entirely
controlled by the borrower. Borrowers are most likely to exercise prepayment
options at the time when it is least advantageous to investors, generally
prepaying mortgages as interest rates fall, and slowing payments as interest
rates rise. Besides the effect of prevailing interest rates, the rate of
prepayment and refinancing of mortgages may also be affected by home value
appreciation, ease of the refinancing process and local economic conditions.
Market risk reflects the risk that the price of the security may
fluctuate over time. The price of mortgage-backed securities may be particularly
sensitive to prevailing interest rates, the length of time the security is
expected to be outstanding, and the liquidity of the issue. In a period of
unstable interest rates, there may be decreased demand for certain types of
mortgage-backed securities, and the Fund invested in such securities wishing to
sell them may find it difficult to find a buyer, which may in turn decrease the
price at which they may be sold.
Credit risk reflects the risk that the Fund may not receive all or part
of its principal because the issuer or credit enhancer has defaulted on its
obligations. Obligations issued by U.S. government-related entities are
guaranteed as to the payment of principal and interest, but are not backed by
the full faith and credit of the U.S. government. The performance of private
label mortgage-backed securities, issued by private institutions, is based on
the financial health of those institutions. With respect to GNMA certificates,
although GNMA guarantees timely payment even if homeowners delay or default,
tracking the "pass-through" payments may, at times, be difficult.
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BANK INSTRUMENTS. Certain Funds may invest in certificates of deposits,
time deposits, and bankers' acceptances from U.S. or foreign banks. A bankers'
acceptance is a bill of exchange or time draft drawn on and accepted by a
commercial bank. A certificate of deposit is a negotiable interest-bearing
instrument with a specific maturity. Certificates of deposit are issued by banks
and savings and loan institutions in exchange for the deposit of funds, and
normally can be traded in the secondary market prior to maturity. A time deposit
is a non-negotiable receipt issued by a bank in exchange for the deposit of
funds. Like a certificate of deposit, it earns a specified rate of interest over
a definite period of time; however, it cannot be traded in the secondary market.
Certain Funds may invest in certificates of deposit ("Eurodollar CDs")
and time deposits ("Eurodollar time deposits") of foreign branches of domestic
banks. Accordingly, an investment in the Fund may involve risks that are
different in some respects from those incurred by an investment company which
invests only in debt obligations of U.S. domestic issuers. Such risks include
future political and economic developments, the possible seizure or
nationalization of foreign deposits and the possible imposition of foreign
country withholding taxes on interest income.
COMMERCIAL INSTRUMENTS. Certain Funds intend to invest in commercial
instruments, including commercial paper, master notes and other short-term
corporate instruments, that are denominated in U.S. dollars. Commercial paper
consists of short-term promissory notes issued by corporations. Commercial paper
may be traded in the secondary market after its issuance. Master notes are
demand notes that permit the investment of fluctuating amounts of money at
varying rates of interest pursuant to arrangements with issuers who meet the
quality criteria of the Fund. The interest rate on a master note may fluctuate
based upon changes in specified interest rates or be reset periodically
according to a prescribed formula or may be a set rate. Although there is no
secondary market in master demand notes, if such notes have a demand feature,
the payee may demand payment of the principal amount of the note upon relatively
short notice.
PARTICIPATION INTERESTS. Certain Funds may purchase participations in
corporate loans. Participation interests generally will be acquired from a
commercial bank or other financial institution (a "Lender") or from other
holders of a participation interest (a "Participant"). The purchase of a
participation interest either from a Lender or a Participant will not result in
any direct contractual relationship with the borrowing company (the "Borrower").
The Fund generally will have no right directly to enforce compliance by the
Borrower with the terms of the credit agreement. Instead, the Fund will be
required to rely on the Lender or the Participant that sold the participation
interest both for the enforcement of the Fund's rights against the Borrower and
for the receipt and processing of payments due to the Fund under the loans.
Under the terms of a participation interest, the Fund may be regarded as a
creditor of the Participant and thus the Fund is subject to the credit risk of
both the Borrower and a Lendor or Participant. Participation interests are
generally subject to restrictions on resale. The Fund considers participation
interests to be illiquid and therefore subject to the Fund's percentage
limitation for investments in illiquid securities.
MUNICIPAL SECURITIES. "Municipal Securities" include debt obligations
of states, territories or possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities,
issued to obtain funds for various public purposes, including the construction
of a wide range of public facilities such as airports, bridges, highways,
housing, hospitals, mass transportation, schools, streets and water and sewer
works.
Other public purposes for which Municipal Securities may be issued
include the refunding of outstanding obligations, obtaining funds for general
operating expenses and lending such funds to other public institutions and
facilities. In addition, certain types of industrial development bonds are
issued by or on behalf of public authorities to obtain funds to provide for the
construction, equipment, repair or improvement of privately operated housing
facilities, airport, mass transit, industrial, port or parking facilities, air
or water pollution control facilities and certain local facilities for water
supply, gas, electricity or sewage or solid waste disposal. The principal and
interest payments for industrial development bonds or pollution control bonds
are often the sole responsibility of the industrial user and therefore may not
be backed by the taxing power of the issuing municipality. The interest paid on
such bonds may be exempt from federal income tax, although current federal tax
laws place substantial limitations on the purposes
17
and size of such issues. Such obligations are considered to be Municipal
Securities provided that the interest paid thereon, in the opinion of bond
counsel, qualifies as exempt from federal income tax. However, interest on
Municipal Securities may give rise to a federal alternative minimum tax
liability and may have other collateral federal income tax consequences. See
"Dividends, Distributions and Tax Matters - Tax Matters."
The two major classifications of Municipal Securities are bonds and
notes. Bonds may be further classified as "general obligation" or "revenue"
issues. General obligation bonds are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue bonds are payable from the revenues derived from a particular facility
or class of facilities, and in some cases, from the proceeds of a special excise
or other specific revenue source, but not from the general taxing power.
Tax-exempt industrial development bonds are in most cases revenue bonds and do
not generally carry the pledge of the credit of the issuing municipality. Notes
are short-term instruments which usually mature in less than two years. Most
notes are general obligations of the issuing municipalities or agencies and are
sold in anticipation of a bond sale, collection of taxes or receipt of other
revenues. There are, of course, variations in the risks associated with
Municipal Securities, both within a particular classification and between
classifications. The Funds' assets may consist of any combination of general
obligation bonds, revenue bonds, industrial revenue bonds and notes. The
percentage of such Municipal Securities held by a Fund will vary from time to
time.
Municipal Securities also include the following securities:
o Bond Anticipation Notes usually are general
obligations of state and local governmental issuers
which are sold to obtain interim financing for
projects that will eventually be funded through the
sale of long-term debt obligations or bonds.
o Tax Anticipation Notes are issued by state and local
governments to finance the current operations of such
governments. Repayment is generally to be derived
from specific future tax revenues. Tax anticipation
notes are usually general obligations of the issuer.
o Revenue Anticipation Notes are issued by governments
or governmental bodies with the expectation that
future revenues from a designated source will be used
to repay the notes. In general, they also constitute
general obligations of the issuer.
o Tax-Exempt Commercial Paper (Municipal Paper) is
similar to taxable commercial paper, except that
tax-exempt commercial paper is issued by states,
municipalities and their agencies.
Certain Funds also may purchase participation interests or custodial
receipts from financial institutions. These participation interests give the
purchaser an undivided interest in one or more underlying Municipal Securities.
Subsequent to its purchase by a Fund, an issue of Municipal Securities
may cease to be rated by Moody's Investors Service, Inc. ("Moody's") or Standard
and Poor's Ratings Services ("S&P"), or another nationally recognized
statistical rating organization ("NRSRO"), or the rating of such a security may
be reduced below the minimum rating required for purchase by a Fund. Neither
event would require a Fund to dispose of the security, but AIM will consider
such events to be relevant in determining whether the Fund should continue to
hold the security. To the extent that the ratings applied by Moody's, S&P or
another NRSRO to Municipal Securities may change as a result of changes in these
rating systems, a Fund will attempt to use comparable ratings as standards for
its investments in Municipal Securities in accordance with the investment
policies described herein.
Quality Standards. The following quality standards apply at the time a
security is purchased. Information concerning the ratings criteria of Moody's,
S&P, and Fitch Investors Service, Inc. ("Fitch") appears herein under "Appendix
A -- Ratings of Debt Securities".
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If a Fund invests in securities backed by insurance companies and other
financial institutions, changes in the financial condition of these institutions
could cause losses to the Fund and affect its share price.
Certain Funds may invest in securities which are insured by financial
insurance companies. Since a limited number of entities provide such insurance,
a Fund may invest more than 25% of its assets in securities insured by the same
insurance company.
Other Considerations. The ability of a Fund to achieve its investment
objective depends upon the continuing ability of the issuers or guarantors of
Municipal Securities held by a Fund to meet their obligations for the payment of
interest and principal when due. The securities in which a Fund invests may not
yield as high a level of current income as longer term or lower grade
securities, which generally have less liquidity and greater fluctuation in
value.
There is a risk that some or all of the interest received by the Fund
from Municipal Securities might become taxable as a result of tax law changes or
determinations of the Internal Revenue Service ("IRS").
The yields on Municipal Securities are dependent on a variety of
factors, including general economic and monetary conditions, money market
factors, conditions of the Municipal Securities market, size of a particular
offering, and maturity and rating of the obligation. Generally, the yield
realized by a Fund's shareholders will be the yield realized by the Fund on its
investments, reduced by the general expenses of the Fund and the Trust. The
market values of the Municipal Securities held by the Fund will be affected by
changes in the yields available on similar securities. If yields increase
following the purchase of a Municipal Security, the market value of such
Municipal Security will generally decrease. Conversely, if yields decrease, the
market value of a Municipal Security will generally increase.
INVESTMENT GRADE CORPORATE DEBT OBLIGATIONS. Each Fund may invest in
U.S. dollar-denominated debt obligations issued or guaranteed by U.S.
corporations or U.S. commercial banks, U.S. dollar-denominated obligations of
foreign issuers and debt obligations of foreign issuers denominated in foreign
currencies. Such debt obligations include, among others, bonds, notes,
debentures and variable rate demand notes. In choosing corporate debt securities
on behalf of a Fund, its investment adviser may consider: (i) general economic
and financial conditions; (ii) the specific issuer's (a) business and
management, (b) cash flow, (c) earnings coverage of interest and dividends, (d)
ability to operate under adverse economic conditions, (e) fair market value of
assets, and (f) in the case of foreign issuers, unique political, economic or
social conditions applicable to such issuer's country; and, (iii) other
considerations deemed appropriate.
JUNK BONDS. Certain Funds may invest in junk bonds. Junk bonds are
lower-rated or non-rated debt securities. Junk bonds are considered speculative
with respect to their capacity to pay interest and repay principal in accordance
with the terms of the obligation. While generally providing greater income and
opportunity for gain, non-investment grade debt securities are subject to
greater risks than higher-rated securities.
Companies that issue junk bonds are often highly leveraged, and may not
have more traditional methods of financing available to them. During an economic
downturn or recession, highly leveraged issuers of high yield securities may
experience financial stress, and may not have sufficient revenues to meet their
interest payment obligations. Economic downturns tend to disrupt the market for
junk bonds, lowering their values, and increasing their price volatility. The
risk of issuer default is higher with respect to junk bonds because such issues
are generally unsecured and are often subordinated to other creditors of the
issuer.
The credit rating of a junk bond does not necessarily address its
market value risk, and ratings may from time to time change to reflect
developments regarding the issuer's financial condition. The lower the rating of
a junk bond, the more speculative its characteristics.
19
A Fund may have difficulty selling certain junk bonds because they may
have a thin trading market. The lack of a liquid secondary market may have an
adverse effect on the market price and a Fund's ability to dispose of particular
issues and may also make it more difficult for the Fund to obtain accurate
market quotations of valuing these assets. In the event a Fund experiences an
unexpected level of net redemptions, the Fund could be forced to sell its junk
bonds at an unfavorable price. Prices of junk bonds have been found to be less
sensitive to fluctuations in interest rates, and more sensitive to adverse
economic changes and individual corporate developments than those of
higher-rated debt securities.
LIQUID ASSETS. Cash equivalents include money market instruments (such
as certificates of deposit, time deposits, bankers' acceptances from U.S. or
foreign banks, and repurchase agreements), shares of affiliated money market
funds or high-quality debt obligations (such as U.S. Government obligations,
commercial paper, master notes and other short-term corporate instruments, and
municipal obligations).
Descriptions of debt securities ratings are found in Appendix A.
Other Investments
REAL ESTATE INVESTMENT TRUSTS ("REITs"). REITs are trusts that 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 consistent with their respective investment objectives
and policies, each Fund may invest up to 15% of its total assets in equity
and/or debt securities issued by REITs.
To the extent that a Fund has the ability to invest in REITs, the Fund
could conceivably own real estate directly as a result of a default on the
securities it owns. A Fund, 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, equity REITs may be affected
by any changes in the value of the underlying property owned by the trusts,
while mortgage REITs may be affected by the quality of any credit extended.
Equity and mortgage 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. Such trusts 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 the Fund, but also, indirectly, similar
expenses of the REITs.
OTHER INVESTMENT COMPANIES. Each Fund may purchase shares of other
investment companies. As discussed previously, the Asset Allocation Funds are
structured as "funds of funds" under the 1940 Act and invest in other investment
companies that have AIM as an investment advisor (the "AIM Funds"). The Funds
other than the Asset Allocation Funds are prohibited under the 1940 Act from
purchasing shares of other AIM Funds, absent an exemptive order from the SEC.
The Funds other than the Asset Allocation Funds have obtained such an exemptive
order allowing them to invest in money market funds that have AIM or an
affiliate of AIM as an investment advisor (the "Affiliated Money Market Funds"),
provided that investments in Affiliated Money Market Funds do not exceed 25% of
the total assets of the investing Fund. As "funds of funds" under the 1940 Act,
the Asset Allocation Funds are not subject to this restriction.
20
For each Fund other than the Asset Allocation Funds, the following
restrictions apply to investments in other investment companies: (i) a Fund may
not purchase more than 3% of the total outstanding voting stock of another
investment company; (ii) a Fund may not invest more than 5% of its total assets
in securities issued by another investment company; and (iii) a Fund may not
invest more than 10% of its total assets in securities issued by other
investment companies. These restrictions do not apply to the Funds' investments
in Affiliated Money Market Funds, although such investments are subject to the
25% restriction discussed above. Also, as "funds of funds" under the 1940 Act,
the Asset Allocation Funds are not subject to these restrictions.
WITH RESPECT TO A FUND'S PURCHASE OF SHARES OF ANOTHER INVESTMENT COMPANY,
INCLUDING AN AFFILIATED MONEY MARKET FUND AND AN UNDERLYING AIM FUND (IN THE
CASE OF THE ASSET ALLOCATION FUNDS), THE FUND WILL INDIRECTLY BEAR ITS
PROPORTIONATE SHARE OF THE ADVISORY FEES AND OTHER OPERATING EXPENSES OF SUCH
INVESTMENT COMPANY.
DEFAULTED SECURITIES. Certain Funds may invest in defaulted securities.
In order to enforce its rights in defaulted securities, a Fund may be required
to participate in various legal proceedings or take possession of and manage
assets securing the issuer's obligations on the defaulted securities. This could
increase a Fund's operating expenses and adversely affect its net asset value.
Any investments by the Funds in defaulted securities will also be considered
illiquid securities subject to the limitations described herein, unless AIM
determines that such defaulted securities are liquid under guidelines adopted by
the Board.
VARIABLE OR FLOATING RATE INSTRUMENTS. Certain Funds may invest in
securities which have variable or floating interest rates which are readjusted
on set dates (such as the last day of the month or calendar quarter) in the case
of variable rates or whenever a specified interest rate change occurs in the
case of a floating rate instrument. Variable or floating interest rates
generally reduce changes in the market price of securities from their original
purchase price because, upon readjustment, such rates approximate market rates.
Accordingly, as interest rates decrease or increase, the potential for capital
appreciation or depreciation is less for variable or floating rate securities
than for fixed rate obligations. Many securities with variable or floating
interest rates purchased by a Fund are subject to payment of principal and
accrued interest (usually within seven days) on the Fund's demand. The terms of
such demand instruments require payment of principal and accrued interest by the
issuer, a guarantor, and/or a liquidity provider. All variable or floating rate
instruments will meet the applicable quality standards of a Fund. AIM will
monitor the pricing, quality and liquidity of the variable or floating rate
securities held by the Funds.
INDEXED SECURITIES. Certain Funds may invest in indexed securities the
value of which is linked to interest rates, commodities, indices or other
financial indicators. Most indexed securities are short to intermediate term
fixed income securities whose values at maturity (principal value) or interest
rates rise or fall according to changes in the value of one or more specified
underlying instruments. Indexed securities may be positively or negatively
indexed (i.e., their principal value or interest rates may increase or decrease
if the underlying instrument appreciates), and may have return characteristics
similar to direct investments in the underlying instrument or to one or more
options on the underlying instrument. Indexed securities may be more volatile
than the underlying instrument itself and could involve the loss of all or a
portion of the principal amount of the indexed security.
ZERO-COUPON AND PAY-IN-KIND SECURITIES. Certain Funds may invest in
zero-coupon or pay-in-kind securities. These securities are debt securities that
do not make regular cash interest payments. Zero-coupon securities are sold at a
deep discount to their face value. Pay-in-kind securities pay interest through
the issuance of additional securities. Because zero-coupon and pay-in-kind
securities do not pay current cash income, the price of these securities can be
volatile when interest rates fluctuate. While these securities do not pay
current cash income, federal tax law requires the holders of zero-coupon and
pay-in-kind securities to include in income each year the portion of the
original issue discount (or deemed discount) and other non-cash income on such
securities accrued during that year. In order to qualify as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code") and
21
to avoid certain excise taxes, certain Underlying Funds may be required to
distribute a portion of such discount and income, and may be required to dispose
of other portfolio securities, which could occur during periods of adverse
market prices, in order to generate sufficient cash to meet these distribution
requirements.
Investment Techniques
DELAYED DELIVERY TRANSACTIONS. Delayed delivery transactions, also
referred to as forward commitments, involve commitments by a Fund to dealers or
issuers to acquire or sell securities at a specified future date beyond the
customary settlement for such securities. These commitments may fix the payment
price and interest rate to be received or paid on the investment. A Fund may
purchase securities on a delayed delivery basis to the extent it can anticipate
having available cash on settlement date. Delayed delivery agreements will not
be used as a speculative or leveraging technique.
Investment in securities on a delayed delivery basis may increase a
Fund's exposure to market fluctuation and may increase the possibility that the
Fund will incur short-term gains subject to federal taxation or short-term
losses if the Fund must engage in portfolio transactions in order to honor a
delayed delivery commitment. Until the settlement date, a Fund will segregate
liquid assets of a dollar value sufficient at all times to make payment for the
delayed delivery transactions. Such segregated liquid assets will be
marked-to-market daily, and the amount segregated will be increased if necessary
to maintain adequate coverage of the delayed delivery commitments. No additional
delayed delivery agreements or when-issued commitments (as described below) will
be made by a Fund if, as a result, more than 25% of the Fund's total assets
would become so committed.
The delayed delivery securities, which will not begin to accrue
interest or dividends until the settlement date, will be recorded as an asset of
a Fund and will be subject to the risk of market fluctuation. The purchase price
of the delayed delivery securities is a liability of a Fund until settlement.
Absent extraordinary circumstances, a Fund will not sell or otherwise transfer
the delayed delivery basis securities prior to settlement.
A Fund may enter into buy/sell back transactions (a form of delayed
delivery agreement). In a buy/sell back transaction, a Fund enters a trade to
sell securities at one price and simultaneously enters a trade to buy the same
securities at another price for settlement at a future date.
WHEN-ISSUED SECURITIES. Purchasing securities on a "when-issued" basis
means that the date for delivery of and payment for the securities is not fixed
at the date of purchase, but is set after the securities are issued. The payment
obligation and, if applicable, the interest rate that will be received on the
securities are fixed at the time the buyer enters into the commitment. A Fund
will only make commitments to purchase such securities with the intention of
actually acquiring such securities, but the Fund may sell these securities
before the settlement date if it is deemed advisable.
Securities purchased on a when-issued basis and the securities held in
a Fund's portfolio are subject to changes in market value based upon the
public's perception of the creditworthiness of the issuer and, if applicable,
changes in the level of interest rates. Therefore, if a Fund is to remain
substantially fully invested at the same time that it has purchased securities
on a when-issued basis, there will be a possibility that the market value of the
Fund's assets will fluctuate to a greater degree. Furthermore, when the time
comes for the Fund to meet its obligations under when-issued commitments, the
Fund will do so by using then available cash flow, by sale of the segregated
liquid assets, by sale of other securities or, although it would not normally
expect to do so, by directing the sale of the when-issued securities themselves
(which may have a market value greater or less than the Fund's payment
obligation).
Investment in securities on a when-issued basis may increase a Fund's
exposure to market fluctuation and may increase the possibility that the Fund
will incur short-term gains subject to federal taxation or short-term losses if
the Fund must sell another security in order to honor a when-issued commitment.
If a Fund purchases a when-issued security, the Fund will segregate liquid
assets in an
22
amount equal to the when-issued commitment. If the market value of such
segregated assets declines, additional liquid assets will be segregated on a
daily basis so that the market value of the segregated assets will equal the
amount of the Fund's when-issued commitments. No additional delayed delivery
agreements (as described above) or when-issued commitments will be made by a
Fund if, as a result, more than 25% of the Fund's total assets would become so
committed.
SHORT SALES. In a short sale, a Fund does not immediately deliver the
securities sold and does not receive the proceeds from the sale. A Fund is said
to have a short position in the securities sold until it delivers the securities
sold, at which time it receives the proceeds of the sale. A Fund will make a
short sale, as a hedge, when it believes that the price of a security may
decline, causing a decline in the value of a security owned by the Fund or a
security convertible into or exchangeable for such security, or when the Fund
does not want to sell the security it owns, because it wishes to defer
recognition of gain or loss for federal income tax purposes. In such case, any
future losses in a Fund's long position should be reduced by a gain in the short
position. Conversely, any gain in the long position should be reduced by a loss
in the short position. The extent to which such gains or losses are reduced will
depend upon the amount of the security sold short relative to the amount a Fund
owns, either directly or indirectly, and, in the case where the Fund owns
convertible securities, changes in the conversion premium. In determining the
number of shares to be sold short against a Fund's position in a convertible
security, the anticipated fluctuation in the conversion premium is considered. A
Fund may also make short sales to generate additional income from the investment
of the cash proceeds of short sales.
A Fund will only make short sales "against the box," meaning that at
all times when a short position is open, the Fund owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and in an amount
equal to, the securities sold short. To secure its obligation to deliver the
securities sold short, a Fund will segregate with its custodian an equal amount
of the securities sold short or securities convertible into or exchangeable for
such securities. A Fund may pledge no more than 10% of its total assets as
collateral for short sales against the box.
MARGIN TRANSACTIONS. None of the Funds will purchase any security on
margin, except that each Fund may obtain such short-term credits as may be
necessary for the clearance of purchases and sales of portfolio securities. The
payment by a Fund of initial or variation margin in connection with futures or
related options transactions will not be considered the purchase of a security
on margin.
SWAP AGREEMENTS. Certain Funds may enter into interest rate, index and
currency exchange rate swap agreements for purposes of attempting to obtain a
particular desired return at a lower cost to the Fund than if it had invested
directly in an instrument that yielded that desired return. Swap agreements are
two-party contracts entered into primarily by institutional investors for
periods ranging from a few weeks to more than one year. In a standard "swap"
transaction, two parties agree to exchange the returns (or differentials in
rates of return) earned or realized on particular predetermined investments or
instruments. The gross returns to be exchanged or "swapped" between the parties
are calculated with respect to a "notional amount," i.e., the return on or
increase in value of a particular dollar amount invested at a particular
interest rate, in a particular foreign currency, or in a "basket" of securities
representing a particular index. Commonly used swap agreements include: (i)
interest rate caps, under which, in return for a premium, one party agrees to
make payments to the other to the extent that interest rates exceed a specified
rate, or "cap"; (ii) interest rate floors, under which, in return for a premium,
one party agrees to make payments to the other to the extent that interest rates
fall below a specified level, or "floor"; and (iii) interest rate collars, under
which a party sells a cap and purchases a floor or vice versa in an attempt to
protect itself against interest rate movements exceeding given minimum or
maximum levels.
The "notional amount" of the swap agreement is only a fictitious basis
on which to calculate the obligations that the parties to a swap agreement have
agreed to exchange. Most swap agreements entered into by a Fund would calculate
the obligations on a "net basis." Consequently, a Fund's obligations (or rights)
under a swap agreement will generally be equal only to the net amount to be paid
or received under the agreement based on the relative values of the positions
held by each party to the agreement (the "net amount"). Obligations under a swap
agreement will be accrued daily (offset against
23
amounts owing to the Fund) and any accrued but unpaid net amounts owed to a swap
counterparty will be covered by segregating liquid assets to avoid any potential
leveraging of the Fund. A Fund will not enter into a swap agreement with any
single party if the net amount owed to or to be received under existing
contracts with that party would exceed 5% of the Fund's total assets.
CREDIT DEFAULT SWAPS. Certain Funds may enter into Credit Default Swaps
("CDS"). A CDS is an agreement between two parties pursuant to which one party
agrees to make one or more payments to the other, while the other party would
assume the risk of a referenced debt obligation in the event of default. CDS may
be direct ("unfunded swaps") or indirect in the form of a structured note
("funded swaps"). Unfunded and funded credit default swaps may be on a single
security or packaged as a basket of CDS. The Fund may buy a CDS ("buy credit
protection") in which it pays a fixed payment over the life of the swap in
exchange for a counterparty taking on the risk of default of a referenced debt
obligation ("Reference Entity"). Alternatively, the Fund may sell a CDS ("sell
protection") in which it will receive a fixed payment in exchange for taking on
the credit risk of the Reference Entity. An investment in a CDS may cause the
portfolio performance to be more or less volatile.
CDS agreements are typically individually negotiated and structured.
CDS agreements may be entered into for investment or hedging purposes. The Fund
may enter into CDS to create direct or synthetic long or short exposure to
domestic or foreign corporate debt securities or sovereign debt securities.
As a buyer of a CDS, the Fund would pay a fixed spread over the life of
the agreement to the seller of the CDS. If an event of default occurs, the fixed
payment stream would cease, the Fund would deliver defaulted bonds to the seller
and the seller would pay the full notional value, or the "par value", of the
reference obligation to the Fund. The Fund may already own the reference bonds
or may purchase a deliverable bond in the market. Alternatively, the two
counterparties may agree to cash settlement. If no event of default occurs, the
Fund pays the fixed stream of cash flows to the seller, and no other exchange
occurs.
As a seller of CDS, the Fund would receive a fixed payment stream. If
an event of default occurs, the fixed payment stream stops, the Fund would pay
the buyer par, and, in return, the Fund would receive deliverable bonds.
Alternatively, if cash settlement is elected, the Fund would pay the buyer par
less the market value of the referenced bonds. If no event of default occurs,
the Fund receives the cash flow payment over the life of the agreement.
Risks of CDS include the risk that a counterparty may default on
amounts owed to the Fund, basis risk (risk that the price of a derivative used
to hedge or reflect an underlying bond behaves differently than the price of
that bond), liquidity risk and market risk.
Credit Derivatives may create covered or uncovered exposure to the
Funds. The Funds generally will employ a strategy of setting aside liquid assets
to cover any potential obligation. This strategy would be employed to avoid
multiplying a Fund's economic exposure and would limit risks of leveraging. For
example, the Fund may sell protection on a Reference Entity bearing the risk of
delivering par to the counterparty. The Fund would set aside liquid assets,
marked to the market daily, to cover this potential obligation.
CDS agreements are generally governed by a single master agreement for
each counterparty, and the agreements allow for netting of counterparties'
obligations on specific transactions. The Fund's obligation or rights will be
the net amount owed to or by the counterparty. A Fund's current obligations
under a swap agreement will be accrued daily (on a net basis), and the Fund will
maintain liquid assets in an amount equal to amounts owed to a swap counterparty
less the value of any collateral posted. The Fund will not enter into a swap
agreement with an single counterparty if the net amount owed or to be received
under existing contracts with that counterparty would exceed 5% of the Fund's
net assets determined on the date the CDS is entered into.
24
CDS Options. The Fund may additionally enter into CDS option
transactions which grant the holder the right, but not the obligation, to enter
into a credit default swap at a specified future date and under specified terms
in exchange for a purchase price ("premium"). The writer of the option bears the
risk of any unfavorable move in the value of the CDS relative to the market
value on the exercise date, while the purchaser may allow the option to expire
unexercised. For a discussion of the tax considerations relating to swap
agreements, see "Dividends, Distributions and Tax Matters -- Swap Agreements and
Credit Default Swap Agreements."
INTERFUND LOANS. Each Fund may lend uninvested cash up to 15% of its
net assets to other funds advised by AIM (the "AIM Funds") and each Fund may
borrow from other AIM Funds to the extent permitted under such Fund's investment
restrictions. During temporary or emergency periods, the percentage of a Fund's
net assets that may be loaned to other AIM Funds may be increased as permitted
by the SEC. If any interfund borrowings are outstanding, a Fund cannot make any
additional investments. If a Fund has borrowed from other AIM Funds and has
aggregate borrowings from all sources that exceed 10% of such Fund's total
assets, such Fund will secure all of its loans from other AIM Funds. The ability
of a Fund to lend its securities to other AIM Funds is subject to certain other
terms and conditions.
BORROWING. Each Fund may borrow money to a limited extent for temporary
or emergency purposes. If there are unusually heavy redemptions because of
changes in interest rates or for any other reason, a Fund may have to sell a
portion of its investment portfolio at a time when it may be disadvantageous to
do so. Selling fund securities under these circumstances may result in a lower
net asset value per share or decreased dividend income, or both. The Trust
believes that, in the event of abnormally heavy redemption requests, a Fund's
borrowing ability would help to mitigate any such effects and could make the
forced sale of their portfolio securities less likely.
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 costs 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.
REPURCHASE AGREEMENTS. Repurchase agreements are agreements under which
a Fund acquires ownership of a security from a broker-dealer or bank that agrees
to repurchase the security at a mutually agreed upon time and price (which is
higher than the purchase price), thereby determining the yield during the Fund's
holding period. A Fund may, however, enter into a "continuing contract" or
"open" repurchase agreement under which the seller is under a continuing
obligation to repurchase the underlying obligation from the Fund on demand and
the effective interest rate is negotiated on a daily basis. Each of the Funds
may engage in repurchase agreement transactions involving the types of
securities in which it is permitted to invest.
25
If the seller of a repurchase agreement fails to repurchase the
security in accordance with the terms of the agreement, a 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. The
securities underlying a repurchase agreement will be marked-to-market every
business day so that the value of such securities is at least equal to the
investment value of the repurchase agreement, including any accrued interest
thereon.
The Funds may invest their cash balances in joint accounts with other
AIM Funds for the purpose of investing in repurchase agreements with maturities
not to exceed 60 days, and in certain other money market instruments with
remaining maturities not to exceed 90 days. Repurchase agreements are considered
loans by a Fund under the 1940 Act.
The investment policies of certain Underlying Funds permit them to
invest in repurchase agreements with banks and broker-dealers pertaining to U.S.
Treasury obligations. However, in order to maximize the Fund's dividends which
are exempt from state income taxation, as a matter of operating policy, the Fund
does not currently invest in repurchase agreements.
REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements are
agreements that involve the sale of securities held by a Fund to financial
institutions such as banks and broker-dealers, with an agreement that the Fund
will repurchase the securities at an agreed upon price and date. A Fund may
employ reverse repurchase agreements (i) for temporary emergency purposes, such
as to meet unanticipated net redemptions so as to avoid liquidating other
portfolio securities during unfavorable market conditions; (ii) to cover
short-term cash requirements resulting from the timing of trade settlements; or
(iii) to take advantage of market situations where the interest income to be
earned from the investment of the proceeds of the transaction is greater than
the interest expense of the transaction. At the time it enters into a reverse
repurchase agreement, a Fund will segregate liquid assets having a dollar value
equal to the repurchase price, and will subsequently continually monitor the
account to ensure that such equivalent value is maintained at all times. Reverse
repurchase agreements involve the risk that the market value of securities to be
purchased by the Fund may decline below the price at which it is obligated to
repurchase the securities, or that the other party may default on its
obligation, so that the Fund is delayed or prevented from completing the
transaction. Reverse repurchase agreements are considered borrowings by a Fund
under the 1940 Act.
DOLLAR ROLLS. A dollar roll involves the sale by a Fund of a mortgage
security to a financial institution such as a broker-dealer or a bank, with an
agreement to repurchase a substantially similar (i.e., same type, coupon and
maturity) security at an agreed upon price and date. The mortgage securities
that are purchased will bear the same interest rate as those sold, but will
generally be collateralized by different pools of mortgages with different
prepayment histories. During the period between the sale and repurchase, a Fund
will not be entitled to receive interest and principal payments on the
securities sold. Proceeds of the sale will be invested in short-term
instruments, and the income from these investments, together with any additional
fee income received on the sale, could generate income for a Fund exceeding the
yield on the sold security.
Dollar roll transactions involve the risk that the market value of the
securities retained by the Fund may decline below the price of the securities
that the Fund has sold but is obligated to repurchase under the agreement. In
the event the buyer of securities under a dollar roll transaction files for
bankruptcy or becomes insolvent, the Fund's use of the proceeds from the sale of
the securities may be restricted pending a determination by the other party, or
its trustee or receiver, whether to enforce the Fund's obligation to repurchase
the securities. At the time the Fund enters into a dollar roll, it will
segregate liquid assets having a dollar value equal to the repurchase price, and
will monitor the account to ensure that such equivalent value is maintained. The
Fund typically enters into dollar roll transactions to enhance the Fund's return
either on an income or total return basis or to manage pre-payment risk. Dollar
rolls are considered borrowings by a Fund under the 1940 Act.
ILLIQUID SECURITIES. Illiquid securities are securities that cannot be
disposed of within seven days in the normal course of business at the price at
which they are valued. Illiquid securities may include
26
securities that are subject to restrictions on resale because they have not been
registered under the Securities Act of 1933 (the "1933 Act"). Restricted
securities may, in certain circumstances, be resold pursuant to Rule 144A under
the 1933 Act, and thus may or may not constitute illiquid securities.
Each Fund may invest up to 15% of its net assets in securities that are
illiquid. Limitations on the resale of restricted securities may have an adverse
effect on their marketability, which may prevent a Fund from disposing of them
promptly at reasonable prices. A Fund may have to bear the expense of
registering such securities for resale, and the risk of substantial delays in
effecting such registrations.
RULE 144A SECURITIES. Rule 144A securities are securities which, while
privately placed, are eligible for purchase and resale pursuant to Rule 144A
under the 1933 Act. This Rule permits certain qualified institutional buyers,
such as the Funds, to trade in privately placed securities even though such
securities are not registered under the 1933 Act. AIM, under the supervision of
the Board, will consider whether securities purchased under Rule 144A are
illiquid and thus subject to the Funds' restriction on investment in illiquid
securities. Determination of whether a Rule 144A security is liquid or not is a
question of fact. In making this determination AIM will consider the trading
markets for the specific security taking into account the unregistered nature of
a Rule 144A security. In addition, AIM could consider the (i) frequency of
trades and quotes; (ii) number of dealers and potential purchasers; (iii) dealer
undertakings to make a market; and (iv) nature of the security and of market
place trades (for example, the time needed to dispose of the security, the
method of soliciting offers and the mechanics of transfer). AIM will also
monitor the liquidity of Rule 144A securities and, if as a result of changed
conditions, AIM determines that a Rule 144A security is no longer liquid, AIM
will review a Fund's holdings of illiquid securities to determine what, if any,
action is required to assure that such Fund complies with its restriction on
investment in illiquid securities. Investing in Rule 144A securities could
increase the amount of each Fund's investments in illiquid securities if
qualified institutional buyers are unwilling to purchase such securities.
UNSEASONED ISSUERS. Investments in the equity securities of companies
having less than three years' continuous operations (including operations of any
predecessor) involve more risk than investments 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.
SALE OF MONEY MARKET SECURITIES. The money market fund in which AIM
Conservative Allocation Fund and AIM Moderately Conservative Allocation Fund
invests does not seek profits through short-term trading and will generally hold
portfolio securities to maturity. However, AIM may seek to enhance the yield of
the Fund by taking advantage of yield disparities that occur in the money
markets. For example, market conditions frequently result in similar securities
trading at different prices. AIM may dispose of any portfolio security prior to
its maturity if such disposition and reinvestment of proceeds are expected to
enhance yield consistent with AIM's judgment as to desirable portfolio maturity
structure. AIM may also dispose of any portfolio security prior to maturity to
meet redemption requests, and as a result of a revised credit evaluation of the
issuer or other circumstances or considerations. The Fund's policy of investing
in securities with maturities of 397 days or less will result in high portfolio
turnover. Since brokerage commissions are not normally paid on investments of
the type made by the Fund, the high turnover should not adversely affect the
Fund's net income.
Derivatives
The Funds may each invest in forward currency contracts, futures
contracts, options on securities, options on indices, options on currencies, and
options on futures contracts to attempt to hedge against the overall level of
investment and currency risk normally associated with each Fund's investments.
The Funds may also invest in equity-linked derivative products designed to
replicate the composition and performance of particular indices. These
instruments are often referred to as "derivatives," which may be defined as
financial instruments whose performance is derived, at least in part, from the
performance of another asset (such as a security, currency or an index of
securities).
27
Certain of the Underlying Funds may not invest in puts, calls,
straddles, spreads or any combination thereof.
EQUITY-LINKED DERIVATIVES. Equity-Linked Derivatives are interests in a
securities portfolio designed to replicate the composition and performance of a
particular index. Equity-Linked Derivatives are exchange traded. The performance
results of Equity-Linked Derivatives will not replicate exactly the performance
of the pertinent index due to transaction and other expenses, including fees to
service providers, borne by the Equity-Linked Derivatives. Examples of such
products include S&P Depositary Receipts ("SPDRs"), World Equity Benchmark
Series ("WEBs"), NASDAQ 100 tracking shares ("QQQs"), Dow Jones Industrial
Average Instruments ("DIAMONDS") and Optimised Portfolios As Listed Securities
("OPALS"). Investments in Equity-Linked Derivatives involve the same risks
associated with a direct investment in the types of securities included in the
indices such products are designed to track. There can be no assurance that the
trading price of the Equity-Linked Derivatives will equal the underlying value
of the basket of securities purchased to replicate a particular index or that
such basket will replicate the index. Investments in Equity-Linked Derivatives
may constitute investments in other investment companies and, therefore, a Fund
may be subject to the same investment restrictions with Equity-Linked
Derivatives as with other investment companies. See "Other Investment
Companies."
BUNDLED SECURITIES. In lieu of investing directly in securities
appropriate for certain Funds, those Funds may from time to time invest in trust
certificates (such as TRAINS) or similar instruments representing fractional
undivided interest in an underlying pool of such appropriate securities. The
Funds will be permitted at any time to exchange such certificates for the
underlying securities evidenced by such certificates. To that extent, such
certificates are generally subject to the same risks as the underlying
securities. The Funds will examine the characteristics of the underlying
securities for compliance with most investment criteria but will determine
liquidity with reference to the certificates themselves. To the extent that such
certificates involve interest rate swaps or other derivative devices, a Fund may
invest in such certificates if the Fund is permitted to engage in interest rate
swaps or other such derivative devices.
PUT AND CALL OPTIONS. A call option gives the purchaser the right to
buy the underlying security, contract or foreign currency at the stated exercise
price at any time prior to the expiration of the option (or on a specified date
if the option is a European style option), regardless of the market price or
exchange rate of the security, contract or foreign currency, as the case may be
at the time of exercise. If the purchaser exercises the call option, the writer
of a call option is obligated to sell the underlying security, contract or
foreign currency. A put option gives the purchaser the right to sell the
underlying security, contract or foreign currency at the stated exercise price
at any time prior to the expiration date of the option (or on a specified date
if the option is a European style option), regardless of the market price or
exchange rate of the security, contract or foreign currency, as the case may be
at the time of exercise. If the purchaser exercises the put option, the writer
of a put option is obligated to buy the underlying security, contract or foreign
currency. The premium paid to the writer is consideration for undertaking the
obligations under the option contract. Until an option expires or is offset, the
option is said to be "open." When an option expires or is offset, the option is
said to be "closed."
A Fund will not write (sell) options if, immediately after such sale,
the aggregate value of securities or obligations underlying the outstanding
options exceeds 20% of the Fund's total assets. A Fund will not purchase options
if, at any time of the investment, the aggregate premiums paid for the options
will exceed 5% of the Fund's total assets.
Pursuant to federal securities rules and regulations, if a Fund writes
options it may be required to set aside assets to reduce the risks associated
with writing those options. This process is described in more detail below in
the section "Cover."
Writing Options. A Fund may write put and call options in an attempt to
realize, through the receipt of premiums, a greater current return than would be
realized on the underlying security, contract, or foreign currency alone. A Fund
may only write a call option on a security if it owns an equal amount of such
securities or securities convertible, into or exchangeable, without payment of
any further
28
consideration, for securities of the same issue as, and equal in amount to, the
securities subject to the call option. In return for the premium received for
writing a call option, the Fund foregoes the opportunity for profit from a price
increase in the underlying security, contract, or foreign currency above the
exercise price so long as the option remains open, but retains the risk of loss
should the price of the security, contract, or foreign currency decline.
A Fund may write a put option without owning the underlying security if
it covers the option as described below in the section "Cover." A Fund may only
write a put option on a security as part of an investment strategy, and not for
speculative purposes. In return for the premium received for writing a put
option, the Fund assumes the risk that the price of the underlying security,
contract, or foreign currency will decline below the exercise price, in which
case the put would be exercised and the Fund would suffer a loss.
If an option that a Fund has written expires, it will realize a gain in
the amount of the premium; however, such gain may be offset by a decline in the
market value of the underlying security, contract or currency during the option
period. If the call option is exercised, a Fund will realize a gain or loss from
the sale of the underlying security, contract or currency, which will be
increased or offset by the premium received. A Fund would write a put option at
an exercise price that, reduced by the premium received on the option, reflects
the price it is willing to pay for the underlying security, contract or
currency. The obligation imposed upon the writer of an option is terminated upon
the expiration of the option, or such earlier time at which a Fund effects a
closing purchase transaction by purchasing an option (put or call as the case
may be) identical to that previously sold.
Writing call options can serve as a limited hedge because declines in
the value of the hedged investment would be offset to the extent of the premium
received for writing the option. Closing transactions may be effected in order
to realize a profit on an outstanding call option, to prevent an underlying
security, contract or currency from being called or to permit the sale of the
underlying security, contract or currency. Furthermore, effecting a closing
transaction will permit a Fund to write another call option on the underlying
security, contract or currency with either a different exercise price or
expiration date, or both.
Purchasing Options. A Fund may purchase a call option for the purpose
of acquiring the underlying security, contract or currency for its portfolio.
The Fund is not required to own the underlying security in order to purchase a
call option, and may only cover this transaction with cash, liquid assets and/or
short-term debt securities. Utilized in this fashion, the purchase of call
options would enable a Fund to acquire the security, contract or currency at the
exercise price of the call option plus the premium paid. So long as it holds
such a call option, rather than the underlying security or currency itself, the
Fund is partially protected from any unexpected increase in the market price of
the underlying security, contract or currency. If the market price does not
exceed the exercise price, the Fund could purchase the security on the open
market and could allow the call option to expire, incurring a loss only to the
extent of the premium paid for the option. Each of the Funds may also purchase
call options on underlying securities, contracts or currencies against which it
has written other call options. For example, where a Fund has written a call
option on an underlying security, rather than entering a closing transaction of
the written option, it may purchase a call option with a different exercise
strike and/or expiration date that would eliminate some or all of the risk
associated with the written call. Used in combinations, these strategies are
commonly referred to as "call spreads."
A Fund may only purchase a put option on an underlying security,
contract or currency ("protective put") owned by the Fund in order to protect
against an anticipated decline in the value of the security, contract or
currency. Such hedge protection is provided only during the life of the put
option. The premium paid for the put option and any transaction costs would
reduce any profit realized when the security, contract or currency is delivered
upon the exercise of the put option. Conversely, if the underlying security,
contract or currency does not decline in value, the option may expire worthless
and the premium paid for the protective put would be lost. A Fund may also
purchase put options on underlying securities, contracts or currencies against
which it has written other put options. For example, where a Fund has written a
put option on an underlying security, rather than entering a closing
29
transaction of the written option, it may purchase a put option with a different
exercise price and/or expiration date that would eliminate some or all of the
risk associated with the written put. Used in combinations, these strategies are
commonly referred to as "put spreads." Likewise, a Fund may write call options
on underlying securities, contracts or currencies against which it has purchased
protective put options. This strategy is commonly referred to as a "collar."
Over-The-Counter Options. Options may be either listed on an exchange
or traded in over-the-counter ("OTC") markets. Listed options are third-party
contracts (i.e., performance of the obligations of the purchaser and seller is
guaranteed by the exchange or clearing corporation) and have standardized strike
prices and expiration dates. OTC options are two-party contracts with negotiated
strike prices and expiration dates. A Fund will not purchase an OTC option
unless it believes that daily valuations for such options are readily
obtainable. OTC options differ from exchange-traded options in that OTC options
are transacted with dealers directly and not through a clearing corporation
(which guarantees performance). Consequently, there is a risk of non-performance
by the dealer. Since no exchange is involved, OTC options are valued on the
basis of an average of the last bid prices obtained from dealers, unless a
quotation from only one dealer is available, in which case only that dealer's
price will be used. In the case of OTC options, there can be no assurance that a
liquid secondary market will exist for any particular option at any specific
time. Because purchased OTC options in certain cases may be difficult to dispose
of in a timely manner, the Fund may be required to treat some or all of these
options (i.e., the market value) as illiquid securities. Although a Fund will
enter into OTC options only with dealers that are expected to be capable of
entering into closing transactions with it, there is no assurance that the 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 dealer, a Fund might be
unable to close out an OTC option position at any time prior to its expiration.
Index Options. Index options (or options on securities indices) are
similar in many respects to options on securities, except that an index option
gives the holder the right to receive, upon exercise, cash instead of
securities, if the closing level of the securities index upon which the option
is based is greater than, in the case of a call, or less than, in the case of a
put, the exercise price of the option. The amount of cash is equal to the
difference between the closing price of the index and the exercise price of the
call or put times a specified multiple (the "multiplier"), which determines the
total dollar value for each point of such difference.
The risks of investment in index options 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 provide in advance for its potential settlement
obligations by acquiring and holding the underlying securities. A Fund can
offset some of the risk of writing a call index option position by holding a
diversified portfolio of securities similar to those on which the underlying
index is based. However, the 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 not be
perfectly correlated with the value of the index.
Pursuant to federal securities rules and regulations, if a Fund writes
index options it may be required to set aside assets to reduce the risks
associated with writing those options. This process is described in more detail
below in the section "Cover."
STRADDLES. Certain Funds, for hedging purposes, may write straddles
(combinations of put and call options on the same underlying security) to adjust
the risk and return characteristics of the Fund's overall position. A possible
combined position would involve writing a covered call option at one strike
price and buying a call option at a lower price, in order to reduce the risk of
the written covered call option in the event of a substantial price increase.
Because combined options positions involve multiple trades, they result in
higher transaction costs and may be more difficult to open and close out.
WARRANTS. Warrants are, in effect, longer-term call options. They give
the holder the right to purchase a given number of shares of a particular
company at specified prices within certain periods of time. The purchaser of a
warrant expects that the market price of the security will exceed the purchase
price of the warrant plus the exercise price of the warrant, thus giving him a
profit. Since the market price
30
may never exceed the exercise price before the expiration date of the warrant,
the purchaser of the warrant risks the loss of the entire purchase price of the
warrant. Warrants generally trade in the open market and may be sold rather than
exercised. Warrants are sometimes sold in unit form with other securities of an
issuer. Units of warrants and common stock may be employed in financing young,
unseasoned companies. The purchase price of a warrant varies with the exercise
price of the warrant, the current market value of the underlying security, the
life of the warrant and various other investment factors.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. A Futures Contract
is a two party agreement to buy or sell a specified amount of a specified
security or currency (or delivery of a cash settlement price, in the case of an
index future) for a specified price at a designated date, time and place
(collectively, "Futures Contracts"). A stock index Futures Contract provides for
the delivery, at a designated date, time and place, of an amount of cash equal
to a specified dollar amount times the difference between the stock index value
at the close of trading on the contract and the price agreed upon in the Futures
Contract; no physical delivery of stocks comprising the index is made. Brokerage
fees are incurred when a Futures Contract is bought or sold, and margin deposits
must be maintained at all times when a Futures Contract is outstanding.
A Fund will enter into Futures Contracts for hedging purposes only;
that is, Futures Contracts will be sold to protect against a decline in the
price of securities or currencies that the Fund owns, or Futures Contracts will
be purchased to protect the Fund against an increase in the price of securities
or currencies it has committed to purchase or expects to purchase. A Fund's
hedging may include sales of Futures Contracts as an offset against the effect
of expected increases in interest rates, and decreases in currency exchange
rates and stock prices, and purchases of Futures Contracts as an offset against
the effect of expected declines in interest rates, and increases in currency
exchange rates or stock prices.
The Funds currently may not invest in any security (including futures
contracts or options thereon) that is secured by physical commodities.
The Funds will only enter into Futures Contracts that are traded
(either domestically or internationally) on futures exchanges and are
standardized as to maturity date and underlying financial instrument. Futures
exchanges and trading thereon in the United States are regulated under the
Commodity Exchange Act and by the Commodity Futures Trading Commission ("CFTC").
Foreign futures exchanges and trading thereon are not regulated by the CFTC and
are not subject to the same regulatory controls. For a further discussion of the
risks associated with investments in foreign securities, see "Foreign
Investments" in this Statement of Additional Information.
Closing out an open Futures Contract is effected by entering into an
offsetting Futures Contract for the same aggregate amount of the identical
financial instrument or currency and the same delivery date. There can be no
assurance, however, that a Fund will be able to enter into an offsetting
transaction with respect to a particular Futures Contract at a particular time.
If a Fund is not able to enter into an offsetting transaction, it will continue
to be required to maintain the margin deposits on the Futures Contract.
"Margin" with respect to Futures Contracts is the amount of funds that
must be deposited by a Fund in order to initiate Futures Contracts trading and
maintain its open positions in Futures Contracts. A margin deposit made when the
Futures Contract is entered ("initial margin") is intended to ensure the Fund's
performance under the Futures Contract. The margin required for a particular
Futures Contract is set by the exchange on which the Futures Contract is traded
and may be significantly modified from time to time by the exchange during the
term of the Futures Contract.
Subsequent payments, called "variation margin," received from or paid
to the futures commission merchant through which a Fund entered into the Futures
Contract will be made on a daily basis as the price of the underlying security,
currency or index fluctuates making the Futures Contract more or less valuable,
a process known as marking-to-market.
31
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 secondary 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 maintain the
position being hedged by the Futures Contract or option or to maintain cash or
securities in a segregated account.
Options on Futures Contracts. Options on Futures Contracts are similar
to options on securities or currencies except that options on Futures Contracts
give the purchaser the right, in return for the premium paid, to assume a
position in a Futures Contract (a long position if the option is a call and a
short position if the option is a put) at a specified exercise price at any time
during the period of the option. Upon exercise of the option, the delivery of
the Futures Contract position by the writer of the option to the holder of the
option will be accompanied by delivery of the accumulated balance in the
writer's Futures Contract margin account. The Funds currently may not invest in
any security (including futures contracts or options thereon) that is secured by
physical commodities.
Limitations on Futures Contracts and Options on Futures Contracts and
on Certain Options on Currencies. 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 other than for bona fide hedging
purposes (as defined by the CFTC), the aggregate initial margin and premiums
required to establish those positions (excluding the amount by which options are
"in-the-money") will not exceed 5% of the total assets of the Fund, after taking
into account unrealized profits and unrealized losses on any contracts it has
entered into. This guideline may be modified by the Board, without a shareholder
vote. This limitation does not limit the percentage of the Fund's assets at risk
to 5%.
Pursuant to federal securities rules and regulations, a Fund's use of
Futures Contracts and options on Futures Contracts may require that Fund to set
aside assets to reduce the risks associated with using Futures Contracts and
options on Futures Contracts. This process is described in more detail below in
the section "Cover."
FORWARD CURRENCY CONTRACTS. A forward currency contract is an
obligation, usually arranged with a commercial bank or other currency dealer, to
purchase or sell a currency against another currency at a future date and price
as agreed upon by the parties. A Fund either may accept or make delivery of the
currency at the maturity of the forward currency contract. A Fund may also, if
its contra party agrees prior to maturity, enter into a closing transaction
involving the purchase or sale of an offsetting contract. Forward currency
contracts are traded over-the-counter, and not on organized commodities or
securities exchanges. As a result, it may be more difficult to value such
contracts, and it may be difficult to enter into closing transactions.
Each of the Funds may engage in forward currency transactions in
anticipation of, or to protect itself against, fluctuations in exchange rates. A
Fund may enter into forward currency contracts with respect to a specific
purchase or sale of a security, or with respect to its portfolio positions
generally. When a Fund purchases a security denominated in a foreign currency
for settlement in the near future, it may immediately purchase in the forward
market the currency needed to pay for and settle the purchase. By entering into
a forward currency contract with respect to the specific purchase or sale of a
security denominated in a foreign currency, the Fund can secure an exchange rate
between the trade and settlement dates for that purchase or sale transaction.
This practice is sometimes referred to as "transaction hedging." Position
hedging is the purchase or sale of foreign currency with respect to portfolio
security positions denominated or quoted in a foreign currency.
The cost to a Fund of engaging in forward currency contracts varies
with factors such as the currencies 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. The use of forward currency contracts does not eliminate fluctuations
in the prices of the underlying securities a Fund owns or intends to acquire,
but it does establish a rate of exchange in advance. In addition, while forward
currency contract sales limit the risk of loss due to a decline in the
32
value of the hedged currencies, they also limit any potential gain that might
result should the value of the currencies increase.
Pursuant to federal securities rules and regulations, a Fund's use of
forward currency contracts may require that Fund to set aside assets to reduce
the risks associated with using forward currency contracts. This process is
described in more detail below in the section "Cover."
COVER. Transactions using forward currency contracts, futures contracts
and options (other than options purchased by a Fund) expose a Fund to an
obligation to another party. A Fund will not enter into any such transactions
unless, in addition to complying with all of the restrictions noted in the
disclosure above, it owns either (1) an offsetting ("covered") position in
securities, currencies, or other options, forward currency contracts or futures
contracts or (2) cash, liquid assets and/or short-term debt securities with a
value sufficient at all times to cover its potential obligations not covered as
provided in (1) above. Each Fund will comply with SEC guidelines regarding cover
for these instruments and, if the guidelines so require, set aside cash or
liquid securities. To the extent that a futures contract, forward currency
contract or option is deemed to be illiquid, the assets used to "cover" the
Fund's obligation will also be treated as illiquid for purposes of determining
the Fund's maximum allowable investment in illiquid securities.
Even though options purchased by the Funds do not expose the Funds to
an obligation to another party, but rather provide the Funds with a right to
exercise, the Funds intend to "cover" the cost of any such exercise. To the
extent that a purchased option is deemed illiquid, a Fund will treat the market
value of the option (i.e., the amount at risk to the Fund) as illiquid, but will
not treat the assets used as cover on such transactions as illiquid.
Assets used as cover cannot be sold while the position in the
corresponding forward currency contract, futures contract or option is open,
unless they are replaced with other appropriate assets. If a large portion of a
Fund's assets is used for cover or otherwise set aside, it could affect
portfolio management or the Fund's ability to meet redemption requests or other
current obligations.
GENERAL RISKS OF OPTIONS, FUTURES AND CURRENCY STRATEGIES. The use by
the Funds of options, futures contracts and forward currency contracts involves
special considerations and risks, as described below. Risks pertaining to
particular strategies are described in the sections that follow.
(1) Successful use of hedging transactions depends upon AIM's ability
to correctly predict the direction of changes in the value of the applicable
markets and securities, contracts and/or currencies. While AIM is experienced in
the use of these instruments, there can be no assurance that any particular
hedging strategy will succeed.
(2) There might be imperfect correlation, or even no correlation,
between the price movements of an instrument (such as an option contract) and
the price movements of the investments being hedged. For example, if a
"protective put" is used to hedge a potential decline in a security and the
security does decline in price, the put option's increased value may not
completely offset the loss in the underlying security. Such a lack of
correlation might occur due to factors unrelated to the value of the investments
being hedged, such as changing interest rates, market liquidity, and speculative
or other pressures on the markets in which the hedging instrument is traded.
(3) Hedging strategies, if successful, can reduce risk of loss by
wholly or partially offsetting the negative effect of unfavorable price
movements in the investments being hedged. However, hedging strategies can also
reduce opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments.
(4) There is no assurance that a liquid secondary market will exist for
any particular option, futures contract or option thereon or forward currency
contract at any particular time.
(5) As described above, a Fund might be required to maintain assets as
"cover," maintain segregated accounts or make margin payments when it takes
positions in instruments involving
33
obligations to third parties. If a Fund were unable to close out its positions
in such instruments, it might be required to continue to maintain such assets or
accounts or make such payments until the position expired or matured. The
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.
(6) There is no assurance that a Fund will use hedging transactions.
For example, if a Fund determines that the cost of hedging will exceed the
potential benefit to the Fund, the Fund will not enter into such transaction.
Additional Securities or Investment Techniques
COMMERCIAL BANK OBLIGATIONS. For the purposes of each Fund's investment
policies with respect to bank obligations, obligations of foreign branches of
U.S. banks and of foreign banks are obligations of the issuing bank and may be
general obligations of the parent bank. Such obligations, however, may be
limited by the terms of a specific obligation and by government regulation. As
with investment in non-U.S. securities in general, investments in the
obligations of foreign branches of U.S. banks and of foreign banks may subject
the Funds to investment risks that are different in some respects from those of
investments in obligations of domestic issuers. Although a Fund typically will
acquire obligations issued and supported by the credit of U.S. or foreign banks
having total assets at the time of purchase of $1 billion or more, this $1
billion figure is not an investment policy or restriction of any Fund. For the
purposes of calculation with respect to the $1 billion figure, the assets of a
bank will be deemed to include the assets of its U.S. and non-U.S. branches.
INDEXED COMMERCIAL PAPER. Certain Funds may invest without limitation
in commercial paper which is indexed to certain specific foreign currency
exchange rates. The terms of such commercial paper provide that its principal
amount is adjusted upwards or downwards (but not below zero) at maturity to
reflect changes in the exchange rate between two currencies while the obligation
is outstanding. A Fund will purchase such commercial paper with the currency in
which it is denominated and, at maturity, will receive interest and principal
payments thereon in that currency, but the amount of principal payable by the
issuer at maturity will change in proportion to the change (if any) in the
exchange rate between the two specified currencies between the date the
instrument is issued and the date the instrument matures. While such commercial
paper entails the risk of loss of principal, the potential for realizing gains
as a result of changes in foreign currency exchange rates enables a fund to
hedge against a decline in the U.S. dollar value of investments denominated in
foreign currencies while seeking to provide an attractive money market rate of
return. The Fund will not purchase such commercial paper for speculation.
PREMIUM SECURITIES. Certain Funds may invest in income securities
bearing coupon rates higher than prevailing market rates. Such "premium"
securities are typically purchased at prices greater than the principal amounts
payable on maturity. A Fund might not amortize the premium paid for such
securities in calculating its net investment income. As a result, in such cases
the purchase of such securities provides a Fund a higher level of investment
income distributable to shareholders on a current basis than if the Fund
purchased securities bearing current market rates of interest. If securities
purchased by a Fund at a premium are called or sold prior to maturity, the Fund
will realize a loss to the extent the call or sale price is less than the
purchase price. Additionally, a Fund will realize a loss if it holds such
securities to maturity.
STRUCTURED INVESTMENTS. Certain Funds may invest a portion of its
assets in interests in entities organized and operated solely for the purpose of
restructuring the investment characteristics of Sovereign Debt. This type of
restructuring involves the deposit with or purchase by an entity, such as a
corporation or trust, of specified instruments (such as commercial bank loans or
Brady Bonds) and the issuance by that entity of one or more classes of
securities ("Structured Investments") backed by, or representing interests in,
the underlying instruments. The cash flow on the underlying instruments may be
apportioned among the newly issued Structured Investments to create securities
with different investment characteristics such as varying maturities, payment
priorities and interest rate provisions, and the extent of the payments made
with respect to Structured Investments is dependent on the extent of the cash
flow
34
on the underlying instruments. Because Structured Investments of the type in
which the Fund anticipates it will invest typically involve no credit
enhancement, their credit risk generally will be equivalent to that of the
underlying instruments.
The Fund is permitted to invest in a class of Structured Investments
that is either subordinated or not subordinated to the right of payment of
another class. Subordinated Structured Investments typically have higher yields
and present greater risks than unsubordinated Structures Investments.
Certain issuers of Structures Investments may be deemed to be
"investment companies" as defined in the 1940 Act. As a result, the Fund's
investment in these Structured Investments may be limited by the restrictions
contained in the 1940 Act described below under "Investment Strategies and Risks
- -- Other Investment Companies." Structured Investments are typically sold in
private placement transactions, and there currently is no active trading market
for Structured Investments.
STRIPPED INCOME SECURITIES. Certain Funds may invest a portion of its
assets in stripped income securities, which are obligations representing an
interest in all or a portion of the income or principal components of an
underlying or related security, a pool of securities or other assets. In the
most extreme case, one class will receive all of the interest (the "interest
only class" or the "IO class"), while the other class will receive all of the
principal (the "principal-only class" or the "PO class"). The market values of
stripped income securities tend to be more volatile in response to changes in
interest rates than are conventional income securities.
PRIVATIZATIONS. Certain Funds may invest in privatizations. The
governments of some foreign countries have been engaged in selling part or all
of their stakes in government-owned or controlled enterprises
("privatizations"). AIM believes that privatizations may offer opportunities for
significant capital appreciation and intends to invest assets of the Fund in
privatizations in appropriate circumstances. In certain foreign countries, the
ability of foreign entities such as the Fund to participate may be limited by
local law, or the terms on which the Fund may be permitted to participate may be
less advantageous than those for local investors. There can be no assurance that
foreign governments will continue to sell companies currently owned or
controlled by them or that privatization programs will be successful.
SAMURAI AND YANKEE BONDS. Subject to their fundamental investment
restrictions, certain Funds may invest in yen-denominated bonds sold in Japan by
non-Japanese issuers ("Samurai bonds"), and may invest in dollar-denominated
bonds sold in the United States by non-U.S. issuers ("Yankee bonds"). As
compared with bonds issued in their countries of domicile, such bond issues
normally carry a higher interest rate but are less actively traded. It is the
policy of a Fund to invest in Samurai or Yankee bond issues only after taking
into account considerations of quality and liquidity, as well as yield.
INVESTMENTS IN ENTITIES WITH RELATIONSHIPS WITH THE FUNDS/ADVISOR. Each
Fund, other than the Asset Allocation 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.
FUND POLICIES
FUNDAMENTAL RESTRICTIONS. Each Fund is subject to the following
investment restrictions, which may be changed only by a vote of such Fund's
outstanding shares. Fundamental restrictions may be changed only by a vote of
the lesser of (i) 67% or more of the Fund's shares present at a meeting if the
holders of more than 50% of the outstanding shares are present in person or
represented by proxy, or (ii) more than 50% of the Fund's outstanding shares.
Any investment restriction that involves a maximum or minimum percentage of
securities or assets (other than with respect to borrowing) shall not be
considered to be violated unless an excess over or a deficiency under the
percentage occurs immediately after, and is caused by, an acquisition or
disposition of securities or utilization of assets by the Fund.
35
(1) The Fund is a "diversified company" as defined in the 1940 Act. The
Fund will not purchase the securities of any issuer if, as a result, the Fund
would fail to be a diversified company within the meaning of the 1940 Act, and
the rules and regulations promulgated thereunder, as such statute, rules and
regulations are amended from time to time or are interpreted from time to time
by the SEC staff (collectively, the "1940 Act Laws and Interpretations") or
except to the extent that the Fund may be permitted to do so by exemptive order
or similar relief (collectively, with the 1940 Act Laws and Interpretations, the
"1940 Act Laws, Interpretations and Exemptions"). In complying with this
restriction, however, the Fund may purchase securities of other investment
companies to the extent permitted by the 1940 Act Laws, Interpretations and
Exemptions.
(2) The Fund may not borrow money or issue senior securities, except as
permitted by the 1940 Act Laws, Interpretations and Exemptions.
(3) The Fund may not underwrite the securities of other issuers. This
restriction does not prevent the Fund from engaging in transactions involving
the acquisition, disposition or resale of its portfolio securities, regardless
of whether the Fund may be considered to be an underwriter under the 1933 Act.
(4) AIM Basic Value Fund, AIM Global Equity Fund, AIM Mid Cap Core
Equity Fund and AIM Small Cap Growth Fund will not make investments that will
result in the concentration (as that term may be defined or interpreted by the
1940 Act Laws, Interpretations and Exemptions) of its investments in the
securities of issuers primarily engaged in the same industry. This restriction
does not limit the Fund's investments in (i) obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities, or (ii) tax-exempt
obligations issued by governments or political subdivisions of governments. In
complying with this restriction, the Fund will not consider a bank-issued
guaranty or financial guaranty insurance as a separate security.
Each of the Asset Allocation Funds will make investments that will
result in the concentration (as that term may be defined or interpreted by the
1940 Act Laws, Interpretations and Exemptions) of its investments in the
securities of investment companies. This restriction does not limit the Fund's
investments in (i) obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, or (ii) tax-exempt obligations issued by
governments or political subdivisions of governments. In complying with this
restriction, the Fund will not consider a bank-issued guaranty or financial
guaranty insurance as a separate security.
(5) The Fund may not purchase real estate or sell real estate unless
acquired as a result of ownership of securities or other instruments. This
restriction does not prevent the Fund from investing in issuers that invest,
deal, or otherwise engage in transactions in real estate or interests therein,
or investing in securities that are secured by real estate or interests therein.
(6) The Fund may not purchase physical commodities or sell physical
commodities unless acquired as a result of ownership of securities or other
instruments. This restriction does not prevent the Fund from engaging in
transactions involving futures contracts and options thereon or investing in
securities that are secured by physical commodities.
(7) The Fund may not make personal loans or loans of its assets to
persons who control or are under common control with the Fund, except to the
extent permitted by 1940 Act Laws, Interpretations and Exemptions. This
restriction does not prevent the Fund from, among other things, purchasing debt
obligations, entering into repurchase agreements, loaning its assets to
broker-dealers or institutional investors, or investing in loans, including
assignments and participation interests.
(8) The 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 with substantially the same fundamental
investment objectives, policies and restrictions as the Fund.
36
The investment restrictions set forth above provide each of the Funds
with the ability to operate under new interpretations of the 1940 Act or
pursuant to exemptive relief from the SEC without receiving prior shareholder
approval of the change. Even though each of the Funds has this flexibility, the
Board has adopted non-fundamental restrictions for each of the Funds relating to
certain of these restrictions which AIM must follow in managing the Funds. Any
changes to these non-fundamental restrictions, which are set forth below,
require the approval of the Board.
NON-FUNDAMENTAL RESTRICTIONS. The following non-fundamental investment
restrictions apply to each of the Funds. They may be changed for any Fund
without approval of that Fund's voting securities.
(1) In complying with the fundamental restriction regarding issuer
diversification, the Fund will not, with respect to 75% of its 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),
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. The Fund may (i) purchase
securities of other investment companies as permitted by Section 12(d)(1) of the
1940 Act and (ii) invest its assets in securities of other money market funds
and lend money to other AIM Funds), subject to the terms and conditions of any
exemptive orders issued by the SEC.
(2) In complying with the fundamental restriction regarding borrowing
money and issuing senior securities, 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). The Fund may borrow from banks,
broker-dealers or an AIM Fund. The Fund may not borrow for leveraging, but may
borrow for temporary or emergency purposes, in anticipation of or in response to
adverse market conditions, or for cash management purposes. The Fund may not
purchase additional securities when any borrowings from banks exceed 5% of the
Fund's total assets or when any borrowings from an AIM Fund are outstanding.
(3) In complying with the fundamental restriction regarding industry
concentration, the Fund may invest up to 25% of its total assets in the
securities of issuers whose principal business activities are in the same
industry.
(4) In complying with the fundamental restriction with regard to making
loans, the Fund may lend up to 33 1/3% of its total assets and may lend money to
an AIM Fund, on such terms and conditions as the SEC may require in an exemptive
order.
(5) Notwithstanding the fundamental restriction with regard to
investing all assets in an open-end fund, the Fund may not invest all of its
assets in the securities of a single open-end management investment company with
the same fundamental investment objectives, policies and restrictions as the
Fund.
(6) Notwithstanding the fundamental restriction with regard to engaging
in transactions involving futures contracts and options thereon or investing in
securities that are secured by physical commodities, the Fund currently may not
invest in any security (including futures contracts or options thereon) that is
secured by physical commodities.
(7) AIM Basic Value Fund, AIM Global Equity Fund, AIM Mid Cap Core
Equity Fund and AIM Small Cap Growth Fund may not acquire any securities of
registered open-end investment companies or registered unit investment trusts in
reliance on Sections 12(d)(1)(F) or 12(d)(1)(G) of the 1940 Act.
ADDITIONAL NON-FUNDAMENTAL POLICIES. As non-fundamental policies:
(1) AIM Mid Cap Core Equity Fund normally invests at least 80% of its
assets in equity securities, including convertible securities, of
mid-capitalization companies. For purposes of the foregoing sentence, "assets"
means net assets, plus the amount of any borrowings for investment
37
purposes. The Fund will provide written notice to its shareholders prior to any
change to this policy, as required by the 1940 Act Laws, Interpretations and
Exemptions.
(2) AIM Small Cap Growth Fund normally invests at least 80% of its
assets in securities of small-capitalization companies. For purposes of the
foregoing sentence, "assets" means net assets, plus the amount of any borrowings
for investment purposes. The Fund will provide written notice to its
shareholders prior to any change to this policy, as required by the 1940 Act
Laws, Interpretations and Exemptions.
(3) AIM Global Equity Fund normally invests at least 80% of its assets
in equity securities. For purposes of the foregoing sentence, "assets" means net
assets, plus the amount of any borrowings for investment purposes. The Fund will
provide written notice to its shareholders prior to any change to this policy,
as required by the 1940 Act Laws, Interpretations and Exemptions.
TEMPORARY DEFENSIVE POSITIONS
In anticipation of or in response to adverse market or other
conditions, or atypical circumstances such as unusually large cash inflows or
redemptions, the Funds may temporarily hold all or a portion of their assets in
cash, cash equivalents or U.S. Government securities. Each of the Funds other
than the Asset Allocation Funds may also invest in high-quality debt instruments
and may invest up to 25% of its total assets in Affiliated Money Market Funds
for these purposes.
PORTFOLIO TURNOVER
For the fiscal years ended December 31, 2003 and 2004, the portfolio
turnover rates for AIM Global Equity Fund were 178% and 115%, respectively. This
decrease was largely due to lower portfolio activity in 2004. The management
team makes trades based on its assessment of the risk/return tradeoff in the
marketplace, so any variation in portfolio activity from one year to the next is
a function of this assessment.
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):
<Table>
<Caption>
APPROXIMATE DATE OF INFORMATION REMAINS
INFORMATION WEBSITE POSTING POSTED ON WEBSITE
- ----------- ------------------- -------------------
Top ten holdings as of month end 15 days after month end Until replaced with the
following month's top ten
holdings
Select holdings included in the 29 days after calendar quarter end Until replaced with the
Fund's Quarterly Performance Update following quarter's Quarterly
Performance Update
Complete portfolio holdings as of 30 days after calendar quarter end For one year
calendar quarter end
Complete portfolio holdings as of 60-70 days after fiscal quarter end For one year
fiscal quarter end
</Table>
- ---------
(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.
38
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 affiliates 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:
o Attorneys and accountants;
o Securities lending agents;
o Lenders to the AIM Funds;
o Rating and rankings agencies;
o Persons assisting in the voting of proxies;
o AIM Funds' custodians;
o The AIM Funds' transfer agent(s) (in the event of a redemption
in kind);
o 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);
o Financial printers;
o Brokers identified by the AIM Funds' portfolio management team
who provide execution and research services to the team; and
o 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 applicable laws, rules or regulations, or by
regulatory authorities having jurisdiction over AIM and its affiliates or the
Funds.
39
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-MANAGED 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.
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
40
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 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 at least the last five years and certain other information concerning
them are set forth in Appendix C.
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 James T. Bunch, Edward
K. Dunn, Jr. (Chair), Lewis F. Pennock, Raymond Stickel, Jr. and Dr. Larry Soll,
Dr. Prema Mathai-Davis and Ruth H. Quigley (Vice Chair). The Audit Committee's
primary purposes are to: (i) assist the Board in oversight of the independent
registered public accountant's qualifications, independence and performance;
(ii) appoint independent registered public accountants 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 registered public accountants; (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 registered public accountants 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 and regulatory requirements. During the fiscal year
ended December 31, 2004, 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 INVESCO Funds Group, Inc. ("IFG"); (iii)
recommending to the independent trustees the appointment and removal of AIM's
41
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 AIM, the Chief Compliance Officer, the Senior Officer and/or the
Compliance Consultant. During the fiscal year ended December 31, 2004, the
Compliance Committee held two meetings.
The members of the Governance Committee are Messrs. Bob R. Baker,
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
December 31, 2004, the Governance Committee held seven 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 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, Stickel and Carl Frischling, 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
42
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 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 December 31, 2004, the Investments
Committee held eight 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, and Mark H. 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 December 31, 2004, the Valuation
Committee held two meetings.
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 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 Funds concerning alleged excessive short
term trading in shares of the Funds ("market timing") and (b) the civil
enforcement actions and investigations related to market timing activity in the
Funds that 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 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 Funds, and for recommending to the independent
trustees what actions, if any, should be taken by the 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
43
(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 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 December 31, 2004,
the Special Market Timing Litigation Committee held seven meetings.
Trustee Ownership of Fund Shares
The dollar range of equity securities beneficially owned by each
trustee (i) in the Funds 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 C.
Approval of Investment Advisory Agreements and Summary of Independent Written
Fee Evaluation
The Board oversees the management of each Fund and, as required by law,
determines annually whether to approve the continuance of each Fund's advisory
agreement with AIM. Based upon the recommendation of the Investments Committee
of the Board, which is comprised solely of independent trustees, at a meeting
held on June 30, 2005, the Board, including all of the independent trustees,
approved (i) the continuance of the advisory agreement between each Fund (other
than AIM Income Allocation Fund and AIM International Allocation Fund (each a
"New Fund")) and AIM for another year, effective July 1, 2005 and (ii) the
advisory agreement between each New Fund and AIM for an initial period ending
December 31, 2006 (collectively, the "Advisory Agreement").
The Board considered the factors discussed below in evaluating the
fairness and reasonableness of each Fund's Advisory Agreement at the meeting on
June 30, 2005 and as part of the Board's ongoing oversight of each Fund. In
their deliberations, the Board and the independent trustees did not identify any
particular factor that was controlling, and each trustee attributed different
weights to the various factors.
One of the responsibilities of the Senior Officer of the Funds, who is
independent of AIM and AIM's affiliates, is to manage the process by which the
Funds' proposed management fees are negotiated to ensure that they are
negotiated in a manner which is at arm's length and reasonable. To that end, the
Senior Officer must either supervise a competitive bidding process or prepare an
independent written evaluation. The Senior Officer has recommended an
independent written evaluation in lieu of a competitive bidding process and,
upon the direction of the Board, has prepared an independent written evaluation
(which did not include the New Funds). Such written evaluation also considered
certain of the factors discussed below. In addition, as discussed below, the
Senior Officer made certain recommendations to the Board in connection with such
written evaluation.
The discussion below serves as a summary of the Senior Officer's
independent written evaluation and recommendations to the Board in connection
therewith (with respect to each Fund except the New Funds), as well as a
discussion of the material factors and the conclusions with respect thereto that
formed the basis for the Board's approval of each Fund's Advisory Agreement
(including each New Fund's Advisory Agreement). After consideration of all of
the factors below and based on its informed business judgment, the Board
determined that each Fund's Advisory Agreement is in the best interests of the
Fund and its shareholders and that the compensation to AIM under each Fund's
Advisory Agreement is fair and reasonable and would have been obtained through
arm's length negotiations.
AIM BASIC VALUE FUND
o The nature and extent of the advisory services to be provided by AIM.
The Board reviewed the services to be provided by AIM under the
Advisory Agreement. Based on such review, the Board concluded that the
range of services to be provided by AIM under the Advisory Agreement
was
44
appropriate and that AIM currently is providing services in accordance
with the terms of the Advisory Agreement.
o The quality of services to be provided by AIM. The Board reviewed the
credentials and experience of the officers and employees of AIM who
will provide investment advisory services to the Fund. In reviewing the
qualifications of AIM to provide investment advisory services, the
Board reviewed the qualifications of AIM's investment personnel and
considered such issues as AIM's portfolio and product review process,
various back office support functions provided by AIM and AIM's equity
and fixed income trading operations. Based on the review of these and
other factors, the Board concluded that the quality of services to be
provided by AIM was appropriate and that AIM currently is providing
satisfactory services in accordance with the terms of the Advisory
Agreement.
o The performance of the Fund relative to comparable funds. The Board
reviewed the performance of the Fund during the past one, three and
five calendar years against the performance of funds advised by other
advisors with investment strategies comparable to those of the Fund.
The Board noted that the Fund's performance for the one and three year
periods was below the median performance of such comparable funds and
above such median performance for the five year period. Based on this
review, the Board concluded that no changes should be made to the Fund
and that it was not necessary to change the Fund's portfolio management
team at this time.
o The performance of the Fund relative to indices. The Board reviewed the
performance of the Fund during the past one, three and five calendar
years against the performance of the Lipper Large Cap Value Fund Index.
The Board noted that the Fund's performance for the one and three year
periods was comparable to the performance of such Index and above such
Index for the five year period. Based on this review, the Board
concluded that no changes should be made to the Fund and that it was
not necessary to change the Fund's portfolio management team at this
time.
o Meeting with the Fund's portfolio managers and investment personnel.
With respect to the Fund, the Board is meeting periodically with such
Fund's portfolio managers and/or other investment personnel and
believes that such individuals are competent and able to continue to
carry out their responsibilities under the Advisory Agreement.
o Overall performance of AIM. The Board considered the overall
performance of AIM in providing investment advisory and portfolio
administrative services to the Fund and concluded that such performance
was satisfactory.
o Fees relative to those of clients of AIM with comparable investment
strategies. The Board reviewed the advisory fee rate for the Fund under
the Advisory Agreement. The Board noted that this rate (i) was the same
as the advisory fee rates for a variable insurance fund advised by AIM
and offered to insurance company separate accounts with investment
strategies comparable to those of the Fund; (ii) was lower than the
advisory fee rate for an offshore fund for which an AIM affiliate
serves as advisor with investment strategies comparable to those of the
Fund; (iii) was higher than the sub-advisory fee rates for an
unaffiliated mutual fund for which an affiliate of AIM serves as
sub-advisor, although the total management fees paid by such
unaffiliated mutual fund were higher than the advisory fee rate for the
Fund; and (iv) was higher than the advisory fee rates for twenty
separately managed wrap accounts managed by an AIM affiliate, and lower
than the advisory fee rates for two separately managed wrap accounts
managed by an AIM affiliate with investment strategies comparable to
those of the Fund. The Board noted that AIM has agreed to waive
advisory fees of the Fund, as discussed below. Based on this review,
the Board concluded that the advisory fee rate for the Fund under the
Advisory Agreement was fair and reasonable.
45
o Fees relative to those of comparable funds with other advisors. The
Board reviewed the advisory fee rate for the Fund under the Advisory
Agreement. The Board compared effective contractual advisory fee rates
at a common asset level and noted that the Fund's rate was comparable
to the median rate of the funds advised by other advisors with
investment strategies comparable to those of the Fund that the Board
reviewed. The Board noted that AIM has agreed to waive advisory fees of
the Fund, as discussed below. Based on this review, the Board concluded
that the advisory fee rate for the Fund under the Advisory Agreement
was fair and reasonable.
o Expense limitations and fee waivers. The Board noted that AIM has
contractually agreed to waive advisory fees of the Fund through
December 31, 2009 to the extent necessary so that the advisory fees
payable by the Fund do not exceed a specified maximum advisory fee
rate, which maximum rate includes breakpoints and is based on net asset
levels. The Board considered the contractual nature of this fee waiver
and noted that it remains in effect until December 31, 2009. The Board
considered the effect this fee waiver would have on the Fund's
estimated expenses and concluded that the levels of fee waivers/expense
limitations for the Fund were fair and reasonable.
o Breakpoints and economies of scale. The Board reviewed the structure of
the Fund's advisory fee under the Advisory Agreement, noting that it
includes three breakpoints. The Board reviewed the level of the Fund's
advisory fees, and noted that such fees, as a percentage of the Fund's
net assets, have decreased as net assets increased because the Advisory
Agreement includes breakpoints. The Board noted that AIM has
contractually agreed to waive advisory fees of the Fund through
December 31, 2009 to the extent necessary so that the advisory fees
payable by the Fund do not exceed a specified maximum advisory fee
rate, which maximum rate includes breakpoints and is based on net asset
levels. The Board concluded that the Fund's fee levels under the
Advisory Agreement therefore reflect economies of scale and that it was
not necessary to change the advisory fee breakpoints in the Fund's
advisory fee schedule.
o Investments in affiliated money market funds. The Board also took into
account the fact that uninvested cash and cash collateral from
securities lending arrangements (collectively, "cash balances") of the
Fund may be invested in money market funds advised by AIM pursuant to
the terms of an SEC exemptive order. The Board found that the Fund may
realize certain benefits upon investing cash balances in AIM advised
money market funds, including a higher net return, increased liquidity,
increased diversification or decreased transaction costs. The Board
also found that the Fund will not receive reduced services if it
invests its cash balances in such money market funds. The Board noted
that, to the extent the Fund invests in affiliated money market funds,
AIM has voluntarily agreed to waive a portion of the advisory fees it
receives from the Fund attributable to such investment. The Board
further determined that the proposed securities lending program and
related procedures with respect to the lending Fund is in the best
interests of the lending Fund and its respective shareholders. The
Board therefore concluded that the investment of cash collateral
received in connection with the securities lending program in the money
market funds according to the procedures is in the best interests of
the lending Fund and its respective shareholders.
o Independent written evaluation and recommendations of the Fund's Senior
Officer. The Board noted that, upon their direction, the Senior Officer
of the Fund had prepared an independent written evaluation in order to
assist the Board in determining the reasonableness of the proposed
management fees of the AIM Funds, including the Fund. The Board noted
that the Senior Officer's written evaluation had been relied upon by
the Board in this regard in lieu of a competitive bidding process. In
determining whether to continue the Advisory Agreement for the Fund,
the Board considered the Senior Officer's written evaluation and the
recommendation made by the Senior Officer to the Board that the Board
consider implementing a process to assist them in more closely
monitoring the performance of the AIM Funds. The Board concluded that
it would be advisable to implement such a process as soon as reasonably
practicable.
46
o Profitability of AIM and its affiliates. The Board reviewed information
concerning the profitability of AIM's (and its affiliates') investment
advisory and other activities and its financial condition. The Board
considered the overall profitability of AIM, as well as the
profitability of AIM in connection with managing the Fund. The Board
noted that AIM's operations remain profitable, although increased
expenses in recent years have reduced AIM's profitability. Based on the
review of the profitability of AIM's and its affiliates' investment
advisory and other activities and its financial condition, the Board
concluded that the compensation to be paid by the Fund to AIM under its
Advisory Agreement was not excessive.
o Benefits of soft dollars to AIM. The Board considered the benefits
realized by AIM as a result of brokerage transactions executed through
"soft dollar" arrangements. Under these arrangements, brokerage
commissions paid by the Fund and/or other funds advised by AIM are used
to pay for research and execution services. This research is used by
AIM in making investment decisions for the Fund. The Board concluded
that such arrangements were appropriate.
o AIM's financial soundness in light of the Fund's needs. The Board
considered whether AIM is financially sound and has the resources
necessary to perform its obligations under the Advisory Agreement, and
concluded that AIM has the financial resources necessary to fulfill its
obligations under the Advisory Agreement.
o Historical relationship between the Fund and AIM. In determining
whether to continue the Advisory Agreement for the Fund, the Board also
considered the prior relationship between AIM and the Fund, as well as
the Board's knowledge of AIM's operations, and concluded that it was
beneficial to maintain the current relationship, in part, because of
such knowledge. The Board also reviewed the general nature of the
non-investment advisory services currently performed by AIM and its
affiliates, such as administrative, transfer agency and distribution
services, and the fees received by AIM and its affiliates for
performing such services. In addition to reviewing such services, the
trustees also considered the organizational structure employed by AIM
and its affiliates to provide those services. Based on the review of
these and other factors, the Board concluded that AIM and its
affiliates were qualified to continue to provide non-investment
advisory services to the Fund, including administrative, transfer
agency and distribution services, and that AIM and its affiliates
currently are providing satisfactory non-investment advisory services.
o Other factors and current trends. In determining whether to continue
the Advisory Agreement for the Fund, the Board considered the fact that
AIM, along with others in the mutual fund industry, is subject to
regulatory inquiries and litigation related to a wide range of issues.
The Board also considered the governance and compliance reforms being
undertaken by AIM and its affiliates, including maintaining an internal
controls committee and retaining an independent compliance consultant,
and the fact that AIM has undertaken to cause the Fund to operate in
accordance with certain governance policies and practices. The Board
concluded that these actions indicated a good faith effort on the part
of AIM to adhere to the highest ethical standards, and determined that
the current regulatory and litigation environment to which AIM is
subject should not prevent the Board from continuing the Advisory
Agreement for the Fund.
AIM CONSERVATIVE ALLOCATION FUND
o The nature and extent of the advisory services to be provided by AIM.
The Board reviewed the services to be provided by AIM under the
Advisory Agreement. Based on such review, the Board concluded that the
range of services to be provided by AIM under the Advisory Agreement
was appropriate and that AIM currently is providing services in
accordance with the terms of the Advisory Agreement.
o The quality of services to be provided by AIM. The Board reviewed the
credentials and experience of the officers and employees of AIM who
will provide investment advisory services to the Fund. In reviewing the
qualifications of AIM to provide investment advisory services, the
47
Board reviewed the qualifications of AIM's investment personnel and
considered such issues as AIM's portfolio and product review process,
various back office support functions provided by AIM and AIM's equity
and fixed income trading operations. Based on the review of these and
other factors, the Board concluded that the quality of services to be
provided by AIM was appropriate and that AIM currently is providing
satisfactory services in accordance with the terms of the Advisory
Agreement.
o The performance of the Fund relative to comparable funds. Not
applicable because the Fund has recently commenced operations.
o The performance of the Fund relative to indices. Not applicable because
the Fund has recently commenced operations.
o Meeting with the Fund's portfolio managers and investment personnel.
With respect to the Fund, the Board is meeting periodically with such
Fund's portfolio managers and/or other investment personnel and
believes that such individuals are competent and able to continue to
carry out their responsibilities under the Advisory Agreement.
o Overall performance of AIM. The Board considered the overall
performance of AIM in providing investment advisory and portfolio
administrative services to the Fund and concluded that such performance
was satisfactory.
o Fees relative to those of clients of AIM with comparable investment
strategies. The Board noted that AIM does not charge the Fund any
advisory fees pursuant to the Advisory Agreement, although the
underlying funds in which the Fund invests pay AIM advisory fees.
o Fees relative to those of comparable funds with other advisors. The
Board noted that AIM does not charge the Fund any advisory fees
pursuant to the Advisory Agreement, although the underlying funds in
which the Fund invests pay AIM advisory fees.
o Expense limitations and fee waivers. The Board noted that AIM has
contractually agreed to waive fees and/or limit expenses of the Fund
through December 31, 2005 in an amount necessary to limit other
expenses to a specified percentage of average daily net assets for each
class of the Fund. The Board considered the contractual nature of this
fee waiver/expense limitation and noted that it remains in effect
through December 31, 2005. The Board considered the effect this fee
waiver/expense limitation would have on the Fund's estimated expenses
and concluded that the levels of fee waivers/expense limitations for
the Fund were fair and reasonable.
o Breakpoints and economies of scale. The Board noted that AIM does not
charge the Fund any advisory fees pursuant to the Advisory Agreement,
although the underlying funds in which the Fund invests pay AIM
advisory fees.
o Investments in affiliated money market funds. Not applicable because
the Fund does not invest in affiliated money market funds.
o Independent written evaluation and recommendations of the Fund's Senior
Officer. The Board noted that, upon their direction, the Senior Officer
of the Fund had prepared an independent written evaluation in order to
assist the Board in determining the reasonableness of the proposed
management fees of the AIM Funds, including the Fund. The Board noted
that the Senior Officer's written evaluation had been relied upon by
the Board in this regard in lieu of a competitive bidding process. In
determining whether to continue the Advisory Agreement for the Fund,
the Board considered the Senior Officer's written evaluation and the
recommendation made by the Senior Officer to the Board that the Board
consider implementing a process to assist
48
them in more closely monitoring the performance of the AIM Funds. The
Board concluded that it would be advisable to implement such a process
as soon as reasonably practicable.
o Profitability of AIM and its affiliates. The Board noted that AIM does
not charge the Fund any advisory fees pursuant to the Advisory
Agreement, although the underlying funds in which the Fund invests pay
AIM advisory fees.
o Benefits of soft dollars to AIM. The Board considered the benefits
realized by AIM as a result of brokerage transactions executed through
"soft dollar" arrangements. Under these arrangements, brokerage
commissions paid by the Fund and/or other funds advised by AIM are used
to pay for research and execution services. This research is used by
AIM in making investment decisions for the Fund. The Board concluded
that such arrangements were appropriate.
o AIM's financial soundness in light of the Fund's needs. The Board
considered whether AIM is financially sound and has the resources
necessary to perform its obligations under the Advisory Agreement, and
concluded that AIM has the financial resources necessary to fulfill its
obligations under the Advisory Agreement.
o Historical relationship between the Fund and AIM. In determining
whether to continue the Advisory Agreement for the Fund, the Board also
considered the prior relationship between AIM and the Fund, as well as
the Board's knowledge of AIM's operations, and concluded that it was
beneficial to maintain the current relationship, in part, because of
such knowledge. The Board also reviewed the general nature of the
non-investment advisory services currently performed by AIM and its
affiliates, such as administrative, transfer agency and distribution
services, and the fees received by AIM and its affiliates for
performing such services. In addition to reviewing such services, the
trustees also considered the organizational structure employed by AIM
and its affiliates to provide those services. Based on the review of
these and other factors, the Board concluded that AIM and its
affiliates were qualified to continue to provide non-investment
advisory services to the Fund, including administrative, transfer
agency and distribution services, and that AIM and its affiliates
currently are providing satisfactory non-investment advisory services.
o Other factors and current trends. In determining whether to continue
the Advisory Agreement for the Fund, the Board considered the fact that
AIM, along with others in the mutual fund industry, is subject to
regulatory inquiries and litigation related to a wide range of issues.
The Board also considered the governance and compliance reforms being
undertaken by AIM and its affiliates, including maintaining an internal
controls committee and retaining an independent compliance consultant,
and the fact that AIM has undertaken to cause the Fund to operate in
accordance with certain governance policies and practices. The Board
concluded that these actions indicated a good faith effort on the part
of AIM to adhere to the highest ethical standards, and determined that
the current regulatory and litigation environment to which AIM is
subject should not prevent the Board from continuing the Advisory
Agreement for the Fund.
AIM GLOBAL EQUITY FUND
o The nature and extent of the advisory services to be provided by AIM.
The Board reviewed the services to be provided by AIM under the
Advisory Agreement. Based on such review, the Board concluded that the
range of services to be provided by AIM under the Advisory Agreement
was appropriate and that AIM currently is providing services in
accordance with the terms of the Advisory Agreement.
o The quality of services to be provided by AIM. The Board reviewed the
credentials and experience of the officers and employees of AIM who
will provide investment advisory services to the Fund. In reviewing the
qualifications of AIM to provide investment advisory services, the
Board reviewed the qualifications of AIM's investment personnel and
considered such issues as AIM's portfolio and product review process,
various back office support functions provided by AIM
49
and AIM's equity and fixed income trading operations. Based on the
review of these and other factors, the Board concluded that the quality
of services to be provided by AIM was appropriate and that AIM
currently is providing satisfactory services in accordance with the
terms of the Advisory Agreement.
o The performance of the Fund relative to comparable funds. The Board
reviewed the performance of the Fund during the past one, three and
five calendar years against the performance of funds advised by other
advisors with investment strategies comparable to those of the Fund.
The Board noted that the Fund's performance for the one and three year
periods was at or above the median performance of such comparable funds
and below such median performance for the five year period. Based on
this review, the Board concluded that no changes should be made to the
Fund and that it was not necessary to change the Fund's portfolio
management team at this time.
o The performance of the Fund relative to indices. The Board reviewed the
performance of the Fund during the past one, three and five calendar
years against the performance of the Lipper Global Multi-Cap Core
Index. The Board noted that the Fund's performance in such periods was
above the performance of such Index. Based on this review, the Board
concluded that no changes should be made to the Fund and that it was
not necessary to change the Fund's portfolio management team at this
time.
o Meeting with the Fund's portfolio managers and investment personnel.
With respect to the Fund, the Board is meeting periodically with such
Fund's portfolio managers and/or other investment personnel and
believes that such individuals are competent and able to continue to
carry out their responsibilities under the Advisory Agreement.
o Overall performance of AIM. The Board considered the overall
performance of AIM in providing investment advisory and portfolio
administrative services to the Fund and concluded that such performance
was satisfactory.
o Fees relative to those of clients of AIM with comparable investment
strategies. The Board noted that AIM does not serve as an advisor to
other mutual funds or other clients with investment strategies
comparable to those of the Fund.
o Fees relative to those of comparable funds with other advisors. The
Board reviewed the advisory fee rate for the Fund under the Advisory
Agreement. The Board compared effective contractual advisory fee rates
at a common asset level and noted that the Fund's rate below the median
rate of the funds advised by other advisors with investment strategies
comparable to those of the Fund that the Board reviewed. The Board
noted that AIM has agreed to waive advisory fees of the Fund and to
limit the Fund's total operating expenses, as discussed below. Based on
this review, the Board concluded that the advisory fee rate for the
Fund under the Advisory Agreement was fair and reasonable.
o Expense limitations and fee waivers. The Board noted that AIM has
contractually agreed to waive advisory fees of the Fund through
December 31, 2009 to the extent necessary so that the advisory fees
payable by the Fund do not exceed a specified maximum advisory fee
rate, which maximum rate includes breakpoints and is based on net asset
levels. The Board considered the contractual nature of this fee waiver
and noted that it remains in effect until December 31, 2009. The Board
noted that AIM has contractually agreed to waive fees and/or limit
expenses of the Fund through December 31, 2005 in an amount necessary
to limit total annual operating expenses to a specified percentage of
average daily net assets for each class of the Fund (other than
Institutional Class shares). The Board considered the contractual
nature of this fee waiver/expense limitation and noted that it remains
in effect until December 31, 2005. The Board considered the effect
these fee waivers/expense limitations would have on the Fund's
estimated expenses and concluded that the levels of fee waivers/expense
limitations for the Fund were fair and reasonable.
50
o Breakpoints and economies of scale. The Board reviewed the structure of
the Fund's advisory fee under the Advisory Agreement, noting that it
includes three breakpoints. The Board reviewed the level of the Fund's
advisory fees, and noted that such fees, as a percentage of the Fund's
net assets, would decrease as net assets increase because the Advisory
Agreement includes breakpoints. The Board noted that, due to the Fund's
current asset levels and the way in which the advisory fee breakpoints
have been structured, the Fund has yet to benefit from the breakpoints.
The Board noted that AIM has contractually agreed to waive advisory
fees of the Fund through December 31, 2009 to the extent necessary so
that the advisory fees payable by the Fund do not exceed a specified
maximum advisory fee rate, which maximum rate includes breakpoints and
is based on net asset levels. The Board concluded that the Fund's fee
levels under the Advisory Agreement therefore would reflect economies
of scale at higher asset levels and that it was not necessary to change
the advisory fee breakpoints in the Fund's advisory fee schedule.
o Investments in affiliated money market funds. The Board also took into
account the fact that uninvested cash and cash collateral from
securities lending arrangements (collectively, "cash balances") of the
Fund may be invested in money market funds advised by AIM pursuant to
the terms of an SEC exemptive order. The Board found that the Fund may
realize certain benefits upon investing cash balances in AIM advised
money market funds, including a higher net return, increased liquidity,
increased diversification or decreased transaction costs. The Board
also found that the Fund will not receive reduced services if it
invests its cash balances in such money market funds. The Board noted
that, to the extent the Fund invests in affiliated money market funds,
AIM has voluntarily agreed to waive a portion of the advisory fees it
receives from the Fund attributable to such investment. The Board
further determined that the proposed securities lending program and
related procedures with respect to the lending Fund is in the best
interests of the lending Fund and its respective shareholders. The
Board therefore concluded that the investment of cash collateral
received in connection with the securities lending program in the money
market funds according to the procedures is in the best interests of
the lending Fund and its respective shareholders.
o Independent written evaluation and recommendations of the Fund's Senior
Officer. The Board noted that, upon their direction, the Senior Officer
of the Fund had prepared an independent written evaluation in order to
assist the Board in determining the reasonableness of the proposed
management fees of the AIM Funds, including the Fund. The Board noted
that the Senior Officer's written evaluation had been relied upon by
the Board in this regard in lieu of a competitive bidding process. In
determining whether to continue the Advisory Agreement for the Fund,
the Board considered the Senior Officer's written evaluation and the
recommendation made by the Senior Officer to the Board that the Board
consider implementing a process to assist them in more closely
monitoring the performance of the AIM Funds. The Board concluded that
it would be advisable to implement such a process as soon as reasonably
practicable.
o Profitability of AIM and its affiliates. The Board reviewed information
concerning the profitability of AIM's (and its affiliates') investment
advisory and other activities and its financial condition. The Board
considered the overall profitability of AIM, as well as the
profitability of AIM in connection with managing the Fund. The Board
noted that AIM's operations remain profitable, although increased
expenses in recent years have reduced AIM's profitability. Based on the
review of the profitability of AIM's and its affiliates' investment
advisory and other activities and its financial condition, the Board
concluded that the compensation to be paid by the Fund to AIM under its
Advisory Agreement was not excessive.
o Benefits of soft dollars to AIM. The Board considered the benefits
realized by AIM as a result of brokerage transactions executed through
"soft dollar" arrangements. Under these arrangements, brokerage
commissions paid by the Fund and/or other funds advised by AIM are used
to pay for research and execution services. This research is used by
AIM in making investment decisions for the Fund. The Board concluded
that such arrangements were appropriate.
51
o AIM's financial soundness in light of the Fund's needs. The Board
considered whether AIM is financially sound and has the resources
necessary to perform its obligations under the Advisory Agreement, and
concluded that AIM has the financial resources necessary to fulfill its
obligations under the Advisory Agreement.
o Historical relationship between the Fund and AIM. In determining
whether to continue the Advisory Agreement for the Fund, the Board also
considered the prior relationship between AIM and the Fund, as well as
the Board's knowledge of AIM's operations, and concluded that it was
beneficial to maintain the current relationship, in part, because of
such knowledge. The Board also reviewed the general nature of the
non-investment advisory services currently performed by AIM and its
affiliates, such as administrative, transfer agency and distribution
services, and the fees received by AIM and its affiliates for
performing such services. In addition to reviewing such services, the
trustees also considered the organizational structure employed by AIM
and its affiliates to provide those services. Based on the review of
these and other factors, the Board concluded that AIM and its
affiliates were qualified to continue to provide non-investment
advisory services to the Fund, including administrative, transfer
agency and distribution services, and that AIM and its affiliates
currently are providing satisfactory non-investment advisory services.
o Other factors and current trends. In determining whether to continue
the Advisory Agreement for the Fund, the Board considered the fact that
AIM, along with others in the mutual fund industry, is subject to
regulatory inquiries and litigation related to a wide range of issues.
The Board also considered the governance and compliance reforms being
undertaken by AIM and its affiliates, including maintaining an internal
controls committee and retaining an independent compliance consultant,
and the fact that AIM has undertaken to cause the Fund to operate in
accordance with certain governance policies and practices. The Board
concluded that these actions indicated a good faith effort on the part
of AIM to adhere to the highest ethical standards, and determined that
the current regulatory and litigation environment to which AIM is
subject should not prevent the Board from continuing the Advisory
Agreement for the Fund.
AIM GROWTH ALLOCATION FUND
o The nature and extent of the advisory services to be provided by AIM.
The Board reviewed the services to be provided by AIM under the
Advisory Agreement. Based on such review, the Board concluded that the
range of services to be provided by AIM under the Advisory Agreement
was appropriate and that AIM currently is providing services in
accordance with the terms of the Advisory Agreement.
o The quality of services to be provided by AIM. The Board reviewed the
credentials and experience of the officers and employees of AIM who
will provide investment advisory services to the Fund. In reviewing the
qualifications of AIM to provide investment advisory services, the
Board reviewed the qualifications of AIM's investment personnel and
considered such issues as AIM's portfolio and product review process,
various back office support functions provided by AIM and AIM's equity
and fixed income trading operations. Based on the review of these and
other factors, the Board concluded that the quality of services to be
provided by AIM was appropriate and that AIM currently is providing
satisfactory services in accordance with the terms of the Advisory
Agreement.
o The performance of the Fund relative to comparable funds. Not
applicable because the Fund has recently commenced operations.
o The performance of the Fund relative to indices. Not applicable because
the Fund has recently commenced operations.
o Meeting with the Fund's portfolio managers and investment personnel.
With respect to the Fund, the Board is meeting periodically with such
Fund's portfolio managers and/or other investment
52
personnel and believes that such individuals are competent and able to
continue to carry out their responsibilities under the Advisory
Agreement.
o Overall performance of AIM. The Board considered the overall
performance of AIM in providing investment advisory and portfolio
administrative services to the Fund and concluded that such performance
was satisfactory.
o Fees relative to those of clients of AIM with comparable investment
strategies. The Board noted that AIM does not charge the Fund any
advisory fees pursuant to the Advisory Agreement, although the
underlying funds in which the Fund invests pay AIM advisory fees.
o Fees relative to those of comparable funds with other advisors. The
Board noted that AIM does not charge the Fund any advisory fees
pursuant to the Advisory Agreement, although the underlying funds in
which the Fund invests pay AIM advisory fees.
o Expense limitations and fee waivers. The Board noted that AIM has
contractually agreed to waive fees and/or limit expenses of the Fund
through December 31, 2005 in an amount necessary to limit other
expenses to a specified percentage of average daily net assets for each
class of the Fund. The Board considered the contractual nature of this
fee waiver/expense limitation and noted that it remains in effect
through December 31, 2005. The Board considered the effect this fee
waiver/expense limitation would have on the Fund's estimated expenses
and concluded that the levels of fee waivers/expense limitations for
the Fund were fair and reasonable.
o Breakpoints and economies of scale. The Board noted that AIM does not
charge the Fund any advisory fees pursuant to the Advisory Agreement,
although the underlying funds in which the Fund invests pay AIM
advisory fees.
o Investments in affiliated money market funds. Not applicable because
the Fund does not invest in affiliated money market funds.
o Independent written evaluation and recommendations of the Fund's Senior
Officer. The Board noted that, upon their direction, the Senior Officer
of the Fund had prepared an independent written evaluation in order to
assist the Board in determining the reasonableness of the proposed
management fees of the AIM Funds, including the Fund. The Board noted
that the Senior Officer's written evaluation had been relied upon by
the Board in this regard in lieu of a competitive bidding process. In
determining whether to continue the Advisory Agreement for the Fund,
the Board considered the Senior Officer's written evaluation and the
recommendation made by the Senior Officer to the Board that the Board
consider implementing a process to assist them in more closely
monitoring the performance of the AIM Funds. The Board concluded that
it would be advisable to implement such a process as soon as reasonably
practicable.
o Profitability of AIM and its affiliates. The Board noted that AIM does
not charge the Fund any advisory fees pursuant to the Advisory
Agreement, although the underlying funds in which the Fund invests pay
AIM advisory fees.
o Benefits of soft dollars to AIM. The Board considered the benefits
realized by AIM as a result of brokerage transactions executed through
"soft dollar" arrangements. Under these arrangements, brokerage
commissions paid by the Fund and/or other funds advised by AIM are used
to pay for research and execution services. This research is used by
AIM in making investment decisions for the Fund. The Board concluded
that such arrangements were appropriate.
o AIM's financial soundness in light of the Fund's needs. The Board
considered whether AIM is financially sound and has the resources
necessary to perform its obligations under the Advisory
53
Agreement, and concluded that AIM has the financial resources necessary
to fulfill its obligations under the Advisory Agreement.
o Historical relationship between the Fund and AIM. In determining
whether to continue the Advisory Agreement for the Fund, the Board also
considered the prior relationship between AIM and the Fund, as well as
the Board's knowledge of AIM's operations, and concluded that it was
beneficial to maintain the current relationship, in part, because of
such knowledge. The Board also reviewed the general nature of the
non-investment advisory services currently performed by AIM and its
affiliates, such as administrative, transfer agency and distribution
services, and the fees received by AIM and its affiliates for
performing such services. In addition to reviewing such services, the
trustees also considered the organizational structure employed by AIM
and its affiliates to provide those services. Based on the review of
these and other factors, the Board concluded that AIM and its
affiliates were qualified to continue to provide non-investment
advisory services to the Fund, including administrative, transfer
agency and distribution services, and that AIM and its affiliates
currently are providing satisfactory non-investment advisory services.
o Other factors and current trends. In determining whether to continue
the Advisory Agreement for the Fund, the Board considered the fact that
AIM, along with others in the mutual fund industry, is subject to
regulatory inquiries and litigation related to a wide range of issues.
The Board also considered the governance and compliance reforms being
undertaken by AIM and its affiliates, including maintaining an internal
controls committee and retaining an independent compliance consultant,
and the fact that AIM has undertaken to cause the Fund to operate in
accordance with certain governance policies and practices. The Board
concluded that these actions indicated a good faith effort on the part
of AIM to adhere to the highest ethical standards, and determined that
the current regulatory and litigation environment to which AIM is
subject should not prevent the Board from continuing the Advisory
Agreement for the Fund.
AIM INCOME ALLOCATION FUND
o The nature and extent of the advisory services to be provided by AIM.
The Board reviewed the services to be provided by AIM under the
Advisory Agreement. Based on this review, the Board concluded that the
range of services to be provided by AIM under the Advisory Agreement
was appropriate.
o The quality of services to be provided by AIM. The Board reviewed the
credentials and experience of the officers and employees of AIM who
will provide investment advisory services to the Fund. In reviewing the
qualifications of AIM to provide investment advisory services, the
Board reviewed the qualifications of AIM's investment personnel and
considered such issues as AIM's portfolio and product review process,
various back office support functions provided by AIM and AIM's equity
and fixed income trading operations. Based on the review of these and
other factors, the Board concluded that the quality of services to be
provided by AIM was appropriate and that AIM is currently providing
satisfactory services in accordance with the terms of the Advisory
Agreement.
o The performance of the Fund relative to comparable funds. Not
applicable because this is a new Fund.
o The performance of the Fund relative to indices. Not applicable because
this is a new Fund.
o Meeting with the Fund's portfolio managers and investment personnel.
The Board intends to meet periodically with the Fund's portfolio
managers and/or other investment personnel to ensure that such
individuals are competent and able to continue to carry out their
responsibilities under the Advisory Agreement.
54
o Overall performance of AIM. Not applicable because this is a new Fund.
However, the Board considered the overall performance of AIM in
providing investment advisory and portfolio administrative services to
other mutual funds advised by AIM and concluded that such performance
was satisfactory.
o Fees relative to those of clients of AIM with comparable investment
strategies. The Board noted that AIM will not charge the Fund any
advisory fees pursuant to the Advisory Agreement, although the
underlying funds in which the Fund invests pay advisory fees.
o Fees relative to those of comparable funds with other advisors. The
Board noted that AIM will not charge the Fund any advisory fees
pursuant to the Advisory Agreement, although the underlying funds in
which the Fund invests pay advisory fees.
o Expense limitations and fee waivers. The Board reviewed AIM's proposed
annual expense limitation for the Fund that would, until December 31,
2006, limit Other Expenses (excluding interest, taxes, dividend expense
on short sales, fund merger and reorganization expenses, extraordinary
items, including other items designated as such by the Board, and
increases in expenses due to expense offset arrangements, if any) of
each class of shares of the Fund to 0.04% of the Fund's average daily
net assets, and the effect it would have on the Fund's estimated total
expenses. The Board concluded that such expense limitation for the Fund
was fair and reasonable.
o Breakpoints and economies of scale. The Board noted that AIM will not
charge the Fund any advisory fees pursuant to the Advisory Agreement,
although the underlying funds in which the Fund invests pay advisory
fees.
o Investments in affiliated money market funds. Not applicable because
the Fund does not invest in affiliated money market funds.
o Profitability of AIM and its affiliates. The Board noted that AIM will
not charge the Fund any advisory fees pursuant to the Advisory
Agreement, although the underlying funds in which the Fund invests pay
advisory fees.
o Benefits of soft dollars to AIM. The Board considered the benefits
realized by AIM as a result of brokerage transactions executed through
"soft dollar" arrangements. Under these arrangements, brokerage
commissions paid by the Fund and/or other funds advised by AIM are used
to pay for research and execution services. This research is used by
AIM in making investment decisions for the Fund. The Board concluded
that such arrangements were appropriate.
o AIM's financial soundness in light of the Fund's needs. The Board
considered whether AIM is financially sound and has the resources
necessary to perform its obligations under the Advisory Agreement, and
concluded that AIM has the financial resources necessary to fulfill its
obligations under the Advisory Agreement.
o Historical relationship between the Fund and AIM. In determining
whether to approve the Advisory Agreement for the Fund, the Board also
considered the Board's knowledge of AIM's operations, and concluded
that it was beneficial to approve the Advisory Agreement, in part,
because of such knowledge. The Board also reviewed the general nature
of the non-investment advisory services currently performed by AIM and
its affiliates, such as administrative, transfer agency and
distribution services, and the fees received by AIM and its affiliates
for performing such services. In addition to reviewing such services,
the trustees also considered the organizational structure employed by
AIM and its affiliates to provide those services. Based on the review
of these and other factors, the Board concluded that AIM and its
affiliates were qualified to provide non-investment advisory services
to the Fund, including administrative, transfer agency and distribution
services.
55
o Other factors and current trends. In determining whether to approve the
Advisory Agreement for the Fund, the Board considered the fact that
AIM, along with others in the mutual fund industry, is subject to
regulatory inquiries and litigation related to a wide range of issues.
The Board also considered the governance and compliance reforms being
undertaken by AIM and its affiliates, including maintaining an internal
controls committee and retaining an independent compliance consultant,
and the fact that AIM has undertaken to cause the Fund to operate in
accordance with certain governance policies and practices. The Board
concluded that these actions indicated a good faith effort on the part
of AIM to adhere to the highest ethical standards, and determined that
the current regulatory and litigation environment to which AIM is
subject should not prevent the Board from continuing the Advisory
Agreement for the Fund.
AIM INTERNATIONAL ALLOCATION FUND
o The nature and extent of the advisory services to be provided by AIM.
The Board reviewed the services to be provided by AIM under the
Advisory Agreement. Based on this review, the Board concluded that the
range of services to be provided by AIM under the Advisory Agreement
was appropriate.
o The quality of services to be provided by AIM. The Board reviewed the
credentials and experience of the officers and employees of AIM who
will provide investment advisory services to the Fund. In reviewing the
qualifications of AIM to provide investment advisory services, the
Board reviewed the qualifications of AIM's investment personnel and
considered such issues as AIM's portfolio and product review process,
various back office support functions provided by AIM and AIM's equity
and fixed income trading operations. Based on the review of these and
other factors, the Board concluded that the quality of services to be
provided by AIM was appropriate and that AIM is currently providing
satisfactory services in accordance with the terms of the Advisory
Agreement.
o The performance of the Fund relative to comparable funds. Not
applicable because this is a new Fund.
o The performance of the Fund relative to indices. Not applicable because
this is a new Fund.
o Meeting with the Fund's portfolio managers and investment personnel.
The Board intends to meet periodically with the Fund's portfolio
managers and/or other investment personnel to ensure that such
individuals are competent and able to continue to carry out their
responsibilities under the Advisory Agreement.
o Overall performance of AIM. Not applicable because this is a new Fund.
However, the Board considered the overall performance of AIM in
providing investment advisory and portfolio administrative services to
other mutual funds advised by AIM and concluded that such performance
was satisfactory.
o Fees relative to those of clients of AIM with comparable investment
strategies. The Board noted that AIM will not charge the Fund any
advisory fees pursuant to the Advisory Agreement, although the
underlying funds in which the Fund invests pay advisory fees.
o Fees relative to those of comparable funds with other advisors. The
Board noted that AIM will not charge the Fund any advisory fees
pursuant to the Advisory Agreement, although the underlying funds in
which the Fund invests pay advisory fees.
o Expense limitations and fee waivers. The Board reviewed AIM's proposed
annual expense limitation for the Fund that would, until December 31,
2006, limit Other Expenses (excluding interest, taxes, dividend expense
on short sales, fund merger and reorganization expenses, extraordinary
items, including other items designated as such by the Board, and
increases in
56
expenses due to expense offset arrangements, if any) of each class of
shares of the Fund to 0.18% of the Fund's average daily net assets, and
the effect it would have on the Fund's estimated total expenses. The
Board concluded that such expense limitation for the Fund was fair and
reasonable.
o Breakpoints and economies of scale. The Board noted that AIM will not
charge the Fund any advisory fees pursuant to the Advisory Agreement,
although the underlying funds in which the Fund invests pay advisory
fees.
o Investments in affiliated money market funds. Not applicable because
the Fund does not invest in affiliated money market funds.
o Profitability of AIM and its affiliates. The Board noted that AIM will
not charge the Fund any advisory fees pursuant to the Advisory
Agreement, although the underlying funds in which the Fund invests pay
advisory fees.
o Benefits of soft dollars to AIM. The Board considered the benefits
realized by AIM as a result of brokerage transactions executed through
"soft dollar" arrangements. Under these arrangements, brokerage
commissions paid by the Fund and/or other funds advised by AIM are used
to pay for research and execution services. This research is used by
AIM in making investment decisions for the Fund. The Board concluded
that such arrangements were appropriate.
o AIM's financial soundness in light of the Fund's needs. The Board
considered whether AIM is financially sound and has the resources
necessary to perform its obligations under the Advisory Agreement, and
concluded that AIM has the financial resources necessary to fulfill its
obligations under the Advisory Agreement.
o Historical relationship between the Fund and AIM. In determining
whether to approve the Advisory Agreement for the Fund, the Board also
considered the Board's knowledge of AIM's operations, and concluded
that it was beneficial to approve the Advisory Agreement, in part,
because of such knowledge. The Board also reviewed the general nature
of the non-investment advisory services currently performed by AIM and
its affiliates, such as administrative, transfer agency and
distribution services, and the fees received by AIM and its affiliates
for performing such services. In addition to reviewing such services,
the trustees also considered the organizational structure employed by
AIM and its affiliates to provide those services. Based on the review
of these and other factors, the Board concluded that AIM and its
affiliates were qualified to provide non-investment advisory services
to the Fund, including administrative, transfer agency and distribution
services.
o Other factors and current trends. In determining whether to approve the
Advisory Agreement for the Fund, the Board considered the fact that
AIM, along with others in the mutual fund industry, is subject to
regulatory inquiries and litigation related to a wide range of issues.
The Board also considered the governance and compliance reforms being
undertaken by AIM and its affiliates, including maintaining an internal
controls committee and retaining an independent compliance consultant,
and the fact that AIM has undertaken to cause the Fund to operate in
accordance with certain governance policies and practices. The Board
concluded that these actions indicated a good faith effort on the part
of AIM to adhere to the highest ethical standards, and determined that
the current regulatory and litigation environment to which AIM is
subject should not prevent the Board from continuing the Advisory
Agreement for the Fund.
AIM MID CAP CORE EQUITY FUND
o The nature and extent of the advisory services to be provided by AIM.
The Board reviewed the services to be provided by AIM under the
Advisory Agreement. Based on such review, the Board concluded that the
range of services to be provided by AIM under the Advisory Agreement
was
57
appropriate and that AIM currently is providing services in accordance
with the terms of the Advisory Agreement.
o The quality of services to be provided by AIM. The Board reviewed the
credentials and experience of the officers and employees of AIM who
will provide investment advisory services to the Fund. In reviewing the
qualifications of AIM to provide investment advisory services, the
Board reviewed the qualifications of AIM's investment personnel and
considered such issues as AIM's portfolio and product review process,
various back office support functions provided by AIM and AIM's equity
and fixed income trading operations. Based on the review of these and
other factors, the Board concluded that the quality of services to be
provided by AIM was appropriate and that AIM currently is providing
satisfactory services in accordance with the terms of the Advisory
Agreement.
o The performance of the Fund relative to comparable funds. The Board
reviewed the performance of the Fund during the past one, three and
five calendar years against the performance of funds advised by other
advisors with investment strategies comparable to those of the Fund.
The Board noted that the Fund's performance was below the median
performance of such comparable funds for the one and three year periods
and at such median performance for the five year period. Based on this
review, the Board concluded that no changes should be made to the Fund
and that it was not necessary to change the Fund's portfolio management
team at this time.
o The performance of the Fund relative to indices. The Board reviewed the
performance of the Fund during the past one, three and five calendar
years against the performance of the Lipper Mid-Cap Core Index. The
Board noted that the Fund's performance was below the performance of
such Index for the one and three year periods and above such Index for
the five year period. Based on this review, the Board concluded that no
changes should be made to the Fund and that it was not necessary to
change the Fund's portfolio management team at this time.
o Meeting with the Fund's portfolio managers and investment personnel.
With respect to the Fund, the Board is meeting periodically with such
Fund's portfolio managers and/or other investment personnel and
believes that such individuals are competent and able to continue to
carry out their responsibilities under the Advisory Agreement.
o Overall performance of AIM. The Board considered the overall
performance of AIM in providing investment advisory and portfolio
administrative services to the Fund and concluded that such performance
was satisfactory.
o Fees relative to those of clients of AIM with comparable investment
strategies. The Board reviewed the advisory fee rate for the Fund under
the Advisory Agreement. The Board noted that this rate (i) was the same
as the advisory fee rates for a variable insurance fund advised by AIM
and offered to insurance company separate accounts with investment
strategies comparable to those of the Fund; (ii) was higher than the
sub-advisory fee rates for three unaffiliated mutual funds for which an
AIM affiliate serves as sub-advisor, although the total management fees
paid by such unaffiliated mutual funds were higher than the advisory
fee rate for the Fund; and (iii) was higher than the advisory fee rates
for 24 separately managed wrap accounts managed by an AIM affiliate
with investment strategies comparable to those of the Fund, comparable
to the advisory fee rates for one such wrap account, and lower than the
advisory fee rates for two such wrap accounts. The Board noted that AIM
has agreed to waive advisory fees of the Fund, as discussed below.
Based on this review, the Board concluded that the advisory fee rate
for the Fund under the Advisory Agreement was fair and reasonable.
o Fees relative to those of comparable funds with other advisors. The
Board reviewed the advisory fee rate for the Fund under the Advisory
Agreement. The Board compared effective contractual advisory fee rates
at a common asset level and noted that the Fund's rate was at the
median rate of the funds advised by other advisors with investment
strategies comparable to those of the
58
Fund that the Board reviewed. The Board noted that AIM has agreed to
waive advisory fees of the Fund, as discussed below. Based on this
review, the Board concluded that the advisory fee rate for the Fund
under the Advisory Agreement was fair and reasonable.
o Expense limitations and fee waivers. The Board noted that AIM has
contractually agreed to waive advisory fees of the Fund through June
30, 2006 to the extent necessary so that the advisory fees payable by
the Fund do not exceed a specified maximum advisory fee rate, which
maximum rate includes breakpoints and is based on net asset levels. The
Board considered the contractual nature of this fee waiver and noted
that it remains in effect until June 30, 2006. The Board considered the
effect this fee waiver would have on the Fund's estimated expenses and
concluded that the levels of fee waivers/expense limitations for the
Fund were fair and reasonable.
o Breakpoints and economies of scale. The Board reviewed the structure of
the Fund's advisory fee under the Advisory Agreement, noting that it
includes three breakpoints. The Board reviewed the level of the Fund's
advisory fees, and noted that such fees, as a percentage of the Fund's
net assets, have decreased as net assets increased because the Advisory
Agreement includes breakpoints. The Board noted that AIM has
contractually agreed to waive advisory fees of the Fund through June
30, 2006 to the extent necessary so that the advisory fees payable by
the Fund do not exceed a specified maximum advisory fee rate, which
maximum rate includes breakpoints and is based on net asset levels. The
Board concluded that the Fund's fee levels under the Advisory Agreement
therefore reflect economies of scale and that it was not necessary to
change the advisory fee breakpoints in the Fund's advisory fee
schedule.
o Investments in affiliated money market funds. The Board also took into
account the fact that uninvested cash and cash collateral from
securities lending arrangements (collectively, "cash balances") of the
Fund may be invested in money market funds advised by AIM pursuant to
the terms of an SEC exemptive order. The Board found that the Fund may
realize certain benefits upon investing cash balances in AIM advised
money market funds, including a higher net return, increased liquidity,
increased diversification or decreased transaction costs. The Board
also found that the Fund will not receive reduced services if it
invests its cash balances in such money market funds. The Board noted
that, to the extent the Fund invests in affiliated money market funds,
AIM has voluntarily agreed to waive a portion of the advisory fees it
receives from the Fund attributable to such investment. The Board
further determined that the proposed securities lending program and
related procedures with respect to the lending Fund is in the best
interests of the lending Fund and its respective shareholders. The
Board therefore concluded that the investment of cash collateral
received in connection with the securities lending program in the money
market funds according to the procedures is in the best interests of
the lending Fund and its respective shareholders.
o Independent written evaluation and recommendations of the Fund's Senior
Officer. The Board noted that, upon their direction, the Senior Officer
of the Fund had prepared an independent written evaluation in order to
assist the Board in determining the reasonableness of the proposed
management fees of the AIM Funds, including the Fund. The Board noted
that the Senior Officer's written evaluation had been relied upon by
the Board in this regard in lieu of a competitive bidding process. In
determining whether to continue the Advisory Agreement for the Fund,
the Board considered the Senior Officer's written evaluation and the
recommendation made by the Senior Officer to the Board that the Board
consider implementing a process to assist them in more closely
monitoring the performance of the AIM Funds. The Board concluded that
it would be advisable to implement such a process as soon as reasonably
practicable. The Board also considered the Senior Officer's
recommendation that the Board consider an additional fee waiver for the
Fund due to the Fund's under-performance and relatively high historic
cash position. The Board concluded that such a fee waiver was not
appropriate for the Fund at this time and that, rather than requesting
such a fee waiver from AIM, the Board should receive from AIM (i)
additional information regarding the use of cash in the Fund's overall
investment strategy
59
and (ii) an analysis of how the use of cash by the Fund's portfolio
manager has contributed to the Fund's performance.
o Profitability of AIM and its affiliates. The Board reviewed information
concerning the profitability of AIM's (and its affiliates') investment
advisory and other activities and its financial condition. The Board
considered the overall profitability of AIM, as well as the
profitability of AIM in connection with managing the Fund. The Board
noted that AIM's operations remain profitable, although increased
expenses in recent years have reduced AIM's profitability. Based on the
review of the profitability of AIM's and its affiliates' investment
advisory and other activities and its financial condition, the Board
concluded that the compensation to be paid by the Fund to AIM under its
Advisory Agreement was not excessive.
o Benefits of soft dollars to AIM. The Board considered the benefits
realized by AIM as a result of brokerage transactions executed through
"soft dollar" arrangements. Under these arrangements, brokerage
commissions paid by the Fund and/or other funds advised by AIM are used
to pay for research and execution services. This research is used by
AIM in making investment decisions for the Fund. The Board concluded
that such arrangements were appropriate.
o AIM's financial soundness in light of the Fund's needs. The Board
considered whether AIM is financially sound and has the resources
necessary to perform its obligations under the Advisory Agreement, and
concluded that AIM has the financial resources necessary to fulfill its
obligations under the Advisory Agreement.
o Historical relationship between the Fund and AIM. In determining
whether to continue the Advisory Agreement for the Fund, the Board also
considered the prior relationship between AIM and the Fund, as well as
the Board's knowledge of AIM's operations, and concluded that it was
beneficial to maintain the current relationship, in part, because of
such knowledge. The Board also reviewed the general nature of the
non-investment advisory services currently performed by AIM and its
affiliates, such as administrative, transfer agency and distribution
services, and the fees received by AIM and its affiliates for
performing such services. In addition to reviewing such services, the
trustees also considered the organizational structure employed by AIM
and its affiliates to provide those services. Based on the review of
these and other factors, the Board concluded that AIM and its
affiliates were qualified to continue to provide non-investment
advisory services to the Fund, including administrative, transfer
agency and distribution services, and that AIM and its affiliates
currently are providing satisfactory non-investment advisory services.
o Other factors and current trends. In determining whether to continue
the Advisory Agreement for the Fund, the Board considered the fact that
AIM, along with others in the mutual fund industry, is subject to
regulatory inquiries and litigation related to a wide range of issues.
The Board also considered the governance and compliance reforms being
undertaken by AIM and its affiliates, including maintaining an internal
controls committee and retaining an independent compliance consultant,
and the fact that AIM has undertaken to cause the Fund to operate in
accordance with certain governance policies and practices. The Board
concluded that these actions indicated a good faith effort on the part
of AIM to adhere to the highest ethical standards, and determined that
the current regulatory and litigation environment to which AIM is
subject should not prevent the Board from continuing the Advisory
Agreement for the Fund.
AIM MODERATE ALLOCATION FUND
o The nature and extent of the advisory services to be provided by AIM.
The Board reviewed the services to be provided by AIM under the
Advisory Agreement. Based on such review, the Board concluded that the
range of services to be provided by AIM under the Advisory Agreement
was appropriate and that AIM currently is providing services in
accordance with the terms of the Advisory Agreement.
60
o The quality of services to be provided by AIM. The Board reviewed the
credentials and experience of the officers and employees of AIM who
will provide investment advisory services to the Fund. In reviewing the
qualifications of AIM to provide investment advisory services, the
Board reviewed the qualifications of AIM's investment personnel and
considered such issues as AIM's portfolio and product review process,
various back office support functions provided by AIM and AIM's equity
and fixed income trading operations. Based on the review of these and
other factors, the Board concluded that the quality of services to be
provided by AIM was appropriate and that AIM currently is providing
satisfactory services in accordance with the terms of the Advisory
Agreement.
o The performance of the Fund relative to comparable funds. Not
applicable because the Fund has recently commenced operations.
o The performance of the Fund relative to indices. Not applicable because
the Fund has recently commenced operations.
o Meeting with the Fund's portfolio managers and investment personnel.
With respect to the Fund, the Board is meeting periodically with such
Fund's portfolio managers and/or other investment personnel and
believes that such individuals are competent and able to continue to
carry out their responsibilities under the Advisory Agreement.
o Overall performance of AIM. The Board considered the overall
performance of AIM in providing investment advisory and portfolio
administrative services to the Fund and concluded that such performance
was satisfactory.
o Fees relative to those of clients of AIM with comparable investment
strategies. The Board noted that AIM does not charge the Fund any
advisory fees pursuant to the Advisory Agreement, although the
underlying funds in which the Fund invests pay AIM advisory fees.
o Fees relative to those of comparable funds with other advisors. The
Board noted that AIM does not charge the Fund any advisory fees
pursuant to the Advisory Agreement, although the underlying funds in
which the Fund invests pay AIM advisory fees.
o Expense limitations and fee waivers. The Board noted that AIM has
contractually agreed to waive fees and/or limit expenses of the Fund
through December 31, 2005 in an amount necessary to limit other
expenses to a specified percentage of average daily net assets for each
class of the Fund. The Board considered the contractual nature of this
fee waiver/expense limitation and noted that it remains in effect
through December 31, 2005. The Board considered the effect this fee
waiver/expense limitation would have on the Fund's estimated expenses
and concluded that the levels of fee waivers/expense limitations for
the Fund were fair and reasonable.
o Breakpoints and economies of scale. The Board noted that AIM does not
charge the Fund any advisory fees pursuant to the Advisory Agreement,
although the underlying funds in which the Fund invests pay AIM
advisory fees.
o Investments in affiliated money market funds. Not applicable because
the Fund does not invest in affiliated money market funds.
o Independent written evaluation and recommendations of the Fund's Senior
Officer. The Board noted that, upon their direction, the Senior Officer
of the Fund had prepared an independent written evaluation in order to
assist the Board in determining the reasonableness of the proposed
management fees of the AIM Funds, including the Fund. The Board noted
that the Senior Officer's written evaluation had been relied upon by
the Board in this regard in lieu of a competitive bidding process. In
determining whether to continue the Advisory Agreement for the
61
Fund, the Board considered the Senior Officer's written evaluation and
the recommendation made by the Senior Officer to the Board that the
Board consider implementing a process to assist them in more closely
monitoring the performance of the AIM Funds. The Board concluded that
it would be advisable to implement such a process as soon as reasonably
practicable.
o Profitability of AIM and its affiliates. The Board noted that AIM does
not charge the Fund any advisory fees pursuant to the Advisory
Agreement, although the underlying funds in which the Fund invests pay
AIM advisory fees.
o Benefits of soft dollars to AIM. The Board considered the benefits
realized by AIM as a result of brokerage transactions executed through
"soft dollar" arrangements. Under these arrangements, brokerage
commissions paid by the Fund and/or other funds advised by AIM are used
to pay for research and execution services. This research is used by
AIM in making investment decisions for the Fund. The Board concluded
that such arrangements were appropriate.
o AIM's financial soundness in light of the Fund's needs. The Board
considered whether AIM is financially sound and has the resources
necessary to perform its obligations under the Advisory Agreement, and
concluded that AIM has the financial resources necessary to fulfill its
obligations under the Advisory Agreement.
o Historical relationship between the Fund and AIM. In determining
whether to continue the Advisory Agreement for the Fund, the Board also
considered the prior relationship between AIM and the Fund, as well as
the Board's knowledge of AIM's operations, and concluded that it was
beneficial to maintain the current relationship, in part, because of
such knowledge. The Board also reviewed the general nature of the
non-investment advisory services currently performed by AIM and its
affiliates, such as administrative, transfer agency and distribution
services, and the fees received by AIM and its affiliates for
performing such services. In addition to reviewing such services, the
trustees also considered the organizational structure employed by AIM
and its affiliates to provide those services. Based on the review of
these and other factors, the Board concluded that AIM and its
affiliates were qualified to continue to provide non-investment
advisory services to the Fund, including administrative, transfer
agency and distribution services, and that AIM and its affiliates
currently are providing satisfactory non-investment advisory services.
o Other factors and current trends. In determining whether to continue
the Advisory Agreement for the Fund, the Board considered the fact that
AIM, along with others in the mutual fund industry, is subject to
regulatory inquiries and litigation related to a wide range of issues.
The Board also considered the governance and compliance reforms being
undertaken by AIM and its affiliates, including maintaining an internal
controls committee and retaining an independent compliance consultant,
and the fact that AIM has undertaken to cause the Fund to operate in
accordance with certain governance policies and practices. The Board
concluded that these actions indicated a good faith effort on the part
of AIM to adhere to the highest ethical standards, and determined that
the current regulatory and litigation environment to which AIM is
subject should not prevent the Board from continuing the Advisory
Agreement for the Fund.
AIM MODERATE GROWTH ALLOCATION FUND
o The nature and extent of the advisory services to be provided by AIM.
The Board reviewed the services to be provided by AIM under the
Advisory Agreement. Based on this review, the Board concluded that the
range of services to be provided by AIM under the Advisory Agreement
was appropriate and that AIM is currently providing services in
accordance with the terms of the advisory agreement.
o The quality of services to be provided by AIM. The Board reviewed the
credentials and experience of the officers and employees of AIM who
will provide investment advisory services to the Fund. In reviewing the
qualifications of AIM to provide investment advisory services, the
62
Board reviewed the qualifications of AIM's investment personnel and
considered such issues as AIM's portfolio and product review process,
various back office support functions provided by AIM and AIM's equity
and fixed income trading operations. Based on the review of these and
other factors, the Board concluded that the quality of services to be
provided by AIM was appropriate and that AIM is currently providing
satisfactory services in accordance with the terms of the advisory
agreement.
o The performance of the Fund relative to comparable funds. Not
applicable because the Fund has recently commenced operations.
o The performance of the Fund relative to indices. Not applicable because
the Fund has recently commenced operations.
o Meeting with the Fund's portfolio managers and investment personnel.
With respect to the Fund, the Board is meeting periodically with such
Fund's portfolio managers and/or other investment personnel and
believes that such individuals are competent and able to continue to
carry out their responsibilities under the Advisory Agreement.
o Overall performance of AIM. The Board considered the overall
performance of AIM in providing investment advisory and portfolio
administrative services to the Fund and concluded that such performance
was satisfactory.
o Fees relative to those of clients of AIM with comparable investment
strategies. The Board noted that AIM does not charge the Fund any
advisory fees pursuant to the Advisory Agreement, although the
underlying funds in which the Fund invests pay AIM advisory fees.
o Fees relative to those of comparable funds with other advisors. The
Board noted that AIM does not charge the Fund any advisory fees
pursuant to the Advisory Agreement, although the underlying funds in
which the Fund invests pay AIM advisory fees.
o Expense limitations and fee waivers. The Board noted that AIM has
contractually agreed to waive fees and/or limit expenses of the Fund
through December 31, 2006 in an amount necessary to limit other
expenses to a specified percentage of average daily net assets for each
class of the Fund. The Board considered the contractual nature of this
fee waiver/expense limitation and noted that it remains in effect
through December 31, 2006. The Board considered the effect this fee
waiver/expense limitation would have on the Fund's estimated expenses
and concluded that the levels of fee waivers/expense limitations for
the Fund were fair and reasonable.
o Breakpoints and economies of scale. The Board noted that AIM does not
charge the Fund any advisory fees pursuant to the Advisory Agreement,
although the underlying funds in which the Fund invests pay AIM
advisory fees.
o Investments in affiliated money market funds. Not applicable because
the Fund does not invest in affiliated money market funds.
o Independent written evaluation and recommendations of the Fund's Senior
Officer. The Board noted that, upon their direction, the Senior Officer
of the Fund had prepared an independent written evaluation in order to
assist the Board in determining the reasonableness of the proposed
management fees of the AIM Funds, including the Fund. The Board noted
that the Senior Officer's written evaluation had been relied upon by
the Board in this regard in lieu of a competitive bidding process. In
determining whether to continue the Advisory Agreement for the Fund,
the Board considered the Senior Officer's written evaluation and the
recommendation made by the Senior Officer to the Board that the Board
consider implementing a process to assist
63
them in more closely monitoring the performance of the AIM Funds. The
Board concluded that it would be advisable to implement such a process
as soon as reasonably practicable.
o Profitability of AIM and its affiliates. The Board noted that AIM does
not charge the Fund any advisory fees pursuant to the Advisory
Agreement, although the underlying funds in which the Fund invests pay
AIM advisory fees.
o Benefits of soft dollars to AIM. The Board considered the benefits
realized by AIM as a result of brokerage transactions executed through
"soft dollar" arrangements. Under these arrangements, brokerage
commissions paid by the Fund and/or other funds advised by AIM are used
to pay for research and execution services. This research is used by
AIM in making investment decisions for the Fund. The Board concluded
that such arrangements were appropriate.
o AIM's financial soundness in light of the Fund's needs. The Board
considered whether AIM is financially sound and has the resources
necessary to perform its obligations under the Advisory Agreement, and
concluded that AIM has the financial resources necessary to fulfill its
obligations under the Advisory Agreement.
o Historical relationship between the Fund and AIM. In determining
whether to approve the Advisory Agreement for the Fund, the Board also
considered the Board's knowledge of AIM's operations, and concluded
that it was beneficial to approve the Advisory Agreement, in part,
because of such knowledge. The Board also reviewed the general nature
of the non-investment advisory services currently performed by AIM and
its affiliates, such as administrative, transfer agency and
distribution services, and the fees received by AIM and its affiliates
for performing such services. In addition to reviewing such services,
the trustees also considered the organizational structure employed by
AIM and its affiliates to provide those services. Based on the review
of these and other factors, the Board concluded that AIM and its
affiliates were qualified to provide non-investment advisory services
to the Fund, including administrative, transfer agency and distribution
services, and that AIM and its affiliates currently are providing
satisfactory non-investment advisory services.
o Other factors and current trends. In determining whether to continue
the Advisory Agreement for the Fund, the Board considered the fact that
AIM, along with others in the mutual fund industry, is subject to
regulatory inquiries and litigation related to a wide range of issues.
The Board also considered the governance and compliance reforms being
undertaken by AIM and its affiliates, including maintaining an internal
controls committee and retaining an independent compliance consultant,
and the fact that AIM has undertaken to cause the Fund to operate in
accordance with certain governance policies and practices. The Board
concluded that these actions indicated a good faith effort on the part
of AIM to adhere to the highest ethical standards, and determined that
the current regulatory and litigation environment to which AIM is
subject should not prevent the Board from continuing the Advisory
Agreement for the Fund.
AIM MODERATELY CONSERVATIVE ALLOCATION FUND
o The nature and extent of the advisory services to be provided by AIM.
The Board reviewed the services to be provided by AIM under the
Advisory Agreement. Based on this review, the Board concluded that the
range of services to be provided by AIM under the Advisory Agreement
was appropriate and that AIM is currently providing services in
accordance with the terms of the advisory agreement.
o The quality of services to be provided by AIM. The Board reviewed the
credentials and experience of the officers and employees of AIM who
will provide investment advisory services to the Fund. In reviewing the
qualifications of AIM to provide investment advisory services, the
Board reviewed the qualifications of AIM's investment personnel and
considered such issues as AIM's portfolio and product review process,
various back office support functions provided by AIM
64
and AIM's equity and fixed income trading operations. Based on the
review of these and other factors, the Board concluded that the quality
of services to be provided by AIM was appropriate and that AIM is
currently providing satisfactory services in accordance with the terms
of the Advisory Agreement.
o The performance of the Fund relative to comparable funds. Not
applicable because the Fund has recently commenced operations.
o The performance of the Fund relative to indices. Not applicable because
the Fund has recently commenced operations.
o Meeting with the Fund's portfolio managers and investment personnel.
With respect to the Fund, the Board is meeting periodically with such
Fund's portfolio managers and/or other investment personnel and
believes that such individuals are competent and able to continue to
carry out their responsibilities under the Advisory Agreement.
o Overall performance of AIM. The Board considered the overall
performance of AIM in providing investment advisory and portfolio
administrative services to the Fund and concluded that such performance
was satisfactory.
o Fees relative to those of clients of AIM with comparable investment
strategies. The Board noted that AIM does not charge the Fund any
advisory fees pursuant to the Advisory Agreement, although the
underlying funds in which the Fund invests pay AIM advisory fees.
o Fees relative to those of comparable funds with other advisors. The
Board noted that AIM does not charge the Fund any advisory fees
pursuant to the Advisory Agreement, although the underlying funds in
which the Fund invests pay AIM advisory fees.
o Expense limitations and fee waivers. The Board noted that AIM has
contractually agreed to waive fees and/or limit expenses of the Fund
through December 31, 2006 in an amount necessary to limit other
expenses to a specified percentage of average daily net assets for each
class of the Fund. The Board considered the contractual nature of this
fee waiver/expense limitation and noted that it remains in effect
through December 31, 2006. The Board considered the effect this fee
waiver/expense limitation would have on the Fund's estimated expenses
and concluded that the levels of fee waivers/expense limitations for
the Fund were fair and reasonable.
o Breakpoints and economies of scale. The Board noted that AIM does not
charge the Fund any advisory fees pursuant to the Advisory Agreement,
although the underlying funds in which the Fund invests pay AIM
advisory fees.
o Investments in affiliated money market funds. Not applicable because
the Fund does not invest in affiliated money market funds.
o Independent written evaluation and recommendations of the Fund's Senior
Officer. The Board noted that, upon their direction, the Senior Officer
of the Fund had prepared an independent written evaluation in order to
assist the Board in determining the reasonableness of the proposed
management fees of the AIM Funds, including the Fund. The Board noted
that the Senior Officer's written evaluation had been relied upon by
the Board in this regard in lieu of a competitive bidding process. In
determining whether to continue the Advisory Agreement for the Fund,
the Board considered the Senior Officer's written evaluation and the
recommendation made by the Senior Officer to the Board that the Board
consider implementing a process to assist them in more closely
monitoring the performance of the AIM Funds. The Board concluded that
it would be advisable to implement such a process as soon as reasonably
practicable.
65
o Profitability of AIM and its affiliates. The Board noted that AIM does
not charge the Fund any advisory fees pursuant to the Advisory
Agreement, although the underlying funds in which the Fund invests pay
AIM advisory fees.
o Benefits of soft dollars to AIM. The Board considered the benefits
realized by AIM as a result of brokerage transactions executed through
"soft dollar" arrangements. Under these arrangements, brokerage
commissions paid by the Fund and/or other funds advised by AIM are used
to pay for research and execution services. This research is used by
AIM in making investment decisions for the Fund. The Board concluded
that such arrangements were appropriate.
o AIM's financial soundness in light of the Fund's needs. The Board
considered whether AIM is financially sound and has the resources
necessary to perform its obligations under the Advisory Agreement, and
concluded that AIM has the financial resources necessary to fulfill its
obligations under the Advisory Agreement.
o Historical relationship between the Fund and AIM. In determining
whether to approve the Advisory Agreement for the Fund, the Board also
considered the Board's knowledge of AIM's operations, and concluded
that it was beneficial to approve the Advisory Agreement, in part,
because of such knowledge. The Board also reviewed the general nature
of the non-investment advisory services currently performed by AIM and
its affiliates, such as administrative, transfer agency and
distribution services, and the fees received by AIM and its affiliates
for performing such services. In addition to reviewing such services,
the trustees also considered the organizational structure employed by
AIM and its affiliates to provide those services. Based on the review
of these and other factors, the Board concluded that AIM and its
affiliates were qualified to provide non-investment advisory services
to the Fund, including administrative, transfer agency and distribution
services, and that AIM and its affiliates currently are providing
satisfactory non-investment advisory services.
o Other factors and current trends. In determining whether to continue
the Advisory Agreement for the Fund, the Board considered the fact that
AIM, along with others in the mutual fund industry, is subject to
regulatory inquiries and litigation related to a wide range of issues.
The Board also considered the governance and compliance reforms being
undertaken by AIM and its affiliates, including maintaining an internal
controls committee and retaining an independent compliance consultant,
and the fact that AIM has undertaken to cause the Fund to operate in
accordance with certain governance policies and practices. The Board
concluded that these actions indicated a good faith effort on the part
of AIM to adhere to the highest ethical standards, and determined that
the current regulatory and litigation environment to which AIM is
subject should not prevent the Board from continuing the Advisory
Agreement for the Fund.
AIM SMALL CAP GROWTH FUND
o The nature and extent of the advisory services to be provided by AIM.
The Board reviewed the services to be provided by AIM under the
Advisory Agreement. Based on such review, the Board concluded that the
range of services to be provided by AIM under the Advisory Agreement
was appropriate and that AIM currently is providing services in
accordance with the terms of the Advisory Agreement.
o The quality of services to be provided by AIM. The Board reviewed the
credentials and experience of the officers and employees of AIM who
will provide investment advisory services to the Fund. In reviewing the
qualifications of AIM to provide investment advisory services, the
Board reviewed the qualifications of AIM's investment personnel and
considered such issues as AIM's portfolio and product review process,
various back office support functions provided by AIM and AIM's equity
and fixed income trading operations. Based on the review of these and
other factors, the Board concluded that the quality of services to be
provided by AIM was appropriate
66
and that AIM currently is providing satisfactory services in accordance
with the terms of the Advisory Agreement.
o The performance of the Fund relative to comparable funds. The Board
reviewed the performance of the Fund during the past one, three and
five calendar years against the performance of funds advised by other
advisors with investment strategies comparable to those of the Fund.
The Board noted that the Fund's performance in such periods was below
the median performance of such comparable funds. The Board noted that
AIM has recently made changes to the Fund's portfolio management team,
which appear to be producing encouraging early results but need more
time to be evaluated before a conclusion can be made that the changes
have addressed the Fund's under-performance. Based on this review, the
Board concluded that no changes should be made to the Fund and that it
was not necessary to change the Fund's portfolio management team at
this time.
o The performance of the Fund relative to indices. The Board reviewed the
performance of the Fund during the past one, three and five calendar
years against the performance of the Lipper Small-Cap Growth Index. The
Board noted that the Fund's performance in such periods was below the
performance of such Index. The Board noted that AIM has recently made
changes to the Fund's portfolio management team, which appear to be
producing encouraging early results but need more time to be evaluated
before a conclusion can be made that the changes have addressed the
Fund's under-performance. Based on this review, the Board concluded
that no changes should be made to the Fund and that it was not
necessary to change the Fund's portfolio management team at this time.
o Meeting with the Fund's portfolio managers and investment personnel.
With respect to the Fund, the Board is meeting periodically with such
Fund's portfolio managers and/or other investment personnel and
believes that such individuals are competent and able to continue to
carry out their responsibilities under the Advisory Agreement.
o Overall performance of AIM. The Board considered the overall
performance of AIM in providing investment advisory and portfolio
administrative services to the Fund and concluded that such performance
was satisfactory.
o Fees relative to those of clients of AIM with comparable investment
strategies. The Board reviewed the advisory fee rate for the Fund under
the Advisory Agreement. The Board noted that, based on the Fund's
current assets and taking account of the breakpoints in the Fund's
advisory fee schedule, this rate was comparable to the sub-advisory fee
rates for two unaffiliated mutual funds for which AIM serves as
sub-advisor, although the total management fees paid by such
unaffiliated mutual funds were higher than the advisory fee rate for
the Fund. The Board noted that AIM has agreed to waive advisory fees of
the Fund, as discussed below. Based on this review, the Board concluded
that the advisory fee rate for the Fund under the Advisory Agreement
was fair and reasonable.
o Fees relative to those of comparable funds with other advisors. The
Board reviewed the advisory fee rate for the Fund under the Advisory
Agreement. The Board compared effective contractual advisory fee rates
at a common asset level and noted that the Fund's rate was below the
median rate of the funds advised by other advisors with investment
strategies comparable to those of the Fund that the Board reviewed. The
Board noted that AIM has agreed to waive advisory fees of the Fund, as
discussed below. Based on this review, the Board concluded that the
advisory fee rate for the Fund under the Advisory Agreement was fair
and reasonable.
o Expense limitations and fee waivers. The Board noted that AIM has
contractually agreed to waive advisory fees of the Fund through June
30, 2006 to the extent necessary so that the advisory fees payable by
the Fund do not exceed a specified maximum advisory fee rate, which
maximum rate includes breakpoints and is based on net asset levels. The
Board considered the contractual nature of this fee waiver and noted
that it remains in effect until June 30, 2006. The Board considered the
67
effect this fee waiver would have on the Fund's estimated expenses and
concluded that the levels of fee waivers/expense limitations for the
Fund were fair and reasonable.
o Breakpoints and economies of scale. The Board reviewed the structure of
the Fund's advisory fee under the Advisory Agreement, noting that it
includes three breakpoints. The Board reviewed the level of the Fund's
advisory fees, and noted that such fees, as a percentage of the Fund's
net assets, have decreased as net assets increased because the Advisory
Agreement includes breakpoints. The Board noted that AIM has
contractually agreed to waive advisory fees of the Fund through June
30, 2006 to the extent necessary so that the advisory fees payable by
the Fund do not exceed a specified maximum advisory fee rate, which
maximum rate includes breakpoints and is based on net asset levels. The
Board concluded that the Fund's fee levels under the Advisory Agreement
therefore reflect economies of scale and that it was not necessary to
change the advisory fee breakpoints in the Fund's advisory fee
schedule.
o Investments in affiliated money market funds. The Board also took into
account the fact that uninvested cash and cash collateral from
securities lending arrangements (collectively, "cash balances") of the
Fund may be invested in money market funds advised by AIM pursuant to
the terms of an SEC exemptive order. The Board found that the Fund may
realize certain benefits upon investing cash balances in AIM advised
money market funds, including a higher net return, increased liquidity,
increased diversification or decreased transaction costs. The Board
also found that the Fund will not receive reduced services if it
invests its cash balances in such money market funds. The Board noted
that, to the extent the Fund invests in affiliated money market funds,
AIM has voluntarily agreed to waive a portion of the advisory fees it
receives from the Fund attributable to such investment. The Board
further determined that the proposed securities lending program and
related procedures with respect to the lending Fund is in the best
interests of the lending Fund and its respective shareholders. The
Board therefore concluded that the investment of cash collateral
received in connection with the securities lending program in the money
market funds according to the procedures is in the best interests of
the lending Fund and its respective shareholders.
o Independent written evaluation and recommendations of the Fund's Senior
Officer. The Board noted that, upon their direction, the Senior Officer
of the Fund had prepared an independent written evaluation in order to
assist the Board in determining the reasonableness of the proposed
management fees of the AIM Funds, including the Fund. The Board noted
that the Senior Officer's written evaluation had been relied upon by
the Board in this regard in lieu of a competitive bidding process. In
determining whether to continue the Advisory Agreement for the Fund,
the Board considered the Senior Officer's written evaluation and the
recommendation made by the Senior Officer to the Board that the Board
consider implementing a process to assist them in more closely
monitoring the performance of the AIM Funds. The Board concluded that
it would be advisable to implement such a process as soon as reasonably
practicable.
o Profitability of AIM and its affiliates. The Board reviewed information
concerning the profitability of AIM's (and its affiliates') investment
advisory and other activities and its financial condition. The Board
considered the overall profitability of AIM, as well as the
profitability of AIM in connection with managing the Fund. The Board
noted that AIM's operations remain profitable, although increased
expenses in recent years have reduced AIM's profitability. Based on the
review of the profitability of AIM's and its affiliates' investment
advisory and other activities and its financial condition, the Board
concluded that the compensation to be paid by the Fund to AIM under its
Advisory Agreement was not excessive.
o Benefits of soft dollars to AIM. The Board considered the benefits
realized by AIM as a result of brokerage transactions executed through
"soft dollar" arrangements. Under these arrangements, brokerage
commissions paid by the Fund and/or other funds advised by AIM are used
to pay for
68
research and execution services. This research is used by AIM in making
investment decisions for the Fund. The Board concluded that such
arrangements were appropriate.
o AIM's financial soundness in light of the Fund's needs. The Board
considered whether AIM is financially sound and has the resources
necessary to perform its obligations under the Advisory Agreement, and
concluded that AIM has the financial resources necessary to fulfill its
obligations under the Advisory Agreement.
o Historical relationship between the Fund and AIM. In determining
whether to continue the Advisory Agreement for the Fund, the Board also
considered the prior relationship between AIM and the Fund, as well as
the Board's knowledge of AIM's operations, and concluded that it was
beneficial to maintain the current relationship, in part, because of
such knowledge. The Board also reviewed the general nature of the
non-investment advisory services currently performed by AIM and its
affiliates, such as administrative, transfer agency and distribution
services, and the fees received by AIM and its affiliates for
performing such services. In addition to reviewing such services, the
trustees also considered the organizational structure employed by AIM
and its affiliates to provide those services. Based on the review of
these and other factors, the Board concluded that AIM and its
affiliates were qualified to continue to provide non-investment
advisory services to the Fund, including administrative, transfer
agency and distribution services, and that AIM and its affiliates
currently are providing satisfactory non-investment advisory services.
o Other factors and current trends. In determining whether to continue
the Advisory Agreement for the Fund, the Board considered the fact that
AIM, along with others in the mutual fund industry, is subject to
regulatory inquiries and litigation related to a wide range of issues.
The Board also considered the governance and compliance reforms being
undertaken by AIM and its affiliates, including maintaining an internal
controls committee and retaining an independent compliance consultant,
and the fact that AIM has undertaken to cause the Fund to operate in
accordance with certain governance policies and practices. The Board
concluded that these actions indicated a good faith effort on the part
of AIM to adhere to the highest ethical standards, and determined that
the current regulatory and litigation environment to which AIM is
subject should not prevent the Board from continuing the Advisory
Agreement for the Fund.
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 director or trustee of other AIM Funds. Each such
trustee receives a fee, allocated among the AIM Funds for which he or she serves
as a director or 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 D.
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
69
(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 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 Drs. Mathai-Davis
and Soll (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. Currently, the Deferring Trustees have the option to select various
AIM Funds in which all or part of their deferral accounts shall be deemed to be
invested. 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 Funds without paying an initial sales charge. AIM
Distributors permits such purchases because there is a reduced sales effort
involved in 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 AIM 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."
CODES OF ETHICS
AIM, the Trust and AIM Distributors have each adopted a Code of Ethics
governing, as applicable, personal trading activities of all directors/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
70
security transactions with the Compliance Officer or her designee and to report
all transactions on a regular basis.
PROXY VOTING POLICIES
The Board has delegated responsibility for decisions regarding proxy
voting for securities held by each Fund to AIM. AIM will vote such proxies in
accordance with their proxy policies and procedures, which have been reviewed
and approved by the Board, and which are found in Appendix E.
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 their
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 each Fund's shares by
beneficial or record owners of such Fund and by trustees and officers as a group
is found in Appendix F. A shareholder who owns beneficially 25% or more of the
outstanding shares of a Fund is presumed to "control" that Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISOR
AIM, the Funds' investment advisor, 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. AIM Management is an indirect,
wholly owned subsidiary of AMVESCAP. AMVESCAP and its subsidiaries are an
independent global investment management group. Certain of the directors and
officers of AIM are also executive officers of the Trust and their affiliations
are shown under "Management Information" herein.
As investment advisor, AIM supervises all aspects of the Funds'
operations and provides investment advisory services to the Funds. AIM obtains
and evaluates economic, statistical and financial information to formulate and
implement investment programs for the Funds.
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 each Fund's accounts and records, and the preparation
of all requisite corporate documents such as tax returns and reports to the SEC
and shareholders.
The Advisory Agreement provides that each Fund will pay or cause to be
paid all expenses of such Fund 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 trustee 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.
71
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 Advisory Agreement, AIM receives no advisory fee from
the Asset Allocation Funds.
Pursuant to its Advisory Agreement, AIM receives a monthly fee from
each Fund (other than the Asset Allocation Funds) calculated at the following
annual rates, based on the average daily net assets of each Fund during the
year.
Effective January 1, 2005, the advisor has contractually agreed to
waive advisory fees to the extent necessary so that the advisory fees payable by
each Fund, other than the Asset Allocation Funds, do not exceed the maximum
advisory fee rate set forth in the third column below. The maximum advisory fee
rates are effective through the Committed Until Date set forth in the fourth
column.
<Table>
<Caption>
MAXIMUM ADVISORY
FEE RATES
ANNUAL RATE/NET ASSETS MAXIMUM ADVISORY FEE COMMITTED UNTIL
FUND NAME PER ADVISORY AGREEMENT RATE AFTER JANUARY 1, 2005 DATE
- --------- ------------------------------- -------------------------- ----------------
AIM Basic Value Fund 0.725% of first $500M 0.695% of first $250M December 31, 2009
0.70% of the next $500M 0.67% of next $250M
0.675% of the next $500M 0.645% of next $500M
0.65% of the excess over $1.5B 0.62% of next $1.5B
0.595% of next $2.5B
0.57% of next $2.5B
0.545% of next $2.5B
0.52% of the excess over $10B
AIM Global Equity Fund 0.975% of first $500M 0.80% of first $250M December 31, 2009
0.95% of amount over $500M 0.78% of next $250M
0.925% of the next $500M 0.76% of next $500M
0.90% of the excess over $1.5B 0.74% of next $1.5B
0.72% of next $2.5B
0.70% of next $2.5B
0.68% of next $2.5B
0.66% of the excess over $10B
AIM Mid Cap Core Equity Fund 0.725% of first $500M N/A N/A
0.70% of amount over $500M
0.675% of the next $500M
0.65% of the excess over $1.5B
AIM Small Cap Growth Fund 0.725% of first $500M N/A N/A
0.70% of next $500M
0.675% of the next $500M
0.65% of the excess over $1.5B
</Table>
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.
72
AIM has voluntarily agreed to waive a portion of advisory fees payable
by the Fund. The amount of the waiver will equal 25% of the advisory fee AIM
receives from the Affiliated Money Market Funds as a result of the Fund's
investment of uninvested cash in an Affiliated Money Market Fund. Termination of
this agreement requires approval by the Board. See "Description of the Funds and
Their Investments and Risks -- Investment Strategies and Risks -- Other
Investments -- Other Investment Companies.
AIM has contractually agreed through December 31, 2005, to limit AIM
Global Equity Fund's Total Annual Fund Operating Expenses (excluding certain
items discussed below) to 1.75%, 2.50%, 2.50% and 2.00% on AIM Global Equity
Fund's 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 Fund Operating Expenses to exceed the limits: (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), items designated as such by the Fund's Board; (v) expenses related
to a merger or reorganization, as approved by the Fund's Board; 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. Such contractual fee waivers or reductions are set forth in the Fee
Table to AIM Global Equity Fund's Prospectus and may not be terminated or
amended to the Fund's detriment during the period stated in the agreement
between AIM and AIM Global Equity Fund.
AIM has contractually agreed to limit Other Expenses (excluding certain
items discussed below) to 0.20%, 0.17%, 0.04%, 0.18%, 0.05%, 0.12% and 0.14% on
AIM Conservative Allocation Fund, AIM Growth Allocation Fund, AIM Income
Allocation Fund, AIM International Allocation Fund, AIM Moderate Allocation
Fund, AIM Moderate Growth Allocation Fund, and AIM Moderately Conservative
Allocation Fund, respectively, for each of Class A, Class B, Class C, and Class
R shares. In determining the advisor's obligation to waive fees or reimburse
expenses, the following expenses are not taken into account, and could cause the
Other Expenses to exceed the limits: (i) Rule 12b-1 fees; (ii) interest; (iii)
taxes; (iv) dividend expense on short sales; (v) 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; (vi) expenses
related to a merger or reorganization, as approved by the Fund's Board; and
(vii) 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
the 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. Such contractual fee waivers or reductions are set forth in the Fee
Table to the Prospectus for the Asset Allocation Funds and may not be terminated
or amended to the Funds' detriment during the period stated in the agreement
between AIM and the Asset Allocation Funds. This expense limitation agreement is
in effect through December 31, 2005 for AIM Conservative Allocation Fund, AIM
Growth Allocation Fund, and AIM Moderate Allocation Fund and through December
31, 2006 for AIM Income Allocation Fund, AIM International Allocation Fund, AIM
Moderate Growth Allocation Fund and AIM Moderately Conservative Allocation Fund.
The management fees payable by each Fund (other than the Asset
Allocation Funds), the amounts waived by AIM and the net fees paid by each Fund
for the last three fiscal years ended December 31 are found in Appendix G.
Portfolio Managers
Appendix H contains the following information regarding the portfolio
managers identified in each Fund's prospectus:
o The dollar range of the manager's investments in each Fund.
o A description of the manager's compensation structure.
73
o Information regarding other accounts managed by the manager
and potential conflicts of interest that might arise from the
management of multiple accounts.
Securities Lending Arrangements
If a Fund (other than the Asset Allocation Funds) 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.
SERVICE AGREEMENTS
ADMINISTRATIVE SERVICES AGREEMENT. AIM and the Trust have entered into
a Master Administrative Services Agreement ("Administrative Services Agreement")
pursuant to which AIM may perform or arrange for the provision of certain
accounting and other administrative services to each Fund which are not required
to be performed by AIM under the Advisory Agreement. The 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 of Trustees, including the independent trustees, by votes cast in
person at a meeting called for such purpose. Under the Administrative Services
Agreement, AIM is entitled to receive from the Funds 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 paid to AIM by each Fund for the last
three fiscal years ended December 31 are found in Appendix I.
OTHER SERVICE PROVIDERS
TRANSFER AGENT. AIM Investment Services, Inc. ("AIS"), 11 Greenway
Plaza, Suite 100, Houston, Texas 77046, a registered transfer agent and wholly
owned subsidiary of AIM, acts as transfer agent for the Funds.
The Transfer Agency and Service Agreement (the "TA Agreement") between
the Trust and AIS provides that AIS will perform certain services related 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 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
74
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.
CUSTODIAN. State Street Bank and Trust Company (the "Custodian"), 225
Franklin Street, Boston, Massachusetts 02110, is custodian of all securities and
cash of the Funds. 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.
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 has appointed
PricewaterhouseCoopers LLP, 1201 Louisiana, 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.
COUNSEL TO THE TRUST. Legal matters for the Trust have been passed upon
by Ballard Spahr Andrews & Ingersoll, LLP, 1735 Market Street, Philadelphia,
Pennsylvania 19103-7599.
BROKERAGE ALLOCATION AND OTHER PRACTICES
BROKERAGE TRANSACTIONS
AIM 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.
75
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.
Brokerage commissions paid by each of the Funds during the last three
fiscal years ended December 31 are found in Appendix J.
COMMISSIONS
During the last three fiscal years ended December 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.
76
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, Inc. ("AIM Capital"), a
subsidiary of AIM. In other words, the fixed income AIM Funds
are cross-subsidized by the 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:
o proprietary research created by the Broker executing
the trade, and
o 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
77
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" 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:
o 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).
o 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.
o Economic Data/Forecasting Tools -- various macro economic
forecasting tools, such as economic data or currency and
political forecasts for various countries or regions.
o Quantitative/Technical Analysis -- software tools that assist
in quantitative and technical analysis of investment data.
o Fundamental/Industry Analysis -- industry specific fundamental
investment research.
o 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.
o 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
78
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.
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)
Directed brokerage (research services) paid by each of the Funds during
the last fiscal year ended December 31, 2004 are found in Appendix K.
REGULAR BROKERS
Information concerning the Funds' acquisition of securities of their
regular Brokers during the last fiscal year ended December 31, 2004 is found in
Appendix K.
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,
79
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.
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 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 Money Market Fund
, AIM Tax-Exempt Cash Fund and AIM Short Term Bond 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.
80
CATEGORY I FUNDS
<Table>
AIM Advantage Health Sciences Fund AIM International Small Company Fund
AIM Aggressive Growth Fund AIM International Growth Fund
AIM Asia Pacific Growth Fund AIM Large Cap Basic Value Fund
AIM Basic Balanced Fund AIM Large Cap Growth Fund
AIM Basic Value Fund AIM Leisure Fund
AIM Blue Chip Fund AIM Mid Cap Basic Value Fund
AIM Capital Development Fund AIM Mid Cap Core Equity Fund
AIM Charter Fund AIM Mid Cap Growth Fund
AIM Conservative Allocation Fund AIM Moderate Allocation Fund
AIM Constellation Fund AIM Moderate Growth Allocation Fund
AIM Developing Markets Fund AIM Moderately Conservative Allocation Fund
AIM Diversified Dividend Fund AIM Multi-Sector Fund
AIM Dynamics Fund AIM Opportunities I Fund
AIM Energy Fund AIM Opportunities II Fund
AIM European Growth Fund AIM Opportunities III Fund
AIM European Small Company Fund AIM Premier Equity Fund
AIM Financial Services Fund AIM Real Estate Fund
AIM Global Aggressive Growth Fund AIM Select Equity Fund
AIM Global Equity Fund AIM Small Cap Equity Fund
AIM Global Growth Fund AIM Small Cap Growth Fund
AIM Global Health Care Fund AIM Small Company Growth Fund
AIM Global Real Estate Fund AIM Summit Fund
AIM Global Value Fund AIM Technology Fund
AIM Gold & Precious Metals Fund AIM Trimark Endeavor Fund
AIM Growth Allocation Fund AIM Trimark Fund
AIM Income Allocation Fund AIM Trimark Small Companies Fund
AIM International Allocation Fund AIM Utilities Fund
AIM International Core Equity Fund AIM Weingarten Fund
</Table>
Dealer
Investor's Sales Charge Concession
--------------------------- -------------
As a As a As a
Percentage Percentage Percentage
of the Public of the Net of the Public
Amount of Investment in Offering Amount Offering
Single Transaction(1) 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
(1) AIM Opportunities I Fund will not accept any single purchase in excess
of $250,000.
81
CATEGORY II FUNDS
AIM High Income Municipal Fund AIM Intermediate Government Fund
AIM High Yield Fund AIM Municipal Bond Fund
AIM Income Fund AIM Total Return 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
Amount of Investment in Offering Amount Offering
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
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 the Public of the Net of the Public
Amount of Investment in Offering Amount Offering
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
82
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
Amount of Investment in Offering Amount Offering
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, 2002 Class A shares of AIM Limited Maturity
Treasury Fund and AIM Tax-Free Intermediate Fund were 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 a 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 ("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 issued 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 the employer or plan sponsor is a tax-exempt
organization operated pursuant to Section 501(c)(3) of the Code:
PERCENT OF PURCHASE
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
83
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 and 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 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 and additional dealer concession upon the
exchange. Beginning 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 AND AIM SHORT
TERM BOND FUND 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
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, or (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.
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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:
o "Individual" refers to a person, as well as his or her Spouse
or Domestic Partner and his or her Children;
o "Spouse" is the person to whom one is legally married under
state law;
o "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;
o "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;
o "Parent" is a person's biological or adoptive mother or
father;
o "Step-child" is the child of one's Spouse by a previous
marriage or relationship;
o "Step-parent" is the Spouse of a Child's Parent; and
o "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.
INDIVIDUALS
o an Individual (including his or her spouse or domestic
partner, and children);
o 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
o 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
o 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
or the Code, if:
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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
o 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).
o 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.
o 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.
o 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
o 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.
o 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.
86
o 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.
o The Transfer Agent will process necessary adjustments upon the
expiration or completion date of the LOI.
Fulfilling the Intended Investment
o 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.
o 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.
o 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.
o 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.
Canceling the LOI
o 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.
o 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.
87
LOIs and Contingent Deferred Sales Charges
If an investor entered into an LOI to purchase $1,000,000 or more of
Class A shares of a Category III Fund on and after November 15, 2001 and through
October 30, 2002, such shares will be subject to a 12-month, 0.25% CDSC.
Purchases of Class A shares of a Category III Fund made pursuant to an LOI to
purchase $1,000,000 or more of shares entered into prior to November 15, 2001 or
after October 30, 2002 will not be subject to this CDSC. 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, 1.00% 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
contract 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.
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.
88
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:
o AIM Management and its affiliates, or their clients;
o 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--Registered Trademark--;
any foundation, trust or employee benefit plan established
exclusively for the benefit of, or by, such persons;;
o 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.;
o 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;
o Purchases through approved fee-based programs;
o 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;
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
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;
o 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;
o 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;
o 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
89
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;
o 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;
o 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;
o 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
former GT Global funds since that time;
o 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;
o Qualified Tuition Programs created and maintained in
accordance with Section 529 of the Code;
o Insurance company separate accounts;
o 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;
o 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)
if:
a. such plan is funded by a rollover of assets from an
Employer-Sponsored Retirement Plan;
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.
o Transfers to IRAs that are attributable to AIM Fund
investments held in 403(b)(7)s, SIMPLES, SEPs,
SARSEPs, Traditional or Roth IRAs; and
o 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.
o In addition, an investor may acquire shares of any of the AIM
Funds at net asset value in connection with:
o the reinvestment of dividends and distributions from a Fund;
o exchanges of shares of certain Funds as more fully described
in the Prospectus;
o the purchase of shares in connection with the repayment of a
retirement plan loan administered by AIM Investment Services,
Inc., or
90
o 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 makes these payments from its
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 makes revenue sharing payments
as incentives to certain financial advisors to promote and sell shares of AIM
funds. The benefits ADI Affiliates receives when it makes 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 advisor for including AIM funds in its fund sales system (on its
"sales shelf"). ADI Affiliates compensates 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 makes 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
91
maintenance support, statement preparation and transaction processing. The types
of payments that AIM 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 its 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. ADI Affiliates makes 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 is 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 benefits 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.
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
92
converted to Class A shares at the close of business on October 21, 2005. The
CDSC (described above) will continue to apply if all retirement plan assets are
redeemed within 12 months from the date of the retirement plan's initial
purchase.
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:
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 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,
93
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 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
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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 shares
(other than Class B, Class C or Class R shares of the Funds), 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, upon the redemption of Class K 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, 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:
o Redemptions of shares of Category I or II Funds or AIM Short
Term Bond Fund held more than 18 months;
o Redemptions of shares of Category III Funds purchased prior to
November 15, 2001 or after October 30, 2002;
o 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;
o Redemptions of shares held by retirement plans in cases where
(i) the plan has remained invested in Class A shares of an AIM
Fund for at least 12 months, or (ii) the redemption is not a
complete redemption of shares held by the plan;
o Redemptions from private foundations or endowment funds;
o 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;
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o Redemptions of shares of Category I, II or III Funds, AIM Cash
Reserve Shares of AIM Money Market Fund or AIM Short Term Bond
Fund 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
exchange of Category I or II Fund or AIM Short Term Bond Fund
shares;
o 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;
o 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;
o 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;
o 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 18 months of the
original purchase of the exchanged Category I or II Funds or
AIM Short Term Bond Fund shares;
o 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
o 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:
o Total or partial redemptions resulting from a distribution
following retirement in the case of a tax-qualified
employer-sponsored retirement;
o 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;
o 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;
o Redemptions made in connection with participant-directed
exchanges between options in an employer-sponsored benefit
plan;
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o Redemptions made for the purpose of providing cash to fund a
loan to a participant in a tax-qualified retirement plan;
o Redemptions made in connection with a distribution from any
retirement plan or accounts that is permitted in accordance
with the provisions of Section 72(t)(2) of the Code, and the
regulations promulgated thereunder;
o 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
o 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:
o 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;
o 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;
o 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
AIM 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 AIM 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;
o 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;
o Liquidation by the AIM Fund when the account value falls below
the minimum required account size of $500; and
o Investment account(s) of AIM.
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CDSCs will not apply to the following redemptions of Class C shares:
o 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;
o 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;
o 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
o Redemptions of 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.
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.
CDSCs will not apply to the following redemptions of Class R shares:
o 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
o 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 and 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. The Fund will be deemed to have received the purchase or redemption order
when the Fund's authorized agent accepts the order. The order will be priced at
the net asset value next determined after the order is accepted by the Fund's
authorized agent.
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.
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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's 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
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
99
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 December 31, 2004, AIM Basic
Value Fund -- Class A shares had a net asset value per share of $32.34. The
offering price, assuming an initial sales charge of 5.50%, therefore was $34.31.
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 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 statement 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 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 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 readily 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.
100
Generally, trading in corporate bonds, U.S. Government securities and
money market instruments is substantially completed each day at various times
prior to the close of the customary trading session of the NYSE. The values of
such securities used in computing the net asset value of a Fund's shares are
determined at such times. Occasionally, events affecting the values of such
securities may occur between the times at which such values are determined and
the close of the customary trading session of the NYSE. If AIM believes a
development/event has actually caused a closing price to no longer reflect
current market value, the closing price may be adjusted to reflect the fair
value of the affected security as of the close of the NYSE as determined in good
faith using procedures approved by the Board.
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 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.
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). 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, has 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.
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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 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.
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
DIVIDENDS AND DISTRIBUTIONS
It is the present policy of each Fund, except AIM Income Allocation
Fund, to declare and pay annually net investment income dividends and capital
gain distributions. AIM Income Allocation Fund will declare and pay dividends
quarterly and capital gains annually. It is each Fund's intention to distribute
substantially all of its net investment income and realized net capital gain. In
determining the amount of capital gains, if any, available for distribution,
capital gains will generally be offset against available net capital losses, if
any, carried forward from previous fiscal periods. All dividends and
distributions will be automatically reinvested in additional shares of the same
class of each Fund unless the shareholder has requested in writing to receive
such dividends and distributions in cash or that they be invested in shares
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of another AIM Fund, subject to the terms and conditions set forth in the
Prospectus under the caption "Special Plans -- Automatic Dividend Investment".
Such dividends and distributions will be reinvested at the net asset value per
share determined on the ex-dividend date. If a shareholder's account does not
have any shares in it on a dividend or capital gain distribution payment date,
the dividend or distribution will be paid in cash whether or not the shareholder
has elected to have such dividends or distributions reinvested.
Dividends on Class B and Class C shares are expected to be lower than
those for Class A shares because of higher distribution fees paid by Class B and
Class C shares. Dividends on Class R shares may be lower than those for Class A
shares, depending on whether the Class R shares pay higher distribution fees
than those for Class A shares. Other class-specific expenses may also affect
dividends on shares of those classes. Expenses attributable to a particular
class ("Class Expenses") include distribution plan expenses, which must be
allocated to the class for which they are incurred. Other expenses may be
allocated as Class Expenses, consistent with applicable legal principles under
the 1940 Act and the Code.
TAX MATTERS
The following is only a summary of certain additional tax
considerations generally affecting the Funds and their shareholders that are not
described in the Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of each Fund or its shareholders, and the
discussion here and in the Prospectus is not intended as a substitute for
careful tax planning.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY. 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 an amount equal to (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.
Treasury regulations permit a regulated investment company, in
determining its investment company taxable income and net capital gain (i.e.,
the excess of net long-term capital gain over net short-term capital loss) for
any taxable year, to elect (unless it has made a taxable year election for
excise tax purposes as discussed below) to treat all or part of any net capital
loss, any net long-term capital loss or any net foreign currency loss incurred
after October 31 as if it had been incurred in the succeeding year.
Each Fund may use "equalization accounting" in determining the portion
of its net investment income and capital gain net income that has been
distributed. A Fund that elects to use equalization accounting will allocate a
portion of its realized investment income and capital gain to redemptions of
Fund shares and will reduce the amount of such income and gain that it
distributes in cash. However, each Fund intends to make cash distributions for
each taxable year in an aggregate amount that is sufficient to satisfy the
Distribution Requirement without taking into account its use of equalization
accounting. The Internal Revenue Service has not published any guidance
concerning the methods to be used in allocating investment income and capital
gain to redemptions of shares. In the event that the Internal Revenue Service
determines that a Fund is using an improper method of allocation and has
underdistributed its net investment income and capital gain net income for any
taxable year, such Fund may be liable for additional federal income tax.
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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, securities or foreign currencies (to the extent
such currency gain is directly related to the regulated investment company's
principal business of investing in 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, securities or
currencies 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.
In addition to satisfying the requirements described above, 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), or of two or
more issuers which the Fund controls and which are engaged in the same or
similar trades or businesses or, collectively, in securities of certain publicly
traded partnerships.
For purposes of the Asset Diversification Test, the IRS has ruled that
the issuer of a purchased listed call option on stock is the issuer of the stock
underlying the option. The IRS has also informally ruled that, in general, the
issuers of purchased or written call and put options on securities, of long and
short positions on futures contracts on securities and of options on such future
contracts are the issuers of the securities underlying such financial
instruments where the instruments are traded on an exchange.
Where the writer of a listed call option owns the underlying
securities, the IRS has ruled that the Asset Diversification Test will be
applied solely to such securities and not to the value of the option itself.
With respect to options on securities indexes, futures contracts on securities
indexes and options on such futures contracts, the IRS has informally ruled that
the issuers of such options and futures contracts are the separate entities
whose securities are listed on the index, in proportion to the weighing of
securities in the computation of the index. It is unclear under present law who
should be treated as the issuer of forward foreign currency exchange contracts,
of options on foreign currencies, or of foreign currency futures and related
options. It has been suggested that the issuer in each case may be the foreign
central bank or the foreign government backing the particular currency. Due to
this uncertainty and because the Funds may not rely on informal rulings of the
IRS, the Funds may find it necessary to seek a ruling from the IRS as to the
application of the Asset Diversification Test to certain of the foregoing types
of financial instruments or to limit its holdings of some or all such
instruments in order to stay within the limits of such test.
Under an IRS revenue procedure, a Fund may treat its position as lender
under a repurchase agreement as a U.S. Government security for purposes of the
Asset Diversification where the repurchase agreement is fully collateralized
(under applicable SEC standards) with securities that constitute U.S. Government
securities.
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 included in
the qualified dividend income of noncorporate shareholders. See "Fund
Distributions" below.
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Asset Allocation Funds
An Asset Allocation Fund will invest its assets in shares of the
Underlying Funds, cash and money market instruments. Accordingly, an Asset
Allocation Fund's income will consist of distributions from the Underlying
Funds, net gains realized from the disposition of Underlying Fund shares and
interest. If an Underlying Fund qualifies for treatment as a regulated
investment company under the Code -- each has done so for its past taxable years
and intends to continue to do so for its current and future taxable years -- (1)
dividends paid to an Asset Allocation Fund from the Underlying Fund's investment
company taxable income (which may include net gains from certain foreign
currency transactions and net short-term capital gains) will be taxable to an
Asset Allocation Fund as ordinary income, (2) dividends paid to an Asset
Allocation Fund that an Underlying Fund designates as capital gain dividends (as
discussed below) will be taxable to an Asset Allocation Fund as long-term
capital gain, (3) dividends paid to an Asset Allocation Fund that an Underlying
Fund designates as qualifying dividends from domestic corporations (as discussed
below) will be treated as dividends eligible for the dividends received
deduction and (4) dividends paid to an Asset Allocation Fund that an Underlying
Fund designates as qualified dividend income (as discussed below) will be
treated by the Asset Allocation Fund as qualifying dividends taxable at a
maximum rate of 15% to individuals and other noncorporate taxpayers. If shares
of an Underlying Fund are purchased within 30 days before or after redeeming at
a loss other shares of that Underlying Fund (whether pursuant to a rebalancing
of an Asset Allocation Fund's portfolio or otherwise), all or a part of the loss
will not be deductible by an Asset Allocation Fund and instead will increase its
basis for the newly purchased shares.
Although an Underlying Fund will be eligible to elect to "pass-through"
to its shareholders (including an Asset Allocation Fund) the benefit of the
foreign tax credit if more than 50% in the value of its total assets at the
close of any taxable year consists of securities of foreign corporations, an
Asset Allocation Fund will not qualify to pass that benefit through to its
shareholders because of its inability to satisfy the asset test. Accordingly, an
Asset Allocation Fund will deduct the amount of any foreign taxes passed through
by an Underlying Fund in determining its investment company taxable income.
DETERMINATION OF TAXABLE INCOME OF A REGULATED INVESTMENT COMPANY. In
general, gain or loss recognized by a Fund on the disposition of an asset will
be a capital gain or loss. However, gain recognized on the disposition of a debt
obligation purchased by a Fund at a market discount (generally, at a price less
than its principal amount) will be treated as ordinary income to the extent of
the portion of the market discount which accrued during the period of time the
Fund held the debt obligation unless the Fund made an election to accrue market
discount into income. If a Fund purchases a debt obligation that was originally
issued at a discount, the Fund is generally required to include in gross income
each year the portion of the original issue discount which accrues during such
year. In addition, under the rules of Code Section 988, gain or loss recognized
on the disposition of a debt obligation denominated in a foreign currency or an
option with respect thereto (but only to the extent attributable to changes in
foreign currency exchange rates), and gain or loss recognized on the disposition
of a foreign currency forward contract or of foreign currency itself, will
generally be treated as ordinary income or loss. In certain cases, a Fund may
make an election to treat such gain or loss as capital.
Certain hedging transactions that may be engaged in by certain of the
Funds (such as short sales "against the box") may be subject to special tax
treatment as "constructive sales" under Section 1259 of the Code if a Fund holds
certain "appreciated financial positions" (defined generally as any interest
(including a futures or forward contract, short sale or option) with respect to
stock, certain debt instruments, or partnership interests if there would be a
gain were such interest sold, assigned, or otherwise terminated at its fair
market value). Upon entering into a constructive sales transaction with respect
to an appreciated financial position, a Fund will generally be deemed to have
constructively sold such appreciated financial position and will recognize gain
as if such position were sold, assigned, or otherwise terminated at its fair
market value on the date of such constructive sale (and will take into account
any gain for the taxable year which includes such date).
Some of the forward foreign currency exchange contracts, options and
futures contracts that certain of the Funds may enter into will be subject to
special tax treatment as "Section 1256 contracts."
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Section 1256 contracts that a Fund holds are treated as if they are sold for
their fair market value on the last business day of the taxable year, regardless
of whether a taxpayer's obligations (or rights) under such contracts have
terminated (by delivery, exercise, entering into a closing transaction or
otherwise) as of such date. Any gain or loss recognized as a consequence of the
year-end deemed disposition of Section 1256 contracts is combined with any other
gain or loss that was previously recognized upon the termination of Section 1256
contracts during that taxable year. The net amount of such gain or loss for the
entire taxable year (including gain or loss arising as a consequence of the
year-end deemed sale of such contracts) is deemed to be 60% long-term and 40%
short-term gain or loss. However, in the case of Section 1256 contracts that are
forward foreign currency exchange contracts, the net gain or loss is separately
determined and (as discussed above) generally treated as ordinary income or
loss. If such a future or option is held as an offsetting position and can be
considered a straddle under Section 1092 of the Code, such a straddle will
constitute a mixed straddle. A mixed straddle will be subject to both Section
1256 and Section 1092 unless certain elections are made by the Fund.
Other hedging transactions in which the Funds may engage may result in
"straddles" or "conversion transactions" for U.S. federal income tax purposes.
The straddle and conversion transaction rules may affect the character of gains
(or in the case of the straddle rules, losses) realized by the Funds. In
addition, losses realized by the Funds on positions that are part of a straddle
may be deferred under the straddle rules, rather than being taken into account
in calculating the taxable income for the taxable year in which the losses are
realized. Because only a few regulations implementing the straddle rules and the
conversion transaction rules have been promulgated, the tax consequences to the
Funds of hedging transactions are not entirely clear. The hedging transactions
may increase the amount of short-term capital gain realized by the Funds (and,
if they are conversion transactions, the amount of ordinary income) which is
taxed as ordinary income when distributed to shareholders.
Because application of any of the foregoing rules governing Section
1256 contracts, constructive sales, straddle and conversion transactions may
affect the character of gains or losses, defer losses and/or accelerate the
recognition of gains or losses from the affected investment or straddle
positions, the taxable income of a Fund may exceed or be less than its book
income. Accordingly, the amount which must be distributed to shareholders and
which will be taxed to shareholders as ordinary income, qualified dividend
income or long-term capital gain may also differ from the book income of the
Fund and may be increased or decreased as compared to a fund that did not engage
in such transactions.
SWAP AGREEMENTS AND CREDIT DEFAULT AGREEMENTS. Each Fund may enter into
swap agreements and may also enter into credit default swap agreements as
permitted by each Fund's prospectus. The rules governing the tax aspects of
certain types of these agreements are in a developing stage and are not entirely
clear in certain respects. Accordingly, while a Fund intends to account for such
transactions in a manner deemed to be appropriate, the IRS might not accept such
treatment. If it did not, the status of a Fund as a regulated investment company
might be affected. Each Fund intends to monitor developments in this area.
Certain requirements that must be met under the Code in order for a Fund to
qualify as a regulated investment company may limit the extent to which a Fund
will be able to engage in certain types of swap agreements and credit default
swap agreements.
EXCISE TAX ON REGULATED INVESTMENT COMPANIES. A 4% non-deductible
excise tax is imposed on a regulated investment company that fails to distribute
in each calendar year an amount equal to 98% of ordinary taxable income for the
calendar year and 98% of capital gain net income (excess of capital gains over
capital losses) for the one-year period ended on October 31 of such calendar
year (or, at the election of a regulated investment company having a taxable
year ending November 30 or December 31, for its taxable year (a "taxable year
election")). The balance of such income must be distributed during the next
calendar year. For the foregoing purposes, a regulated investment company is
treated as having distributed any amount on which it is subject to income tax
for any taxable year ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall
(1) reduce its capital gain net income (but not below its net capital gain) by
the amount of any net ordinary loss for the calendar year and (2) exclude
Section 988 foreign currency gains and losses incurred after October 31 (or
after the end
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of its taxable year if it has made a taxable year election) in determining the
amount of ordinary taxable income for the current calendar year (and, instead,
include such gains and losses in determining ordinary taxable income for the
succeeding calendar year).
Each Fund generally intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income prior
to the end of each calendar year to avoid liability for the excise tax. However,
in the event that the Internal Revenue Service determines that a Fund is using
an improper method of allocation for purposes of equalization accounting (as
discussed above), such Fund may be liable for excise tax. Moreover, investors
should note that a Fund may in certain circumstances be required to liquidate
portfolio investments to make sufficient distributions to avoid excise tax
liability. In addition, under certain circumstances, a Fund may elect to pay a
minimal amount of excise tax.
PFIC INVESTMENTS. The Funds are permitted to invest in foreign equity
securities and thus may invest in stocks of foreign companies that are
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign company is classified as a PFIC if at least one-half of its
assets constitute investment-type assets or 75% or more of its gross income is
investment-type income.
The application of the PFIC rules may affect, among other things, the
character of gain, the amount of gain or loss and the timing of the recognition
and character of income with respect to PFIC stock, as well as subject the Funds
themselves to tax on certain income from PFIC stock. For these reasons the
amount that must be distributed to shareholders, and which will be taxed to
shareholders as ordinary income or long-term capital gain, may be increased or
decreased substantially as compared to a fund that did not invest in PFIC stock.
FUND DISTRIBUTIONS. Each Fund anticipates distributing substantially
all of its investment company taxable income for each taxable year. Such
distributions will be taxable to shareholders as ordinary income and treated as
dividends for federal income tax purposes, but they will qualify for the 70%
dividends received deduction for corporations and as qualified dividend income
for individuals and other noncorporate taxpayers to the extent discussed below
and to the extent that shareholders have held their fund shares for a minimum
required period.
A Fund may either retain or distribute to shareholders its net capital
gain (net long-term capital gain over net short-term capital loss) 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.
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.
Ordinary income dividends paid by a Fund with respect to a taxable year
will qualify for the 70% dividends received deduction generally available to
corporations (other than corporations, such as "S" corporations, which are not
eligible for the deduction because of their special characteristics and other
than for purposes of special taxes such as the accumulated earnings tax and the
personal holding company tax) to the extent of the amount of qualifying
dividends received by the Fund from domestic corporations for the taxable year.
However, the alternative minimum tax applicable to corporations may reduce the
value of the dividends received deduction.
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
107
amount 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 the 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 the Fund's gross income (exclusive
of net capital gain) in any taxable year, all of the ordinary income dividends
paid by the Fund will be qualifying dividend income.
Alternative minimum tax ("AMT") is imposed in addition to, but only to
the extent it exceeds, the regular tax and is computed at a maximum rate of 28%
for non-corporate taxpayers and 20% for corporate taxpayers on the excess of the
taxpayer's alternative minimum taxable income ("AMTI") over an exemption amount.
However, the AMT on capital gain dividends and qualified dividend income paid by
a Fund to a noncorporate shareholder may not exceed a maximum rate of 15%. The
corporate dividends received deduction is not itself an item of tax preference
that must be added back to taxable income or is otherwise disallowed in
determining a corporation's AMTI. However, corporate shareholders will generally
be required to take the full amount of any dividend received from the Fund into
account (without a dividends received deduction) in determining their adjusted
current earnings, which are used in computing an additional corporate preference
item (i.e., 75% of the excess of a corporate taxpayer's adjusted current
earnings over its AMTI (determined without regard to this item and the AMTI net
operating loss deduction)) that is includable in AMTI. However, certain small
corporations are wholly exempt from the AMT.
Distributions by a Fund that are not made from earnings and profits
will be treated as a return of capital to the extent of (and in reduction of)
the shareholder's tax basis in his shares; any excess will be treated as gain
from the sale of his shares.
Distributions by a Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or of another Fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the ex-dividend date.
Ordinarily, shareholders are required to take distributions by a Fund
into account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Fund) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year
in accordance with the guidance that has been provided by the IRS.
If the net asset value of shares is reduced below a shareholder's cost
as a result of a distribution by a Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Investors should
be careful to consider the tax implications of buying shares of a Fund just
prior to a distribution. The price of shares purchased at this time may reflect
the amount of the forthcoming distribution. Those purchasing just prior to a
distribution will receive a distribution which generally will be taxable to
them.
SALE OR REDEMPTION OF SHARES. A shareholder will recognize gain or loss
on the sale or redemption of shares of a Fund in an amount equal to the
difference between the proceeds of the sale or redemption and the shareholder's
adjusted tax basis in the shares. All or a portion of any loss so recognized may
be deferred under the wash sale rules if the shareholder purchases other shares
of the Fund within 30 days before or after the sale or redemption. In general,
any gain or loss arising from (or treated as arising from) the sale or
redemption of shares of a Fund will be considered capital gain or loss and will
be long-term capital gain or loss if the shares were held for longer than one
year. Currently, any
108
long-term capital gain recognized by a non-corporate shareholder will be subject
to tax at a maximum rate of 15%. However, any capital loss arising from the sale
or redemption of shares held for six months or less will be treated as a
long-term capital loss to the extent of the amount of capital gain dividends
received on such shares. Capital losses in any year are deductible only to the
extent of capital gains plus, in the case of a non-corporate taxpayer, $3,000 of
ordinary income.
If a shareholder (a) incurs a sales load in acquiring shares of a Fund,
(b) disposes of such shares less than 91 days after they are acquired, and (c)
subsequently acquires shares of the Fund or another fund at a reduced sales load
pursuant to a right to reinvest at such reduced sales load acquired in
connection with the acquisition of the shares disposed of, then the sales load
on the shares disposed of (to the extent of the reduction in the sales load on
the shares subsequently acquired) shall not be taken into account in determining
gain or loss on the shares disposed of, but shall be treated as incurred on the
acquisition of the shares subsequently acquired. The wash sale rules may also
limit the amount of loss that may be taken into account on disposition after
such adjustment.
BACKUP WITHHOLDING. The Funds may be required to withhold 28% of
taxable distributions and/or redemption payments. For more information refer to
"Purchase, Redemption and Pricing of Shares -- Backup Withholding".
FOREIGN SHAREHOLDERS. Taxation of a shareholder who, as to the United
States, is a nonresident alien individual, foreign trust or estate, foreign
corporation, or foreign partnership ("foreign shareholder"), depends on whether
the income from a Fund is "effectively connected" with a U.S. trade or business
carried on by such shareholder. If the income from a Fund is not effectively
connected with a U.S. trade or business carried on by a foreign shareholder,
distributions (other than distributions of long-term and short-term capital gain
and of certain types of interest income) will be subject to U.S. withholding tax
at the rate of 30% (or lower treaty rate) upon the gross amount of the
distribution. Such a foreign shareholder would generally be exempt from U.S.
federal income tax on gain realized on the redemption of shares of a Fund,
capital gain dividends and amounts retained by a Fund that are designated as
undistributed net capital gain.
As a consequence of the enactment of the American Jobs Creation Act of
2004, such a foreign shareholder will also generally be exempt from U.S. federal
income tax on distributions that a Fund designates as "short-term capital gain
dividends" or as "interest-related dividends" for Fund taxable years beginning
after December 31, 2004 and before January 1, 2008. The aggregate amount that
may be designated as short-term capital gain dividends for a Fund's taxable year
is equal to the excess (if any) of the Fund's net short-term capital gain
(including short-term capital gain dividends received from another regulated
investment company) over its net long-term capital loss. The aggregate amount
designated as interest-related dividends for any Fund taxable year is generally
limited to the excess of the amount of "qualified interest income" of the Fund
over allocable expenses. Qualified interest income is generally equal to the sum
of a Fund's U.S.-source income that constitutes (1) bank deposit interest; (2)
short-term original issue discount that is exempt from withholding tax; (3)
interest on a debt obligation which is in registered form, unless it is earned
on a debt obligation issued by a corporation or partnership in which the Fund
holds a 10-percent ownership interest or its payment is contingent on certain
events; and (4) interest-related dividends received from another regulated
investment company. An Asset Allocation Fund may designate distributions out of
short-term capital gain dividends and interest-related dividends received from
an Underlying Fund as short-term capital gain dividends and interest-related
dividends paid to its own shareholders.
If the income from a Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends, short-term capital gain dividends, interest-related
dividends and any gains realized upon the sale or redemption of shares of the
Fund will be subject to U.S. federal income tax at the rates applicable to U.S.
citizens or domestic corporations.
In the case of foreign non-corporate shareholders, a Fund may be
required to withhold U.S. federal income tax at a rate of 28% on distributions
that are otherwise exempt from withholding tax (or
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taxable at a reduced treaty rate) unless such shareholders furnish the Fund with
proper notification of their foreign status.
Foreign shareholders may be subject to U.S. withholding tax at a rate
of 30% on the income resulting from the Foreign Tax Election, but may not be
able to claim a credit or deduction with respect to the withholding tax for the
foreign tax treated as having been paid by them.
Foreign persons who file a United States tax return to obtain a U.S.
tax refund and who are not eligible to obtain a social security number must
apply to the IRS for an individual taxpayer identification number, using IRS
Form W-7. For a copy of the IRS Form W-7 and accompanying instructions, please
contact your tax adviser or the IRS.
Transfers by gift of shares of a Fund by a foreign shareholder who is a
nonresident alien individual will not be subject to U.S. federal gift tax. An
individual who, at the time of death, is a foreign shareholder will nevertheless
be subject to U.S. federal estate tax with respect to shares at the graduated
rates applicable to U.S. citizens and residents, unless a treaty exception
applies. In the absence of a treaty, there is a $13,000 statutory estate tax
credit. Estates of decedents dying after December 31, 2004 and before January 1,
2008 will be able to exempt from federal estate tax the proportion of the value
of a Fund's shares attributable to "qualifying assets" held by the Fund at the
end of the quarter immediately preceding the decedent's death (or such other
time as the Internal Revenue Service may designate in regulations). Qualifying
assets include bank deposits and other debt obligations that pay interest or
accrue original issue discount that is exempt from withholding tax, debt
obligations of a domestic corporation that are treated as giving rise to foreign
source income, and other investments that are not treated for tax purposes as
being within the United States. Shareholders will be advised annually of the
portion of a Fund's assets that constituted qualifying assets at the end of each
quarter of its taxable year.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in a Fund,
including the applicability of foreign tax.
FOREIGN INCOME TAX. Investment income received by each Fund from
sources within foreign countries may be subject to foreign income tax withheld
at the source. The United States has entered into tax treaties with many foreign
countries which entitle the Funds to a reduced rate of, or exemption from, tax
on such income. It is impossible to determine the effective rate of foreign tax
in advance since the amount of a Fund's assets to be invested in various
countries is not known.
If more than 50% of the value of a Fund's total assets at the close of
each taxable year consists of the stock or securities of foreign corporations,
the Fund may elect to "pass through" to the Fund's shareholders the amount of
foreign income tax paid by the Fund (the "Foreign Tax Election"). Pursuant to
the Foreign Tax Election, shareholders will be required (i) to include in gross
income, even though not actually received, their respective pro-rata shares of
the foreign income tax paid by the Fund that are attributable to any
distributions they receive; and (ii) either to deduct their pro-rata share of
foreign tax in computing their taxable income, or to use it (subject to various
Code limitations) as a foreign tax credit against Federal income tax (but not
both). No deduction for foreign tax may be claimed by a non-corporate
shareholder who does not itemize deductions or who is subject to alternative
minimum tax.
Unless certain requirements are met, a credit for foreign tax is
subject to the limitation that it may not exceed the shareholder's U.S. tax
(determined without regard to the availability of the credit) attributable to
the shareholder's foreign source taxable income. In determining the source and
character of distributions received from a Fund for this purpose, shareholders
will be required to allocate Fund distributions according to the source of the
income realized by the Fund. Each Fund's gain from the sale of stock and
securities and certain currency fluctuation gain and loss will generally be
treated as derived from U.S. sources. In addition, the limitation on the foreign
tax credit is applied separately to foreign source "passive" income, such as
dividend income, and the portion of foreign source income consisting of
qualified dividend income is reduced by approximately 57% to account for the tax
rate differential.
110
Individuals who have no more than $300 ($600 for married persons filing jointly)
of creditable foreign tax included on Form 1099 and whose foreign source income
is all "qualified passive income" may elect each year to be exempt from the
foreign tax credit limitation and will be able to claim a foreign tax credit
without filing Form 1116 with its corresponding requirement to report income and
tax by country. Moreover, no foreign tax credit will be allowable to any
shareholder who has not held his shares of the Fund for at least 16 days during
the 30-day period beginning 15 days before the day such shares become
ex-dividend with respect to any Fund distribution to which foreign income taxes
are attributed (taking into account certain holding period reduction
requirements of the Code). Because of these limitations, shareholders may be
unable to claim a credit for the full amount of their proportionate shares of
the foreign income tax paid by a Fund.
EFFECT OF FUTURE LEGISLATION; LOCAL TAX CONSIDERATIONS. 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 31, 2005. Future
legislative or administrative changes or court decisions may significantly
change the conclusions expressed herein, and any such changes or decisions may
have a retroactive effect with respect to the transactions contemplated herein.
Rules of state and local taxation of ordinary income, qualified
dividend income and capital gain dividends may differ from the rules for U.S.
federal income taxation described above. Distributions may also be subject to
additional state, local and foreign taxes depending on each shareholder's
particular situation. Non-U.S. shareholders may be subject to U.S. tax rules
that differ significantly from those summarized above. Shareholders are urged to
consult their tax advisers as to the consequences of these and other state and
local tax rules affecting investment in the Funds.
DISTRIBUTION OF SECURITIES
DISTRIBUTION PLANS
The Trust has adopted distribution plans pursuant to Rule 12b-1 under
the 1940 Act with respect to each Fund's Class A shares, Class B shares, Class C
shares, Class R shares and Investor Class shares, if applicable (collectively
the "Plans"). Each Fund, pursuant to the Plans, pays AIM Distributors
compensation at the annual rate, shown immediately below, of the Fund's average
daily net assets of the applicable class.
INVESTOR
FUND CLASS A CLASS B CLASS C CLASS R CLASS
- ---- ------- ------- ------- ------- --------
AIM Basic Value Fund 0.25% 1.00% 1.00% 0.50% N/A
AIM Conservative Allocation Fund 0.25 1.00 1.00 0.50 N/A
AIM Global Equity Fund 0.25 1.00 1.00 0.50 N/A
AIM Growth Allocation Fund 0.25 1.00 1.00 0.50 N/A
AIM Income Allocation Fund 0.25 1.00 1.00 0.50 N/A
AIM International Allocation Fund 0.25 1.00 1.00 0.50 N/A
AIM Mid Cap Core Equity Fund 0.25 1.00 1.00 0.50 N/A
AIM Moderate Allocation Fund 0.25 1.00 1.00 0.50 N/A
AIM Moderate Growth Allocation Fund 0.25 1.00 1.00 0.50 N/A
AIM Moderately Conservative Allocation Fund 0.25 1.00 1.00 0.50 N/A
AIM Small Cap Growth Fund 0.25 1.00 1.00 0.50 0.25%
All of the Plans compensate AIM Distributors for the purpose of
financing any activity which is primarily intended to result in the sale of
shares of the Funds. Such activities include, but are not limited to, the
following: printing of prospectuses and statements of additional information and
reports for other than existing shareholders; overhead; preparation and
distribution of advertising material and sales literature; expenses of
organizing and conducting sales seminars; supplemental payments to dealers and
111
other institutions such as asset-based sales charges or as payments of service
fees under shareholder service arrangements; and costs of administering each
Plan.
Amounts payable by a Fund under the Class A, Class B, Class C and Class
R Plans need not be directly related to the expenses actually incurred by AIM
Distributors on behalf of each Fund. The Plans do not obligate the Funds to
reimburse AIM Distributors for the actual allocated share of expenses AIM
Distributors may incur in fulfilling its obligations under these Plans. Thus,
even if AIM Distributors' actual allocated share of expenses exceeds the fee
payable to AIM Distributors at any given time, under these Plans, the Funds will
not be obligated to pay more than that fee. If AIM Distributors' actual
allocated share of expenses is less than the fee it receives, under these Plans,
AIM Distributors will retain the full amount of the fee.
AIM Distributors may from time to time waive or reduce any portion of
its 12b-1 fee for Class A shares, Class C shares or Class R shares. 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
Distributors 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 Distributors and
the Fund.
The Funds may pay a service fee of 0.25% of the average daily net
assets of the Class A, Class B, Class C or Class R shares attributable to the
customers of selected dealers and financial institutions to such dealers and
financial institutions, including AIM Distributors, acting as principal, who
furnish continuing personal shareholder services to their customers who purchase
and own the applicable class of shares of the Fund. Under the terms of a
shareholder service agreement, such personal shareholder services include
responding to customer inquiries and providing customers with information about
their investments. Any amounts not paid as a service fee under each Plan would
constitute an asset-based sales charge.
AIM Distributors may pay dealers and institutions who sell Class R
shares 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 either on the thirteenth month after the first purchase, on accounts on
which a dealer concession was paid, or immediately, on accounts on which a
dealer concession was not paid. If AIM Distributors pays a dealer concession, it
will retain all payments received by it relating to Class R shares for the first
year after they are purchased. AIM Distributors will make quarterly payments to
dealers and institutions based on the average net asset value of Class R shares
which are attributable to shareholders for whom the dealers and institutions are
designated as dealers of record.
Under a Shareholder Service Agreement, a Fund agrees to pay
periodically fees to selected dealers and other institutions who render the
foregoing services to their customers. The fees payable under a Shareholder
Service Agreement will be calculated at the end of each payment period for each
business day of the Funds during such period at the annual rate specified in
each agreement based on the average daily net asset value of the Funds' shares
purchased or acquired through exchange. Fees shall be paid only to those
selected dealers or other institutions who are dealers or institutions of record
at the close of business on the last business day of the applicable payment
period for the account in which such Fund's shares are held.
Selected dealers and other institutions entitled to receive
compensation for selling Fund shares may receive different compensation for
selling shares of one particular class over another. Under the Plans, certain
financial institutions which have entered into service agreements and which sell
shares of the Funds on an agency basis, may receive payments from the Funds
pursuant to the respective Plans. AIM Distributors does not act as principal,
but rather as agent for the Funds, in making dealer incentive and shareholder
servicing payments to dealers and other financial institutions under the Plans.
These payments are an obligation of the Funds and not of AIM Distributors.
112
Payments pursuant to the Plans are subject to any applicable
limitations imposed by rules of the National Association of Securities Dealers,
Inc. ("NASD").
See Appendix L for a list of the amounts paid by each class of shares
of each Fund to AIM Distributors pursuant to the Plans for the year, or period,
ended December 31, 2004 and Appendix M for an estimate by category of the
allocation of actual fees paid by each class of shares of each Fund pursuant to
its respective distribution plan for the year or period ended December 31, 2004.
As required by Rule 12b-1, the Plans and related forms of Shareholder
Service Agreements were approved by the Board, including a majority of the
trustees who are not "interested persons" (as defined in the 1940 Act) of the
Trust and who have no direct or indirect financial interest in the operation of
the Plans or in any agreements related to the Plans (the "Rule 12b-1 Trustees").
In approving the Plans in accordance with the requirements of Rule 12b-1, the
trustees considered various factors and determined that there is a reasonable
likelihood that the Plans would benefit each class of the Funds and its
respective shareholders.
The anticipated benefits that may result from the Plans with respect to
each Fund and/or the classes of each Fund and its shareholders include but are
not limited to the following: (1) rapid account access; (2) relatively
predictable flow of cash; and (3) a well-developed, dependable network of
shareholder service agents to help to curb sharp fluctuations in rates of
redemptions and sales, thereby reducing the chance that an unanticipated
increase in net redemptions could adversely affect the performance of each Fund.
Unless terminated earlier in accordance with their terms, the Plans
continue from year to year as long as such continuance is specifically approved,
in person, at least annually by the Board, including a majority of the Rule
12b-1 Trustees. A Plan may be terminated as to any Fund or class by the vote of
a majority of the Rule 12b-1 Trustees or, with respect to a particular class, by
the vote of a majority of the outstanding voting securities of that class.
Any change in the Plans that would increase materially the distribution
expenses paid by the applicable class requires shareholder approval; otherwise,
the Plans may be amended by the trustees, including a majority of the Rule 12b-1
Trustees, by votes cast in person at a meeting called for the purpose of voting
upon such amendment. As long as the Plans are in effect, the selection or
nomination of the Independent Trustees is committed to the discretion of the
Independent Trustees.
The Class B Plan obligates Class B shares to continue to make payments
to AIM Distributors following termination of the Class B shares Distribution
Agreement with respect to Class B shares sold by or attributable to the
distribution efforts of AIM Distributors or its predecessors, unless there has
been a complete termination of the Class B Plan (as defined in such Plan) and
the Class B Plan expressly authorizes AIM Distributors to assign, transfer or
pledge its rights to payments pursuant to the Class B Plan.
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 shares of the Funds. The address of
AIM Distributors is P.O. Box 4739, Houston, Texas 77210-4739. Certain trustees
and officers of the Trust are affiliated with AIM Distributors. See "Management
of the Trust."
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 classes of the Funds.
113
AIM Distributors expects to pay sales commissions from its own
resources to dealers and institutions who sell Class B, Class C and Class R
shares of the Funds at the time of such sales.
Payments with respect to Class B shares will equal 4.0% of the purchase
price of the Class B shares sold by the dealer or institution, and will consist
of a sales commission equal to 3.75% of the purchase price of the Class B shares
sold plus an advance of the first year service fee of 0.25% with respect to such
shares. 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. In the future, if multiple distributors serve a Fund, each such
distributor (or its assignee or transferee) would receive a share of the
payments under the Class B Plan based on the portion of the Fund's Class B
shares sold by or attributable to the distribution efforts of that distributor.
AIM Distributors may pay sales commissions to dealers and institutions
who sell Class C shares of the AIM 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 dealer or institution, and will consist of a sales
commission of 0.75% of the purchase price of the Class C shares sold plus an
advance of the first year 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 year after they are purchased. The portion of the payments to AIM
Distributors under the Class A, Class C and Class R Plan attributable to Class C
shares which constitutes an asset-based sales charge (0.75%) is intended in part
to permit AIM Distributors to recoup a portion of the sales commissions to
dealers plus financing costs, if any. After the first full year, AIM
Distributors will make quarterly payments to dealers and institutions based on
the average net asset value of Class C shares which are attributable to
shareholders for whom the dealers and institutions are designated as dealers of
record. These payments will consist of an asset-based sales charge of 0.75% and
a service fee of 0.25%.
The Trust (on behalf of any class of any Fund) or AIM Distributors may
terminate the Distribution Agreements on 60 days' written notice without
penalty. The Distribution Agreements will terminate automatically in the event
of their assignment. In the event the Class B shares Distribution Agreement is
terminated, AIM Distributors would continue to receive payments of asset-based
distribution fees in respect of the outstanding Class B shares attributable to
the distribution efforts of AIM Distributors or its predecessors; provided,
however that a complete termination of the Class B Plan (as defined in such
Plan) would terminate all payments to AIM Distributors. Termination of the Class
B Plan or the Distribution Agreement for Class B shares would not affect the
obligation of Class B shareholders to pay contingent deferred sales charges.
Total sales charges (front end and contingent deferred sales charges)
paid in connection with the sale of shares of each class of each Fund, if
applicable, for the last three fiscal years ended December 31 are found in
Appendix N.
CALCULATION OF PERFORMANCE DATA
Although performance data may be useful to prospective investors when
comparing a Fund's performance with other funds and other potential investments,
investors should note that the methods of computing performance of other
potential investments are not necessarily comparable to the methods employed by
a Fund.
114
Average Annual Total Return Quotation
The standard formula for calculating average annual total return is as
follows:
n
P(1+T) =ERV
Where P = a hypothetical initial payment of $1,000;
T = average annual total return (assuming the applicable
maximum sales load is deducted at the beginning of
the one, five or ten year periods);
n = number of years; and
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the one, five and
ten year periods at the end of the one, five or ten
year periods (or fractional portion of such period).
The average annual total returns for each Fund, with respect to its
Class A, Class B, Class C and Class R shares, if applicable, for the one, five
and ten year periods (or since inception if less than ten years) ended June 30,
2005 are found in Appendix O.
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. Cumulative total return reflects the performance of a Fund over a stated
period of time. Average annual total returns are calculated by determining the
growth or decline in value of a hypothetical investment in a Fund over a stated
period of time, and then calculating the annually compounded percentage rate
that would have produced the same result if the rate of growth or decline in
value had been constant over the period.
Each Fund's total return is calculated in accordance with a
standardized formula for computation of annualized total return. Standardized
total return for: (1) Class A shares reflects the deduction of a Fund's maximum
front-end sales charge at the time of purchase; (2) Class B and Class C shares
reflects the deduction of the maximum applicable CDSC on a redemption of shares
held for the period; and (3) Class R shares does not reflect a deduction of any
sales charge since that class is generally sold and redeemed at net asset value.
A Fund's total return shows its overall change in value, including
changes in share price and assuming all the Fund's dividends and capital gain
distributions are reinvested. A cumulative total return reflects the Fund's
performance over a stated period of time. An average annual total return
reflects the hypothetical compounded annual rate of return that would have
produced the same cumulative total return if the Fund's performance had been
constant over the entire period. Because average annual returns tend to even out
variations in the Fund's return, investors should recognize that such returns
are not the same as actual year-by-year results. To illustrate the components of
overall performance, a Fund may separate its cumulative and average annual
returns into income results and capital gains or losses.
Alternative Total Return Quotations
Standard total return quotes may be accompanied by total return figures
calculated by alternative methods. For example, average annual total return may
be calculated without assuming payment of the full sales load according to the
following formula:
115
n
P(1+U) =ERV
Where P = a hypothetical initial payment of $1,000;
U = average annual total return assuming payment of only
a stated portion of, or none of, the applicable
maximum sales load at the beginning of the stated
period;
n = number of years; and
ERV = ending redeemable value of a hypothetical $1,000
payment at the end of the stated period.
Cumulative total return across a stated period may be calculated as
follows:
P(1+V)=ERV
Where P = a hypothetical initial payment of $1,000;
V = cumulative total return assuming payment of all of, a
stated portion of, or none of, the applicable maximum
sales load at the beginning of the stated period; and
ERV = ending redeemable value of a hypothetical $1,000
payment at the end of the stated period.
The cumulative total returns for each Fund, with respect to its Class
A, Class B, Class C and Class R shares, if applicable, for the one, five and ten
year periods (or since inception if less than ten years) ended June 30, 2005 are
found in Appendix O.
Calculation of Certain Performance Data
AIM Basic Value Fund, AIM Global Equity Fund, AIM Mid Cap Core Equity
Fund and AIM Small Cap Growth Fund may use a restated or blended performance
calculation to derive certain performance data shown for their Class R shares in
this Statement of Additional Information and in each Fund's advertisements and
other sales material. If a Fund's Class R shares were not offered to the public
during the performance period covered, the performance data shown will be the
restated historical performance of such Fund's Class A shares at net asset
value, adjusted to reflect the higher Rule 12b-1 fees applicable to the Class R
shares. If a Fund's Class R shares were offered to the public only during a
portion of the performance period covered, the performance data shown will be
the blended returns of the historical performance of such Fund's Class R shares
since their inception and the restated historical performance of such Fund's
Class A shares (for periods prior to the inception of such Fund's Class R
shares) at net asset value, adjusted to reflect the higher Rule 12b-1 fees
applicable to the Class R shares. If a Fund's Class R shares were offered to the
public during the entire performance period covered, the performance data shown
will be the historical performance of the Fund's Class R shares.
AIM Small Cap Growth Fund may use a restated or blended performance
calculation to derive certain performance data shown for its Investor Class
shares in this Statement of Additional Information and in the Fund's
advertisements and other sales material. If a Fund's Investor Class shares were
not offered to the public during the performance period covered, the performance
data shown will be the restated historical performance of the Fund's Class A
shares at net asset value, which restated performance will reflect the higher
Rule 12b-1 fees applicable to Class A shares. If a Fund's Investor Class shares
were offered to the public only during a portion of the performance period
covered, the performance data shown will be the blended returns of the
historical performance of the Fund's Investor Class shares since their inception
and the restated historical performance of the Fund's Class A shares (for
periods prior to the inception of the Fund's Investor Class shares) at net asset
value, which restated performance will reflect the higher Rule 12b-1 fees
applicable to Class A shares. If a Fund's Investor Class shares were offered to
the public during the entire performance period covered, the performance data
shown will be the historical performance of the Fund's Investor Class shares.
116
A restated or blended performance calculation may be used to derive (i)
the Funds' standardized average annual total returns over a stated period and
(ii) the Funds' non-standardized cumulative total returns over a stated period.
Average Annual Total Return (After Taxes on Distributions) Quotation
A Fund's average annual total return (after taxes on distributions)
shows its overall change in value, including changes in share price and assuming
all the Fund's dividends and capital gain distributions are reinvested. It
reflects the deduction of federal income taxes on distributions, but not on
redemption proceeds. Average annual total returns (after taxes on distributions)
are calculated by determining the after-tax growth or decline in value of a
hypothetical investment in a Fund over a stated period of time, and then
calculating the annually compounded percentage rate that would have produced the
same result if the rate of growth or decline in value had been constant over the
period. Because average annual total returns (after taxes on distributions) tend
to even out variations in the Fund's return, investors should recognize that
such returns are not the same as actual year-by-year results. To illustrate the
components of overall performance, a Fund may separate its average annual total
returns (after taxes on distributions) into income results and capital gains or
losses.
The standard formula for calculating average annual total return (after
taxes on distributions) is:
n
P(1+T) = ATV
D
Where P = a hypothetical initial payment of $1,000;
T = average annual total return (after taxes on
distributions);
n = number of years; and
ATV = ending value of a hypothetical $1,000 payment made at
D the beginning of the one, five or ten year periods
(or since inception, if applicable) at the end of the
one, five or ten year periods (or since inception, if
applicable), after taxes on fund distributions but
not after taxes on redemption.
Standardized average annual total return (after taxes on distributions)
for: (1) Class A shares reflects the deduction of a Fund's maximum front-end
sales charge at the time of purchase; and (2) Class B and Class C shares reflect
the deduction of the maximum applicable CDSC on a redemption of shares held for
the period.
The after-tax returns assume all distributions by a Fund, less the
taxes due on such distributions, are reinvested at the price calculated as
stated in the prospectus on the reinvestment dates during the period. Taxes on a
Fund's distributions are calculated by applying to each component of the
distribution (e.g., ordinary income and long-term capital gain) the highest
corresponding individual marginal federal income tax rates in effect on the
reinvestment date. The taxable amount and tax character of each distribution is
as specified by the Fund on the dividend declaration date, but reflects any
subsequent recharacterizations of distributions. The effect of applicable tax
credits, such as the foreign tax credit, are also taken into account. The
calculations only reflect federal taxes, and thus do not reflect state and local
taxes or the impact of the federal alternative minimum tax.
The average annual total returns (after taxes on distributions) for
each Fund, with respect to its Class A, Class B and Class C shares for the one,
five and ten year periods (or since inception if less than ten years) ended June
30, 2005 are found in Appendix O.
Average Annual Total Return (After Taxes on Distributions and Sale of Fund
Shares) Quotation
A Fund's average annual total return (after taxes on distributions and
sale of Fund shares) shows its overall change in value, including changes in
share price and assuming all the Fund's dividends and capital gain distributions
are reinvested. It reflects the deduction of federal income taxes on both
distributions and proceeds. Average annual total returns (after taxes on
distributions and redemption) are calculated by determining the after-tax growth
or decline in value of a hypothetical investment in a Fund
117
over a stated period of time, and then calculating the annually compounded
percentage rate that would have produced the same result if the rate of growth
or decline in value had been constant over the period. Because average annual
total returns (after taxes on distributions and redemption) tend to even out
variations in the Fund's return, investors should recognize that such returns
are not the same as actual year-by-year results. To illustrate the components of
overall performance, a Fund may separate its average annual total returns (after
taxes on distributions and redemption) into income results and capital gains or
losses.
The standard formula for calculating average annual total return (after
taxes on distributions and redemption) is:
n
P(1+T) = ATV
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; and
ATV = ending value of a hypothetical $1,000 payment made at
DR the beginning of the one, five or ten year periods
(or since inception, if applicable) at the end of the
one, five or ten year periods (or since inception, if
applicable), after taxes on fund distributions and
redemption.
Standardized average annual total return (after taxes on distributions
and redemption) for: (1) Class A shares reflects the deduction of a Fund's
maximum front-end sales charge at the time of purchase; and (2) Class B and
Class C shares reflect the deduction of the maximum applicable CDSC on a
redemption of shares held for the period.
The after-tax returns assume all distributions by a Fund, less the
taxes due on such distributions, are reinvested at the price calculated as
stated in the prospectus on the reinvestment dates during the period. Taxes due
on a Fund's distributions are calculated by applying to each component of the
distribution (e.g., ordinary income and long-term capital gain) the highest
corresponding individual marginal federal income tax rates in effect on the
reinvestment date. The taxable amount and tax character of each distribution is
as specified by the Fund on the dividend declaration date, but reflects any
subsequent recharacterizations of distributions. The effect of applicable tax
credits, such as the foreign tax credit, are also taken into account. The
calculations only reflect federal taxes, and thus do not reflect state and local
taxes or the impact of the federal alternative minimum tax.
The ending values for each period assume a complete liquidation of all
shares. The ending values for each period are determined by subtracting capital
gains taxes resulting from the sale of Fund shares and adding the tax benefit
from capital losses resulting from the sale of Fund shares. The capital gain or
loss upon sale of Fund shares is calculated by subtracting the tax basis from
the proceeds. Capital gains taxes (or the benefit resulting from tax losses) are
calculated using the highest federal individual capital gains tax rate for gains
of the appropriate character (e.g., ordinary income or long-term) in effect on
the date of the sale of Fund shares and in accordance with federal tax law
applicable on that date. The calculations assume that a shareholder may deduct
all capital losses in full.
The basis of shares acquired through the $1,000 initial investment are
tracked separately from subsequent purchases through reinvested distributions.
The basis for a reinvested distribution is the distribution net of taxes paid on
the distribution. Tax basis is adjusted for any distributions representing
returns of capital and for any other tax basis adjustments that would apply to
an individual taxpayer.
The amount and character (i.e., short-term or long-term) of capital
gain or loss upon sale of Fund shares is determined separately for shares
acquired through the $1,000 initial investment and each subsequent purchase
through reinvested distributions. The tax character is determined by the length
of the measurement period in the case of the initial $1,000 investment and the
length of the period between reinvestment and the end of the measurement period
in the case of reinvested distributions.
118
The average annual total returns (after taxes on distributions and
redemption) for each Fund, with respect to its Class A, Class B and Class C
shares, for the one, five and ten year periods (or since inception if less than
ten years) ended June 30, 2005 are found in Appendix O.
Performance Information
All advertisements of the Funds will disclose the maximum sales charge
(including deferred sales charges) imposed on purchases of a Fund's shares. If
any advertised performance data does not reflect the maximum sales charge (if
any), such advertisement will disclose that the sales charge has not been
deducted in computing the performance data, and that, if reflected, the maximum
sales charge would reduce the performance quoted. Further information regarding
each Fund's performance is contained in that Fund's annual report to
shareholders, which is available upon request and without charge.
From time to time, AIM or its affiliates may waive all or a portion of
their fees and/or assume certain expenses of any Fund. Fee waivers or reductions
or commitments to reduce expenses will have the effect of increasing that Fund's
yield and total return.
The performance of each Fund will vary from time to time and past
results are not necessarily indicative of future results.
Total return and yield figures for the Funds are neither fixed nor
guaranteed. The Funds may provide performance information in reports, sales
literature and advertisements. The Funds may also, from time to time, quote
information about the Funds published or aired by publications or other media
entities which contain articles or segments relating to investment results or
other data about one or more of the Funds. The following is a list of such
publications or media entities:
Advertising Age Forbes Pension World
Barron's Fortune Pensions & Investments
Best's Review Hartford Courant Personal Investor
Broker World Inc. Philadelphia Inquirer
Bloomberg Institutional Investor The Bond Buyer
Business Week Insurance Forum USA Today
Changing Times Insurance Week U.S. News & World Report
Christian Science Monitor Investor's Business Daily Wall Street Journal
Consumer Reports Journal of the American Washington Post
Economist Society of CLU & ChFC CNN
FACS of the Week Kiplinger Letter CNBC
Financial Planning Money PBS
Financial Product News Mutual Fund Forecaster
Financial Services Week Nation's Business
Financial World New York Times
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 Stanger
FactSet Data Systems Weisenberger
Lipper, Inc.
Each Fund's performance may also be compared in advertising to the
performance of comparative benchmarks such as the following:
119
Lipper Global Fund Index MSCI World Index
Lipper Large-Cap Value Fund Index Russell 1000--Registered Trademark--
Value Index
Lipper Multi-Cap Value Fund Index Russell 2000--Registered Trademark--
Growth Index
Lipper Mid-Cap Core Fund Index Russell Midcap--Registered Trademark--
Index
Lipper Small-Cap Growth Fund Index Standard & Poor's 500 Stock Index
Each Fund may also compare its performance to rates on Certificates of
Deposit and other fixed rate investments such as the following:
10 year Treasury Notes
90 day Treasury Bills
Advertising for the Funds may from time to time include discussions of
general economic conditions and interest rates. Advertising for such Funds may
also include references to the use of those Funds as part of an individual's
overall retirement investment program. From time to time, sales literature
and/or advertisements for any of the Funds may disclose: (i) the largest
holdings in the Funds' portfolios; (ii) certain selling group members; (iii)
certain institutional shareholders; (iv) measurements of risk, including
standard deviation, Beta and Sharpe ratios; and/or (v) capitalization and sector
analyses of holdings in the Funds' portfolios.
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 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
Section 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.
120
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 P-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 IFG-related parties. A list identifying the
amended complaints in the MDL Court is included in Appendix P-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
P-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 P-2.
121
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 P-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
P-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 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 P-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;
122
and costs and attorneys' fees. Such lawsuit, which was dismissed by the Court on
August 12, 2005, is set forth in Appendix P-6.
123
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.
A-2
Aaa: Issuers or issues rated Aaa demonstrate the strongest
creditworthiness relative to other US municipal or tax-exempt issuers or issues.
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.
A-4
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.
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.
A-5
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 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.
A-6
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.
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.
A-7
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.
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)
<Table>
<Caption>
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
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), Line of Credit Provider (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
</Table>
B-1
<Table>
<Caption>
SERVICE PROVIDER DISCLOSURE CATEGORY
---------------- -------------------
Signature Financial Printer
Southwest Precision Printers, Inc. Financial Printer
ABN Amro Financial Services, Inc. Broker (for certain AIM Funds)
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)
</Table>
B-2
APPENDIX C
TRUSTEES AND OFFICERS
As of October 31, 2005
The address of each trustee and officer is 11 Greenway Plaza, Suite 100,
Houston, Texas 77046-1173. 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.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS OTHER
POSITION(S) HELD WITH THE TRUST AND/OR TRUSTEESHIP(S) HELD
OFFICER BY TRUSTEE
SINCE
-------------------------------- ----------- ------------------------------------------------- ---------------------
INTERESTED PERSONS
Robert H. Graham(1) --1946 1998 Director and Chairman, A I M Management Group None
Trustee, Vice Chair, President Inc. (financial services holding company);
and Principal Executive Officer 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. (financial
President 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.
</Table>
- ----------
(1) Mr. Graham is considered an interested person of the Trust because he
is a director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because
he is an officer and a director of the advisor to, and a director of
the principal underwriter of, the Trust.
C-1
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS OTHER
POSITION(S) HELD WITH THE TRUST AND/OR TRUSTEESHIP(S) HELD
OFFICER BY TRUSTEE
SINCE
-------------------------------- ----------- ------------------------------------------------- ---------------------
INDEPENDENT TRUSTEES
Bruce L. Crockett -- 1944 2001 Chairman, Crockett Technology Associates ACE Limited
Trustee and Chair (technology consulting company) (insurance
company); and
Captaris, Inc.
(unified messaging
provider)
Bob R. Baker - 1936 2003 Retired None
Trustee
Frank S. Bayley -- 1939 1985 Retired Badgley Funds, Inc.
Trustee (registered
Formerly: Partner, law firm of Baker & McKenzie investment company
(2 portfolios))
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning & Bunch None
Trustee Ltd., (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder Insurance
Corporation
Albert R. Dowden -- 1941 2001 Director of a number of public and private None
Trustee 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 2001 Retired None
Trustee
</Table>
C-2
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS OTHER
POSITION(S) HELD WITH THE TRUST AND/OR TRUSTEESHIP(S) HELD
OFFICER BY TRUSTEE
SINCE
- -------------------------------- ----------- ------------------------------------------------- ---------------------
Jack M. Fields -- 1952 2001 Chief Executive Officer, Twenty First Century Administaff ; and
Trustee Group, Inc. (government affairs company); and Discovery Global
Owner, Dos Angelos Ranch, L.P. Education Fund
(non-profit)
Formerly: Chief Executive Officer, Texana
Timber LP (sustainable forestry company)
Carl Frischling -- 1937 2001 Partner, law firm of Kramer Levin Naftalis and Cortland Trust,
Trustee Frankel LLP Inc. (registered
investment company
(3 portfolios))
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services (San General Chemical
Trustee Diego, California) Group, Inc.,
Prema Mathai-Davis -- 1950 2001 Formerly: Chief Executive Officer, YWCA of the None
Trustee USA
Lewis F. Pennock -- 1942 2001 Partner, law firm of Pennock & Cooper None
Trustee
Ruth H. Quigley -- 1935 1977 Retired None
Trustee
Larry Soll -- 1942 2003 Retired None
Trustee
Raymond Stickel, Jr. -- 1944 2005 Retired None
Trustee Formerly: Partner, Deloitte & Touche
</Table>
C-3
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS OTHER
POSITION(S) HELD WITH THE TRUST AND/OR TRUSTEESHIP(S) HELD
OFFICER BY TRUSTEE
SINCE
- -------------------------------- ----------- ------------------------------------------------- ---------------------
OTHER OFFICERS
Lisa O. Brinkley -- 1959 2004 Senior Vice President, A I M Management Group N/A
Senior Vice President and Inc. (financial services holding company);
Chief Compliance Officer 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 Vice President, A I M
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, Chief Legal General Counsel, A I M Management Group Inc.
Officer and Secretary (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
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Treasurer Advisors, Inc.
and Principal Financial Officer
Formerly: Senior Vice President, AIM Investment
Services, Inc. and Vice President, A I M
Distributors, Inc.
</Table>
C-4
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS OTHER
POSITION(S) HELD WITH THE TRUST AND/OR TRUSTEESHIP(S) HELD
OFFICER BY TRUSTEE
SINCE
- -------------------------------- ----------- ------------------------------------------------- ---------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief Investment N/A
Vice President 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 2004 Director of Cash Management, Managing Director N/A
Vice President 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.
</Table>
C-5
<Table>
<Caption>
TRUSTEE OWNERSHIP OF FUND SHARES AS OF DECEMBER 31, 2004
- --------------------------- -------------------------------------------------- -------------------------------------
NAME OF TRUSTEE DOLLAR RANGE OF EQUITY SECURITIES AGGREGATE DOLLAR RANGE OF EQUITY
PER FUND SECURITIES IN ALL REGISTERED
INVESTMENT COMPANIES OVERSEEN BY
TRUSTEE IN THE AIM FAMILY OF
Funds--Registered Trademark--
- --------------------------- -------------------------------------------------- -------------------------------------
Robert H. Graham Basic Value Over $100,000 Over $100,000
Mid Cap Core Equity Over $100,000
Small Cap Growth Over $100,000
Bob R. Baker - $0 - Over $100,000
Frank S. Bayley - $0 - Over $100,000
James T. Bunch - $0 - Over $100,0003
Bruce L. Crockett - $0 - Over $100,000(3)
Albert R. Dowden Basic Value $10,001 - $50,000 Over $100,000
Mid Cap Core Equity $50,001 - $100,000
Edward K. Dunn, Jr. Basic Value $10,001 - $50,000 Over $100,000(3)
Jack M. Fields - $0 - Over $100,000(3)
Carl Frischling Aggressive Allocation $10,001 - $50,000 Over $100,000(3)
Conservative Allocation $10,001 - $50,000
Global Equity Over $100,000
Mid Cap Core Equity Over $100,000
Moderate Allocation $10,001 - $50,000
Gerald J. Lewis - $0 - Over $100,000(3)
Prema Mathai-Davis - $0 - Over $100,000(3)
Lewis F. Pennock Basic Value $1 - $10,000 Over $100,000
Global Equity $1 - $10,000
Mid Cap Core Equity $1 - $10,000
Ruth H. Quigley Global Equity $1 - $10,000 $10,001 - $50,000
Larry Soll - $0 - Over $100,000(3)
Raymond Stickel, Jr.(4) - $0 - - $0 -
Mark H. Williamson Global Equity Over $100,000 Over $100,000
</Table>
- ------------------
(3) 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.
(4) Mr. Stickel was elected as a trustee of the Trust effective October 1,
2005.
C-6
APPENDIX D
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:
<Table>
<Caption>
ESTIMATED ANNUAL
AGGREGATE RETIREMENT BENEFITS UPON TOTAL
COMPENSATION FROM BENEFITS RETIREMENT FROM COMPENSATION
THE ACCRUED ALL AIM FUNDS(4) FROM ALL AIM
TRUSTEE TRUST(1)(2) BY ALL AIM FUNDS(5)(6)
FUNDS(3)
------------------------------------ ------------------- ---------------- ------------------- -------------------
Bob R. Baker $ 14,855 $ 198,871 $ 144,786 $ 189,750
Frank S. Bayley 14,983 175,241 112,500 193,500
James T. Bunch 14,539 143,455 112,500 186,000
Bruce L. Crockett 17,512 75,638 112,500 223,500
Albert R. Dowden 14,902 93,210 112,500 192,500
Edward K. Dunn, Jr. 14,983 133,390 112,500 193,500
Jack M. Fields 14,351 48,070 112,500 186,000
Carl Frischling(7) 14,290 62,040 112,500 185,000
Gerald J. Lewis 14,539 143,455 112,500 186,000
Prema Mathai-Davis 14,667 55,768 112,500 189,750
Lewis F. Pennock 14,350 80,777 112,500 186,000
Ruth H. Quigley 14,667 154,767 112,500 189,750
Louis S. Sklar(8) 14,351 115,160 101,250 186,000
Larry Soll 14,539 184,356 130,823 186,000
Raymond Stickel, Jr.(9) N/A N/A - 0 - N/A
</Table>
(1) Amounts shown are based on the fiscal year ended December 31, 2004. The
total amount of compensation deferred by all trustees of the Trust during
the fiscal year ended December 31, 2004, including earnings, was $47,527.
(2) At the request of the trustees, AMVESCAP has agreed to reimburse the Trust
for Fund expenses related to market timing matters. "Aggregate Compensation
From the Trust" above does not include $2,978 of trustee compensation
which, pursuant to such agreement, was reimbursed by AMVESCAP during the
fiscal year ended December 31, 2004.
(3) During the fiscal year ended December 31, 2004, the total amount of
expenses allocated to the Trust in respect of such retirement benefits was
$195,224.
(4) These amounts represent the estimated annual benefits payable by the AIM
Funds upon the trustee's retirement and assumes each trustee serves until
his or her normal retirement date.
(5) All trustees currently serve as trustees 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 December 31, 2004, the Trust paid $41,855 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.
D-1
>
APPENDIX E
PROXY POLICIES AND PROCEDURES
(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:
o 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;
o Attend less than 75 percent of the board and committee
meetings without a valid excuse;
o It is not clear that the director will be able to fulfill
his function;
o Implement or renew a dead-hand or modified dead-hand
poison pill;
o Enacted egregious corporate governance or other policies
or failed to replace management as appropriate;
o Have failed to act on takeover offers where the majority
of the shareholders have tendered their shares; or
o 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:
o Long-term financial performance of the target company
relative to its industry;
o Management's track record;
o Portfolio manager's assessment;
o Qualifications of director nominees (both slates);
o Evaluation of what each side is offering shareholders as
well as the likelihood that the proposed objectives and
goals can be met; and
o Background to the proxy contest.
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:
o It is not clear that the auditors will be able to fulfill
their function;
o 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
E-1
o 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.
o We will generally vote against equity-based plans where
the total dilution (including all equity-based plans) is
excessive.
o 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.
o 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.
o We will vote for proposals to reprice options if there is
a value-for-value (rather than a share-for-share)
exchange.
o 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.
o 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.
o 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.
o 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.
o We will vote for proposals to institute open-market share
repurchase plans in which all shareholders participate on
an equal basis.
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.
o We will generally abstain from shareholder social and
environmental proposals.
o We will generally support the board's discretion regarding
shareholder proposals that involve ordinary business
practices.
E-2
o 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.
o We will generally vote for proposals to lower barriers to
shareholder action.
o 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
o We will vote against any proposal where the proxy
materials lack sufficient information upon which to base
an informed decision.
o We will vote against any proposals to authorize the proxy
to conduct any other business that is not described in the
proxy statement.
o 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.
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
E-3
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.
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.
E-4
APPENDIX F
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 October 11, 2005.
AIM BASIC VALUE FUND
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS R INSTITUTIONAL
SHARES SHARES SHARES SHARES CLASS SHARES
---------- ---------- ---------- ---------- -------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD RECORD
- ------------------- ---------- ---------- ---------- ---------- -------------
AMVESCAP National Trust Company
FBO AMVESCAP 401(k) Plan -- -- -- -- 12.80%
PO Box 105779
Atlanta, GA 30348-5779
AMVESCAP National Trust Company
FBO AMVESCAP Money Purchase Plan -- -- -- -- 6.65%
PO Box 105779
Atlanta, GA 30348-5779
Citigroup Global Markets
House Account
Attn: Cindy Tempesta -- -- 5.69% -- --
333 West 34th St.,
7th Floor
New York, NY 10001-2402
FIIOC Agent
Employee Benefit Plans -- -- -- -- 35.48%
100 Magellan Way KW1C
Covington, KY 41015-1987
F-1
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS R INSTITUTIONAL
SHARES SHARES SHARES SHARES CLASS SHARES
---------- ---------- ---------- ---------- -------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD RECORD
- ------------------- ---------- ---------- ---------- ---------- -------------
First Command Bank Trust
Attn: Trust Department -- -- -- -- 37.70%
P.O. Box 901075
Fort Worth, TX 76101-2075
The Guardian Insurance & Annuity
Company Inc.
Separate Acct L -- -- -- 6.28% --
Attn: Equity Acctg 3518
3900 Burgess Place
Bethlehem, PA 18017-9097
Merrill Lynch Pierce
Fenner & Smith
FBO The Sole Benefit of
Customers 5.34% 8.90% 17.49% -- --
Attn: Fund Administration
4800 Deer Lake Dr East,
2nd Floor
Jacksonville, FL 32246-6484
Relistar Insurance Co of New York
151 Farmington Ave, #TN41 -- -- -- 5.10% --
Hartford, CT 06156-0001
Symetra Investment Services Inc.
PO Box 34443 -- -- -- 6.06% --
Seattle, WA 98124-1443
</Table>
F-2
AIM CONSERVATIVE ALLOCATION FUND
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS R INSTITUTIONAL
SHARES SHARES SHARES SHARES CLASS SHARES
---------- ---------- ---------- ---------- -------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD RECORD
- ------------------- ---------- ---------- ---------- ---------- -------------
Abdite Industries Inc
Oliver J. Laszlo -- -- -- 16.78% --
18370 Outer Dr
Dearborn, MI 48128-1353
A I M Advisors, Inc.(1)
ATTN: Corporate Controller -- -- -- -- 100.00%
11 E. Greenway Plz Ste 1919
Houston, TX 77046-1103
AMVESCAP Natl Trustco TTEE
FBO Frost FBO B&O Management Co
Discretionary Contribution Pl -- -- -- 5.54% --
PO Box 105779
Atlanta, GA 30348-5779
ANTCSCAP Natl Trustco TTEE
FBO Frost Natl Bank
FBO Super S Foods Employees PS -- -- -- 23.44% --
PL & Trust
PO Box 105779
Atlanta, GA 30348-5779
MG Trust Co Cust
See All Industries Inc
401(k) PS -- -- -- 5.17% --
700 17th St, Ste 300
Denver, CO 80202-3531
- ----------
(1) Owned of record and beneficially.
F-3
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS R INSTITUTIONAL
SHARES SHARES SHARES SHARES CLASS SHARES
---------- ---------- ---------- ---------- -------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD RECORD
- ------------------- ---------- ---------- ---------- ---------- -------------
Michael P. Orourke and
Kimberly A. Schenk
Trst Sharon A. Orourke Living -- -- 6.17% -- --
Trust Dtd 8/25/95
3435 Golden Ave Apt 903
Cincinnati, OH 45226-2026
Oppenheimer & Co Inc Cust FBO
Charles N Kostelnik IRA R/O -- -- -- 12.88% --
8274 Mills St
Taylor, MI 48180-2015
</Table>
AIM GLOBAL EQUITY FUND
<Table>
<Caption>
CLASS A CLASS B CLASS C INSTITUTIONAL
SHARES SHARES SHARES CLASS SHARES
---------- ---------- ---------- -------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD
- ------------------- ---------- ---------- ---------- -------------
AMVESCAP Natl Trustco TTEE FBO
XL America Inc Retplan -- -- -- 25.43%
PO Box 105799
Atlanta, GA 30348-5799
Citigroup Global Market
House Account
Attn: Cindy Tempesta 5.45% 7.29% 9.07% --
333 West 34th St.,
7th Floor
New York, NY 10001-2402
Charles Schwab & Co Inc
Reinvestment Account 8.33% -- -- --
101 Montgomery St
San Francisco, CA 94104-4122
F-4
<Table>
<Caption>
CLASS A CLASS B CLASS C INSTITUTIONAL
SHARES SHARES SHARES CLASS SHARES
---------- ---------- ---------- -------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD
- ------------------- ---------- ---------- ---------- -------------
First Command Bank Trust
ATTN: Trust Department -- -- -- 74.32%
PO Box 901075
Fort Worth, TX 76101-2075
Merrill Lynch Pierce
Fenner & Smith
FBO The Sole Benefit of
Customers -- 5.85% 13.93% --
Attn: Fund Administration
4800 Deer Lake Dr East,
2nd Floor
Jacksonville, FL 32246
Morgan Stanley DW
ATTN: Mutual Fund Operations -- -- 6.18% --
3 Harborside Pl FL 6
Jersey City, NJ 07311-3907
</Table>
AIM GROWTH ALLOCATION FUND
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS R INSTITUTIONAL
SHARES SHARES SHARES SHARES CLASS SHARES
---------- ---------- ---------- ---------- -------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD RECORD
- ------------------- ---------- ---------- ---------- ---------- -------------
A I M Advisors, Inc.(1)
ATTN: Corporate Controller -- -- -- -- 100.00%
11 E. Greenway Plz Ste 1919
Houston, TX 77046-1103
AMVESCAP Natl Trustco TTEE FBO
Seaspecialities Inc
401K Savings Pl -- -- -- 45.97% --
PO Box 105779
Atlanta, GA 30348-5779
- ----------
(1) Owned of record and beneficially.
F-5
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS R INSTITUTIONAL
SHARES SHARES SHARES SHARES CLASS SHARES
---------- ---------- ---------- ---------- -------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD RECORD
- ------------------- ---------- ---------- ---------- ---------- -------------
ANTCSCAP Natl Trustco TTEE FBO
Frost Natl Bank FBO Super S
Foods Employees PS PL & Trust -- -- -- 11.39% --
PO Box 105779
Atlanta, GA 30348-5779
Merrill Lynch Pierce
Fenner & Smith
FBO The Sole Benefit of
Customers -- -- 10.89% -- --
ATTN: Fund Administration
4800 Deer Lake Dr East
2nd Floor
Jacksonville, FL 32246-6484
MG Trust Co Cust
Brothers Co Inc 401k PS -- -- -- 5.21% --
700 17th St,, Ste 300
Denver, CO 80202-3531
</Table>
AIM MID CAP CORE EQUITY FUND
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS R INSTITUTIONAL
SHARES SHARES SHARES SHARES CLASS SHARES
---------- ---------- ---------- ---------- -------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD RECORD
- ------------------- ---------- ---------- ---------- ---------- -------------
Citigroup Global Market
House Account
Attn: Cindy Tempesta -- -- 6.33% -- --
333 West 34th St.,
7th Floor
New York, NY 10001-2402
FIIOC Agent
Employee Benefit Plans
100 Magellan Way KW1C -- -- -- -- 24.85%
Covington, KY 41015-1987
F-6
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS R INSTITUTIONAL
SHARES SHARES SHARES SHARES CLASS SHARES
---------- ---------- ---------- ---------- -------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD RECORD
- ------------------- ---------- ---------- ---------- ---------- -------------
John Hancock Life
Insurance Co USA
250 Bloor St East 7th Floor 11.50% -- -- -- --
Toronto On M4W 1E5
Canada
Merrill Lynch Pierce
Fenner & Smith
FBO The Sole Benefit of 5.65% 6.38% 18.63% 5.02% --
Customers
Attn: Fund Administration
4800 Deer Lake Dr East,
2nd Floor
Jacksonville, FL 32246
Morgan Stanley DW
ATTN: Mutual Fund Operations -- -- 5.42% -- --
3 Harborside PL FL 6
Jersey City, NJ 07311-3907
NAP & Co Trust Co Nominee
7650 Magna Dr -- -- -- -- 8.69%
Belleville, IL 62223-3366
The Northern Trust Co.
FBO Northern Trust Tip-DV -- -- -- -- 23.70%
P.O. Box 92994
Chicago, IL 60675-2994
State Street Bank Custodian
FBO Hatfield Profit
Sharing Fund -- -- -- -- 9.53%
ATTN: Douglas Martin
1776 Heritage Dr
North Quincy, MA 02171-2119
F-7
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS R INSTITUTIONAL
SHARES SHARES SHARES SHARES CLASS SHARES
---------- ---------- ---------- ---------- -------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD RECORD
- ------------------- ---------- ---------- ---------- ---------- -------------
Wells Fargo Bank NA
FBO 401K -- Mid Cap Core -- -- -- -- 18.09%
P.O. Box 1533
Minneapolis, MN 55480-1533
</Table>
AIM MODERATE ALLOCATION FUND
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS R INSTITUTIONAL
SHARES SHARES SHARES SHARES CLASS SHARES
---------- ---------- ---------- ---------- -------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD RECORD
- ------------------- ---------- ---------- ---------- ---------- -------------
A I M Advisors, Inc.(1)
ATTN: Corporate Controller -- -- -- -- 83.77%
11 E. Greenway Plz Ste 1919
Houston, TX 77046-1103
AMVESCAP National TR Co TTEE
FBO The McDevitt Co Employees
401K Plan -- -- -- 5.18% --
PO Box 105779
Atlanta, GA 30348-5779
ANTSCAP Natl Trustco TTEE FBO
Frost Natl Bank FBO Super S
Foods Employees PS PL & Trust -- -- -- 13.77% --
PO Box 105779
Atlanta, GA 30348-5779
AMVESCAP Natl Trustco TTEE FBO
Smrt Inc 401k PS PL -- -- -- 21.83% --
PO Box 105779
Atlanta, GA 30348-5779
- ----------
(1) Owned of record and beneficially.
F-8
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS R INSTITUTIONAL
SHARES SHARES SHARES SHARES CLASS SHARES
---------- ---------- ---------- ---------- -------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD RECORD
- ------------------- ---------- ---------- ---------- ---------- -------------
Merrill Lynch Pierce
Fenner & Smith
FBO The Sole Benefit of
Customers -- -- 8.15% -- --
ATTN: Fund Administration
4800 Deer Lake Dr East
2nd Floor
Jacksonville, FL 32246-6484
Raymond James & Assoc Inc
FBO Warthen IRA -- -- -- -- 16.23%
880 Carillon Pkwy
St. Petersburg, FL 33716-1100
</Table>
AIM MODERATE GROWTH ALLOCATION FUND
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS R INSTITUTIONAL
SHARES SHARES SHARES SHARES CLASS SHARES
---------- ---------- ---------- ---------- -------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD RECORD
- ------------------- ---------- ---------- ---------- ---------- -------------
AIM Advisors Inc(1)
ATTN: Corporate Controller -- -- -- 39.73% 100.00%
11 E. Greenway Plz, Ste. 1919
Houston, TX 77046-1103
AMVESCAP National Trust Company
Crossroads Fellowship
N. Doug Gamble -- -- -- 5.08% --
1405 Falls Church Rd
Raleigh, NC 27609-4015
Andrea L. Pergament
37 Holly Rd -- -- -- 9.56% --
Waban, MA 02468-1411
- ----------
(1) Owned of record and beneficially.
F-9
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS R INSTITUTIONAL
SHARES SHARES SHARES SHARES CLASS SHARES
---------- ---------- ---------- ---------- -------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD RECORD
- ------------------- ---------- ---------- ---------- ---------- -------------
Carpet Specialists Ltd
Brenda Helen Browne
11632 Fairgrove Inc Blvd -- -- -- 5.89% --
Maryland Heights, MO 63043
Carpet Specialists Ltd
Lisa C.Hrebec
11632 Fairgrove Inc Blvd -- -- -- 6.39% --
Maryland Heights, MO 63043
Pershing LLC
P.O. Box 2052 5.49% -- -- -- --
Jersey City, NJ 07303-2052
Southern Tier Lift
Patrick B. Hall -- -- -- 15.44% --
620 Castle Creek Rd
Binghamton, NY 13901-5109
</Table>
AIM MODERATELY CONSERVATIVE ALLOCATION FUND
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS R INSTITUTIONAL
SHARES SHARES SHARES SHARES CLASS SHARES
---------- ---------- ---------- ---------- -------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD RECORD
- ------------------- ---------- ---------- ---------- ---------- -------------
AIM Advisors, Inc.(1)
ATTN: Corporate Controller -- -- -- 78.38% 100.00%
11 E. Greenway Plz, Ste 1919
Houston, TX 77046-1103
AMVESCAP National Trust Company
Conroe ISD
James D. Luton -- -- 5.52% -- --
601 Oak Ridge Rd
Willis, TX 77378-2721
- ----------
(1) Owned of record and beneficially.
F-10
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS R INSTITUTIONAL
SHARES SHARES SHARES SHARES CLASS SHARES
---------- ---------- ---------- ---------- -------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD RECORD
- ------------------- ---------- ---------- ---------- ---------- -------------
AMVESCAP National Trust Company
McAllen ISD
Maria P. Garza -- -- -- 12.75% --
709 N. 7th St.
McAllen, TX 78501-2607
AMVESCAP National Trust Company
Shenendehowa Central Schools -- -- 9.42% -- --
Ronald W. Jacobs
137 Benson St.
Albany, NY 12206-2122
ANTC Cust IRA FBO
Douglas Hague -- -- 6.49 -- --
11049 Seaport Ln
Boca Raton, FL 33428-1242
OMNI Fasteners
Ronald J. Kuczmarski
909 Towpath Rd -- 6.30% -- -- --
Broadview Heights, OH
44147-3676
William L. Detzel and Judy F.
Detzel TTEES Detzel TR
DTD 07/23/2001 -- -- 7.46% -- --
6348 Taylor Mill Rd
Covington, KY 41015-2458
Wells Fargo Investments LLC
ACCT 6019-7594
625 Marquette Ave S. -- -- 5.06% -- --
13th Floor
Minneapolis, MN 55402-2308
</Table>
F-11
AIM SMALL CAP GROWTH FUND
<Table>
<Caption>
INVESTOR
CLASS A CLASS B CLASS C CLASS R CLASS INSTITUTIONAL
SHARES SHARES SHARES SHARES SHARES(2) CLASS SHARES
---------- ---------- ---------- ---------- ---------- -------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD RECORD RECORD
- ------------------- ---------- ---------- ---------- ---------- ---------- -------------
American United Life Group
Retirement Annuity -- -- -- 8.79% N/A --
PO Box 398
Indianapolis, IN 46206-0398
AMVESCAP Natl Trust Co FBO
AMVESCAP 401(k) Plan -- -- -- -- N/A 24.64%
P.O. Box 105779
Atlanta, GA 30348-5779
AMVESCAP National Trust
Company FBO AMVESCAP Money
Purchase Plan -- -- -- -- N/A 10.35%
P.O. Box 105779
Atlanta, GA 30348-5779
Fidelity Investments
Institutional Operations
Co. (F110C) as Agent for -- -- -- -- N/A 29.59%
Certain Employee Benefit Plans
100 Magellan Way
Mail Location -- KW1C
Covington, KY 41015-1999
HUBCO
Regions Financial Corp -- -- -- -- N/A 8.84%
PO Box 830688
Birmingham, AL 35283-0688
John Hancock Life
Insurance Company
(U.S.A) 14.35% -- -- -- N/A --
250 Bloor St East
7th Floor
Toronto, ON M4W 1E5
Canada
- ----------
(2) Investor Class shares commenced operations on December 14, 2005.
F-12
<Table>
<Caption>
INVESTOR
CLASS A CLASS B CLASS C CLASS R CLASS INSTITUTIONAL
SHARES SHARES SHARES SHARES SHARES(2) CLASS SHARES
---------- ---------- ---------- ---------- ---------- -------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD RECORD RECORD
- ------------------- ---------- ---------- ---------- ---------- ---------- -------------
Merrill Lynch Pierce
Fenner & Smith
FBO The Sole Benefit of
Customers 8.49% 8.86% 20.77% 8.50% N/A 17.63%
Attn: Fund Administration
4800 Deer Lake Dr East,
2nd Floor
Jacksonville, FL 32246
Relistar Insurance Co
of New York -- -- -- 7.99% N/A --
151 Farmington Aven # TN41
Hartford, CT 06156-0001
</Table>
- ---------
(2) Investor Class shares commenced operations on December 14, 2005.
AIM INCOME ALLOCATION FUND AND AIM INTERNATIONAL ALLOCATION FUND
AIM provided the initial capitalization of each Fund and, accordingly,
as of the date of this Statement of Additional Information, owned more than 25%
of the issued and outstanding shares of each Fund and therefore could be deemed
to "control" each Fund as that term is defined in the 1940 Act. It is
anticipated that after the commencement of the public offering of each Fund's
shares, AIM will cease to control each Fund for the purposes of the 1940 Act.
MANAGEMENT OWNERSHIP
As of October 11, 2005, the trustees and officers as a group owned less
than 1% of the shares outstanding of each class of any Fund.
F-13
APPENDIX G
MANAGEMENT FEES
For the last three fiscal years ended December 31, the management fees
payable by each Fund, the amounts waived by AIM and the net fees paid by each
Fund were as follows:
<Table>
<Caption>
FUND NAME 2004 2003 2002
------------------------------------ ------------------------------------ -----------------------------------
NET NET NET
MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT
FEE FEE FEE FEE FEE FEE FEE FEE FEE
PAYABLE WAIVERS FEE PAID PAYABLE WAIVERS FEE PAID PAYABLE WAIVERS FEE PAID
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
AIM Basic
Value Fund $45,729,287 $531,221 $45,198,066 $34,395,027 $84,222 $34,310,805 $31,679,859 $39,803 $31,640,056
AIM Global
Equity Fund $ 2,103,152 $ 2,638 $ 2,100,514 $ 1,398,793 $72,356 $ 1,326,437 $ 1,448,177 $79,200 $ 1,368,977
AIM Mid Cap
Core Equity
Fund $22,980,408 $108,680 $22,871,728 $15,648,450 $78,152 $15,570,298 $ 9,735,227 $42,589 $ 9,692,638
AIM Small
Cap Growth
Fund $13,134,333 $ 26,987 $13,107,346 $ 9,914,438 $29,940 $ 9,884,498 $ 7,192,423 $23,725 $ 7,168,698
</Table>
G-1
APPENDIX H
PORTFOLIO MANAGERS
As of December 31, 2004
INVESTMENTS IN EACH FUND
<Table>
<Caption>
NAME OF PORTFOLIO MANAGER DOLLAR RANGE OF INVESTMENTS IN EACH FUND(1)
- ------------------------- -----------------------------------------
AIM BASIC VALUE FUND
R. Canon Coleman II $500,001 -- $1,000,000
Matthew W. Seinsheimer $100,001 -- $500,000
Michael J. Simon $500,001 -- $1,000,000
Bret W. Stanley Over $1,000,000
AIM CONSERVATIVE ALLOCATION FUND
Gary K. Wendler None
AIM GLOBAL EQUITY FUND
Derek S. Izuel $10,001 -- $50,000
Duy Nguyen(2) $1 -- $10,000
AIM GROWTH ALLOCATION FUND
Gary K. Wendler None
AIM INCOME ALLOCATION FUND(3)
Gary K. Wendler N/A
AIM INTERNATIONAL ALLOCATION FUND(3)
Gary K. Wendler N/A
AIM MID CAP CORE EQUITY FUND
Ronald S. Sloan $500,001 -- $1,000,000
AIM MODERATE ALLOCATION FUND
Gary K. Wendler None
AIM MODERATE GROWTH ALLOCATION FUND(4)
Gary K. Wendler None
- --------------
(1) This column reflects investments 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 shame household.
(2) Mr. Nguyen began serving as portfolio manager on September 30, 2005.
Ownership information has been provided as of August 31, 2005.
(3) Commenced operations on October 31, 2005.
(4) Commenced operations on April 29, 2005.
H-1
<Table>
<Caption>
NAME OF PORTFOLIO MANAGER DOLLAR RANGE OF INVESTMENTS IN EACH FUND(1)
- ------------------------- -----------------------------------------
AIM MODERATELY CONSERVATIVE ALLOCATION FUND(4)
Gary K. Wendler None
AIM SMALL CAP GROWTH FUND
Juliet S. Ellis $10,001 -- $50,000
Juan R. Hartsfield $10,001 -- $50,000
</Table>
DESCRIPTION OF COMPENSATION STRUCTURE
AIM 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:
o 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.
o 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.
o 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.
o 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.
- ----------
(4) Commenced operations on April 29, 2005.
H-2
o PARTICIPATION IN DEFERRED COMPENSATION PLAN. Portfolio managers are
eligible to participate in a non-qualified deferred compensation plan,
which affords employees the tax benefits of deferring the receipt of a
portion of their cash compensation.
Portfolio managers also participate in benefits plans and programs available
generally to all employees.
DESCRIPTION OF COMPENSATION STRUCTURE (GARY WENDLER)
AIM seeks to maintain a compensation program that is competitively
positioned to attract and retain high-caliber investment professionals. Mr.
Wendler receives a base salary, an incentive bonus opportunity, an equity
compensation opportunity, and a benefits package. Mr. Wendler's 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. Mr. Wendler's compensation consists of the
following five elements:
o BASE SALARY. Mr. Wendler is paid a base salary. In setting the base
salary, AIM's intention is to be competitive in light of Mr. Wendler's
experience and responsibilities.
o ANNUAL BONUS. Mr. Wendler is eligible to receive an annual cash bonus.
Generally, a portion of the bonus is determined based on the
appropriateness of the funds chosen for the portfolio. With a goal of
maximizing the efficiency of the portfolio based on the risk/reward
profile of the intended shareholder of the fund. However, the total
performance of these funds carries less weight in terms of the bonus
than Mr. Wendler's other responsibilities not associated with the
portfolio.
Fund performances (against applicable peer group) would be a driver of
compensation, poor fund performance (versus applicable peer group)
could result in a smaller bonus. The amount of fund assets under
management typically has 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.
o EQUITY-BASED COMPENSATION. Mr. Wendler 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.
o PARTICIPATION IN GROUP INSURANCE PROGRAMS. Mr. Wendler is provided life
insurance coverage in the form of a group variable universal life
insurance policy, under which he may make additional contributions to
purchase additional insurance coverage or for investment purposes.
o PARTICIPATION IN DEFERRED COMPENSATION PLAN. Mr. Wendler is 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.
Mr. Wendler also participates in benefit plans and programs available generally
to all employees.
H-3
OTHER MANAGED ACCOUNTS
As of December 31, 2004
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.
<Table>
<Caption>
NUMBER OF ACCOUNTS MANAGED BY EACH PORTFOLIO MANAGER AND
NAME OF PORTFOLIO MANAGER TOTAL ASSETS BY CATEGORY
- ----------------------------------------------------------------------------------------------------------------------
AIM BASIC VALUE FUND
R. Canon Coleman II 8 Registered Mutual Funds with $3,792,755,077 in total assets under management
1 Unregistered Pooled Investment Vehicle with $8,108,039 in total assets
under management
3596 Other Accounts with $1,078,482,755 in total assets under management(5)
- ----------------------------------------------------------------------------------------------------------------------
Matthew W. Seinsheimer 8 Registered Mutual Funds with $3,792,755,077 in total assets under management
1 Unregistered Pooled Investment Vehicle with $8,108,039 in total assets
under management
3596 Other Accounts with $1,078,482,755 in total assets under management(5)
- ----------------------------------------------------------------------------------------------------------------------
Michael J. Simon 12 Registered Mutual Funds with $5,127,006,106 in total assets under
management
1 Unregistered Pooled Investment Vehicle with $8,108,039 in total assets
under management
3596 Other Accounts with $1,078,482,755 in total assets under management(5)
- ----------------------------------------------------------------------------------------------------------------------
</Table>
- ----------
(5) These are accounts of individual investors for which AIM's affiliate,
AIM Private Asset Management, Inc. ("APAM") provides investment advice.
APAM offers separately managed accounts that are managed according to
the investment models developed by AIM's portfolio managers and used in
connection with the management of certain AIM funds. APAM accounts may
be invested in accordance with one or more of those investment models
and investments held in those accounts are traded in accordance with
the applicable models.
H-4
<Table>
<Caption>
NUMBER OF ACCOUNTS MANAGED BY EACH PORTFOLIO MANAGER AND
NAME OF PORTFOLIO MANAGER TOTAL ASSETS BY CATEGORY
- ----------------------------------------------------------------------------------------------------------------------
Bret W. Stanley 11 Registered Mutual Funds with $14,632,389,656 in total assets under
management
1 Unregistered Pooled Investment Vehicle with $8,108,039 in total assets
under management
3596 Other Accounts with $1,078,482,755 in total assets under management(5)
- ----------------------------------------------------------------------------------------------------------------------
AIM CONSERVATIVE ALLOCATION FUND
- ----------------------------------------------------------------------------------------------------------------------
Gary K. Wendler 2 Registered Mutual Funds with $220,561,264 in total assets under management
- ----------------------------------------------------------------------------------------------------------------------
AIM GLOBAL EQUITY FUND
- ----------------------------------------------------------------------------------------------------------------------
Derek S. Izuel 4 Unregistered Pooled Investment Vehicles with $922,755,643 in total assets
under management
- ----------------------------------------------------------------------------------------------------------------------
Duy Nguyen(6) 1 Registered Mutual Fund with $401,822,576 in total assets under management
- ----------------------------------------------------------------------------------------------------------------------
AIM GROWTH ALLOCATION FUND
- ----------------------------------------------------------------------------------------------------------------------
Gary K. Wendler 2 Registered Mutual Funds with $189,905,729 in total assets under management
- ----------------------------------------------------------------------------------------------------------------------
AIM INCOME ALLOCATION FUND(7)
- ----------------------------------------------------------------------------------------------------------------------
Gary K. Wendler None
- ----------------------------------------------------------------------------------------------------------------------
AIM INTERNATIONAL ALLOCATION FUND(7)
- ----------------------------------------------------------------------------------------------------------------------
Gary K. Wendler None
- ----------------------------------------------------------------------------------------------------------------------
AIM MID CAP CORE EQUITY FUND
- ----------------------------------------------------------------------------------------------------------------------
Ronald S. Sloan 9 Registered Mutual Funds with $13,962,561,095 in total assets under
management
2 Unregistered Pooled Investment Vehicles with $55,285,105 in total assets
under management
8796 Other Accounts with $1,925,777,183 in total assets under management(5)
- ----------------------------------------------------------------------------------------------------------------------
AIM MODERATE ALLOCATION FUND
- ----------------------------------------------------------------------------------------------------------------------
Gary K. Wendler 2 Registered Mutual Funds with $118,237,659 in total assets under management
- ----------------------------------------------------------------------------------------------------------------------
</Table>
- ----------
(5) These are accounts of individual investors for which AIM's affiliate, AIM
Private Asset Management, Inc. ("APAM") provides investment advice. APAM
offers separately managed accounts that are managed according to the
investment models developed by AIM's portfolio managers and used in
connection with the management of certain AIM funds. APAM accounts may be
invested in accordance with one or more of those investment models and
investments held in those accounts are traded in accordance with the
applicable models.
(6) Mr. Nguyen began serving as portfolio manager on AIM Global Equity Fund on
September 30, 2005. Information on other accounts he manages has been
provided as of August 31, 2005.
(7) Commenced operations on October 31, 2005.
H-5
<Table>
<Caption>
NUMBER OF ACCOUNTS MANAGED BY EACH PORTFOLIO MANAGER AND
NAME OF PORTFOLIO MANAGER TOTAL ASSETS BY CATEGORY
- ----------------------------------------------------------------------------------------------------------------------
AIM MODERATE GROWTH ALLOCATION FUND(8)
- ----------------------------------------------------------------------------------------------------------------------
Gary K. Wendler None
- ----------------------------------------------------------------------------------------------------------------------
AIM MODERATELY CONSERVATIVE ALLOCATION FUND(8)
- ----------------------------------------------------------------------------------------------------------------------
Gary K. Wendler None
- ----------------------------------------------------------------------------------------------------------------------
AIM SMALL CAP GROWTH FUND
- ----------------------------------------------------------------------------------------------------------------------
Juliet S. Ellis 5 Registered Mutual Funds with $1,416,009,463 in total assets under management
1 Other Account with $124,542 in total assets under management(5)
- ----------------------------------------------------------------------------------------------------------------------
Juan R. Hartsfield 5 Registered Mutual Funds with $1,416,009,463 in total assets under management
1 Other Account with $124,542 in total assets under management(5)
- ----------------------------------------------------------------------------------------------------------------------
</Table>
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:
o 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 manager's focus on a particular investment discipline. Most
other accounts managed by a portfolio manager are managed using the
same investment models that are used in connection with the management
of the Funds.
o 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.
o 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
- ----------
(5) These are accounts of individual investors for which AIM's affiliate,
AIM Private Asset Management, Inc. ("APAM") provides investment advice.
APAM offers separately managed accounts that are managed according to
the investment models developed by AIM's portfolio managers and used in
connection with the management of certain AIM funds. APAM accounts may
be invested in accordance with one or more of those investment models
and investments held in those accounts are traded in accordance with
the applicable models.
(8) Commenced operations on April 29, 2005.
H-6
price of the security or the execution of the transaction, or both, to
the possible detriment of the Fund or other account(s) involved.
o 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.
H-7
APPENDIX I
ADMINISTRATIVE SERVICES FEES
The Funds paid AIM the following amounts for administrative services
for the last three fiscal years ended December 31:
<Table>
<Caption>
FUND NAME 2004 2003 2002
- ---------------------------- ------------------------------ ------------------------------- --------------------------
AIM Basic Value Fund $697,597 $645,285 $486,863
- ---------------------------- ------------------------------ ------------------------------- --------------------------
AIM Conservative
Allocation Fund(1) $33,470 N/A N/A
- ---------------------------- ------------------------------ ------------------------------- --------------------------
AIM Global Equity Fund $50,000 $50,000 $50,000
- ---------------------------- ------------------------------ ------------------------------- --------------------------
AIM Growth Allocation Fund(1) $33,470 N/A N/A
- ---------------------------- ------------------------------ ------------------------------- --------------------------
AIM Income Allocation Fund(2) N/A N/A N/A
- ---------------------------- ------------------------------ ------------------------------- --------------------------
AIM International
Allocation Fund(2) N/A N/A N/A
- ---------------------------- ------------------------------ ------------------------------- --------------------------
AIM Mid Cap Core Equity
Fund $592,602 $487,969 $274,931
- ---------------------------- ------------------------------ ------------------------------- --------------------------
AIM Moderate Allocation
Fund(1) $33,470 N/A N/A
- ---------------------------- ------------------------------ ------------------------------- --------------------------
AIM Moderate Growth
Allocation Fund(3) N/A N/A N/A
- ---------------------------- ------------------------------ ------------------------------- --------------------------
AIM Moderately
Conservative Allocation
Fund(3) N/A N/A N/A
- ---------------------------- ------------------------------ ------------------------------- --------------------------
AIM Small Cap Growth Fund $437,687 $365,048 $206,896
- ---------------------------- ------------------------------ ------------------------------- --------------------------
</Table>
(1) Commenced operations on April 30, 2004.
(2) Commenced operations on October 31, 2005.
(3) Commenced operations on April 29, 2005.
I-1
APPENDIX J
BROKERAGE COMMISSIONS
Brokerage commissions(1) paid by each of the Funds listed below during
the last three fiscal years ended December 31 were as follows:
<Table>
<Caption>
FUND 2004 2003 2002
- ----------------------------------------------- ---------- ---------- ----------
AIM Basic Value Fund(3) $2,061,261 $4,078,941 $7,413,401
AIM Conservative Allocation Fund(2) 0 N/A N/A
AIM Global Equity Fund(4) 466,738 851,859 435,419
AIM Growth Allocation Fund(2) 0 N/A N/A
AIM Income Allocation Fund(5) N/A N/A N/A
AIM International Allocation Fund(5) N/A N/A N/A
AIM Mid Cap Core Equity Fund 4,624,704 3,392,660 2,957,059
AIM Moderate Allocation Fund(2) 0 N/A N/A
AIM Moderate Growth Allocation Fund(6) N/A N/A N/A
AIM Moderately Conservative Allocation Fund(6) N/A N/A N/A
AIM Small Cap Growth Fund(7) 4,324,262 2,705,367 1,470,812
</Table>
(1) Disclosure regarding brokerage commissions is limited to commissions paid
on agency trades and designated as such on the trade confirm.
(2) Commenced operations on April 30, 2004.
(3) The variation in brokerage commissions paid by AIM Basic Value Fund for the
fiscal years ended December 31, 2004 and 2003, was due to lower portfolio
activity in 2004, based on the attractive investment opportunities the
portfolio management team believed were represented in the fund throughout
the year.
(4) The variation in brokerage commissions paid by AIM Global Equity Fund for
the fiscal year ended December 31, 2004 as compared to the prior fiscal
year ended December 31, 2003 was due to the variation in brokerage
commissions paid by AIM Global Equity Fund for the fiscal years ended
December 31, 2004 and 2003, was largely due to lower portfolio activity in
2004. The management team makes trades based on its assessment of the
risk/return tradeoff in the marketplace, so any variation in portfolio
activity from one year to the next is a function of this assessment.
(5) Commenced operations on October 31, 2005.
(6) Commenced operations on April 29, 2005.
(7) The variation in brokerage commissions paid by AIM Small Cap Growth Fund
for the fiscal years ended December 31, 2004 and 2003, as compared to the
prior fiscal year, was due to an increase in transactions executed with
commissions as a result of the realignment of the Fund's portfolio to fit
the investment process of the current management team that assumed
management of the Fund in September of 2004.
J-1
APPENDIX K
DIRECTED BROKERAGE (RESEARCH SERVICES) AND PURCHASES OF
SECURITIES OF REGULAR BROKERS OR DEALERS
During the last fiscal year ended December 31, 2004, each Fund
allocated the following amount of transactions to broker-dealers that provided
AIM with certain research, statistics and other information:
<Table>
<Caption>
Related
Fund Transactions(1) Brokerage Commissions(1)
- ----------------------------------------------------- ----------------- ------------------------
AIM Basic Value Fund $1,242,510,780.79 $3,387,080.82
AIM Conservative Allocation Fund(2) 0 0
AIM Global Equity Fund $414,043,484.95 $350,106.33
AIM Growth Allocation Fund(2) 0 0
AIM Income Allocation Fund(2,3) N/A N/A
AIM International Allocation Fund(2,3) N/A N/A
AIM Mid Cap Core Equity Fund $2,319,519,878.23 $3,470,282.87
AIM Moderate Allocation Fund(2) 0 0
AIM Moderate Growth Allocation Fund(2,4) N/A N/A
AIM Moderately Conservative Allocation Fund(2,4) N/A N/A
AIM Small Cap Growth Fund $1,319,584,065.26 $4,721,675.64
</Table>
During the last fiscal year ended December 31, 2004, the following
Funds purchased securities by the following companies, which are "regular"
brokers or dealers of one or more of the Funds identified below:
<Table>
<Caption>
Market Value
Issuer Security (as of December 31, 2004)
- ------------------------------- ------------ -------------------------
AIM Basic Value Fund
J.P. Morgan Chase & Co. Common Stock $ 242,383,174
Merrill Lynch & Co., Inc. Common Stock 158,808,890
Morgan Stanley Common Stock 169,719,088
AIM Global Equity Fund
ABN AMRO Holding N.V. Common Stock $ 3,370,268
AIM Small Cap Growth Fund
Jefferies Group, Inc. Common Stock 9,727,620
Piper Jaffray Cos., Inc. Common Stock $ 7,269,220
</Table>
(1) Amount is inclusive of commissions paid to, and brokerage transactions
placed with, certain brokers that provide execution, research and other
services.
(2) This fund is a fund of funds, and therefore does not allow transactions
for research, statistics or other information. However, for such data
for each of the underlying funds which comprise the subject fund of
funds, please see the SAI of each underlying fund.
(3) Commenced operations on October 31, 2005.
(4) Commenced operations on April 29, 2005.
K-1
APPENDIX L
AMOUNTS PAID TO A I M DISTRIBUTORS, INC. PURSUANT TO DISTRIBUTION PLANS
A list of amounts paid by each class of shares to AIM Distributors
pursuant to the Plans for the fiscal year ended December 31, 2004 follows:
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS R
FUND SHARES SHARES SHARES SHARES
- ------------------------------------------------------ ----------- ----------- ---------- --------
AIM Basic Value Fund $14,891,022 $19,569,452 $6,757,711 $104,692
AIM Conservative Allocation Fund 22,251 33,661 37,463 2,838
AIM Global Equity Fund 681,690 642,518 130,813 N/A2
AIM Growth Allocation Fund 35,636 63,305 33,885 1,704
AIM Income Allocation Fund(1) N/A N/A N/A N/A
AIM International Allocation Fund(1) N/A N/A N/A N/A
AIM Mid Cap Core Equity Fund 8,097,059 7,044,856 3,172,774 236,821
AIM Moderate Allocation Fund 68,484 124,720 92,170 2,377
AIM Moderate Growth Allocation Fund(2) N/A N/A N/A N/A
AIM Moderately Conservative Allocation Fund(2) N/A N/A N/A N/A
AIM Small Cap Growth Fund 5,494,140 1,619,722 442,711 70,406
</Table>
(1) Commenced operations on October 31, 2005.
(2) Commenced operations on April 29, 2005.
As of the date of this Statement of Additional Information, the Investor Class
shares of AIM Small Cap Growth Fund had not yet commenced operations.
L-1
APPENDIX M
ALLOCATION OF ACTUAL FEES PAID PURSUANT TO DISTRIBUTION PLANS
An estimate by category of the allocation of actual fees paid by Class
A shares of the Funds during the fiscal year ended December 31, 2004 follows:
<Table>
<Caption>
PRINTING & UNDERWRITERS DEALERS TRAVEL RELATING
ADVERTISING MAILING SEMINARS COMPENSATION COMPENSATION TO MARKETING PERSONNEL
----------- ---------- -------- ------------ ------------ --------------- ------------
AIM Basic Value Fund $ 502,869 $ 51,897 $194,487 $ 0 $ 11,679,479 $ 107,492 $ 2,354,798
AIM Conservative Allocation Fund 917 82 182 0 17,437 0 3,633
AIM Global Equity Fund 18,408 1,704 5,324 0 571,665 2,958 81,631
AIM Growth Allocation Fund 1,457 144 229 0 28,086 0 5,720
AIM Income Allocation Fund(1) N/A N/A N/A N/A N/A N/A N/A
AIM International Allocation Fund(1) N/A N/A N/A N/A N/A N/A N/A
AIM Mid Cap Core Equity Fund 37,376 3,845 13,777 0 5,877,379 7,586 173,585
AIM Moderate Allocation Fund 2,642 252 499 0 54,009 200 10,882
AIM Moderate Growth Allocation Fund(2) N/A N/A N/A N/A N/A N/A N/A
AIM Moderately Conservative N/A N/A N/A N/A N/A N/A N/A
Allocation Fund(2)
AIM Small Cap Growth Fund 0 0 0 0 3,924,386 0 0
</Table>
An estimate by category of the allocation of actual fees paid by Class
B shares of the Funds during the fiscal year ended December 31, 2004 follows:
<Table>
<Caption>
PRINTING & UNDERWRITERS DEALERS TRAVEL RELATING
ADVERTISING MAILING SEMINARS COMPENSATION COMPENSATION TO MARKETING PERSONNEL
----------- ---------- -------- ------------ ------------ --------------- ------------
AIM Basic Value Fund $ 44,718 $ 4,571 $ 16,617 $ 14,677,089 $ 4,610,064 $ 9,149 $ 207,244
AIM Conservative Allocation Fund 300 0 150 25,246 6,162 0 1,803
AIM Global Equity Fund 1,562 170 473 481,889 151,963 158 6,303
AIM Growth Allocation Fund 691 54 149 47,479 11,951 0 2,981
AIM Income Allocation Fund(1) N/A N/A N/A N/A N/A N/A N/A
AIM International Allocation Fund(1) N/A N/A N/A N/A N/A N/A N/A
AIM Mid Cap Core Equity Fund 27,421 2,837 10,086 5,283,642 1,589,121 5,673 126,075
AIM Moderate Allocation Fund 1,276 111 154 93,540 23,785 0 5,854
AIM Moderate Growth Allocation Fund(2) N/A N/A N/A N/A N/A N/A N/A
AIM Moderately Conservative N/A N/A N/A N/A N/A N/A N/A
Allocation Fund(2)
AIM Small Cap Growth Fund 2,078 205 888 1,214,791 390,983 380 10,397
</Table>
(1) Commenced operations on October 31, 2005.
(2) Commenced operations on April 29, 2005.
M-1
An estimate by category of the allocation of actual fees paid by Class
C shares of the Funds during the fiscal year ended December 31, 2004 follows:
<Table>
<Caption>
PRINTING & UNDERWRITERS DEALERS TRAVEL RELATING
ADVERTISING MAILING SEMINARS COMPENSATION COMPENSATION TO MARKETING PERSONNEL
----------- ---------- -------- ------------ ------------ --------------- ------------
AIM Basic Value Fund $ 32,949 $ 3,402 $ 12,505 $ 801,748 $ 5,744,257 $ 7,270 $ 155,580
AIM Conservative Allocation Fund 307 0 154 9,220 25,784 0 1,998
AIM Global Equity Fund 1,215 120 668 35,069 86,393 0 7,348
AIM Growth Allocation Fund 572 57 158 15,592 14,198 0 3,308
AIM Income Allocation Fund(1) N/A N/A N/A N/A N/A N/A N/A
AIM International Allocation Fund(1) N/A N/A N/A N/A N/A N/A N/A
AIM Mid Cap Core Equity Fund 29,096 3,123 11,400 697,393 2,290,995 6,939 133,828
AIM Moderate Allocation Fund 1,367 106 294 30,030 53,896 0 6,477
AIM Moderate Growth Allocation Fund(2) N/A N/A N/A N/A N/A N/A N/A
AIM Moderately Conservative N/A N/A N/A N/A N/A N/A N/A
Allocation Fund(2)
AIM Small Cap Growth Fund 1,373 177 423 26,624 408,902 141 5,071
</Table>
An estimate by category of the allocation of actual fees paid by Class
R shares of the Funds during the fiscal year ended December 31, 2004 follows:
<Table>
<Caption>
PRINTING & UNDERWRITERS DEALERS TRAVEL RELATING
ADVERTISING MAILING SEMINARS COMPENSATION COMPENSATION TO MARKETING PERSONNEL
----------- ---------- -------- ------------ ------------ --------------- ------------
AIM Basic Value Fund $ 2,032 $ 209 $ 766 $ 27,816 $ 63,942 $ 303 $ 9,624
AIM Conservative Allocation Fund 93 9 26 1,414 886 2 408
AIM Global Equity Fund N/A N/A N/A N/A N/A N/A N/A
AIM Growth Allocation Fund(2) 72 7 4 831 513 3 274
AIM Income Allocation Fund(1) N/A N/A N/A N/A N/A N/A N/A
AIM International Allocation Fund(1) N/A N/A N/A N/A N/A N/A N/A
AIM Mid Cap Core Equity Fund 5,333 537 1,903 64,470 139,461 1,056 24,061
AIM Moderate Allocation Fund 111 10 1 1,185 641 5 424
AIM Moderate Growth Allocation Fund(2) N/A N/A N/A N/A N/A N/A N/A
AIM Moderately Conservative
Allocation Fund(2) N/A N/A N/A N/A N/A N/A N/A
AIM Small Cap Growth Fund 1,487 146 451 18,100 43,539 251 6,432
</Table>
(1) Commenced operations on October 31, 2005.
(2) Commenced operations on April 29, 2005.
As of the date of this Statement of Additional Information, the Investor Class
shares of AIM Small Cap Growth Fund had not yet commenced operations.
M-2
APPENDIX N
TOTAL SALES CHARGES
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 three fiscal years ending December 31:
<Table>
<Caption>
2004 2003 2002
SALES AMOUNT AMOUNT SALES AMOUNT
CHARGES RETAINED SALES CHARGES RETAINED CHARGES RETAINED
------------ ------------- ------------- ------------- ------------ -------------
AIM Basic Value Fund $ 5,381,3011 $ 868,069 $ 5,004,113 $ 759,942 $ 9,981,981 $ 1,521,182
AIM Conservative Allocation
Fund(1) 352,399 59,963 N/A N/A N/A N/A
AIM Global Equity Fund 337,797 62,651 158,159 28,656 94,201 16,958
AIM Growth Allocation Fund(1) 586,285 97,170 N/A N/A N/A N/A
AIM Income Allocation Fund(2) N/A N/A N/A N/A N/A N/A
AIM International Allocation
Fund(2) N/A N/A N/A N/A N/A N/A
AIM Mid Cap Core Equity Fund 2,088,488 342,343 4,684,623 701,330 5,400,197 804,255
AIM Moderate Allocation Fund(1) 1,256,804 203,518 N/A N/A N/A N/A
AIM Moderate Growth Allocation
Fund(3) N/A N/A N/A N/A N/A N/A
AIM Moderately Conservative
Allocation Fund (3) N/A N/A N/A N/A N/A N/A
AIM Small Cap Growth Fund 239,932 41,724 334,139 52,197 1,310,416 198,431
</Table>
The following chart reflects the contingent deferred sales charges paid
by Class A, Class B, Class C and Class R shareholders and retained by AIM
Distributors for the last three fiscal years ended December 31:
<Table>
<Caption>
2004 2003 2002
AIM Basic Value Fund $ 357,488 $ 117,667 $ 235,808
AIM Conservative Allocation Fund(1) 8,521 N/A N/A
AIM Global Equity Fund 12,946 336 1,906
AIM Growth Allocation Fund(1) 4,475 N/A N/A
AIM Income Allocation Fund(2) N/A N/A N/A
AIM International Allocation Fund(2) N/A N/A N/A
AIM Mid Cap Core Equity Fund 135,158 54,978 72,938
AIM Moderate Allocation Fund(1) 7,550 N/A N/A
AIM Moderate Growth Allocation Fund(3) N/A N/A N/A
AIM Moderately Conservative Allocation Fund(3) N/A N/A N/A
AIM Small Cap Growth Fund 24,656 26,238 53,881
</Table>
(1) Commenced operations on April 30, 2004.
(2) Commenced operations on October 31, 2005.
(3) Commenced operations on April 29, 2005.
N-1
APPENDIX O
PERFORMANCE DATA
AVERAGE ANNUAL TOTAL RETURNS
The average annual total returns (including sales loads) for each Fund,
with respect to its Class A shares, for the one, five and ten year periods (or
since inception if less than ten years) ended June 30, 2005 are as follows:
<Table>
<Caption>
PERIODS ENDED
JUNE 30, 2005
SINCE INCEPTION
CLASS A SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- --------------------------------------- ------ ------- -------- --------- ---------
AIM Basic Value Fund -0.61% 4.65% N/A 11.95% 10/18/95
AIM Conservative Allocation Fund -1.59% N/A N/A -0.48% 04/30/04
AIM Global Equity Fund 8.24% 3.17% N/A 7.86% 09/15/97
AIM Growth Allocation Fund 3.76% N/A N/A 6.63% 04/30/04
AIM Income Allocation Fund N/A N/A N/A N/A 10/31/05
AIM International Allocation Fund N/A N/A N/A N/A 10/31/05
AIM Mid Cap Core Equity Fund 1.01% 5.70% 9.72% N/A 06/09/87
AIM Moderate Allocation Fund 2.83% N/A N/A 4.33% 04/30/04
AIM Moderate Growth Allocation Fund(1) N/A N/A N/A -0.56% 04/29/05
AIM Moderately Conservative
Allocation Fund(1) N/A N/A N/A -2.64% 04/29/05
AIM Small Cap Growth Fund -0.71% -7.14% N/A 11.29% 10/18/95
</Table>
The average annual total returns (including maximum applicable
contingent deferred sales charge) for each Fund, with respect to its Class B
shares, for the one, five and ten year periods (or since inception if less than
ten years) ended June 30, 2005 are as follows:
<Table>
<Caption>
PERIODS ENDED
JUNE 30, 2005
SINCE INCEPTION
CLASS B SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- --------------------------------------- ------ ------- -------- --------- ---------
AIM Basic Value Fund -0.50% 4.83% N/A 12.01% 10/18/95
AIM Conservative Allocation Fund -1.54% N/A N/A 0.25% 04/30/04
AIM Global Equity Fund 7.92% 3.32% N/A 8.00% 09/15/97
AIM Growth Allocation Fund 3.97% N/A N/A 7.76% 04/30/04
AIM Income Allocation Fund N/A N/A N/A N/A 10/31/05
AIM International Allocation Fund N/A N/A N/A N/A 10/31/05
AIM Mid Cap Core Equity Fund 1.18% 5.86% 9.76% N/A 04/01/93
AIM Moderate Allocation Fund 2.98% N/A N/A 5.33% 04/30/04
AIM Moderate Growth Allocation Fund(1) N/A N/A N/A 0.17% 04/29/05
AIM Moderately Conservative
Allocation Fund(1) N/A N/A N/A -2.21% 04/29/05
AIM Small Cap Growth Fund -0.70% -7.14% N/A 11.30% 10/18/95
</Table>
(1) Commenced operations on April 29, 2005. Returns are cumulative.
O-1
The average annual total returns (including maximum applicable
contingent deferred sales charge) for each Fund, with respect to its Class C
shares, for the one, five and ten year periods (or since inception if less than
ten years) ended June 30, 2005 are as follows:
<Table>
<Caption>
PERIODS ENDED
JUNE 30, 2005
SINCE INCEPTION
CLASS C SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- --------------------------------------- ------ ------- -------- --------- ---------
AIM Basic Value Fund 3.50% 5.15% N/A 6.38% 05/03/99
AIM Conservative Allocation Fund 2.46% N/A N/A 3.67% 04/30/04
AIM Global Equity Fund 11.94% 3.64% N/A 8.76% 01/02/98
AIM Growth Allocation Fund 7.97% N/A N/A 11.14% 04/30/04
AIM Income Allocation Fund N/A N/A N/A N/A 10/31/05
AIM International Allocation Fund N/A N/A N/A N/A 10/31/05
AIM Mid Cap Core Equity Fund 5.12% 6.19% N/A 11.51% 05/03/99
AIM Moderate Allocation Fund 6.98% N/A N/A 8.72% 04/30/04
AIM Moderate Growth Allocation Fund(1) N/A N/A N/A 4.07% 04/29/05
AIM Moderately Conservative N/A N/A N/A 1.89% 04/29/05
Allocation Fund(1)
AIM Small Cap Growth Fund 3.30% -6.78% N/A 6.59% 05/03/99
</Table>
The average annual total returns (not including the 0.75% contingent
deferred sales charge that may be imposed on a total redemption of retirement
plan assets within the first year) for each Fund, with respect to its Class R
shares, for the one, five and ten year periods (or since inception if less than
ten years) ended June 30, 2005 are as follows:
<Table>
<Caption>
PERIODS ENDED
JUNE 30, 2005
SINCE INCEPTION
CLASS R SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- --------------------------------------- ------ ------- -------- --------- ---------
AIM Basic Value Fund(2) 4.99% 5.67% N/A 12.43% 10/18/95(2)
AIM Conservative Allocation Fund(1) 3.92% N/A N/A 4.14% 04/30/04
AIM Global Equity Fund(3) 13.46% 4.02% N/A 8.37% 09/15/97(3)
AIM Growth Allocation Fund 9.51% N/A N/A 11.70% 04/30/04
AIM Income Allocation Fund N/A N/A N/A N/A 10/31/05
AIM International Allocation Fund N/A N/A N/A N/A 10/31/05
AIM Mid Cap Core Equity Fund(2) 6.64% 6.74% 10.17% N/A 06/09/87(2)
AIM Moderate Allocation Fund 8.52% N/A N/A 9.28% 04/30/04
AIM Moderate Growth Allocation Fund(1) N/A N/A N/A 5.17% 04/29/05
AIM Moderately Conservative
Allocation Fund(1) N/A N/A N/A 2.99% 04/29/05
AIM Small Cap Growth Fund(2) 4.84% -6.28% N/A 11.74% 10/18/95(2)
</Table>
(1) Commenced operations on April 29, 2005. Returns are cumulative.
(2) The return shown for the one year period is the historical performance of
the Fund's Class R shares. The returns shown for other periods are the
blended returns of the historical performance of the Funds' Class R shares
since their inception and the restated historical performance of the
Funds' Class A shares (for periods prior to inception of the Class R
shares) at net asset
O-2
value, adjusted to reflect the higher Rule 12b-1 fees applicable to
Class R shares. The inception date shown in the table is that of the
Funds' Class A shares. The inception date of the Funds' Class R shares
is June 3, 2002.
(3) The returns shown for these periods are the restated historical
performance of the Fund's Class A shares at net asset value, adjusted
to reflect the higher Rule 12b-1 fees applicable to Class R shares. The
inception date shown in the table is that of the Fund's Class A shares.
The inception date of the Fund's Class R shares is October 31, 2005.
The average annual total returns (after taxes on distributions and
redemption) for the Fund, with respect to its Investor Class shares, for the
one, five and ten year periods (or since inception if less than ten years) ended
June 30, 2005 are as follows:
<Table>
<Caption>
PERIODS ENDED
JUNE 30, 2005
SINCE INCEPTION
INVESTOR CLASS SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- --------------------------------------- ------ ------- -------- --------- ---------
AIM Small Cap Growth Fund(1) 6.18% 7.22% 9.58% N/A 08/07/89
</Table>
(1) The return shown for these periods is the restated historical
performance of AIM Small Cap Growth Fund's Class A shares at the net
asset value, which restated performance will reflect the higher Rule
12b-1 fees applicable to Class A shares. The inception date shown in
the table is that of AIM Small Cap Growth Fund's Class A shares. The
inception date of the Funds' Investor Class shares is December 14,
2005. As of the date of this Statement of Additional Information, the
Investor Class shares of AIM Small Cap Growth Fund had not yet
commenced operations.
CUMULATIVE TOTAL RETURNS
The cumulative total returns (including sales loads) for each Fund,
with respect to its Class A shares, for the one, five and ten year periods (or
since inception if less than ten years) ended June 30, 2005 are as follows:
<Table>
<Caption>
PERIODS ENDED
JUNE 30, 2005
SINCE INCEPTION
CLASS A SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- --------------------------------------- ------ ------- -------- --------- ---------
AIM Basic Value Fund -0.61% 25.53% N/A 198.92% 10/18/95
AIM Conservative Allocation Fund -1.59% N/A N/A -0.56% 04/30/04
AIM Global Equity Fund 8.24% 16.88% N/A 80.26% 09/15/97
AIM Growth Allocation Fund 3.76% N/A N/A 7.78% 04/30/04
AIM Income Allocation Fund N/A N/A N/A N/A 10/31/05
AIM International Allocation Fund N/A N/A N/A N/A 10/31/05
AIM Mid Cap Core Equity Fund 1.01% 31.96% 152.83% N/A 06/09/87
AIM Moderate Allocation Fund 2.83 N/A N/A 5.07% 04/30/04
AIM Moderate Growth Allocation Fund(1) N/A N/A N/A -0.56% 04/29/05
AIM Moderately Conservative
Allocation Fund(1) N/A N/A N/A -2.64% 04/29/05
AIM Small Cap Growth Fund -0.71% -30.94% N/A 182.38% 10/18/95
</Table>
O-3
The cumulative total returns (including maximum applicable contingent
deferred sales charge) for each Fund, with respect to its Class B shares, for
the one, five and ten year periods (or since inception if less than ten years)
ended June 30, 2005 are as follows:
<Table>
<Caption>
PERIODS ENDED
JUNE 30, 2005
SINCE INCEPTION
CLASS B SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- --------------------------------------- ------ ------- -------- --------- ---------
AIM Basic Value Fund -0.50% 26.57% N/A 200.53% 10/18/95
AIM Conservative Allocation Fund -1.54% N/A N/A 0.29% 04/30/04
AIM Global Equity Fund 7.92% 17.72% N/A 82.07% 09/15/97
AIM Growth Allocation Fund 3.97% N/A N/A 9.11% 04/30/04
AIM Income Allocation Fund N/A N/A N/A N/A 10/31/05
AIM International Allocation Fund N/A N/A N/A N/A 10/31/05
AIM Mid Cap Core Equity Fund 1.18% 32.96% 153.73% N/A 04/01/93
AIM Moderate Allocation Fund 2.98% N/A N/A 6.24% 04/30/04
AIM Moderate Growth Allocation
Fund(1) N/A N/A N/A 0.17% 04/29/05
AIM Moderately Conservative
Allocation Fund(1) N/A N/A N/A -2.21% 04/29/05
AIM Small Cap Growth Fund -0.70% -30.94% N/A 182.42% 10/18/95
</Table>
(1) Commenced operations on April 29, 2005. Returns are cumulative.
The cumulative total returns (including maximum applicable contingent
deferred sales charge ) for each Fund, with respect to its Class C shares, for
the one, five and ten year periods (or since inception if less than ten years)
ended June 30, 2005 are as follows:
<Table>
<Caption>
PERIODS ENDED
JUNE 30, 2005
SINCE INCEPTION
CLASS C SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- --------------------------------------- ------ ------- -------- --------- ---------
AIM Basic Value Fund 3.50% 28.57% N/A 46.34% 05/03/99
AIM Conservative Allocation Fund 2.46% N/A N/A 4.29% 04/30/04
AIM Global Equity Fund 11.94% 19.57% N/A 87.53% 01/02/98
AIM Growth Allocation Fund 7.97% N/A N/A 13.11% 04/30/04
AIM Income Allocation Fund N/A N/A N/A N/A 10/31/05
AIM International Allocation Fund N/A N/A N/A N/A 10/31/05
AIM Mid Cap Core Equity Fund 5.12% 35.01% N/A 95.57% 05/03/99
AIM Moderate Allocation Fund 6.98% N/A N/A 10.24% 04/30/04
AIM Moderate Growth Allocation Fund(1) N/A N/A N/A 4.07% 04/29/05
AIM Moderately Conservative
Allocation Fund(1) N/A N/A N/A 1.89% 04/29/05
AIM Small Cap Growth Fund 3.30% -29.59% N/A 48.14% 05/03/99
</Table>
The cumulative total returns (not including the 0.75% contingent
deferred sales charge that may be imposed on a total redemption of retirement
plan assets within the first year) for each Fund, with respect to its Class R
shares, for the one, five and ten year periods (or since inception if less than
ten years) ended June 30, 2005 are as follows:
O-4
<Table>
<Caption>
PERIODS ENDED
JUNE 30, 2005
SINCE INCEPTION
CLASS R SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- --------------------------------------- ------ ------- -------- --------- ---------
AIM Basic Value Fund(2) 4.99% 31.76% N/A 211.68% 10/18/95(2)
AIM Conservative Allocation Fund(1) 3.92% N/A N/A 4.85% 04/30/04
AIM Global Equity Fund(3) 13.46% 21.79% N/A 87.06% 09/15/97(3)
AIM Growth Allocation Fund 9.51% N/A N/A 13.78% 04/30/04
AIM Income Allocation Fund N/A N/A N/A N/A 10/31/05
AIM International Allocation Fund N/A N/A N/A N/A 10/31/05
AIM Mid Cap Core Equity Fund(2) 6.64% 38.55% 163.50% N/A 06/09/872
AIM Moderate Allocation Fund 8.52% N/A N/A 10.91% 04/30/04
AIM Moderate Growth Allocation Fund(1) N/A N/A N/A 5.17% 04/29/05
AIM Moderately Conservative
Allocation Fund(1) N/A N/A N/A 2.99% 04/29/05
AIM Small Cap Growth Fund(2) 4.84% -27.69% N/A 193.66% 10/18/95(2)
</Table>
(1) Commenced operations on April 29, 2005. Returns are cumulative.
(2) The return shown for the one year period is the historical performance
of the Fund's Class R shares. The returns shown for other periods are
the blended returns of the historical performance of the Funds' Class R
shares since their inception and the restated historical performance of
the Funds' Class A shares (for periods prior to inception of the Class
R shares) at net asset value, adjusted to reflect the higher Rule 12b-1
fees applicable to Class R Shares. The inception date shown in the
table is that of the funds' Class A shares. The inception date of the
Funds' Class R shares is June 3, 2002.
(3) The returns shown for these periods are the restated historical
performance of the Fund's Class A shares at net asset value, adjusted
to reflect the higherRule 12b-1 fees applicable to Class R shares. The
inception date shown in the table is that of the Fund's Class A shares.
The inception date of the Fund's Class R shares is October 31, 2005.
The cumulative total returns for the Fund, with respect to its Investor
Class shares, for the one, five and ten year periods (or since inception if less
than ten years) ended June 30, 2005 are as follows:
<Table>
<Caption>
PERIODS ENDED
JUNE 30, 2005
INVESTOR CLASS SHARES: SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- --------------------------------------- ------ ------- -------- --------- ---------
AIM Small Cap Growth Fund1 9.51% 9.28% 12.85% N/A 08/07/89
</Table>
(1) The return shown for these periods is the restated historical
performance of AIM Small Cap Growth Fund's Class A shares at the net
asset value, which restated performance will reflect higher Rule 12b-1
fees applicable to Class A shares. The inception date shown in the
table is for AIM Small Cap Growth Fund's Class A shares. The inception
date of the Funds' Investor Class shares is December 14, 2005. As of
the date of this Statement of Additional Information, the Investor
Class Shares of AIM Small Cap Growth Fund had not yet commenced
operations.
O-5
AVERAGE ANNUAL TOTAL RETURNS (AFTER TAXES ON DISTRIBUTIONS)
The average annual total returns (after taxes on distributions and
including sales loads) for each Fund, with respect to its Class A shares, for
the one, five and ten year periods (or since inception if less than ten years)
ended June 30, 2005 are as follows:
<Table>
<Caption>
PERIODS ENDED
JUNE 30, 2005
SINCE INCEPTION
CLASS A SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- --------------------------------------- ------ ------- -------- --------- ---------
AIM Basic Value Fund -0.61% 4.58% N/A 11.47% 10/18/95
AIM Conservative Allocation Fund -1.90% N/A N/A -0.75% 04/30/04
AIM Global Equity Fund 7.17% 2.20% N/A 6.65% 09/15/97
AIM Growth Allocation Fund 3.62% N/A N/A 6.50% 04/30/04
AIM Income Allocation Fund N/A N/A N/A N/A 10/31/05
AIM International Allocation Fund N/A N/A N/A N/A 10/31/05
AIM Mid Cap Core Equity Fund -0.14% 4.47% 7.31% N/A 06/09/87
AIM Moderate Allocation Fund 2.54 N/A N/A 4.07% 04/30/04
AIM Moderate Growth Allocation Fund(1) N/A N/A N/A -0.56% 04/29/05
AIM Moderately Conservative
Allocation Fund(1) N/A N/A N/A -2.64% 04/29/05
AIM Small Cap Growth Fund -0.71% -7.48% N/A 10.46% 10/18/95
</Table>
The average annual total returns (after taxes on distributions and
including maximum applicable contingent deferred sales charge) for each Fund,
with respect to its Class B shares, for the one, five and ten year periods (or
since inception if less than ten years) ended June 30, 2005 are as follows:
<Table>
<Caption>
PERIODS ENDED
JUNE 30, 2005
SINCE INCEPTION
CLASS B SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- --------------------------------------- ------ ------- -------- --------- ---------
AIM Basic Value Fund -0.50% 4.76% N/A 11.54% 10/18/95
AIM Conservative Allocation Fund -1.80% N/A N/A 0.03% 04/30/04
AIM Global Equity Fund 6.76% 2.33% N/A 6.80% 09/15/97
AIM Growth Allocation Fund 3.88% N/A N/A 7.68% 04/30/04
AIM Income Allocation Fund N/A N/A N/A N/A 10/31/05
AIM International Allocation Fund N/A N/A N/A N/A 10/31/05
AIM Mid Cap Core Equity Fund -0.16% 4.52% 7.28% N/A 04/01/93
AIM Moderate Allocation Fund(1) 2.74% N/A N/A 5.12% 04/30/04
AIM Moderate Growth Allocation Fund(1) N/A N/A N/A 0.17% 04/29/05
AIM Moderately Conservative
Allocation Fund(1) N/A N/A N/A -2.21% 04/29/05
AIM Small Cap Growth Fund -0.70% -7.50% N/A 10.45% 10/18/95
</Table>
(1) Commenced operations on April 29, 2005. Returns are cumulative.
O-6
The average annual total returns (after taxes on distributions and
including maximum applicable contingent deferred sales charge) for each Fund,
with respect to its Class C shares, for the one, five and ten year periods (or
since inception if less than ten years) ended June 30, 2005 are as follows:
<Table>
<Caption>
PERIODS ENDED
JUNE 30, 2005
SINCE INCEPTION
CLASS C SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- --------------------------------------- ------ ------- -------- --------- ---------
AIM Basic Value Fund 3.50% 5.09% N/A 6.30% 05/03/99
AIM Conservative Allocation Fund 2.20% N/A N/A 3.44% 04/30/04
AIM Global Equity Fund 10.78% 2.66% N/A 7.75% 01/02/98
AIM Growth Allocation Fund 7.88% N/A N/A 11.06% 04/30/04
AIM Income Allocation Fund N/A N/A N/A N/A 10/31/05
AIM International Allocation Fund N/A N/A N/A N/A 10/31/05
AIM Mid Cap Core Equity Fund 3.78% 4.86% N/A 9.71% 05/03/99
AIM Moderate Allocation Fund 6.74% N/A N/A 8.51% 04/30/04
AIM Moderate Growth Allocation Fund(1) N/A N/A N/A 4.07% 04/29/05
AIM Moderately Conservative
Allocation Fund(1) N/A N/A N/A 1.89% 04/29/05
AIM Small Cap Growth Fund 3.30% -7.13% N/A 6.13% 05/03/99
</Table>
The average annual total returns (after taxes on distributions) for the
Fund, with respect to its Investor Class shares, for the one, five and ten year
periods (or since inception if less than ten years) ended June 30, 2005 are as
follows:
<Table>
<Caption>
PERIODS ENDED
JUNE 30, 2005
SINCE INCEPTION
INVESTOR CLASS SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- --------------------------------------- ------ ------- -------- --------- ---------
AIM Small Cap Growth Fund(1) 9.51% 7.46% 9.90% N/A 08/07/89
</Table>
(1) The return shown for these periods is the restated historical
performance of AIM Small Cap Growth Fund's Class A shares at the net
asset value, which restated performance will reflect the higher Rule
12b-1 fees applicable to Class A shares. The inception date shown in
the table is for AIM Small Cap Growth Fund's Class A shares. The
inception date of the Fund's Investor Class shares is December 14,
2005. As of the date of this Statement of Additional Information, the
Investor Class Shares of AIM Small Cap Growth Fund had not yet
commenced operations.
O-7
AVERAGE ANNUAL TOTAL RETURNS (AFTER TAXES ON DISTRIBUTIONS AND REDEMPTION)
The average annual total returns (after taxes on distributions and
redemption and including sales loads) for each Fund, with respect to its Class A
shares, for the one, five and ten year periods (or since inception if less that
ten years) ended June 30, 2005 are as follows:
<Table>
<Caption>
PERIODS ENDED
JUNE 30, 2005
SINCE INCEPTION
CLASS A SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- --------------------------------------- ------ ------- -------- --------- ---------
AIM Basic Value Fund -0.40% 3.96% N/A 10.37% 10/18/95
AIM Conservative Allocation Fund -1.02% N/A N/A -0.56% 04/30/04
AIM Global Equity Fund 6.12% 2.15% N/A 6.18% 09/15/97
AIM Growth Allocation Fund 2.47% N/A N/A 5.58% 04/30/04
AIM Income Allocation Fund N/A N/A N/A N/A 10/31/05
AIM International Allocation Fund N/A N/A N/A N/A 10/31/05
AIM Mid Cap Core Equity Fund 1.76% 4.27% 6.95% N/A 06/09/87
AIM Moderate Allocation Fund 1.86% N/A N/A 3.54% 04/30/04
AIM Moderate Growth Allocation Fund(1) N/A N/A N/A -0.37% 04/29/05
AIM Moderately Conservative
Allocation Fund(1) N/A N/A N/A -1.72% 04/29/05
AIM Small Cap Growth Fund -0.46% -6.08% N/A 9.52% 10/18/95
</Table>
(1) Commenced operations on April 29, 2005. Returns are cumulative.
The average annual total returns (after taxes on distributions and
redemption and including maximum applicable contingent deferred sales charge)
for each Fund, with respect to its Class B shares, for the one, five and ten
year periods (or since inception if less than ten years) ended June 30, 2005 are
as follows:
<Table>
<Caption>
PERIODS ENDED
JUNE 30, 2005
SINCE INCEPTION
CLASS B SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- --------------------------------------- ------ ------- -------- --------- ---------
AIM Basic Value Fund -0.33% 4.12% N/A 10.43% 10/18/95
AIM Conservative Allocation Fund -0.99% N/A N/A 0.09% 04/30/04
AIM Global Equity Fund 5.98% 2.27% N/A 6.32% 09/15/97
AIM Growth Allocation Fund 2.60% N/A N/A 6.56% 04/30/04
AIM International Allocation Fund N/A N/A N/A N/A 10/31/05
AIM Income Allocation Fund N/A N/A N/A N/A 10/31/05
AIM Mid Cap Core Equity Fund 2.05% 4.37% 6.95% N/A 04/01/93
AIM Moderate Allocation Fund 1.95% N/A N/A 4.42% 04/30/04
AIM Moderate Growth Allocation Fund(1) N/A N/A N/A 0.11% 04/29/05
AIM Moderately Conservative
Allocation Fund(1) N/A N/A N/A -1.44% 04/29/05
AIM Small Cap Growth Fund -0.46% -6.09% N/A 9.52% 10/18/95
</Table>
O-8
The average annual total returns (after taxes on distributions and
redemption and including maximum applicable contingent deferred sales charge)
for each Fund, with respect to its Class C shares, for the one, five and ten
year periods (or since inception if less than ten years) ended June 30, 2005 are
as follows:
<Table>
<Caption>
PERIODS ENDED
JUNE 30, 2005
SINCE INCEPTION
CLASS C SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- --------------------------------------- ------ ------- -------- --------- ---------
AIM Basic Value Fund 2.27% 4.40% N/A 5.49% 05/03/99
AIM Conservative Allocation Fund 1.61% N/A N/A 2.99% 04/30/04
AIM Global Equity Fund 8.59% 2.56% N/A 7.16% 01/02/98
AIM Growth Allocation Fund 5.20% N/A N/A 9.44% 04/30/04
AIM Income Allocation Fund N/A N/A N/A N/A 10/31/05
AIM International Allocation Fund N/A N/A N/A N/A 10/31/05
AIM Mid Cap Core Equity Fund 4.61% 4.66% N/A 9.05% 05/03/99
AIM Moderate Allocation Fund 4.55% N/A N/A 7.30% 04/30/04
AIM Moderate Growth Allocation Fund(1) N/A N/A N/A 2.65% 04/29/05
AIM Moderately Conservative
Allocation Fund(1) N/A N/A N/A 1.23% 04/29/05
AIM Small Cap Growth Fund 2.14% -5.80% N/A 5.48% 05/02/99
</Table>
(1) Commenced operations on April 29, 2005. Returns are cumulative.
The average annual total returns (after taxes on distributions and
redemption) for the Fund, with respect to its Investor Class shares, for the
one, five and ten year periods (or since inception if less than ten years) ended
June 30, 2005 are as follows:
<Table>
<Caption>
PERIODS ENDED
JUNE 30, 2005
SINCE INCEPTION
INVESTOR CLASS SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- --------------------------------------- ------ ------- -------- --------- ---------
AIM Small Cap Growth Fund(1) 6.18% 7.22% 9.58% N/A 08/07/89
</Table>
(1) The return shown for these periods is the restated historical
performance of AIM Small Cap Growth Fund's Class A shares at the net
asset value, which restated performance will reflect higher Rule 12b-1
fees applicable to Class A shares. The inception date shown in the
table is for AIM Small Cap Growth Fund's Class A shares. The inception
date of the Funds' Investor Class shares is December 14, 2005. As of
the date of this Statement of Additional Information, the Investor
Class Shares of AIM Small Cap Growth Fund had not yet commenced
operations.
O-9
APPENDIX P-1
PENDING LITIGATION ALLEGING 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,
P-1
State of North Carolina (Civil Action No. 03-CVS-19622), filed on
November 14, 2003. 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
P-2
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 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
P-3
paid; accounting for wrongfully gotten gains, profits and compensation;
restitution and disgorgement; and other costs and expenses, including
counsel fees and expert fees.
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
P-4
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, 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.
P-5
LORI WEINRIB, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED, V. INVESCO FUNDS GROUP, INC., 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, 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
P-6
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-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.
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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, 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. PERENTESES (WIDOW) V. AIM INVESTMENTS, ET AL (INVESCO FUNDS
GROUP, INC.), in the District Court of Maryland for Baltimore County
(Case No. 080400228152005), filed 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.
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
P-8
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 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
P-9
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.
P-10
APPENDIX P-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).
P-11
APPENDIX P-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.
P-12
APPENDIX P-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
P-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.
P-14
APPENDIX P-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,
P-15
INVESCO UTILITIES FUND, NOMINAL DEFENDANTS, in the United States
District Court for 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-
P-16
related 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
P-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
P-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
P-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.
P-20
APPENDIX P-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.
P-21
FINANCIAL STATEMENTS
Pursuant to Rule 3-03(d) of Regulation S-X, unaudited financials for
the period ended June 30, 2005, for Registrant's portfolios have been included
in addition to the portfolios' audited financials for the period ended December
31, 2004. Such financials reflect all adjustments which are of a normal
recurring nature and which are in the opinion of management, necessary to a fair
statement of the results for the periods presented.
FS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
AIM Aggressive Allocation 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 Aggressive Allocation Fund (one
of the funds constituting AIM Growth Series, hereafter referred to as the
"Fund") at December 31, 2004, and the results of its operations, the changes in
its net assets and the financial highlights for the period April 30, 2004 (date
operations commenced) through December 31, 2004, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audit. We
conducted our audit of these financial statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at December 31, 2004 by
correspondence with the custodian, provides a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
- -------------------------------
PRICEWATERHOUSECOOPERS LLP
February 18, 2005
Houston, Texas
FS-1
FINANCIALS
SCHEDULE OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- ----------------------------------------------------------------------
MUTUAL FUNDS-100.00%(a)
AIM Dynamics Fund-Institutional
Class-5.06%(b)(c) 225,060 $ 3,781,016
- ----------------------------------------------------------------------
AIM High Yield Fund-Institutional Class-4.83% 793,411 3,610,019
- ----------------------------------------------------------------------
AIM International Core Equity
Fund-Institutional Class-12.71%(d) 827,763 9,502,721
- ----------------------------------------------------------------------
AIM International Growth Fund-Institutional
Class-12.96%(b) 476,343 9,688,825
- ----------------------------------------------------------------------
AIM Large Cap Basic Value Fund-Institutional
Class-17.17%(b) 948,067 12,836,834
- ----------------------------------------------------------------------
AIM Large Cap Growth Fund-Institutional
Class-19.51%(b) 1,461,136 14,582,137
- ----------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ----------------------------------------------------------------------
MUTUAL FUNDS-(CONTINUED)
AIM Multi-Sector Fund-Institutional
Class-12.50%(e) 429,236 $ 9,340,168
- ----------------------------------------------------------------------
AIM Real Estate Fund-Institutional
Class-5.31% 152,712 3,967,454
- ----------------------------------------------------------------------
AIM Small Cap Growth Fund-Institutional
Class-9.95%(b) 267,277 7,438,317
======================================================================
Total Mutual Funds (Cost $68,782,937) 74,747,491
======================================================================
TOTAL INVESTMENTS-100.00% (Cost $68,782,937) 74,747,491
======================================================================
OTHER ASSETS LESS LIABILITIES-0.00% 3,330
======================================================================
NET ASSETS-100.00% $74,750,821
______________________________________________________________________
======================================================================
</Table>
Notes to Schedule of Investments:
(a) The mutual fund and the Fund are affiliated by having the same investment
advisor. See Note 3.
(b) Non-income producing security. A security is determined to be non-income
producing if the security has not declared a distribution in more than one
year from the report date.
(c) Effective October 15, 2004, the INVESCO Dynamics Fund was renamed AIM
Dynamics Fund.
(d) Effective October 15, 2004, the INVESCO International Core Equity Fund was
renamed AIM International Core Equity Fund.
(e) Effective October 15, 2004, the INVESCO Multi-Sector Fund was renamed AIM
Multi-Sector Fund.
See accompanying notes which are an integral part of the financial statements.
FS-2
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
<Table>
ASSETS:
Investments in affiliated underlying funds, at
market value (cost $68,782,937) $74,747,491
- -----------------------------------------------------------
Receivables for fund shares sold 323,853
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 2,805
- -----------------------------------------------------------
Other assets 82,992
===========================================================
Total assets 75,157,141
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 313,243
- -----------------------------------------------------------
Fund shares reacquired 10,610
- -----------------------------------------------------------
Trustee deferred compensation and retirement
plans 2,805
- -----------------------------------------------------------
Accrued distribution fees 36,624
- -----------------------------------------------------------
Accrued transfer agent fees 9,592
- -----------------------------------------------------------
Accrued operating expenses 33,446
===========================================================
Total liabilities 406,320
===========================================================
Net assets applicable to shares outstanding $74,750,821
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $68,640,537
- -----------------------------------------------------------
Undistributed net investment income (1,934)
- -----------------------------------------------------------
Undistributed net realized gain from
investment securities 147,664
- -----------------------------------------------------------
Unrealized appreciation of investment
securities 5,964,554
===========================================================
$74,750,821
___________________________________________________________
===========================================================
NET ASSETS:
Class A $39,368,199
___________________________________________________________
===========================================================
Class B $22,384,069
___________________________________________________________
===========================================================
Class C $11,542,766
___________________________________________________________
===========================================================
Class R $ 1,342,379
___________________________________________________________
===========================================================
Institutional Class $ 113,408
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Class A 3,495,476
___________________________________________________________
===========================================================
Class B 1,992,914
___________________________________________________________
===========================================================
Class C 1,027,898
___________________________________________________________
===========================================================
Class R 119,352
___________________________________________________________
===========================================================
Institutional Class 10,057
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 11.26
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $11.26 divided by
94.50%) $ 11.92
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per share $ 11.23
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per share $ 11.23
___________________________________________________________
===========================================================
Class R:
Net asset value and offering price per share $ 11.25
___________________________________________________________
===========================================================
Institutional Class:
Net asset value and offering price per share $ 11.28
___________________________________________________________
===========================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-3
STATEMENT OF OPERATIONS
For the period April 30, 2004 (Date operations commenced) through December 31,
2004
<Table>
INVESTMENT INCOME:
Dividends from affiliated underlying funds $ 187,282
========================================================================
EXPENSES:
Administrative services fees 33,470
- ------------------------------------------------------------------------
Custodian fees 4,484
- ------------------------------------------------------------------------
Distribution fees:
Class A 35,636
- ------------------------------------------------------------------------
Class B 63,305
- ------------------------------------------------------------------------
Class C 33,885
- ------------------------------------------------------------------------
Class R 1,704
- ------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C and R 48,771
- ------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 20
- ------------------------------------------------------------------------
Trustees' fees and retirement benefits 8,567
- ------------------------------------------------------------------------
Registration and filing fees 42,958
- ------------------------------------------------------------------------
Reports to shareholders 15,438
- ------------------------------------------------------------------------
Professional fees 34,705
- ------------------------------------------------------------------------
Other 7,111
========================================================================
Total expenses 330,054
========================================================================
Less: Expenses reimbursed and expense offset arrangements (161,218)
========================================================================
Net expenses 168,836
========================================================================
Net investment income 18,446
========================================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES:
Net realized gain from affiliated underlying funds 39,228
========================================================================
Net realized gain from distributions of affiliated
underlying funds 311,072
========================================================================
350,300
========================================================================
Change in net unrealized appreciation of affiliated
underlying funds 5,964,554
========================================================================
Net gain from affiliated underlying funds 6,314,854
========================================================================
Net increase in net assets resulting from operations $6,333,300
________________________________________________________________________
========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-4
STATEMENT OF CHANGES IN NET ASSETS
For the period April 30, 2004 (Date operations commenced) through December 31,
2004
<Table>
<Caption>
2004
- -------------------------------------------------------------------------
OPERATIONS:
Net investment income from affiliated underlying funds $ 18,446
- -------------------------------------------------------------------------
Net realized gain from affiliated underlying funds and
capital gain distributions of underlying funds 350,300
- -------------------------------------------------------------------------
Change in net unrealized appreciation of affiliated
underlying funds 5,964,554
=========================================================================
Net increase in net assets resulting from operations 6,333,300
=========================================================================
Distributions to shareholders from net investment income:
Class A (166,197)
- -------------------------------------------------------------------------
Class B (56,952)
- -------------------------------------------------------------------------
Class C (29,244)
- -------------------------------------------------------------------------
Class R (5,483)
- -------------------------------------------------------------------------
Institutional Class (617)
=========================================================================
Total distributions from net investment income (258,493)
=========================================================================
Distributions to shareholders from net realized gains:
Class A (3,264)
- -------------------------------------------------------------------------
Class B (1,898)
- -------------------------------------------------------------------------
Class C (975)
- -------------------------------------------------------------------------
Class R (119)
- -------------------------------------------------------------------------
Institutional Class (10)
=========================================================================
Total distributions from net realized gains (6,266)
=========================================================================
Decrease in net assets resulting from distributions (264,759)
=========================================================================
Share transactions-net:
Class A 36,288,349
- -------------------------------------------------------------------------
Class B 20,477,991
- -------------------------------------------------------------------------
Class C 10,599,924
- -------------------------------------------------------------------------
Class R 1,215,379
- -------------------------------------------------------------------------
Institutional Class 100,637
=========================================================================
Net increase (decrease) in net assets resulting from
share transactions 68,682,280
=========================================================================
Net increase in net assets 74,750,821
=========================================================================
NET ASSETS:
Beginning of period --
=========================================================================
End of period (including undistributed net investment
income of $(1,934)) $74,750,821
_________________________________________________________________________
=========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-5
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Aggressive Allocation Fund (the "Fund") is a separate series of AIM Growth
Series (the "Trust"). The Trust is organized as a Delaware statutory trust and
is registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of seven
separate series portfolios, each authorized to issue an unlimited number of
shares of beneficial interest. The Fund currently offers multiple classes of
shares. Matters affecting each portfolio or class will be voted on exclusively
by the shareholders of such portfolio or class. The assets, liabilities and
operations of each portfolio are accounted for separately. Information presented
in these financial statements pertains only to the Fund. The Fund commenced
operations on April 30, 2004.
The Fund's investment objective is to provide long-term growth of capital
consistent with a higher level of risk relative to the broad stock market. The
Fund is a "fund of funds," in that it invests in the Institutional Class of
other mutual funds -- ("underlying funds") advised by A I M Advisors, Inc.
("AIM"). AIM may change the Fund's asset class allocations, the underlying funds
or the target weightings in the underlying funds without shareholder approval.
The underlying funds may engage in a number of investment techniques and
practices, which involve certain risks. Each underlying fund's accounting
policies are outlined in the underlying fund's financial statements and are
available upon request.
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 -- Investments in underlying funds are valued at the
end of the day net asset value per share.
Securities in the underlying funds, 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 underlying funds' 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 underlying funds' 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
FS-6
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 underlying funds' officers following procedures
approved by the underlying funds' 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. Distributions from income from underlying funds, if any, are recorded
as dividend income on ex-dividend date. Distributions from net realized
capital gains from underlying funds, if any, are recorded as realized gains
on ex-dividend date.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Expenses included in the accompanying financial statements
reflect the expenses of the Fund and do not include any expenses of the
underlying funds. The results of the underlying funds expenses are included
in the realized and unrealized gain/loss on the investments in the
underlying funds.
Fees provided for under the Rule 12b-1 plan of a particular class of the
Fund are charged to the operations of such class. Transfer agency fees and
expenses and other shareholder recordkeeping fees and expenses attributable
to the Institutional Class are charged to such class. Transfer agency fees
and expenses and other shareholder recordkeeping fees and expenses relating
to all other classes are allocated among those classes based on relative
net assets. All other expenses are allocated among the classes based on
relative net assets.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with AIM.
Under the terms of the investment advisory agreement, the Fund does not pay an
advisory fee. However, the Fund pays advisory fees to AIM indirectly as a
shareholder of the underlying funds. AIM has contractually agreed to reimburse
expenses to the extent necessary to limit other expenses (excluding certain
items discussed below) of Class A, Class B, Class C, Class R and Institutional
Class shares to 0.17% of average daily net assets, through December 31, 2005. In
determining the advisor's obligation to reimburse expenses, the following
expenses are not taken into account, and could cause other expenses to exceed
the limit stated above: (i) Rule 12b-1 plan fees, if any; (ii) interest; (iii)
taxes; (iv) dividend expense on short sales; (v) 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; (vi)
expenses related to a merger or reorganization, as approved by the Fund's Board
of Trustees; (vii) expenses of the underlying funds that are paid indirectly as
a result of share ownership of the underlying funds and (viii) 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. For
the period April 30, 2004 (date operations commenced) through December 31, 2004,
AIM reimbursed expenses of $110,983.
For the period April 30, 2004 (date operations commenced) through December
31, 2004, at the request of the Trustees of the Trust, AMVESCAP PLC ("AMVESCAP")
agreed to reimburse $1,431 of expenses incurred by the Fund related to market
timing matters in the AIM Funds, including legal, audit, shareholder servicing,
communication and trustee expenses. These expenses along with the related
expense reimbursement, are included in the Statement of Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the period April 30, 2004 (date operations
commenced) through December 31, 2004, AIM was paid $33,470 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. AISI may make
payments to intermediaries that provide omnibus account services, sub-accounting
services and/or networking services. For the Institutional Class, the transfer
agent has contractually agreed to reimburse class specific transfer agent fees
and expenses to the extent necessary to limit transfer agent fees to 0.10% of
the average net assets. AISI did not reimburse fees during the period under this
expense limitation. For the period April 30, 2004 (date operations commenced)
through December 31, 2004, the Fund paid AISI $160 for Class A, Class B, Class C
and Class R shares and $0 for Institutional Class shares and AIM reimbursed fees
of $48,611 for Class A, Class B, Class C and Class R and $20 for the
Institutional Class shares.
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
FS-7
the annual rate of 0.35% of the Fund's average daily net assets of Class A
shares, 1.00% of the average daily net assets of Class B and Class C shares and
0.50% of the average daily net assets of Class R shares. Of these amounts, up to
0.25% of the average daily net assets of the Class A, Class B, Class C or Class
R shares may be paid to furnish continuing personal shareholder services to
customers who purchase and own shares of such classes. Any amounts not paid as a
service fee under the Plans would constitute an asset-based sales charge. NASD
Rules also impose a cap on the total sales charges, including asset-based sales
charges that may be paid by any class of shares of the Fund. Pursuant to the
Plans, for the period April 30, 2004 (date operations commenced) through
December 31, 2004, the Class A, Class B, Class C and Class R shares paid
$35,636, $63,305, $33,885 and $1,704, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the period
April 30, 2004 (date operations commenced) through December 31, 2004, AIM
Distributors advised the Fund that it retained $97,170 in front-end sales
commissions from the sale of Class A shares and $40, $3,313, $1,122 and $0 from
Class A, Class B, Class C and Class R shares, respectively, for CDSC imposed
upon redemptions by shareholders.
The underlying funds pay no distribution fees and the Fund pays no sales
loads or other similar compensation to AIM Distributors for acquiring underlying
fund shares.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund and the mutual funds below have the same investment advisor and
therefore, are considered to be affiliated. The table below shows the
transactions in and earnings from investments in affiliated mutual funds for the
period April 30, 2004 (date operations commenced) through December 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 04/30/04 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
AIM Dynamics
Fund-Institutional Class $ -- $3,445,730 $ (29,488) $ 363,424 $ 3,781,016 $ -- $ 1,350
- -----------------------------------------------------------------------------------------------------------------------------------
AIM High Yield Fund-
Institutional Class -- 3,519,122 (29,123) 119,512 3,610,019 69,560 508
- -----------------------------------------------------------------------------------------------------------------------------------
AIM International Core
Equity Fund-
Institutional Class -- 8,692,987 (88,014) 889,962 9,502,721 88,752 7,786
- -----------------------------------------------------------------------------------------------------------------------------------
AIM International Growth
Fund- Institutional Class -- 8,607,415 (75,704) 1,149,286 9,688,825 -- 7,828
- -----------------------------------------------------------------------------------------------------------------------------------
AIM Large Cap Basic Value
Fund- Institutional Class -- 12,050,886 (100,855) 884,644 12,836,834 -- 2,159
- -----------------------------------------------------------------------------------------------------------------------------------
AIM Large Cap Growth Fund-
Institutional Class -- 13,778,326 (115,563) 915,987 14,582,137 -- 5,387
- -----------------------------------------------------------------------------------------------------------------------------------
AIM Multi-Sector Fund-
Institutional Class -- 8,831,308 (73,788) 578,270 9,340,168 -- 224,242
- -----------------------------------------------------------------------------------------------------------------------------------
AIM Real Estate Fund-
Institutional Class -- 3,561,868 (41,403) 439,766 3,967,454 28,970 98,430
- -----------------------------------------------------------------------------------------------------------------------------------
AIM Small Cap Growth Fund-
Institutional Class -- 6,883,388 (73,383) 625,703 7,438,317 -- 2,610
===================================================================================================================================
Total $ -- $69,371,030 $(627,321) $5,964,554 $74,747,491 $187,282 $350,300*
___________________________________________________________________________________________________________________________________
===================================================================================================================================
</Table>
* Includes $311,072 of capital gains received from affiliated underlying funds.
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions and (ii) custodian credits which
result from periodic overnight cash balances at the custodian. For the period
April 30, 2004 (date operations commenced) through December 31, 2004, the Fund
received credits in transfer agency fees of $160 and credits in custodian fees
of $13 under expense offset arrangements, which resulted in a reduction of the
Fund's total expenses of $173.
NOTE 5--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
FS-8
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the period April 30, 2004 (date operations commenced) through
December 31, 2004, the Fund paid legal fees of $863 for services rendered by
Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A
member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
The Fund is a participant in an uncommitted unsecured revolving credit facility
with State Street Bank and Trust Company ("SSB"). The Fund may borrow up to the
lesser of (i) $125,000,000, or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan. During the period April 30, 2004 (date
operations commenced) through December 31, 2004, the Fund did not borrow under
the uncommitted unsecured revolving facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 7--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
Distributions to Shareholders:
The tax character of distributions paid during the period April 30, 2004 (date
operations commenced) through December 31, 2004 was as follows:
<Table>
<Caption>
2004
- ----------------------------------------------------------------------
Distributions paid from:
Ordinary income $264,757
- ----------------------------------------------------------------------
Long-term capital gain 2
======================================================================
Total distributions $264,759
______________________________________________________________________
======================================================================
</Table>
Tax Components of Net Assets:
As of December 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- -------------------------------------------------------------------------
Undistributed ordinary income $ 36,177
- -------------------------------------------------------------------------
Undistributed long-term gain 115,598
- -------------------------------------------------------------------------
Unrealized appreciation -- investments 5,960,443
- -------------------------------------------------------------------------
Temporary book/tax differences (1,934)
- -------------------------------------------------------------------------
Shares of beneficial interest 68,640,537
=========================================================================
Total net assets $74,750,821
_________________________________________________________________________
=========================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation difference is attributable primarily to losses on wash sales.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation
expenses.
The Fund did not have a capital loss carryforward as of December 31, 2004.
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the period April 30, 2004 (date operations
commenced) through December 31, 2004 was $69,371,030 and $627,321, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $5,960,443
==============================================================================
Net unrealized appreciation of investment securities $5,960,443
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $68,787,048.
</Table>
FS-9
NOTE 9--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of distributions and stock
issuance costs, on December 31, 2004, undistributed net investment income was
increased by $238,113, undistributed net realized gain (loss) was decreased by
$196,370 and shares of beneficial interest decreased by $41,743. This
reclassification had no effect on the net assets of the Fund.
NOTE 10--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and Institutional Class shares.
Class A shares are sold with a front-end sales charge. Class B shares and Class
C shares are sold with CDSC. Class R shares and Institutional Class shares are
sold at net asset value. Under certain circumstances, Class A shares and Class R
shares are subject to CDSC. Generally, Class B shares will automatically convert
to Class A shares eight years after the end of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- --------------------------------------------------------------------------------------
APRIL 30, 2004
(DATE OPERATIONS
COMMENCED)
TO DECEMBER 31,
2004
------------------------
SHARES AMOUNT
- --------------------------------------------------------------------------------------
Sold:
Class A 3,574,709 $37,105,068
- --------------------------------------------------------------------------------------
Class B 2,065,422 21,235,832
- --------------------------------------------------------------------------------------
Class C 1,082,947 11,184,543
- --------------------------------------------------------------------------------------
Class R 142,688 1,465,707
- --------------------------------------------------------------------------------------
Institutional Class 10,001 100,010
======================================================================================
Issued as reinvestment of dividends:
Class A 14,820 164,949
- --------------------------------------------------------------------------------------
Class B 5,195 57,658
- --------------------------------------------------------------------------------------
Class C 2,647 29,375
- --------------------------------------------------------------------------------------
Class R 504 5,602
- --------------------------------------------------------------------------------------
Institutional Class 56 627
======================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 14,680 152,114
- --------------------------------------------------------------------------------------
Class B (14,728) (152,114)
======================================================================================
Reacquired:
Class A (108,733) (1,133,782)
- --------------------------------------------------------------------------------------
Class B (62,975) (663,385)
- --------------------------------------------------------------------------------------
Class C (57,696) (613,994)
- --------------------------------------------------------------------------------------
Class R (23,840) (255,930)
======================================================================================
6,645,697 $68,682,280
______________________________________________________________________________________
======================================================================================
</Table>
FS-10
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the period indicated.
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS R
APRIL 30, 2004 APRIL 30, 2004 APRIL 30, 2004 APRIL 30, 2004
(DATE OPERATIONS (DATE OPERATIONS (DATE OPERATIONS (DATE OPERATIONS
COMMENCED) TO COMMENCED) TO COMMENCED) TO COMMENCED) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2004 2004 2004 2004
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.00 $ 10.00 $ 10.00 $10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.03(a) (0.02)(a) (0.02)(a) 0.02(a)
=================================================================================================================================
Net gains on securities (both realized and
unrealized) 1.28 1.28 1.28 1.28
=================================================================================================================================
Total from investment operations 1.31 1.26 1.26 1.30
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.05) (0.03) (0.03) (0.05)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.00) (0.00) (0.00) (0.00)
=================================================================================================================================
Total distributions (0.05) (0.03) (0.03) (0.05)
=================================================================================================================================
Net asset value, end of period $ 11.26 $ 11.23 $ 11.23 $11.25
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 13.12% 12.61% 12.61% 12.98%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $39,368 $22,384 $11,543 $1,342
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers(c)(d) 0.52% 1.17% 1.17% 0.67%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers(c)(d) 1.31% 1.96% 1.96% 1.46%
=================================================================================================================================
Ratio of net investment income to average net
assets(c) 0.40% (0.25)% (0.25)% 0.25%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 2% 2% 2% 2%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</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, if any, and is
not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$15,148,502, $9,418,590, $5,041,442 and $506,989 for Class A, Class B,
Class C and Class R, respectively.
(d) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
underlying funds in which the fund invests. Because the underlying funds
have varied expenses and fee levels and the Fund may own different
proportions at different times, the amount of fees and expenses incurred
indirectly by the Fund will vary. The estimated underlying expenses for
the Fund, expressed as a percentage of average daily net assets of the
Fund was 0.96%.
(e) Not annualized for periods less than one year.
FS-11
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
-------------------
APRIL 30, 2004
(DATE OPERATIONS
COMMENCED) TO
DECEMBER 31,
2004
- ---------------------------------------------------------------------------------
Net asset value, beginning of period $10.00
- ---------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.05(a)
=================================================================================
Net gains on securities (both realized and unrealized) 1.29
=================================================================================
Total from investment operations 1.34
=================================================================================
Less distributions:
Dividends from net investment income (0.06)
- ---------------------------------------------------------------------------------
Distributions from net realized gains (0.00)
=================================================================================
Total distributions (0.06)
=================================================================================
Net asset value, end of period $11.28
_________________________________________________________________________________
=================================================================================
Total return(b) 13.44%
_________________________________________________________________________________
=================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 113
_________________________________________________________________________________
=================================================================================
Ratio of expenses to average net assets:
With fee waivers 0.17%(c)(d)
- ---------------------------------------------------------------------------------
Without fee waivers 0.75%(c)(d)
=================================================================================
Ratio of net investment income to average net assets 0.75%(c)
_________________________________________________________________________________
=================================================================================
Portfolio turnover rate(e) 2%
_________________________________________________________________________________
=================================================================================
</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 $102,790.
(d) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
underlying funds in which the fund invests. Because the underlying funds
have varied expenses and fee levels and the Fund may own different
proportions at different times, the amount of fees and expenses incurred
indirectly by the Fund will vary. The estimated underlying expenses for
the Fund, expressed as a percentage of average daily net assets of the
Fund was 0.96%.
(e) Not annualized for periods less than one year.
NOTE 12--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators, including
without limitation the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), to resolve
civil enforcement actions and investigations related to market timing activity
and related issues in the AIM Funds, including those formerly advised by IFG.
These regulators alleged, in substance, that IFG and AIM failed to disclose in
the prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that they had entered into certain arrangements
permitting market timing of such Funds, thereby breaching their fiduciary duties
to such Funds. As a result of the foregoing, the regulators alleged that IFG and
AIM breached various Federal and state securities, business and consumer
protection laws. On the same date, A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached a final settlement with the SEC to
resolve an investigation relating to market timing activity and related issues
in the AIM Funds. The SEC also alleged that ADI violated various Federal
securities laws. The SEC also has settled related market timing enforcement
actions brought against certain former officers and employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of this $325 million total
payment, half has been paid and the remaining half will be paid on or before
December 31, 2005. AIM and ADI agreed to pay a total of $50 million, of which
$30 million is civil penalties, all of which has been paid. The entire $325
million IFG settlement payment will be made available for distribution to the
shareholders of those AIM Funds that IFG formerly advised that were harmed by
market timing activity, and the entire $50 million settlement payment by AIM and
ADI will be made available for distribution to the shareholders of those AIM
Funds advised by AIM that were harmed by market timing activity, all as to be
determined by an independent distribution consultant. The settlement payments
will be distributed in accordance with a methodology
FS-12
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
to be determined by the independent distribution consultant, in consultation
with AIM and the independent trustees of the AIM Funds and acceptable to the
staff of the SEC. Under the settlements with the NYAG and COAG, AIM has agreed
to reduce management fees on certain equity and balanced AIM Funds by $15
million per year for the next five years, based upon effective fee rates and
assets under management as of July 1, 2004, and not to increase certain
management fees.
Under the terms of the settlements, AIM will make certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year thereafter, AIM will
undergo a compliance review by an independent third party. In addition, under
the terms of the settlements, AIM has undertaken to cause the AIM Funds to
operate in accordance with certain governance policies and practices, including
retaining a full-time independent senior officer whose duties will include
monitoring compliance and managing the process by which proposed management fees
to be charged the AIM Funds are negotiated. Also, commencing in 2008 and not
less than every fifth calendar year thereafter, the AIM Funds will hold
shareholder meetings at which their Boards of Trustees will be elected.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
Funds related to market timing matters.
The SEC has also settled market timing enforcement actions against Raymond
R. Cunningham (the former president and chief executive officer of IFG and a
former member of the board of directors of the AIM Funds formerly advised by
IFG), Timothy J. Miller (the former chief investment officer and a former
portfolio manager for IFG), Thomas A. Kolbe (the former national sales manager
of IFG) and Michael D. Legoski (a former assistant vice president in IFG's sales
department). As part of these settlements, the SEC ordered these individuals to
pay restitution and civil penalties in various amounts and prohibited them from
associating with, or serving as an officer or director of, an investment
advisor, broker, dealer and/or investment company, as applicable, for certain
periods of time.
The payments made in connection with the above-referenced settlements by
IFG, AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on certain equity and balanced AIM Funds by
$15 million per year for the next five years, based upon effective fee rates and
assets under management as of July 1, 2004). The manner in which the settlement
payments will be distributed is unknown at the present time and will be
determined by an independent distribution consultant appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement payments may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
Regulatory Inquiries and Pending Litigation
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including but not limited to revenue sharing and directed-brokerage
arrangements, investments in securities of other registered investment
companies, contractual plans, issues related to Section 529 college savings
plans, procedures for locating lost security holders and participation in class
action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional regulatory
actions and/or civil lawsuits related to the above or other issues may be filed
against the AIM Funds, IFG, AIM and/or related entities and individuals in the
future. Additional regulatory inquiries related to the above or other issues
also may be received by the AIM Funds, IFG, AIM and/or related entities and
individuals in the future.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
FS-13
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the United States Attorney's Office for the Southern
District of New York, the United States Attorney's Office for the Central
District of California, the United States Attorney's Office for the District of
Massachusetts, the Massachusetts Securities Division, the U.S. Postal Inspection
Service and the Commodity Futures Trading Commission, some of which concern one
or more AIM Funds. AIM is providing full cooperation with respect to these
inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, AIM Management, AMVESCAP, certain
related entities, certain of their current and former officers and/or certain
unrelated third parties) making allegations that are similar in many respects to
those in the settled regulatory actions brought by the SEC, the NYAG and the
COAG concerning market timing activity in the AIM Funds. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
various provisions of the Federal and state securities laws; (ii) violation of
various provisions of ERISA; (iii) breach of fiduciary duty; and/or (iv) breach
of contract. These lawsuits were initiated in both Federal and state courts and
seek such remedies as compensatory damages; restitution; injunctive relief;
disgorgement of management fees; imposition of a constructive trust; removal of
certain directors and/or employees; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements; interest; and attorneys' and
experts' fees.
All lawsuits based on allegations of market timing, late trading, and
related issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act ("ERISA")
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan. The
plaintiffs in one of the underlying lawsuits continue to seek remand of their
lawsuit to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and/or distribution fees and failed to
pass on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of contract.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; rescission of certain Funds' advisory agreements and
distribution plans; interest; prospective relief in the form of reduced fees;
and attorneys' and experts' fees. All of these lawsuits have been transferred to
the United States District Court for the Southern District of Texas, Houston
Division by order of the applicable United States District Court in which they
were initially filed. The plaintiff in one of these lawsuits has challenged this
order.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Limited
Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; and (ii) breach of fiduciary duty. These lawsuits have been
filed in Federal courts and seek such remedies as damages; injunctive relief;
and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages;
FS-14
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
rescission of certain Funds' advisory agreements and distribution plans and
recovery of all fees paid; an accounting of all fund-related fees, commissions
and soft dollar payments; restitution of all unlawfully or discriminatorily
obtained fees and charges; and attorneys' and experts' fees.
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing to
ensure that the AIM Funds participated in class action settlements in which the
AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * *
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
FS-15
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
AIM Basic Value Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM Basic Value Fund (one of the
funds constituting AIM Growth Series, hereafter referred to as the "Fund") at
December 31, 2004, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the five years in the period then ended, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2004 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
- -------------------------------
PRICEWATERHOUSECOOPERS LLP
February 18, 2005
Houston, Texas
FS-16
FINANCIALS
SCHEDULE OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-98.19%
ADVERTISING-5.07%
Interpublic Group of Cos., Inc. (The)(a)(b) 12,182,700 $ 163,248,180
- --------------------------------------------------------------------------
Omnicom Group Inc.(b) 2,440,000 205,740,800
==========================================================================
368,988,980
==========================================================================
AEROSPACE & DEFENSE-1.24%
Honeywell International Inc. 2,541,300 89,987,433
==========================================================================
APPAREL RETAIL-1.96%
Gap, Inc. (The)(b) 6,767,300 142,925,376
==========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-2.49%
Bank of New York Co., Inc. (The) 5,425,000 181,303,500
==========================================================================
BUILDING PRODUCTS-4.61%
American Standard Cos. Inc.(a) 4,082,000 168,668,240
- --------------------------------------------------------------------------
Masco Corp. 4,568,800 166,898,264
==========================================================================
335,566,504
==========================================================================
COMMUNICATIONS EQUIPMENT-0.98%
Motorola, Inc. 4,142,000 71,242,400
==========================================================================
CONSUMER ELECTRONICS-1.26%
Koninklijke (Royal) Philips Electronics N.V.-
New York Shares (Netherlands) 3,453,098 91,507,097
==========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-4.59%
Ceridian Corp.(a)(b) 6,071,300 110,983,364
- --------------------------------------------------------------------------
First Data Corp. 5,241,000 222,952,140
==========================================================================
333,935,504
==========================================================================
DIVERSIFIED COMMERCIAL SERVICES-4.18%
Cendant Corp. 7,855,000 183,649,900
- --------------------------------------------------------------------------
H&R Block, Inc.(b) 2,465,400 120,804,600
==========================================================================
304,454,500
==========================================================================
ENVIRONMENTAL SERVICES-2.87%
Waste Management, Inc. 6,982,167 209,046,080
==========================================================================
FOOD RETAIL-2.85%
Kroger Co. (The)(a) 7,766,400 136,222,656
- --------------------------------------------------------------------------
Safeway Inc.(a)(b) 3,605,000 71,162,700
==========================================================================
207,385,356
==========================================================================
GENERAL MERCHANDISE STORES-2.26%
Target Corp.(b) 3,164,300 164,322,099
==========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
<Caption>
HEALTH CARE DISTRIBUTORS-6.20%
Cardinal Health, Inc. 5,134,000 $ 298,542,100
- --------------------------------------------------------------------------
McKesson Corp. 4,856,900 152,798,074
==========================================================================
451,340,174
==========================================================================
HEALTH CARE EQUIPMENT-2.24%
Waters Corp.(a) 3,492,100 163,395,359
==========================================================================
HEALTH CARE FACILITIES-1.67%
HCA, Inc.(b) 3,039,000 121,438,440
==========================================================================
HEALTH CARE SERVICES-0.83%
IMS Health Inc.(b) 2,595,400 60,239,234
==========================================================================
HOTELS, RESORTS & CRUISE LINES-1.25%
Starwood Hotels & Resorts Worldwide, Inc.(b) 1,555,800 90,858,720
==========================================================================
INDUSTRIAL CONGLOMERATES-4.29%
Tyco International Ltd. (Bermuda)(b) 8,746,000 312,582,040
==========================================================================
INDUSTRIAL MACHINERY-1.25%
Parker Hannifin Corp. 1,199,200 90,827,408
==========================================================================
INVESTMENT BANKING & BROKERAGE-4.51%
Merrill Lynch & Co., Inc.(b) 2,657,000 158,808,890
- --------------------------------------------------------------------------
Morgan Stanley 3,056,900 169,719,088
==========================================================================
328,527,978
==========================================================================
LEISURE PRODUCTS-0.57%
Mattel, Inc.(b) 2,126,460 41,444,705
==========================================================================
MANAGED HEALTH CARE-2.95%
UnitedHealth Group Inc. 2,444,400 215,180,532
==========================================================================
MOVIES & ENTERTAINMENT-2.46%
Walt Disney Co. (The)(b) 6,435,000 178,893,000
==========================================================================
MULTI-LINE INSURANCE-1.80%
Genworth Financial Inc.-Class A 4,864,400 131,338,800
==========================================================================
OIL & GAS DRILLING-3.58%
ENSCO International Inc. 2,555,700 81,117,918
- --------------------------------------------------------------------------
Transocean Inc. (Cayman Islands)(a) 4,241,698 179,805,578
==========================================================================
260,923,496
==========================================================================
OIL & GAS EQUIPMENT & SERVICES-3.66%
Halliburton Co.(b) 4,350,000 170,694,000
- --------------------------------------------------------------------------
Weatherford International Ltd. (Bermuda)(a) 1,867,300 95,792,490
==========================================================================
266,486,490
==========================================================================
</Table>
FS-17
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES-6.05%
Citigroup Inc. 4,119,597 $ 198,482,184
- --------------------------------------------------------------------------
JPMorgan Chase & Co. 6,213,360 242,383,174
==========================================================================
440,865,358
==========================================================================
PHARMACEUTICALS-7.71%
Pfizer Inc. 6,100,300 164,037,067
- --------------------------------------------------------------------------
Sanofi-Aventis (France)(c) 3,173,760 253,233,263
- --------------------------------------------------------------------------
Wyeth 3,375,000 143,741,250
==========================================================================
561,011,580
==========================================================================
PROPERTY & CASUALTY INSURANCE-2.17%
ACE Ltd. (Cayman Islands) 3,692,000 157,833,000
==========================================================================
SEMICONDUCTOR EQUIPMENT-1.08%
Novellus Systems, Inc.(a)(b) 2,834,000 79,040,260
==========================================================================
SYSTEMS SOFTWARE-3.84%
Computer Associates International, Inc.(b) 8,994,900 279,381,594
==========================================================================
THRIFTS & MORTGAGE FINANCE-5.72%
Fannie Mae(b) 3,340,000 237,841,400
- --------------------------------------------------------------------------
MGIC Investment Corp.(b) 1,304,100 89,865,531
- --------------------------------------------------------------------------
Radian Group Inc. 1,663,856 88,583,693
==========================================================================
416,290,624
==========================================================================
Total Common Stocks & Other Equity
Interests (Cost $5,587,847,955) 7,148,563,621
==========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
<Caption>
MONEY MARKET FUNDS-1.37%
Liquid Assets Portfolio-Institutional
Class(d) 49,840,942 $ 49,840,942
- --------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(d) 49,840,942 49,840,942
==========================================================================
Total Money Market Funds (Cost
$99,681,884) 99,681,884
==========================================================================
TOTAL INVESTMENTS-99.56% (excluding
investments purchased with cash collateral
from securities loaned) (Cost
$5,687,529,839) 7,248,245,505
==========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-8.58%
Liquid Assets Portfolio-Institutional
Class(d)(e) 312,297,068 312,297,068
- --------------------------------------------------------------------------
STIC Prime Portfolio-Institutional
Class(d)(e) 312,297,069 312,297,069
==========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $624,594,137) 624,594,137
==========================================================================
TOTAL INVESTMENTS-108.14% (Cost
$6,312,123,976) 7,872,839,642
==========================================================================
OTHER ASSETS LESS LIABILITIES-(8.14%) (592,750,524)
==========================================================================
NET ASSETS-100.00% $7,280,089,118
__________________________________________________________________________
==========================================================================
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this security has been pledged as collateral for
securities lending transactions at December 31, 2004.
(c) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
market value of this security at December 31, 2004 represented 3.22% of the
Fund's Total Investments. See Note 1A.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(e) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying notes which are an integral part of the financial statements.
FS-18
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$5,587,847,955)* $7,148,563,621
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $724,276,021) 724,276,021
============================================================
Total investments (cost $6,312,123,976) 7,872,839,642
____________________________________________________________
============================================================
Receivables for:
Investments sold 84,816,262
- ------------------------------------------------------------
Fund shares sold 58,914,960
- ------------------------------------------------------------
Dividends 7,304,605
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 171,948
- ------------------------------------------------------------
Other assets 162,662
============================================================
Total assets 8,024,210,079
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 37,218,990
- ------------------------------------------------------------
Fund shares reacquired 76,719,080
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 343,762
- ------------------------------------------------------------
Collateral upon return of securities
loaned 624,594,137
- ------------------------------------------------------------
Accrued distribution fees 3,515,416
- ------------------------------------------------------------
Accrued trustees' fees 1,126
- ------------------------------------------------------------
Accrued transfer agent fees 1,324,048
- ------------------------------------------------------------
Accrued operating expenses 404,402
============================================================
Total liabilities 744,120,961
============================================================
Net assets applicable to shares outstanding $7,280,089,118
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $6,248,186,381
- ------------------------------------------------------------
Undistributed net investment income (loss) (237,116)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign
currencies (528,575,813)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 1,560,715,666
============================================================
7,280,089,118
____________________________________________________________
============================================================
NET ASSETS:
Class A $4,480,701,483
____________________________________________________________
============================================================
Class B $1,985,689,733
____________________________________________________________
============================================================
Class C $ 681,233,525
____________________________________________________________
============================================================
Class R $ 29,245,199
____________________________________________________________
============================================================
Institutional Class $ 103,219,178
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 138,198,676
____________________________________________________________
============================================================
Class B 64,854,809
____________________________________________________________
============================================================
Class C 22,253,568
____________________________________________________________
============================================================
Class R 905,941
____________________________________________________________
============================================================
Institutional Class 3,131,586
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 32.42
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $32.42 divided by
94.50%) $ 34.31
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 30.62
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 30.61
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 32.28
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 32.96
____________________________________________________________
============================================================
</Table>
* At December 31, 2004, securities with an aggregate market value of
$611,804,898 were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
FS-19
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $1,168,782) $ 78,567,383
- --------------------------------------------------------------------------
Dividends from affiliated money market funds (including
securities lending income of $355,442*) 3,100,780
==========================================================================
Total investment income 81,668,163
==========================================================================
EXPENSES:
Advisory fees 45,729,287
- --------------------------------------------------------------------------
Administrative services fees 697,597
- --------------------------------------------------------------------------
Custodian fees 542,246
- --------------------------------------------------------------------------
Distribution fees:
Class A 14,891,022
- --------------------------------------------------------------------------
Class B 19,569,452
- --------------------------------------------------------------------------
Class C 6,757,711
- --------------------------------------------------------------------------
Class R 104,692
- --------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C and R 16,353,257
- --------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 1,090
- --------------------------------------------------------------------------
Trustees' fees and retirement benefits 194,751
- --------------------------------------------------------------------------
Other 2,695,744
==========================================================================
Total expenses 107,536,849
==========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (1,255,226)
==========================================================================
Net expenses 106,281,623
==========================================================================
Net investment income (loss) (24,613,460)
==========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities 116,304,029
- --------------------------------------------------------------------------
Foreign currencies (347,301)
==========================================================================
115,956,728
==========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities 603,140,113
- --------------------------------------------------------------------------
Foreign currencies (3)
==========================================================================
603,140,110
==========================================================================
Net gain from investment securities and foreign currencies 719,096,838
==========================================================================
Net increase in net assets resulting from operations $694,483,378
__________________________________________________________________________
==========================================================================
</Table>
* Dividends from affiliated money market funds are net of income rebate paid to
securities lending counterparties.
See accompanying notes which are an integral part of the financial statements.
FS-20
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (24,613,460) $ (28,543,503)
- ----------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
foreign currencies 115,956,728 (185,210,653)
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and foreign currencies 603,140,110 1,755,021,436
==============================================================================================
Net increase in net assets resulting from operations 694,483,378 1,541,267,280
==============================================================================================
Share transactions-net:
Class A 229,943,250 371,075,475
- ----------------------------------------------------------------------------------------------
Class B (146,534,200) (23,057,201)
- ----------------------------------------------------------------------------------------------
Class C (49,796,419) (12,624,445)
- ----------------------------------------------------------------------------------------------
Class R 14,533,591 8,800,089
- ----------------------------------------------------------------------------------------------
Institutional Class 96,937,383 131,671
==============================================================================================
Net increase in net assets resulting from share
transactions 145,083,605 344,325,589
==============================================================================================
Net increase in net assets 839,566,983 1,885,592,869
==============================================================================================
NET ASSETS:
Beginning of year 6,440,522,135 4,554,929,266
==============================================================================================
End of year (including undistributed net investment income
(loss) of $(237,116) and $(112,387), respectively) $7,280,089,118 $6,440,522,135
______________________________________________________________________________________________
==============================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-21
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Basic Value Fund (the "Fund") is a separate series of AIM Growth Series (the
"Trust"). The Trust is organized as a Delaware statutory trust and is registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as an
open-end series management investment company consisting of seven separate
series portfolios, each authorized to issue an unlimited number of shares of
beneficial interest. The Fund currently offers multiple classes of shares.
Matters affecting each portfolio or class will be voted on exclusively by the
shareholders of such portfolio or class. The assets, liabilities and operations
of each portfolio are accounted for separately. Information presented in these
financial statements pertains only to the Fund.
The Fund's investment objective is long-term growth of capital. Each company
listed in the Schedule of Investments is organized in the United States of
America unless otherwise noted.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. However, the Fund has not had prior claims or losses pursuant to these
contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
is valued on the basis of prices furnished by independent pricing services
or market makers. Each security reported on the NASDAQ National Market
System is valued at the NASDAQ Official Closing Price ("NOCP") as of the
close of the customary trading session on the valuation date or absent a
NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
FS-22
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.
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 0.725% on the first
$500 million of the Fund's average daily net assets, plus 0.70% on the next $500
million of the Fund's average daily net assets, plus 0.675% on the next $500
million of the Fund's average daily net assets, plus 0.65% on the Fund's average
daily net assets in excess of $1.5 billion. Effective January 1, 2005 through
December 31, 2009, AIM has contractually agreed to waive advisory fees to the
extent necessary so that the advisory fees payable by the Fund (based on the
Fund's average daily net assets) do not exceed the annual rate of 0.695% of the
first $250 million, plus 0.67% of the next $250 million, plus 0.645% of the next
$500 million, plus 0.62% of the next $1.5 billion, plus 0.595% of the next $2.5
billion, plus 0.57% of the next $2.5 billion, plus 0.545% of the next $2.5
billion, plus 0.52% of the Fund's average daily net assets in excess of $10
billion. Further, AIM has voluntarily agreed to waive advisory fees of the Fund
in the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the Fund). Voluntary fee waivers or
reimbursements may be modified or discontinued with approval by the Board of
Trustees without further notice to investors. For the year ended December 31,
2004, AIM waived fees of $531,221.
FS-23
For the year ended December 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to reimburse $636,198 of expenses
incurred by the Fund in connection with matters related to recently settled
regulatory actions and investigations concerning market timing activity in the
AIM Funds, including legal, audit, shareholder servicing, communication and
trustee expenses. These expenses along with the related expense reimbursement,
are included in the Statement of Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended December 31, 2004, AIM was
paid $697,597 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the Institutional
Class, the transfer agent has contractually agreed to reimburse class specific
transfer agent fees and expenses to the extent necessary to limit transfer agent
fees to 0.10% of the average net assets. AISI did not reimburse fees during the
period under this expense limitation. For the year ended December 31, 2004, the
Fund paid AISI $16,353,257 for Class A, Class B, Class C and Class R shares and
$1,090 for Institutional Class shares. AISI may make payments to intermediaries
that provide omnibus account services, sub-accounting services and/or networking
services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C, Class R and Institutional Class shares of the Fund.
The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with
respect to the Fund's Class A, Class B, Class C and Class R shares (collectively
the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors
compensation at the annual rate of 0.35% of the Fund's average daily net assets
of Class A shares, 1.00% of the average daily net assets of Class B and Class C
shares and 0.50% of the average daily net assets of Class R shares. Of these
amounts, up to 0.25% of the average daily net assets of the Class A, Class B,
Class C or Class R shares may be paid to furnish continuing personal shareholder
services to customers who purchase and own shares of such classes. Any amounts
not paid as a service fee under the Plans would constitute an asset-based sales
charge. NASD Rules also impose a cap on the total sales charges, including
asset-based sales charges that may be paid by any class of shares of the Fund.
Pursuant to the Plans, for the year ended December 31, 2004, the Class A, Class
B, Class C and Class R shares paid $14,891,022, $19,569,452, $6,757,711 and
$104,692, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the year
ended December 31, 2004, AIM Distributors advised the Fund that it retained
$868,069 in front-end sales commissions from the sale of Class A shares and
$68,805, $229,699, $58,984 and $0 from Class A, Class B, Class C and Class R
shares, respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest daily available cash balances and cash
collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. The tables below show
the transactions in and earnings from investments in affiliated money market
funds for the year ended December 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------
Liquid
Assets
Portfolio-
Institutional
Class $103,433,320 $ 522,046,572 $ (575,638,950) $ -- $49,840,942 $1,389,388 $ --
- ----------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 103,433,320 522,046,572 (575,638,950) -- 49,840,942 1,355,950 --
============================================================================================================================
Subtotal $206,866,640 $1,044,093,144 $(1,151,277,900) $ -- $99,681,884 $2,745,338 $ --
____________________________________________________________________________________________________________________________
============================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME* GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------
Liquid
Assets
Portfolio-
Institutional
Class $313,614,189 $ 627,570,967 $ (628,888,088) $ -- $312,297,068 $ 179,301 $ --
- ----------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 313,614,190 626,466,442 (627,783,563) -- 312,297,069 176,141 --
============================================================================================================================
Subtotal $627,228,379 $1,254,037,409 $(1,256,671,651) $ -- $624,594,137 $ 355,442 $ --
============================================================================================================================
Total $834,095,019 $2,298,130,553 $(2,407,949,551) $ -- $724,276,021 $3,100,780 $ --
____________________________________________________________________________________________________________________________
============================================================================================================================
</Table>
* Dividend income is net of income rebate paid to securities lending
counterparties.
FS-24
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended December 31, 2004, the Fund
engaged in purchases and sales of securities of $28,451,094 and $79,546,163,
respectively.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions and (ii) custodian credits which
result from periodic overnight cash balances at the custodian. For the year
ended December 31, 2004, the Fund received credits in transfer agency fees of
$87,776 and credits in custodian fees of $31 under expense offset arrangements,
which resulted in a reduction of the Fund's total expenses of $87,807.
NOTE 6--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended December 31, 2004, the Fund paid legal fees of $18,435
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
FS-25
At December 31, 2004, securities with an aggregate value of $611,804,898
were on loan to brokers. The loans were secured by cash collateral of
$624,594,137 received by the Fund and subsequently invested in affiliated money
market funds. For the year ended December 31, 2004, the Fund received dividends
on cash collateral net of income rebate paid to counterparties of $355,442 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 December 31, 2004 and 2003.
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- ------------------------------------------------------------------------------
Unrealized appreciation -- investments $1,550,131,361
- ------------------------------------------------------------------------------
Temporary book/tax differences (237,116)
- ------------------------------------------------------------------------------
Capital loss carryforward (517,991,508)
- ------------------------------------------------------------------------------
Shares of beneficial interest 6,248,186,381
==============================================================================
Total net assets $7,280,089,118
______________________________________________________________________________
==============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund utilized $114,361,608 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2004 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -------------------------------------------------------------------------------
December 31, 2010 $320,850,425
- -------------------------------------------------------------------------------
December 31, 2011 197,141,083
===============================================================================
Total capital loss carryforward $517,991,508
_______________________________________________________________________________
===============================================================================
</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
December 31, 2004 was $1,166,755,388 and $972,528,015, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $1,743,507,800
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (193,376,439)
==============================================================================
Net unrealized appreciation of investment securities $1,550,131,361
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $6,322,708,281.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses
and foreign currency transactions, on December 31, 2004, undistributed net
investment income (loss) was increased by $24,488,731, undistributed net
realized gain (loss) was increased by $347,301 and shares of beneficial interest
decreased by $24,836,032. This reclassification had no effect on the net assets
of the Fund.
FS-26
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 and Class R shares
are subject to CDSC. Generally, Class B shares will automatically convert to
Class A shares eight years after the end of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(A)
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
2004 2003
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 45,643,967 $1,367,897,119 45,894,184 $1,127,030,777
- ----------------------------------------------------------------------------------------------------------------------------
Class B 11,128,015 316,220,520 14,417,383 339,056,287
- ----------------------------------------------------------------------------------------------------------------------------
Class C 4,433,952 125,791,675 5,136,210 121,231,659
- ----------------------------------------------------------------------------------------------------------------------------
Class R 668,236 19,850,960 406,314 10,126,744
- ----------------------------------------------------------------------------------------------------------------------------
Institutional Class 3,074,246 97,385,847 12,259 310,965
============================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 3,531,163 106,295,761 2,640,145 65,659,146
- ----------------------------------------------------------------------------------------------------------------------------
Class B (3,727,321) (106,295,761) (2,769,986) (65,659,146)
============================================================================================================================
Reacquired:
Class A (41,338,578) (1,244,249,630) (34,160,186) (821,614,448)
- ----------------------------------------------------------------------------------------------------------------------------
Class B (12,577,796) (356,458,959) (13,284,365) (296,454,342)
- ----------------------------------------------------------------------------------------------------------------------------
Class C (6,194,731) (175,588,094) (5,926,753) (133,856,104)
- ----------------------------------------------------------------------------------------------------------------------------
Class R (177,088) (5,317,369) (56,598) (1,326,655)
- ----------------------------------------------------------------------------------------------------------------------------
Institutional Class (14,498) (448,464) (7,415) (179,294)
============================================================================================================================
4,449,567 $ 145,083,605 12,301,192 $ 344,325,589
____________________________________________________________________________________________________________________________
============================================================================================================================
</Table>
()(a)There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and it owns 9% of the outstanding shares
of the Fund. AIM Distributors has an agreement with this entity to sell
shares. The Fund, AIM and/or AIM affiliates may make payments to this
entity, which is considered to be related to the Fund, for providing
services to the Fund, AIM and/or AIM affiliates including but not
limited to services such as securities brokerage, distribution, third
party record keeping and account servicing. The Trust has no knowledge
as to whether all or any portion of the shares owned of record by this
shareholder is also owned beneficially.
FS-27
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 29.24 $ 21.86 $ 28.44 $ 28.41 $ 23.84
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03) (0.06) (0.04)(a) (0.02)(a) 0.06
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 3.21 7.44 (6.54) 0.06 4.74
=================================================================================================================================
Total from investment operations 3.18 7.38 (6.58) 0.04 4.80
=================================================================================================================================
Less distributions:
Dividends from net investment income -- -- 0.00 0.00 (0.03)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- 0.00 (0.01) (0.20)
=================================================================================================================================
Total distributions -- -- 0.00 (0.01) (0.23)
=================================================================================================================================
Net asset value, end of period $ 32.42 $ 29.24 $ 21.86 $ 28.44 $ 28.41
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 10.88% 33.76% (23.14)% 0.16% 20.20%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $4,480,701 $3,812,300 $2,534,964 $2,066,536 $448,668
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.29%(c)(d) 1.34% 1.33% 1.30% 1.32%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of net investment income (loss) to average
net assets (0.11)%(c) (0.28)% (0.17)% (0.05)% 0.49%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 15% 20% 30% 20% 56%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $4,254,577,848.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.31% for the year ended December 31, 2004.
<Table>
<Caption>
CLASS B
---------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 27.80 $ 20.91 $ 27.38 $ 27.54 $ 23.23
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.23) (0.21) (0.20)(a) (0.19)(a) (0.02)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 3.05 7.10 (6.27) 0.04 4.53
=================================================================================================================================
Total from investment operations 2.82 6.89 (6.47) (0.15) 4.51
=================================================================================================================================
Less distributions from net realized gains -- -- 0.00 (0.01) (0.20)
=================================================================================================================================
Net asset value, end of period $ 30.62 $ 27.80 $ 20.91 $ 27.38 $ 27.54
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 10.14% 32.95% (23.63)% (0.53)% 19.47%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,985,690 $1,946,590 $1,498,499 $1,538,292 $241,157
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.94%(c)(d) 1.99% 1.98% 1.95% 1.97%
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.76)%(c) (0.93)% (0.82)% (0.70)% (0.16)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 15% 20% 30% 20% 56%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $1,956,945,241.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.96% for the year ended December 31, 2004.
FS-28
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
----------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 27.79 $ 20.91 $ 27.38 $ 27.54 $ 23.23
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.23) (0.21) (0.20)(a) (0.19)(a) (0.02)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.05 7.09 (6.27) 0.04 4.53
=================================================================================================================================
Total from investment operations 2.82 6.88 (6.47) (0.15) 4.51
=================================================================================================================================
Less distributions from net realized gains -- -- 0.00 (0.01) (0.20)
=================================================================================================================================
Net asset value, end of period $ 30.61 $ 27.79 $ 20.91 $ 27.38 $ 27.54
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 10.15% 32.90% (23.63)% (0.53)% 19.47%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $681,234 $667,412 $518,575 $566,627 $193,863
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.94%(c)(d) 1.99% 1.98% 1.95% 1.97%
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.76)%(c) (0.93)% (0.82)% (0.70)% (0.16)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 15% 20% 30% 20% 56%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $675,771,120.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.96% for the year ended December 31, 2004.
<Table>
<Caption>
CLASS R
----------------------------------------
JUNE 3, 2002
YEAR ENDED (DATE SALES
DECEMBER 31, COMMENCED) TO
----------------------- DECEMBER 31,
2004 2003 2002
- ------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 29.16 $ 21.84 $ 27.54
- ------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.06) (0.06) (0.05)(a)
- ------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.18 7.38 (5.65)
======================================================================================================
Total from investment operations 3.12 7.32 (5.70)
======================================================================================================
Net asset value, end of period $ 32.28 $ 29.16 $ 21.84
______________________________________________________________________________________________________
======================================================================================================
Total return(b) 10.70% 33.52% (20.70)%
______________________________________________________________________________________________________
======================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $29,245 $12,097 $ 1,421
______________________________________________________________________________________________________
======================================================================================================
Ratio of expenses to average net assets 1.44%(c)(d) 1.49% 1.54%(e)
======================================================================================================
Ratio of net investment income (loss) to average net assets (0.26)%(c) (0.43)% (0.37)%(e)
______________________________________________________________________________________________________
======================================================================================================
Portfolio turnover rate(f) 15% 20% 30%
______________________________________________________________________________________________________
======================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $20,938,399.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.46% for the year ended December 31, 2004.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-29
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
---------------------------------------
MARCH 15, 2002
YEAR ENDED (DATE SALES
DECEMBER 31, COMMENCED) TO
--------------------- DECEMBER 31,
2004 2003 2002
- -----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 29.56 $21.95 $ 29.63
- -----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.02 0.08 0.06(a)
- -----------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.38 7.53 (7.74)
=====================================================================================================
Total from investment operations 3.40 7.61 (7.68)
=====================================================================================================
Net asset value, end of period $ 32.96 $29.56 $ 21.95
_____________________________________________________________________________________________________
=====================================================================================================
Total return(b) 11.50% 34.67% (25.92)%
_____________________________________________________________________________________________________
=====================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $103,219 $2,123 $ 1,471
_____________________________________________________________________________________________________
=====================================================================================================
Ratio of expenses to average net assets 0.71%(c)(d) 0.71% 0.81%(e)
=====================================================================================================
Ratio of net investment income to average net assets 0.47%(c) 0.35% 0.35%(e)
_____________________________________________________________________________________________________
=====================================================================================================
Portfolio turnover rate(f) 15% 20% 30%
_____________________________________________________________________________________________________
=====================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $11,657,696.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 0.73% for the year ended December 31, 2004.
(e) Annualized.
(f) Not annualized for periods less than one year.
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators, including
without limitation the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), to resolve
civil enforcement actions and investigations related to market timing activity
and related issues in the AIM Funds, including those formerly advised by IFG.
These regulators alleged, in substance, that IFG and AIM failed to disclose in
the prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that they had entered into certain arrangements
permitting market timing of such Funds, thereby breaching their fiduciary duties
to such Funds. As a result of the foregoing, the regulators alleged that IFG and
AIM breached various Federal and state securities, business and consumer
protection laws. On the same date, A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached a final settlement with the SEC to
resolve an investigation relating to market timing activity and related issues
in the AIM Funds. The SEC also alleged that ADI violated various Federal
securities laws. The SEC also has settled related market timing enforcement
actions brought against certain former officers and employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325 million,
of which $110 million is civil penalties. Of this $325 million total payment,
half has been paid and the remaining half will be paid on or before December 31,
2005. AIM and ADI agreed to pay a total of $50 million, of which $30 million is
civil penalties, all of which has been paid. The entire $325 million IFG
settlement payment will be made available for distribution to the shareholders
of those AIM Funds that IFG formerly advised that were harmed by market timing
activity, and the entire $50 million settlement payment by AIM and ADI will be
made available for distribution to the shareholders of those AIM Funds advised
by AIM that were harmed by market timing activity, all as to be determined by an
independent distribution consultant. The settlement payments will be distributed
in accordance with a methodology to be determined by the independent
distribution consultant, in consultation with AIM and the independent trustees
of the AIM Funds and acceptable to the staff of the SEC. Under the settlements
with the NYAG and COAG, AIM has agreed to reduce management fees on certain
equity and balanced AIM Funds by $15 million per year for the next five years,
based upon effective fee rates and assets under management as of July 1, 2004,
and not to increase certain management fees.
Under the terms of the settlements, AIM will make certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year thereafter, AIM will
undergo a compliance review by an independent third party. In addition, under
the terms of the settlements, AIM has undertaken to cause the AIM Funds to
operate in accordance with certain governance policies and practices, including
retaining a full-time independent senior officer whose duties will include
monitoring compliance and managing the process by which proposed management fees
to be charged the AIM Funds are
FS-30
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
negotiated. Also, commencing in 2008 and not less than every fifth calendar year
thereafter, the AIM Funds will hold shareholder meetings at which their Boards
of Trustees will be elected.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
Funds related to market timing matters.
The SEC has also settled market timing enforcement actions against Raymond R.
Cunningham (the former president and chief executive officer of IFG and a former
member of the board of directors of the AIM Funds formerly advised by IFG),
Timothy J. Miller (the former chief investment officer and a former portfolio
manager for IFG), Thomas A. Kolbe (the former national sales manager of IFG) and
Michael D. Legoski (a former assistant vice president in IFG's sales
department). As part of these settlements, the SEC ordered these individuals to
pay restitution and civil penalties in various amounts and prohibited them from
associating with, or serving as an officer or director of, an investment
advisor, broker, dealer and/or investment company, as applicable, for certain
periods of time.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's agreement
to reduce management fees on certain equity and balanced AIM Funds by $15
million per year for the next five years, based upon effective fee rates and
assets under management as of July 1, 2004). The manner in which the settlement
payments will be distributed is unknown at the present time and will be
determined by an independent distribution consultant appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement payments may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
Regulatory Inquiries and Pending Litigation
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including but not limited to revenue sharing and directed-brokerage
arrangements, investments in securities of other registered investment
companies, contractual plans, issues related to Section 529 college savings
plans, procedures for locating lost security holders and participation in class
action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional regulatory
actions and/or civil lawsuits related to the above or other issues may be filed
against the AIM Funds, IFG, AIM and/or related entities and individuals in the
future. Additional regulatory inquiries related to the above or other issues
also may be received by the AIM Funds, IFG, AIM and/or related entities and
individuals in the future.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the United States Attorney's Office for the Southern
District of New York, the United States Attorney's Office for the Central
District of California, the United States Attorney's Office for the District of
Massachusetts, the Massachusetts Securities Division, the U.S. Postal Inspection
Service and the Commodity Futures Trading Commission, some of which concern one
or more AIM Funds. AIM is providing full cooperation with respect to these
inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, AIM Management, AMVESCAP, certain
related entities, certain of their current and former officers and/or certain
unrelated third parties) making allegations that are similar in many respects to
those in the settled regulatory actions brought by the SEC, the NYAG and the
COAG concerning market timing activity in the AIM Funds. These lawsuits allege a
variety of theories of recovery, including but not limited to:
FS-31
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
(i) violation of various provisions of the Federal and state securities laws;
(ii) violation of various provisions of ERISA; (iii) breach of fiduciary duty;
and/or (iv) breach of contract. These lawsuits were initiated in both Federal
and state courts and seek such remedies as compensatory damages; restitution;
injunctive relief; disgorgement of management fees; imposition of a constructive
trust; removal of certain directors and/or employees; various corrective
measures under ERISA; rescission of certain Funds' advisory agreements;
interest; and attorneys' and experts' fees.
All lawsuits based on allegations of market timing, late trading, and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act ("ERISA")
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan. The
plaintiffs in one of the underlying lawsuits continue to seek remand of their
lawsuit to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and/or distribution fees and failed to
pass on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of contract.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; rescission of certain Funds' advisory agreements and
distribution plans; interest; prospective relief in the form of reduced fees;
and attorneys' and experts' fees. All of these lawsuits have been transferred to
the United States District Court for the Southern District of Texas, Houston
Division by order of the applicable United States District Court in which they
were initially filed. The plaintiff in one of these lawsuits has challenged this
order.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Limited
Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; and (ii) breach of fiduciary duty. These lawsuits have been
filed in Federal courts and seek such remedies as damages; injunctive relief;
and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing to
ensure that the AIM Funds participated in class action settlements in which the
AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * *
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
FS-32
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
AIM Conservative Allocation 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 Conservative Allocation Fund
(one of the funds constituting AIM Growth Series, hereafter referred to as the
"Fund") at December 31, 2004, and the results of its operations, the changes in
its net assets and the financial highlights for the period April 30, 2004 (date
operations commenced) through December 31, 2004, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audit. We
conducted our audit of these financial statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at December 31, 2004 by
correspondence with the custodian and brokers, provides a reasonable basis for
our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
- ------------------------------
PRICEWATERHOUSECOOPERS LLP
February 18, 2005
Houston, Texas
FS-33
FINANCIALS
SCHEDULE OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
MUTUAL FUNDS-90.30%(A)
AIM Charter Fund-Institutional Class-5.20% 174,198 $ 2,288,956
- -----------------------------------------------------------------------
AIM International Core Equity
Fund-Institutional Class-2.75%(b) 105,494 1,211,075
- -----------------------------------------------------------------------
AIM Large Cap Basic Value Fund-Institutional
Class-5.30%(c) 172,365 2,333,821
- -----------------------------------------------------------------------
AIM Large Cap Growth Fund-Institutional
Class-5.28%(c) 232,660 2,321,950
- -----------------------------------------------------------------------
AIM Limited Maturity Treasury
Fund-Institutional Class-14.58% 628,999 6,415,786
- -----------------------------------------------------------------------
AIM Multi-Sector Fund-Institutional
Class-2.71%(d) 54,760 1,191,575
- -----------------------------------------------------------------------
AIM Short Term Bond Fund-Institutional
Class-24.42% 1,075,525 10,744,498
- -----------------------------------------------------------------------
AIM Total Return Bond Fund-Institutional
Class-24.65% 1,034,909 10,845,845
- -----------------------------------------------------------------------
AIM Trimark Endeavor Fund-Institutional
Class-5.41%(c) 188,885 2,379,953
=======================================================================
Total Mutual Funds (Cost $38,857,563) 39,733,459
=======================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
PAR MARKET
(000) VALUE
- -----------------------------------------------------------------------
REPURCHASE AGREEMENTS-9.66%
State Street Bank & Trust 2.10%, 01/03/05
(Cost $4,249,226)(e) $ 4,249 4,249,226
=======================================================================
TOTAL INVESTMENTS-99.96% (Cost $43,106,789) 43,982,685
=======================================================================
OTHER ASSETS LESS LIABILITIES-0.04% 16,761
=======================================================================
NET ASSETS-100.00% $43,999,446
_______________________________________________________________________
=======================================================================
</Table>
Notes to Schedule of Investments:
(a) The mutual fund and the Fund are affiliated by having the same investment
advisor. See Note 3.
(b) Effective October 15, 2004, INVESCO International Core Equity Fund was
renamed AIM International Core Equity Fund.
(c) Non-income producing security. A security is determined to be non-income
producing if the security has not declared a distribution in more than one
year from the report date.
(d) Effective October 15, 2004, INVESCO Multi-Sector was renamed AIM
Multi-Sector Fund.
(e) Repurchase agreement entered into 12/31/04 with a maturing value of
$4,249,970. Collateralized by $4,390,000 U.S. Government obligations, 5.00%
due 05/25/18 with a market value at 12/31/2004 of $4,335,125.
See accompanying notes which are an integral part of the financial statements.
FS-34
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
<Table>
ASSETS:
Investments in affiliated underlying funds, at
market value (cost $38,857,563) $39,733,459
- -----------------------------------------------------------
Repurchase agreements (cost $4,249,226) 4,249,226
- -----------------------------------------------------------
Total investments (cost $43,106,789) 43,982,685
===========================================================
Receivables for:
Fund shares sold 207,152
- -----------------------------------------------------------
Interest 248
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 2,547
- -----------------------------------------------------------
Other assets 55,965
===========================================================
Total assets 44,248,597
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 186,759
- -----------------------------------------------------------
Fund shares reacquired 385
- -----------------------------------------------------------
Trustee deferred compensation and retirement
plans 2,547
- -----------------------------------------------------------
Accrued distribution fees 9,372
- -----------------------------------------------------------
Accrued transfer agent fees 6,067
- -----------------------------------------------------------
Accrued operating expenses 44,021
===========================================================
Total liabilities 249,151
===========================================================
Net assets applicable to shares outstanding $43,999,446
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $43,071,450
- -----------------------------------------------------------
Undistributed net investment income (1,519)
- -----------------------------------------------------------
Undistributed net realized gain from
investment securities 53,619
- -----------------------------------------------------------
Unrealized appreciation of investment
securities 875,896
===========================================================
$43,999,446
___________________________________________________________
===========================================================
NET ASSETS:
Class A $20,123,514
___________________________________________________________
===========================================================
Class B $10,435,968
___________________________________________________________
===========================================================
Class C $11,751,349
___________________________________________________________
===========================================================
Class R $ 1,584,273
___________________________________________________________
===========================================================
Institutional Class $ 104,342
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Class A 1,950,685
___________________________________________________________
===========================================================
Class B 1,014,921
___________________________________________________________
===========================================================
Class C 1,143,146
___________________________________________________________
===========================================================
Class R 153,692
___________________________________________________________
===========================================================
Institutional Class 10,108
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 10.32
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $10.32 divided
by 94.50%) $ 10.92
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per share $ 10.28
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per share $ 10.28
___________________________________________________________
===========================================================
Class R:
Net asset value and offering price per share $ 10.31
___________________________________________________________
===========================================================
Institutional Class:
Net asset value and offering price per share $ 10.32
___________________________________________________________
===========================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-35
STATEMENT OF OPERATIONS
For the period April 30, 2004 (date operations commenced) through the year ended
December 31, 2004
<Table>
INVESTMENT INCOME:
Dividends from affiliated underlying funds $ 299,901
- ------------------------------------------------------------------------
Interest 23,723
========================================================================
Total investment income 323,624
========================================================================
EXPENSES:
Administrative services fees 33,470
- ------------------------------------------------------------------------
Custodian fees 4,410
- ------------------------------------------------------------------------
Distribution fees:
Class A 22,251
- ------------------------------------------------------------------------
Class B 33,661
- ------------------------------------------------------------------------
Class C 37,463
- ------------------------------------------------------------------------
Class R 2,838
- ------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C & R 15,094
- ------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 11
- ------------------------------------------------------------------------
Trustees' fees 8,518
- ------------------------------------------------------------------------
Registration and filing fees 37,308
- ------------------------------------------------------------------------
Professional fees 34,637
- ------------------------------------------------------------------------
Other 15,313
========================================================================
Total expenses 244,974
========================================================================
Less: Expenses reimbursed and expense offset arrangement (120,619)
========================================================================
Net expenses 124,355
========================================================================
Net investment income 199,269
========================================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES:
Net realized gain from affiliated underlying funds 36,318
- ------------------------------------------------------------------------
Net realized gain from distributions of affiliated
underlying funds 162,144
========================================================================
198,462
========================================================================
Change in net unrealized appreciation of affiliated
underlying funds 875,896
========================================================================
Net gain from affiliated underlying funds 1,074,358
========================================================================
Net increase in net assets resulting from operations $1,273,627
________________________________________________________________________
========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-36
STATEMENT OF CHANGES IN NET ASSETS
For the period April 30, 2004 (date operations commenced) through the year ended
December 31, 2004
<Table>
<Caption>
2004
- ---------------------------------------------------------------------------
OPERATIONS:
Net investment income from affiliated underlying funds $ 199,269
- ---------------------------------------------------------------------------
Net realized gain from underlying funds and capital gain
distributions of affiliated underlying funds 198,462
- ---------------------------------------------------------------------------
Change in net unrealized appreciation of affiliated
underlying funds 875,896
===========================================================================
Net increase in net assets resulting from operations 1,273,627
===========================================================================
Distributions to shareholders from net investment income:
Class A (183,596)
- ---------------------------------------------------------------------------
Class B (76,559)
- ---------------------------------------------------------------------------
Class C (85,197)
- ---------------------------------------------------------------------------
Class R (14,664)
- ---------------------------------------------------------------------------
Institutional Class (1,076)
===========================================================================
Total distributions from net investment income (361,092)
===========================================================================
Distributions to shareholders from net realized gains:
Class A (5,147)
- ---------------------------------------------------------------------------
Class B (2,734)
- ---------------------------------------------------------------------------
Class C (3,043)
- ---------------------------------------------------------------------------
Class R (432)
- ---------------------------------------------------------------------------
Institutional Class (27)
===========================================================================
Total distributions from net realized gains (11,383)
===========================================================================
Decrease in net assets resulting from distributions (372,475)
===========================================================================
Share transactions-net:
Class A 19,747,738
- ---------------------------------------------------------------------------
Class B 10,218,111
- ---------------------------------------------------------------------------
Class C 11,486,975
- ---------------------------------------------------------------------------
Class R 1,544,357
- ---------------------------------------------------------------------------
Institutional Class 101,113
===========================================================================
Net increase in net assets resulting from share
transactions 43,098,294
===========================================================================
Net increase in net assets 43,999,446
===========================================================================
NET ASSETS:
Beginning of period --
===========================================================================
End of year (including undistributed net investment income
(loss) of $(1,519)) $43,999,446
___________________________________________________________________________
===========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-37
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Conservative Allocation Fund (the "Fund") is a separate series of AIM Growth
Series (the "Trust"). The Trust is organized as a Delaware statutory trust and
is registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of seven
separate series portfolios, each authorized to issue an unlimited number of
shares of beneficial interest. The Fund currently offers multiple classes of
shares. Matters affecting each portfolio or class will be voted on exclusively
by the shareholders of such portfolio or class. The assets, liabilities and
operations of each portfolio are accounted for separately. Information presented
in these financial statements pertains only to the Fund.
The Fund commenced operations on April 30, 2004.
The Fund's investment objective is to provide total return consistent with a
lower level of risk relative to the broad stock market. The Fund is a "fund of
funds," in that it invests in the Institutional Class of other mutual funds
("underlying funds") advised by A I M Advisors, Inc. ("AIM") (the "underlying
funds"). AIM may change the Fund's asset class allocations, the underlying funds
or the target weightings in the underlying funds without shareholder approval.
The underlying funds may engage in a number of investment techniques and
practices, which involve certain risks. Each underlying fund's accounting
policies are outlined in the underlying fund's financial statements and are
available upon request.
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 -- Investments in underlying funds are valued at the
end of the day net asset value per share.
Securities in the underlying funds, 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 underlying funds' 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 underlying funds' 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
FS-38
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 underlying funds' officers following procedures
approved by the underlying funds' 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. Distributions from income from underlying funds, if any, are recorded
as dividend income on ex-dividend date. Distributions from net realized
capital gains from underlying funds, if any, are recorded as realized gains
on ex-dividend date. Interest income is recorded on the accrual basis from
settlement date.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Expenses included in the accompanying financial statements
reflect the expenses of the Fund and do not include any expenses of the
underlying funds. The results of the underlying funds expenses are included
in the realized and unrealized gain/loss on the investments in the
underlying funds.
Fees provided for under the Rule 12b-1 plan of a particular class of the
Fund are charged to the operations of such class. Transfer agency fees and
expenses and other shareholder recordkeeping fees and expenses attributable
to the Institutional Class are charged to such class. Transfer agency fees
and expenses and other shareholder recordkeeping fees and expenses relating
to all other classes are allocated among those classes based on relative
net assets. All other expenses are allocated among the classes based on
relative net assets.
F. REPURCHASE AGREEMENTS -- The Fund may enter into repurchase agreements.
Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. Eligible securities for collateral
are U.S. Government Securities, U.S. Government Agency Securities and/or
Investment Grade Debt Securities. Collateral consisting of U.S. Government
Securities and U.S. Government Agency Securities is marked to market daily
to ensure its market value is at least 102% of the sales price of the
repurchase agreement. Collateral consisting of Investment Grade Debt
Securities is marked to market daily to ensure its market value is at least
105% of the sales price of the repurchase agreement. The investments in
some repurchase agreements, pursuant to an exemptive order from the
Securities and Exchange Commission, are through participation with other
mutual funds, private accounts and certain non-registered investment
companies managed by the investment advisor or its affiliates ("Joint
repurchase agreements"). If the seller of a repurchase agreement fails to
repurchase the security in accordance with the terms of the agreement, the
Fund might incur expenses in enforcing its rights, and could experience
losses, including a decline in the value of the underlying security and
loss of income.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with AIM.
Under the terms of the investment advisory agreement, the Fund does not pay an
advisory fee. However, the Fund pays advisory fees to AIM indirectly as a
shareholder of the underlying funds. AIM has contractually agreed to reimburse
expenses to the extent necessary to limit other expenses (excluding certain
items discussed below) of Class A, Class B, Class C, Class R and Institutional
Class shares to 0.20% of average daily net assets, through December 31, 2005. In
determining the advisor's obligation to reimburse expenses, the following
expenses are not taken into account, and could cause other expenses to exceed
the limit stated above: (i) Rule 12b-1 plan fees, if any; (ii) interest; (iii)
taxes; (iv) dividend expense on short sales; (v) 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; (vi)
expenses related to a merger or reorganization, as approved by the Fund's Board
of Trustees; (vii) expenses of the underlying funds that are paid indirectly as
a result of share ownership of the underlying funds; and (viii) 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. For
the period April 30, 2004 (date operations commenced) through December 31, 2004,
AIM reimbursed expenses of $119,430.
For the period April 30, 2004 (date operations commenced) through December
31, 2004, at the request of the Trustees of the Trust, AMVESCAP PLC ("AMVESCAP")
agreed to reimburse $1,056 of expenses incurred by the Fund related to market
timing matters in the AIM Funds, including legal, audit, shareholder servicing,
communication and trustee expenses. These expenses along with the related
expense reimbursement, are included in the Statement of Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the period April 30, 2004 (date operations
commenced) through December 31, 2004, AIM was paid $33,470 for such services.
FS-39
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 Institutional Class, the transfer
agent has contractually agreed to reimburse class specific transfer agent fees
and expenses to the extent necessary to limit transfer agent fees to 0.10% of
the average net assets. For the period April 30, 2004 (date operations
commenced) through December 31, 2004, the Fund paid AISI $15,094 for Class A,
Class B, Class C and Class R shares and $11 for Institutional Class shares and
AIM reimbursed fees for the Institutional Class shares of $11.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C, Class R and Institutional Class shares of the Fund.
The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with
respect to the Fund's Class A, Class B, Class C and Class R shares (collectively
the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors
compensation at the annual rate of 0.35% of the Fund's average daily net assets
of Class A shares, 1.00% of the average daily net assets of Class B and Class C
shares and 0.50% of the average daily net assets of Class R shares. Of these
amounts, up to 0.25% of the average daily net assets of the Class A, Class B,
Class C or Class R shares may be paid to furnish continuing personal shareholder
services to customers who purchase and own shares of such classes. Any amounts
not paid as a service fee under the Plans would constitute an asset-based sales
charge. NASD Rules also impose a cap on the total sales charges, including
asset-based sales charges that may be paid by any class of shares of the Fund.
Pursuant to the Plans, for the period April 30, 2004 (date operations commenced)
through December 31, 2004, the Class A, Class B, Class C and Class R shares paid
$22,251, $33,661, $37,463 and $2,838, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the period
April 30, 2004 (date operations commenced) through December 31, 2004, AIM
Distributors advised the Fund that it retained $59,963 in front-end sales
commissions from the sale of Class A shares and $0, $7,032, $1,489 and $0 from
Class A, Class B, Class C and Class R shares, respectively, for CDSC imposed
upon redemptions by shareholders.
The underlying funds pay no distribution fees and the Fund pays no sales
loads or other similar compensation to AIM Distributors for acquiring underlying
fund shares.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
FS-40
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund and the mutual funds below have the same investment advisor and
therefore, are considered to be affiliated. The table below shows the
transactions in and earnings from investments in affiliated mutual funds for the
period April 30, 2004 (date operations commenced) through December 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 04/30/04 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME GAIN (LOSS)
- -------------------------------------------------------------------------------------------------------------------------
AIM Charter
Fund-
Institutional
Class $ -- $2,257,887 $ (100,350) $127,852 $ 2,288,956 $30,761 $ 3,567
- -------------------------------------------------------------------------------------------------------------------------
AIM
International
Core Equity
Fund-
Institutional
Class -- 1,125,539 (54,115) 134,219 1,211,075 11,976 5,432
- -------------------------------------------------------------------------------------------------------------------------
AIM Large Cap
Basic Value
Fund-
Institutional
Class -- 2,227,126 (102,653) 206,308 2,333,821 -- 3,040
- -------------------------------------------------------------------------------------------------------------------------
AIM Large Cap
Growth Fund-
Institutional
Class -- 2,227,126 (101,806) 192,591 2,321,950 4,039
- -------------------------------------------------------------------------------------------------------------------------
AIM Limited
Maturity
Treasury
Fund-
Institutional
Class -- 6,735,136 (282,738) (36,233) 6,415,786 39,616 7,794
- -------------------------------------------------------------------------------------------------------------------------
AIM
Multi-Sector
Fund-
Institutional
Class -- 1,143,280 (51,756) 97,251 1,191,575 -- 32,517
- -------------------------------------------------------------------------------------------------------------------------
AIM Short Term
Bond Fund-
Institutional
Class -- 11,250,434 (472,752) (34,318) 10,744,498 105,810 1,134
- -------------------------------------------------------------------------------------------------------------------------
AIM Total
Return Bond
Fund-
Institutional
Class -- 11,376,865 (476,073) (63,282) 10,845,845 111,738 132,589
- -------------------------------------------------------------------------------------------------------------------------
AIM Trimark
Endeavor-
Institutional
Class -- 2,227,126 (107,031) 251,508 2,379,953 -- 8,350
=========================================================================================================================
Total $ -- $40,570,519 $(1,749,274) $875,896 $39,733,459 $299,901 $198,462*
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
* Includes $162,144 of capital gains received from affiliated underlying funds.
NOTE 4--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer agent
for clearing shareholder transactions. For the period April 30, 2004 (date
operations commenced) through December 31, 2004, the Fund received credits in
transfer agency fees of $122 under an expense offset arrangement, which resulted
in a reduction of the Fund's total expenses of $122.
NOTE 5--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the period April 30, 2004 (date operations commenced) through
December 31, 2004, the Fund paid legal fees of $860 for services rendered by
Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A
member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
The Fund is a participant in an uncommitted unsecured revolving credit facility
with State Street Bank and Trust Company ("SSB"). The Fund may borrow up to the
lesser of (i) $125,000,000, or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the period April 30, 2004 (date operations commenced) through
December 31, 2004, the Fund did not borrow under the uncommitted unsecured
revolving credit facility.
FS-41
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 7--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the period April 30, 2004 (date
operations commenced) through December 31, 2004 was as follows:
<Table>
<Caption>
2004
- ------------------------------------------------------------------------
Distributions paid from ordinary income $372,475
________________________________________________________________________
========================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- ---------------------------------------------------------------------------
Undistributed ordinary income $ 26,897
- ---------------------------------------------------------------------------
Undistributed long-term gain 28,685
- ---------------------------------------------------------------------------
Unrealized appreciation -- investments 874,338
- ---------------------------------------------------------------------------
Temporary book/tax differences (1,924)
- ---------------------------------------------------------------------------
Shares of beneficial interest 43,071,450
===========================================================================
Total net assets $43,999,446
___________________________________________________________________________
===========================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation difference is attributable primarily to losses on wash sales.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation.
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 does not have a capital loss carryforward as of December 31, 2004.
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the period April 30, 2004 (date operations
commenced) through December 31, 2004 was $40,570,519 and $1,749,274,
respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $1,008,736
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (134,398)
==============================================================================
Net unrealized appreciation of investment securities $ 874,338
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $43,108,347.
</Table>
NOTE 9--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of stock issuance costs,
on December 31, 2004, undistributed net investment income (loss) was increased
by $160,304, undistributed net realized gain (loss) was decreased by $133,460
and shares of beneficial interest decreased by $26,844. This reclassification
had no effect on the net assets of the Fund.
FS-42
NOTE 10--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and Institutional Class shares.
Class A shares are sold with a front-end sales charge. Class B shares and Class
C shares are sold with CDSC. Class R shares and Institutional Class shares are
sold at net asset value. Under certain circumstances, Class A shares and Class R
shares are subject to CDSC. Generally, Class B shares will automatically convert
to Class A shares eight years after the end of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- --------------------------------------------------------------------------------------
APRIL 30, 2004
(DATE OPERATIONS
COMMENCED) TO
DECEMBER 31, 2004
------------------------
SHARES AMOUNT
- --------------------------------------------------------------------------------------
Sold:
Class A 2,129,826 $21,567,020
- --------------------------------------------------------------------------------------
Class B 1,120,422 11,295,205
- --------------------------------------------------------------------------------------
Class C 1,195,865 12,024,756
- --------------------------------------------------------------------------------------
Class R 166,330 1,674,671
- --------------------------------------------------------------------------------------
Institutional Class 10,001 100,010
======================================================================================
Issued as reinvestment of dividends:
Class A 17,350 178,529
- --------------------------------------------------------------------------------------
Class B 6,647 68,130
- --------------------------------------------------------------------------------------
Class C 8,491 87,033
- --------------------------------------------------------------------------------------
Class R 1,468 15,096
- --------------------------------------------------------------------------------------
Institutional Class 107 1,103
======================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 32,087 329,905
- --------------------------------------------------------------------------------------
Class B (32,212) (329,905)
======================================================================================
Reacquired:
Class A (228,578) (2,327,716)
- --------------------------------------------------------------------------------------
Class B (79,936) (815,319)
- --------------------------------------------------------------------------------------
Class C (61,210) (624,814)
- --------------------------------------------------------------------------------------
Class R (14,106) (145,410)
======================================================================================
4,272,552 $43,098,294
______________________________________________________________________________________
======================================================================================
</Table>
FS-43
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the period indicated.
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS R
---------------- ---------------- ---------------- ----------------
APRIL 30, 2004 APRIL 30, 2004 APRIL 30, 2004 APRIL 30, 2004
(DATE OPERATIONS (DATE OPERATIONS (DATE OPERATIONS (DATE OPERATIONS
COMMENCED) TO COMMENCED) TO COMMENCED) TO COMMENCED) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2004 2004 2004 2004
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.00 $ 10.00 $ 10.00 $10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.06 0.04 0.04 0.06
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains on securities (both realized and
unrealized) 0.36 0.32 0.32 0.34
=================================================================================================================================
Total from investment operations 0.42 0.36 0.36 0.40
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.10) (0.08) (0.08) (0.09)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.00) (0.00) (0.00) (0.00)
=================================================================================================================================
Total distributions (0.10) (0.08) (0.08) (0.09)
=================================================================================================================================
Net asset value, end of period $ 10.32 $ 10.28 $ 10.28 $10.31
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(a) 4.19% 3.59% 3.59% 4.05%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $20,124 $10,436 $11,751 $1,584
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With expense reimbursements(b)(c) 0.55% 1.20% 1.20% 0.70%
- ---------------------------------------------------------------------------------------------------------------------------------
Without expense reimbursements(b)(c) 1.41% 2.06% 2.06% 1.56%
=================================================================================================================================
Ratio of net investment income to average net
assets(b) 1.74% 1.09% 1.09% 1.59%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(d) 9% 9% 9% 9%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges, if any, and is
not annualized for periods of less than one year.
(b) Ratios are annualized and based on average daily net assets of
$9,458,434, $5,008,077, $5,573,748 and $844,572, for Class A, Class B,
Class C and Class R, respectively.
(c) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
underlying Funds in which the Fund invests. Because the underlying funds
have varied expenses and fee levels and the Fund may own different
proportions at different times, the amount of fees and expenses incurred
indirectly by the Fund will vary. The estimated underlying expenses for
the Fund, expressed as a percentage of average daily net assets of the
Fund was 0.63%.
(d) Not annualized for periods of less than one year.
FS-44
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
-------------------
APRIL 30, 2004
(DATE OPERATIONS
COMMENCED) TO
DECEMBER 31,
2004
- -----------------------------------------------------------------------------------
Net asset value, beginning of period $10.00
- -----------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.14
- -----------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.29
===================================================================================
Total from investment operations 0.43
===================================================================================
Less distributions:
Dividends from net investment income (0.11)
- -----------------------------------------------------------------------------------
Distributions from net realized gains (0.00)
===================================================================================
Total distributions (0.11)
===================================================================================
Net asset value, end of period $10.32
___________________________________________________________________________________
===================================================================================
Total return(a) 4.31%
___________________________________________________________________________________
===================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 104
___________________________________________________________________________________
===================================================================================
Ratio of expenses to average net assets:
With expense reimbursements 0.20%(b)(c)
- -----------------------------------------------------------------------------------
Without expense reimbursements 0.96%(b)(c)
===================================================================================
Ratio of net investment income to average net assets 2.09%(b)
___________________________________________________________________________________
===================================================================================
Portfolio turnover rate(d) 9%
___________________________________________________________________________________
===================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purpose and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for period less than one year.
(b) Ratios are annualized and based on average daily net assets of $101,341.
(c) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
underlying Funds in which the Fund invests. Because the underlying funds
have varied expenses and fee levels and the Fund may own different
proportions at different times, the amount of fees and expenses incurred
indirectly by the Fund will vary. The estimated underlying expenses for
the Fund, expressed as a percentage of average daily net assets of the
Fund was 0.63%.
(d) Not annualized for period of less than one year.
NOTE 12--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators, including
without limitation the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), to resolve
civil enforcement actions and investigations related to market timing activity
and related issues in the AIM Funds, including those formerly advised by IFG.
These regulators alleged, in substance, that IFG and AIM failed to disclose in
the prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that they had entered into certain arrangements
permitting market timing of such Funds, thereby breaching their fiduciary duties
to such Funds. As a result of the foregoing, the regulators alleged that IFG and
AIM breached various Federal and state securities, business and consumer
protection laws. On the same date, A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached a final settlement with the SEC to
resolve an investigation relating to market timing activity and related issues
in the AIM Funds. The SEC also alleged that ADI violated various Federal
securities laws. The SEC also has settled related market timing enforcement
actions brought against certain former officers and employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325 million,
of which $110 million is civil penalties. Of this $325 million total payment,
half has been paid and the remaining half will be paid on or before December 31,
2005. AIM and ADI agreed to pay a total of $50 million, of which $30 million is
civil penalties, all of which has been paid. The entire $325 million IFG
settlement payment will be made available for distribution to the shareholders
of those AIM Funds that IFG formerly advised that were harmed by market timing
activity, and the entire $50 million settlement payment by AIM and ADI will be
made available for distribution to the shareholders of those AIM Funds advised
by AIM that were harmed by market timing activity, all as to be determined by an
independent distribution consultant. The settlement payments will be distributed
in accordance with a methodology to be determined by the independent
distribution consultant, in consultation with AIM and the independent trustees
of the AIM Funds and acceptable to
FS-45
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
the staff of the SEC. Under the settlements with the NYAG and COAG, AIM has
agreed to reduce management fees on certain equity and balanced AIM Funds by $15
million per year for the next five years, based upon effective fee rates and
assets under management as of July 1, 2004, and not to increase certain
management fees.
Under the terms of the settlements, AIM will make certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year thereafter, AIM will
undergo a compliance review by an independent third party. In addition, under
the terms of the settlements, AIM has undertaken to cause the AIM Funds to
operate in accordance with certain governance policies and practices, including
retaining a full-time independent senior officer whose duties will include
monitoring compliance and managing the process by which proposed management fees
to be charged the AIM Funds are negotiated. Also, commencing in 2008 and not
less than every fifth calendar year thereafter, the AIM Funds will hold
shareholder meetings at which their Boards of Trustees will be elected.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
Funds related to market timing matters.
The SEC has also settled market timing enforcement actions against Raymond R.
Cunningham (the former president and chief executive officer of IFG and a former
member of the board of directors of the AIM Funds formerly advised by IFG),
Timothy J. Miller (the former chief investment officer and a former portfolio
manager for IFG), Thomas A. Kolbe (the former national sales manager of IFG) and
Michael D. Legoski (a former assistant vice president in IFG's sales
department). As part of these settlements, the SEC ordered these individuals to
pay restitution and civil penalties in various amounts and prohibited them from
associating with, or serving as an officer or director of, an investment
advisor, broker, dealer and/or investment company, as applicable, for certain
periods of time.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's agreement
to reduce management fees on certain equity and balanced AIM Funds by $15
million per year for the next five years, based upon effective fee rates and
assets under management as of July 1, 2004). The manner in which the settlement
payments will be distributed is unknown at the present time and will be
determined by an independent distribution consultant appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement payments may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
Regulatory Inquiries and Pending Litigation
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including but not limited to revenue sharing and directed-brokerage
arrangements, investments in securities of other registered investment
companies, contractual plans, issues related to Section 529 college savings
plans, procedures for locating lost security holders and participation in class
action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional regulatory
actions and/or civil lawsuits related to the above or other issues may be filed
against the AIM Funds, IFG, AIM and/or related entities and individuals in the
future. Additional regulatory inquiries related to the above or other issues
also may be received by the AIM Funds, IFG, AIM and/or related entities and
individuals in the future.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the
FS-46
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
Bureau of Securities of the State of New Jersey. AIM and certain of these other
parties also have received more limited inquiries from the SEC, the NASD, the
DOL, the Internal Revenue Service, the United States Attorney's Office for the
Southern District of New York, the United States Attorney's Office for the
Central District of California, the United States Attorney's Office for the
District of Massachusetts, the Massachusetts Securities Division, the U.S.
Postal Inspection Service and the Commodity Futures Trading Commission, some of
which concern one or more AIM Funds. AIM is providing full cooperation with
respect to these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, AIM Management, AMVESCAP, certain
related entities, certain of their current and former officers and/or certain
unrelated third parties) making allegations that are similar in many respects to
those in the settled regulatory actions brought by the SEC, the NYAG and the
COAG concerning market timing activity in the AIM Funds. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
various provisions of the Federal and state securities laws; (ii) violation of
various provisions of ERISA; (iii) breach of fiduciary duty; and/or (iv) breach
of contract. These lawsuits were initiated in both Federal and state courts and
seek such remedies as compensatory damages; restitution; injunctive relief;
disgorgement of management fees; imposition of a constructive trust; removal of
certain directors and/or employees; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements; interest; and attorneys' and
experts' fees.
All lawsuits based on allegations of market timing, late trading, and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act ("ERISA")
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan. The
plaintiffs in one of the underlying lawsuits continue to seek remand of their
lawsuit to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and/or distribution fees and failed to
pass on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of contract.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; rescission of certain Funds' advisory agreements and
distribution plans; interest; prospective relief in the form of reduced fees;
and attorneys' and experts' fees. All of these lawsuits have been transferred to
the United States District Court for the Southern District of Texas, Houston
Division by order of the applicable United States District Court in which they
were initially filed. The plaintiff in one of these lawsuits has challenged this
order.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Limited
Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; and (ii) breach of fiduciary duty. These lawsuits have been
filed in Federal courts and seek such remedies as damages; injunctive relief;
and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages;
FS-47
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
rescission of certain Funds' advisory agreements and distribution plans and
recovery of all fees paid; an accounting of all fund-related fees, commissions
and soft dollar payments; restitution of all unlawfully or discriminatorily
obtained fees and charges; and attorneys' and experts' fees.
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing to
ensure that the AIM Funds participated in class action settlements in which the
AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * *
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
FS-48
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
AIM Global Equity Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM Global Equity Fund, formerly
known as AIM Global Trends Fund, (one of the funds constituting AIM Growth
Series, hereafter referred to as the "Fund") at December 31, 2004, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended and the financial highlights for
each of the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2004 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
February 18, 2005
Houston, Texas
FS-49
FINANCIALS
SCHEDULE OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
DOMESTIC COMMON STOCKS-51.84%
AEROSPACE & DEFENSE-2.04%
Boeing Co. (The) 114,500 $ 5,927,665
========================================================================
APPAREL RETAIL-2.39%
Aeropostale, Inc.(a) 68,600 2,018,898
- ------------------------------------------------------------------------
American Eagle Outfitters, Inc. 18,600 876,060
- ------------------------------------------------------------------------
Men's Wearhouse, Inc. (The)(a) 39,000 1,246,440
- ------------------------------------------------------------------------
Stage Stores, Inc.(a) 49,000 2,034,480
- ------------------------------------------------------------------------
Urban Outfitters, Inc.(a) 17,000 754,800
========================================================================
6,930,678
========================================================================
APPLICATION SOFTWARE-1.03%
FactSet Research Systems Inc.(b) 51,100 2,986,284
========================================================================
COMMUNICATIONS EQUIPMENT-1.15%
QUALCOMM Inc.(b) 78,700 3,336,880
========================================================================
COMPUTER HARDWARE-3.17%
Apple Computer, Inc.(a) 38,200 2,460,080
- ------------------------------------------------------------------------
Dell Inc.(a) 159,700 6,729,758
========================================================================
9,189,838
========================================================================
CONSUMER FINANCE-1.30%
Capital One Financial Corp. 44,900 3,781,029
========================================================================
DEPARTMENT STORES-0.65%
J.C. Penney Co., Inc. 45,700 1,891,980
========================================================================
DIVERSIFIED COMMERCIAL SERVICES-0.97%
Apollo Group, Inc.-Class A(a) 34,793 2,808,143
========================================================================
ELECTRIC UTILITIES-1.51%
TXU Corp. 46,200 2,982,672
- ------------------------------------------------------------------------
Unisource Energy Corp. 57,500 1,386,325
========================================================================
4,368,997
========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-0.70%
Dionex Corp.(a) 35,700 2,023,119
========================================================================
HEALTH CARE SUPPLIES-0.38%
Haemonetics Corp.(a) 30,400 1,100,784
========================================================================
HOME ENTERTAINMENT SOFTWARE-0.41%
THQ Inc.(a) 52,100 1,195,174
========================================================================
HOMEBUILDING-0.27%
Meritage Homes Corp.(a) 6,900 777,630
========================================================================
HYPERMARKETS & SUPER CENTERS-2.23%
Costco Wholesale Corp.(b) 133,600 6,467,576
========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
INDUSTRIAL CONGLOMERATES-2.50%
3M Co.(b) 88,400 $ 7,254,988
========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-1.70%
AT&T Corp. 164,400 3,133,464
- ------------------------------------------------------------------------
CenturyTel, Inc. 30,500 1,081,835
- ------------------------------------------------------------------------
Sprint Corp. 28,500 708,225
========================================================================
4,923,524
========================================================================
LIFE & HEALTH INSURANCE-2.52%
Prudential Financial, Inc. 133,000 7,309,680
========================================================================
MANAGED HEALTH CARE-2.97%
UnitedHealth Group Inc. 80,600 7,095,218
- ------------------------------------------------------------------------
WellPoint Inc.(a) 13,200 1,518,000
========================================================================
8,613,218
========================================================================
MOTORCYCLE MANUFACTURERS-1.23%
Harley-Davidson, Inc.(b) 58,800 3,572,100
========================================================================
MULTI-UTILITIES & UNREGULATED POWER-1.71%
Energen Corp. 36,200 2,133,990
- ------------------------------------------------------------------------
Questar Corp. 35,200 1,793,792
- ------------------------------------------------------------------------
Sempra Energy 28,000 1,027,040
========================================================================
4,954,822
========================================================================
OIL & GAS EXPLORATION & PRODUCTION-3.94%
Anadarko Petroleum Corp. 32,600 2,112,806
- ------------------------------------------------------------------------
Apache Corp. 13,600 687,752
- ------------------------------------------------------------------------
Denbury Resources Inc.(a) 40,000 1,098,000
- ------------------------------------------------------------------------
Houston Exploration Co. (The)(a) 89,100 5,017,221
- ------------------------------------------------------------------------
Remington Oil & Gas Corp.(a) 69,900 1,904,775
- ------------------------------------------------------------------------
St. Mary Land & Exploration Co. 14,300 596,882
========================================================================
11,417,436
========================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-0.47%
Holly Corp. 27,700 771,999
- ------------------------------------------------------------------------
Overseas Shipholding Group, Inc. 10,800 596,160
========================================================================
1,368,159
========================================================================
PAPER PRODUCTS-0.99%
Georgia-Pacific Corp. 76,600 2,870,968
========================================================================
PERSONAL PRODUCTS-2.16%
Gillette Co. (The) 139,800 6,260,244
========================================================================
</Table>
FS-50
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
PHARMACEUTICALS-2.47%
Johnson & Johnson 113,000 $ 7,166,460
========================================================================
SEMICONDUCTOR EQUIPMENT-0.23%
Lam Research Corp.(a) 23,600 682,276
========================================================================
SEMICONDUCTORS-4.43%
Analog Devices, Inc.(b) 18,500 683,020
- ------------------------------------------------------------------------
Intel Corp. 159,400 3,728,366
- ------------------------------------------------------------------------
Linear Technology Corp. 157,500 6,104,700
- ------------------------------------------------------------------------
Maxim Integrated Products, Inc. 55,300 2,344,167
========================================================================
12,860,253
========================================================================
SPECIALIZED FINANCE-4.60%
CIT Group Inc. 132,700 6,080,314
- ------------------------------------------------------------------------
Moody's Corp.(b) 83,700 7,269,345
========================================================================
13,349,659
========================================================================
SYSTEMS SOFTWARE-0.54%
Adobe Systems Inc. 24,800 1,555,952
========================================================================
THRIFTS & MORTGAGE FINANCE-0.26%
Fremont General Corp. 30,100 757,918
========================================================================
TRUCKING-0.92%
Hunt (J.B.) Transport Services, Inc. 59,500 2,668,575
========================================================================
Total Domestic Common Stocks (Cost
$123,584,293) 150,372,009
========================================================================
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-43.02%
AUSTRALIA-2.23%
Australia & New Zealand Banking Group Ltd.
(Diversified Banks)(c) 60,200 970,773
- ------------------------------------------------------------------------
QBE Insurance Group Ltd. (Property & Casualty
Insurance)(b)(c) 342,400 4,123,039
- ------------------------------------------------------------------------
St. George Bank Ltd. (Diversified Banks)(c) 69,400 1,372,130
========================================================================
6,465,942
========================================================================
BELGIUM-1.23%
Algemene Maatschappij voor Nijverheidskredit
N.V. (Diversified Banks)(c) 20,300 2,073,106
- ------------------------------------------------------------------------
KBC Bankverzekerings holding (Diversified
Banks)(c) 19,400 1,483,730
========================================================================
3,556,836
========================================================================
BRAZIL-0.23%
Petroleo Brasileiro S.A.-Petrobras-Pfd.
(Integrated Oil & Gas) 18,100 662,054
========================================================================
CANADA-0.67%
Inmet Mining Corporation (Diversified Metals
& Mining)(a) 38,100 682,842
- ------------------------------------------------------------------------
Methanex Corp. (Commodity Chemicals) 69,200 1,261,532
========================================================================
1,944,374
========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
CAYMAN ISLANDS-1.00%
ACE Ltd. (Property & Casualty Insurance) 67,800 $ 2,898,450
========================================================================
DENMARK-1.95%
A P Moller-Maersk A.S. (Marine)(c) 309 2,547,532
- ------------------------------------------------------------------------
William Demant A.S. (Health Care
Equipment)(a)(b)(c) 66,547 3,120,122
========================================================================
5,667,654
========================================================================
FRANCE-0.71%
Societe Generale (Diversified Banks)(c) 20,342 2,055,050
========================================================================
GERMANY-1.72%
Adidas-Salomon A.G. (Apparel, Accessories &
Luxury Goods)(b)(c) 10,141 1,636,744
- ------------------------------------------------------------------------
Schering A.G. (Pharmaceuticals)(c) 44,970 3,342,375
========================================================================
4,979,119
========================================================================
GREECE-1.36%
OPAP S.A. (Casinos & Gaming) (Acquired
08/16/04-11/19/04; Cost $3,172,651)(c)(d) 142,452 3,933,194
========================================================================
ISRAEL-0.48%
Check Point Software Technologies Ltd.
(Systems Software)(a)(b) 56,800 1,398,984
========================================================================
ITALY-1.06%
Mediaset S.p.A. (Broadcasting & Cable TV)(c) 61,400 775,783
- ------------------------------------------------------------------------
Milano Assicurazioni S.p.A (Multi-Line
Insurance)(c) 270,700 1,524,025
- ------------------------------------------------------------------------
Telecom Italia Mobile S.p.A. (Wireless
Telecommunication Services)(c) 103,300 768,670
========================================================================
3,068,478
========================================================================
JAPAN-7.76%
Chugoku Electric Power Co., Inc. (The)
(Electric Utilities)(c) 46,400 865,674
- ------------------------------------------------------------------------
Fuji Fire and Marine Insurance Co., Ltd.
(The) (Property & Casualty Insurance)(c) 351,000 1,142,723
- ------------------------------------------------------------------------
Hokkaido Electric Power Co., Inc. (Electric
Utilities)(c) 47,300 931,752
- ------------------------------------------------------------------------
Japan Tobacco Inc. (Tobacco)(c) 100 1,141,701
- ------------------------------------------------------------------------
Nikko Cordial Co., Ltd. (The) (Investment
Banking & Brokerage)(c) 110,000 583,920
- ------------------------------------------------------------------------
Nissin Co., Ltd. (Consumer Finance)(c) 326,900 824,847
- ------------------------------------------------------------------------
NTT DoCoMo, Inc. (Wireless Telecommunication
Services)(c) 2,500 4,621,914
- ------------------------------------------------------------------------
Takeda Pharmaceutical Co. Ltd.
(Pharmaceuticals)(c) 109,700 5,541,075
- ------------------------------------------------------------------------
Tohoku Electric Power Co., Inc. (Electric
Utilities) 324,000 5,820,170
- ------------------------------------------------------------------------
Tokai Tokyo Securities Co., Ltd. (Investment
Banking & Brokerage)(c) 340,000 1,045,081
========================================================================
22,518,857
========================================================================
</Table>
FS-51
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
NETHERLANDS-4.53%
ABN AMRO Holding N.V. (Diversified Banks)(c) 127,417 $ 3,370,268
- ------------------------------------------------------------------------
DSM N.V. (Specialty Chemicals)(c) 38,179 2,464,014
- ------------------------------------------------------------------------
ING Groep N.V.-Dutch Ctfs. (Other Diversified
Financial Services)(c) 242,531 7,319,704
========================================================================
13,153,986
========================================================================
NORWAY-2.03%
Norsk Hydro A.S.A. (Oil & Gas Exploration &
Production)(c) 8,342 654,868
- ------------------------------------------------------------------------
Statoil A.S.A. (Integrated Oil & Gas)(c) 332,415 5,239,609
========================================================================
5,894,477
========================================================================
PANAMA-0.25%
Carnival Corp. (Hotels, Resorts & Cruise
Lines) 12,500 720,375
========================================================================
SOUTH KOREA-0.80%
Honam Petrochemical Corp. (Commodity
Chemicals)(a)(c) 15,100 703,177
- ------------------------------------------------------------------------
POSCO (Steel)(c) 8,990 1,617,847
========================================================================
2,321,024
========================================================================
SWEDEN-1.42%
Volvo A.B.-Class B (Construction & Farm
Machinery & Heavy Trucks)(c) 104,239 4,124,485
========================================================================
SWITZERLAND-0.55%
Straumann A.G. (Health Care Equipment)(c) 7,675 1,580,717
========================================================================
TAIWAN-0.90%
China Steel Corp. (Steel)(c) 2,318,310 2,622,591
========================================================================
UNITED KINGDOM-12.14%
Aviva PLC (Multi-Line Insurance)(c) 217,590 2,614,270
- ------------------------------------------------------------------------
Carpetright PLC (Home Improvement Retail)(c) 78,240 1,709,378
- ------------------------------------------------------------------------
Friends Provident PLC (Life & Health
Insurance)(c) 1,014,040 2,991,133
- ------------------------------------------------------------------------
Legal & General Group PLC (Life & Health
Insurance)(c) 502,430 1,057,801
- ------------------------------------------------------------------------
</Table>
<Table>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
UNITED KINGDOM-(CONTINUED)
Lloyds TSB Group PLC (Diversified Banks)(c) 811,280 $ 7,370,501
- ------------------------------------------------------------------------
SABMiller PLC (Brewers)(c) 79,050 1,308,329
- ------------------------------------------------------------------------
Singer & Friedlander Group PLC (Diversified
Capital Markets)(c) 407,220 2,065,502
- ------------------------------------------------------------------------
Tesco PLC (Food Retail)(c) 1,176,750 7,255,021
- ------------------------------------------------------------------------
Viridian Group PLC (Electric Utilities)(c) 205,200 2,868,787
- ------------------------------------------------------------------------
William Hill PLC (Casinos & Gaming)(c) 437,860 4,740,819
- ------------------------------------------------------------------------
Wolverhampton & Dudley Breweries PLC
(Brewers)(c) 58,830 1,238,732
========================================================================
35,220,273
========================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $99,388,408) 124,786,920
========================================================================
MONEY MARKET FUNDS-4.92%
Liquid Assets Portfolio-Institutional
Class(e) 7,135,683 7,135,683
- ------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(e) 7,135,683 7,135,683
========================================================================
Total Money Market Funds (Cost
$14,271,366) 14,271,366
========================================================================
TOTAL INVESTMENTS-99.78% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $237,244,067) 289,430,295
========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED MONEY MARKET
FUNDS-8.39%
Liquid Assets Portfolio-Institutional
Class(e)(f) 12,166,970 12,166,970
- ------------------------------------------------------------------------
STIC Prime Portfolio-Institutional
Class(e)(f) 12,166,971 12,166,971
========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $24,333,941) 24,333,941
========================================================================
TOTAL INVESTMENTS-108.17% (Cost $261,578,008) 313,764,236
========================================================================
OTHER ASSETS LESS LIABILITIES-(8.17%) (23,695,595)
========================================================================
NET ASSETS-100.00% $290,068,641
________________________________________________________________________
========================================================================
</Table>
Investment Abbreviations:
<Table>
Ctfs. - Certificates
Pfd. - Preferred
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this security has been pledged as collateral for
securities lending transactions at December 31, 2004.
(c) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
aggregate market value of these securities at December 31, 2004 was
$111,342,512, which represented 35.49% of the Fund's Total Investments. See
Note 1A.
(d) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction). The security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The market value of this security at December 31, 2004 represented 1.36% of
the Fund's Net Assets. Unless otherwise indicated, this security is not
considered to be illiquid.
(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 7.
See accompanying notes which are an integral part of the financial statements.
FS-52
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$222,972,701)* $275,158,929
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $38,605,307) 38,605,307
===========================================================
Total investments (cost $261,578,008) 313,764,236
===========================================================
Foreign currencies, at market value (cost
$173,556) 177,981
- -----------------------------------------------------------
Receivables for:
Fund shares sold 951,272
- -----------------------------------------------------------
Dividends 171,441
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 16,333
- -----------------------------------------------------------
Other assets 62,574
===========================================================
Total assets 315,143,837
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Fund shares reacquired 415,384
- -----------------------------------------------------------
Trustee deferred compensation and
retirement plans 21,070
- -----------------------------------------------------------
Collateral upon return of securities loaned 24,333,941
- -----------------------------------------------------------
Accrued distribution fees 185,439
- -----------------------------------------------------------
Accrued transfer agent fees 70,687
- -----------------------------------------------------------
Accrued operating expenses 48,675
===========================================================
Total liabilities 25,075,196
===========================================================
Net assets applicable to shares outstanding $290,068,641
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $232,597,295
- -----------------------------------------------------------
Undistributed net investment income (loss) (16,800)
- -----------------------------------------------------------
Undistributed net realized gain from
investment securities, foreign currencies
and futures contracts 5,295,297
- -----------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 52,192,849
===========================================================
$290,068,641
___________________________________________________________
===========================================================
NET ASSETS:
Class A $182,415,843
___________________________________________________________
===========================================================
Class B $ 74,119,683
___________________________________________________________
===========================================================
Class C $ 20,375,227
___________________________________________________________
===========================================================
Institutional Class $ 13,157,888
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 11,654,774
___________________________________________________________
===========================================================
Class B 4,908,856
___________________________________________________________
===========================================================
Class C 1,351,182
___________________________________________________________
===========================================================
Institutional Class 836,367
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 15.65
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $15.65 divided by
95.25%) $ 16.43
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 15.10
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 15.08
___________________________________________________________
===========================================================
Institutional Class:
Net asset value and offering price per
share $ 15.73
___________________________________________________________
===========================================================
</Table>
* At December 31, 2004, securities with an aggregate market value of $23,585,827
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
FS-53
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $325,780) $ 3,719,782
- -------------------------------------------------------------------------
Dividends from affiliated money market funds (including
securities lending income of $49,778*) 234,628
- -------------------------------------------------------------------------
Interest 3,779
=========================================================================
Total investment income 3,958,189
=========================================================================
EXPENSES:
Advisory fees 2,103,152
- -------------------------------------------------------------------------
Administrative services fees 50,000
- -------------------------------------------------------------------------
Custodian fees 84,851
- -------------------------------------------------------------------------
Distribution fees:
Class A 681,690
- -------------------------------------------------------------------------
Class B 642,518
- -------------------------------------------------------------------------
Class C 130,813
- -------------------------------------------------------------------------
Transfer agent fees 624,439
- -------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 559
- -------------------------------------------------------------------------
Trustees' fees and retirement benefits 18,571
- -------------------------------------------------------------------------
Other 267,786
=========================================================================
Total expenses 4,604,379
=========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (46,599)
=========================================================================
Net expenses 4,557,780
=========================================================================
Net investment income (loss) (599,591)
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND FUTURES CONTRACTS:
Net realized gain from:
Investment securities 16,017,181
- -------------------------------------------------------------------------
Foreign currencies 110,100
- -------------------------------------------------------------------------
Futures contracts 274,074
=========================================================================
16,401,355
=========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities 29,650,591
- -------------------------------------------------------------------------
Foreign currencies (33,717)
=========================================================================
29,616,874
=========================================================================
Net gain from investment securities, foreign currencies and
futures contracts 46,018,229
=========================================================================
Net increase in net assets resulting from operations $45,418,638
_________________________________________________________________________
=========================================================================
</Table>
* Dividends from affiliated money market funds are net of income rebate paid to
securities lending counterparties.
See accompanying notes which are an integral part of the financial statements.
FS-54
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (599,591) $ (1,017,461)
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies and futures contracts 16,401,355 25,939,356
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and foreign currencies 29,616,874 21,731,439
==========================================================================================
Net increase in net assets resulting from operations 45,418,638 46,653,334
==========================================================================================
Distributions to shareholders from net realized gains:
Class A (8,703,573) (1,099,695)
- ------------------------------------------------------------------------------------------
Class B (3,757,370) (657,717)
- ------------------------------------------------------------------------------------------
Class C (988,497) (104,451)
- ------------------------------------------------------------------------------------------
Institutional Class (647,260) --
==========================================================================================
Decrease in net assets resulting from distributions (14,096,700) (1,861,863)
==========================================================================================
Share transactions-net:
Class A 53,265,793 14,480,900
- ------------------------------------------------------------------------------------------
Class B 2,659,676 (8,037,693)
- ------------------------------------------------------------------------------------------
Class C 8,517,732 3,472,062
- ------------------------------------------------------------------------------------------
Institutional Class 12,681,245 --
==========================================================================================
Net increase in net assets resulting from share
transactions 77,124,446 9,915,269
==========================================================================================
Net increase in net assets 108,446,384 54,706,740
==========================================================================================
NET ASSETS:
Beginning of year 181,622,257 126,915,517
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(16,800) and $(96,189), respectively) $290,068,641 $181,622,257
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-55
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Global Equity Fund, formerly known as Global Trends Fund, (the "Fund") is a
separate series of AIM Growth Series (the "Trust"). The Trust is organized as a
Delaware statutory trust and is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end series management investment
company consisting of seven separate series portfolios, each authorized to issue
an unlimited number of shares of beneficial interest. The Fund currently offers
multiple classes of shares. Matters affecting each portfolio or class will be
voted on exclusively by the shareholders of such portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is long-term growth of capital. Each company
listed in the Schedule of Investments is organized in the United States of
America unless otherwise noted.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. However, the Fund has not had prior claims or losses pursuant to these
contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
is valued on the basis of prices furnished by independent pricing services
or market makers. Each security reported on the NASDAQ National Market
System is valued at the NASDAQ Official Closing Price ("NOCP") as of the
close of the customary trading session on the valuation date or absent a
NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing
FS-56
service in determining adjustments to reflect fair value and may include
information relating to sector indices, ADRs, domestic and foreign index
futures and exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund 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. REDEMPTION FEES -- The Fund has instituted a 2% redemption fee on certain
share classes that is to be retained by the Fund to offset transaction
costs and other expenses associated with short-term redemptions and
exchanges. The fee, subject to certain exceptions, is imposed on certain
redemptions, including exchanges of shares held less than 30 days. The
redemption fee is accounted for as an addition to shares of beneficial
interest by the Fund and is allocated among the share classes based on the
relative net assets of each class.
G. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from, (i)
sales of foreign currencies, (ii) currency gains or losses realized between
the trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
H. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
I. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. If the Fund were unable
to liquidate a futures contract and/or enter into an offsetting closing
transaction, the Fund
FS-57
would continue to be subject to market risk with respect to the value of
the contracts and continue to be required to maintain the margin deposits
on the futures contracts.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.975% on the first
$500 million of the Fund's average daily net assets, plus 0.95% on the next $500
million of the Fund's average daily net assets, plus 0.925% on the next $500
million of the Fund's average daily net assets, plus 0.90% on the Fund's average
daily net assets in excess of $1.5 billion. Effective January 1, 2005 through
December 31, 2009, AIM has contractually agreed to waive advisory fees to the
extent necessary so that the advisory fees payable by the Fund (based on the
Fund's average daily net assets) do not exceed the annual rate of 0.80% of the
first $250 million, plus 0.78% of the next $250 million, plus 0.76% of the next
$500 million, plus 0.74% of the next $1.5 billion, plus 0.72% of the next $2.5
billion, plus 0.70% of the next $2.5 billion, plus 0.68% of the next $2.5
billion, plus 0.66% of the Fund's average daily net assets in excess of $10
billion. AIM has contractually agreed to waive advisory fees and/or reimburse
expenses to the extent necessary to limit total annual operating expenses
(excluding certain items discussed below) of Class A, Class B, Class C and
Institutional Class shares to 2.00%, 2.50%, 2.50% and 1.50% of average daily net
assets, respectively, through December 31, 2005. In determining the advisor's
obligation to waive advisory fees and/or reimburse expenses, the following
expenses are not taken into account, and could cause the total annual fund
operating expenses to exceed the limits stated above: (i) interest; (ii) taxes;
(iii) dividend expense on short sales; (iv) extraordinary items (these are
expenses that are not anticipated to arise from the Fund's day-to-day
operations), or items designated as such by the Fund's Board of Trustees; (v)
expenses related to a merger or reorganization, as approved by the Fund's Board
of Trustees; and (vi) expenses that the Fund has incurred but did not actually
pay because of an expense offset arrangement. Currently, the only expense offset
arrangements from which the Fund benefits are in the form of credits that the
Fund receives from banks where the Fund or its transfer agent has deposit
accounts in which it holds uninvested cash. Those credits are used to pay
certain expenses incurred by the Fund. AIM did not waive fees and/or reimburse
expenses during the period under this expense limitation. Further, AIM has
voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of
the advisory fee AIM receives from the affiliated money market funds on
investments by the Fund in such affiliated money market funds (excluding
investments made in affiliated money market funds with cash collateral from
securities loaned by the Fund). Voluntary fee waivers or reimbursements may be
modified or discontinued at any time upon consultation with the Board of
Trustees without further notice to investors. For the year ended December 31,
2004, AIM waived fees of $2,638.
For the year ended December 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to reimburse $40,853 of expenses
incurred by the Fund in connection with matters related to recently settled
regulatory actions and investigations concerning market timing activity in the
AIM Funds, including legal, audit, shareholder servicing, communication and
trustee expenses. These expenses along with the related expense reimbursement,
are included in the Statement of Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. Pursuant to such agreement for the year ended
December 31, 2004, AIM was paid $50,000.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the Institutional
Class, the transfer agent has contractually agreed to reimburse class specific
transfer agent fees and expenses to the extent necessary to limit transfer agent
fees to 0.10% of the average net assets. AISI did not reimburse fees during the
period under this expense limitation. For the year ended December 31, 2004, the
Fund paid AISI $624,439 for Class A, Class B, Class C and Class R shares and
$559 for Institutional Class shares. AISI may make payments to intermediaries
that provide omnibus account services, sub-accounting services and/or networking
services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C 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 and Class C shares (collectively the "Plans"). The Fund,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.50% of the Fund's average daily net assets of Class A shares and 1.00% of the
average daily net assets of Class B and Class C shares. Effective January 1,
2005 the Trustees approved a permanent reduction in the annual rate payable by
the Fund to AIM Distributors to 0.35% of the average daily net assets of Class A
shares. Of these amounts, up to 0.25% of the average daily net assets of the
Class A, Class B or Class C shares may be paid to furnish continuing personal
shareholder services to customers who purchase and own shares of such classes.
Any amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. NASD Rules also impose a cap on the total sales
charges, including asset-based sales charges that may be paid by any class of
shares of the Fund. Pursuant to the Plans, for the year ended December 31, 2004,
the Class A, Class B and Class C shares paid $681,690, $642,518 and $130,813,
respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the year
ended December 31, 2004, AIM Distributors advised the Fund that it retained
$62,651 in front-end sales commissions from the sale of Class A shares and $222,
$11,701 and $1,023 from Class A, Class B and Class C shares, respectively, for
CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
FS-58
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest daily available cash balances and cash
collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. The tables below show
the transactions in and earnings from investments in affiliated money market
funds for the year ended December 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 5,266,639 $44,591,119 $(42,722,075) $ -- $ 7,135,683 $ 92,944 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 5,266,639 44,591,119 (42,722,075) -- 7,135,683 91,906 --
==================================================================================================================================
Subtotal $10,533,278 $89,182,238 $(85,444,150) $ -- $14,271,366 $184,850 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME* GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $10,778,427 $ 83,149,415 $ (81,760,872) $ -- $12,166,970 $ 25,047 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 10,778,427 70,428,829 (69,040,285) -- 12,166,971 24,731 --
==================================================================================================================================
Subtotal $21,556,854 $153,578,244 $(150,801,157) $ -- $24,333,941 $ 49,778 $ --
==================================================================================================================================
Total $32,090,132 $242,760,482 $(236,245,307) $ -- $38,605,307 $234,628 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
* Dividend income is net of income rebate paid to securities lending
counterparties.
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions and (ii) custodian credits which
result from periodic overnight cash balances at the custodian. For the year
ended December 31, 2004, the Fund received credits in transfer agency fees of
$2,852 and credits in custodian fees of $256 under expense offset arrangements,
which resulted in a reduction of the Fund's total expenses of $3,108.
NOTE 5--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended December 31, 2004, the Fund paid legal fees of $3,079
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are
FS-59
parties to the credit facility can borrow on a first come, first served basis.
Principal on each loan outstanding shall bear interest at the bid rate quoted by
SSB at the time of the request for the loan.
During the year ended December 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 7-- PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At December 31, 2004, securities with an aggregate value of $23,585,827 were
on loan to brokers. The loans were secured by cash collateral of $24,333,941
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended December 31, 2004, the Fund received dividends on cash
collateral net of income rebate paid to counterparties of $49,778 for securities
lending transactions.
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31, 2004
and 2003 was as follows:
<Table>
<Caption>
2004 2003
- ---------------------------------------------------------------------------------------
Distributions paid from:
- ---------------------------------------------------------------------------------------
Ordinary income $ 6,685,845 $ --
- ---------------------------------------------------------------------------------------
Long-term capital gain 7,410,855 1,861,863
=======================================================================================
Total distributions $14,096,700 $1,861,863
_______________________________________________________________________________________
=======================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- ----------------------------------------------------------------------------
Undistributed ordinary income $ 1,838,390
- ----------------------------------------------------------------------------
Undistributed long-term gain 3,453,814
- ----------------------------------------------------------------------------
Unrealized appreciation -- investments 52,195,942
- ----------------------------------------------------------------------------
Temporary book/tax differences (16,800)
- ----------------------------------------------------------------------------
Shares of beneficial interest 232,597,295
============================================================================
Total net assets $290,068,641
____________________________________________________________________________
============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation difference is attributable primarily to the deferral of losses on
wash sales. The tax-basis unrealized appreciation on investments amount includes
appreciation on foreign currencies of $6,621.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
The Fund utilized $1,005,765 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes.
The Fund does not have a capital loss carryforward as of December 31, 2004.
FS-60
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2004 was $292,547,653 and $234,340,910, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $52,665,543
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (476,222)
===============================================================================
Net unrealized appreciation of investment securities $52,189,321
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $261,574,915.
</Table>
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, passive foreign investment company transactions, partnership
transactions, return of capital on distributions, use of proceeds from
redemptions as distributions and net operating losses, on December 31, 2004,
undistributed net investment income (loss) was increased by $678,980,
undistributed net realized gain was decreased by $1,069,096 and shares of
beneficial interest increased by $390,116. This reclassification had no effect
on the net assets of the Fund.
FS-61
NOTE 11--SHARE INFORMATION
The Fund currently offers four different classes of shares: Class A shares,
Class B shares, Class C 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. Institutional Class shares are sold at net asset value. Under
certain circumstances, Class A shares are subject to CDSC. Generally, Class B
shares will automatically convert to Class A shares eight years after the end of
the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING (a)
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2004 2003
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 3,988,346 $ 58,566,755 3,158,946 $ 35,887,979
- ----------------------------------------------------------------------------------------------------------------------
Class B 1,895,283 26,890,560 1,249,960 14,101,531
- ----------------------------------------------------------------------------------------------------------------------
Class C 790,970 11,285,487 478,993 5,518,242
- ----------------------------------------------------------------------------------------------------------------------
Institutional Class(b) 842,987 12,784,860 -- --
======================================================================================================================
Issued as reinvestment of dividends:
Class A 529,315 8,130,282 79,020 1,041,482
- ----------------------------------------------------------------------------------------------------------------------
Class B 236,432 3,503,919 48,243 617,509
- ----------------------------------------------------------------------------------------------------------------------
Class C 64,371 952,680 7,806 99,838
- ----------------------------------------------------------------------------------------------------------------------
Institutional Class(b) 37 576 -- --
======================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 1,088,278 15,900,255 1,005,025 11,354,405
- ----------------------------------------------------------------------------------------------------------------------
Class B (1,123,493) (15,900,255) (1,032,096) (11,354,405)
======================================================================================================================
Reacquired:(c)
Class A (2,017,034) (29,331,499) (3,045,439) (33,802,966)
- ----------------------------------------------------------------------------------------------------------------------
Class B (846,484) (11,834,548) (1,080,501) (11,402,328)
- ----------------------------------------------------------------------------------------------------------------------
Class C (264,781) (3,720,435) (195,070) (2,146,018)
- ----------------------------------------------------------------------------------------------------------------------
Institutional Class(b) (6,657) (104,191) -- --
======================================================================================================================
5,177,570 $ 77,124,446 674,887 $ 9,915,269
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and it owns 6% of the outstanding shares of
the Fund. AIM Distributors has an agreement with this entity to sell Fund
shares. The Fund, AIM and/or AIM affiliates may make payments to these
entity, which are considered to be related, for providing services to the
Fund, AIM and/or AIM affiliates including but not limited to services such
as, securities brokerage, distribution, third party record keeping and
account servicing. The Trust has no knowledge as to whether all or any
portion of the shares owned of record by these shareholders are also owned
beneficially.
(b) Institutional Class shares commenced sales on April 30, 2004.
(c) Amount is net of redemption fees of $4,833, $2,171, $476 and $107 for Class
A, Class B, Class C and Institutional Class for 2004, respectively, and
$234, $160, and $18 for Class A, Class B and Class C shares for 2003,
respectively, based on the relative net assets of each class.
FS-62
NOTE 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
-----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.54 $ 9.95 $ 11.00 $ 13.33 $ 15.78
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)(a) (0.06)(a) (0.02)(a) (0.10)(a) (0.19)(a)
- -------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.93 3.79 (1.03) (2.17) (1.11)
===============================================================================================================================
Total from investment operations 2.91 3.73 (1.05) (2.27) (1.30)
===============================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- (0.06) --
- -------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.80) (0.14) -- -- (1.15)
===============================================================================================================================
Total distributions (0.80) (0.14) -- (0.06) (1.15)
===============================================================================================================================
Redemptions fees added to shares of beneficial interest 0.00 0.00 -- -- --
===============================================================================================================================
Net asset value, end of period $ 15.65 $ 13.54 $ 9.95 $ 11.00 $ 13.33
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(b) 21.64% 37.51% (9.55)% (17.03)% (7.90)%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $182,416 $109,205 $68,335 $80,630 $20,751
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.94%(c) 2.00% 2.00% 2.00% 2.00%
- -------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.96%(c) 2.05% 2.05% 2.25% 2.14%
===============================================================================================================================
Ratio of net investment income (loss) to average net assets (0.11)%(c) (0.50)% (0.18)% (0.94)% (1.27)%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate 115% 178% 80% 154% 260%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $136,338,037.
FS-63
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
---------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.15 $ 9.71 $ 10.80 $ 13.12 $ 15.62
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.09)(a) (0.11)(a) (0.07)(a) (0.15)(a) (0.26)(a)
- -----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.84 3.69 (1.02) (2.13) (1.09)
=============================================================================================================================
Total from investment operations 2.75 3.58 (1.09) (2.28) (1.35)
=============================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- (0.04) --
- -----------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.80) (0.14) -- -- (1.15)
=============================================================================================================================
Total distributions (0.80) (0.14) -- (0.04) (1.15)
=============================================================================================================================
Redemptions fees added to shares of beneficial interest 0.00 0.00 -- -- --
=============================================================================================================================
Net asset value, end of period $ 15.10 $ 13.15 $ 9.71 $ 10.80 $ 13.12
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Total return(b) 21.06% 36.90% (10.09)% (17.36)% (8.30)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $74,120 $62,424 $54,029 $81,459 $22,279
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.44%(c) 2.50% 2.50% 2.50% 2.50%
- -----------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.46%(c) 2.55% 2.55% 2.75% 2.64%
=============================================================================================================================
Ratio of net investment income (loss) to average net assets (0.61)%(c) (1.00)% (0.68)% (1.44)% (1.77)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Portfolio turnover rate 115% 178% 80% 154% 260%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $64,251,818.
FS-64
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
-------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.14 $ 9.71 $ 10.79 $ 13.11 $15.62
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.09)(a) (0.11)(a) (0.07)(a) (0.16)(a) (0.26)(a)
- ---------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.83 3.68 (1.01) (2.12) (1.10)
===========================================================================================================================
Total from investment operations 2.74 3.57 (1.08) (2.28) (1.36)
===========================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- (0.04) --
- ---------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.80) (0.14) -- -- (1.15)
===========================================================================================================================
Total distributions (0.80) (0.14) -- (0.04) (1.15)
===========================================================================================================================
Redemptions fees added to shares of beneficial interest 0.00 0.00 -- -- --
===========================================================================================================================
Net asset value, end of period $ 15.08 $13.14 $ 9.71 $ 10.79 $13.11
___________________________________________________________________________________________________________________________
===========================================================================================================================
Total return(b) 21.00% 36.79% (10.01)% (17.37)% (8.37)%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $20,375 $9,993 $ 4,551 $ 4,600 $1,789
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.44%(c) 2.50% 2.50% 2.50% 2.50%
- ---------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.46%(c) 2.55% 2.55% 2.75% 2.64%
===========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.61)%(c) (1.00)% (0.68)% (1.44)% (1.77)%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Portfolio turnover rate 115% 178% 80% 154% 260%
___________________________________________________________________________________________________________________________
===========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $13,081,341.
FS-65
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
-------------------
APRIL 30, 2004
(DATE SALES
COMMENCED) TO
DECEMBER 31,
2004
- -----------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.98
- -----------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.07(a)
- -----------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 2.48
===================================================================================
Total from investment operations 2.55
===================================================================================
Less distributions from net realized gains (0.80)
===================================================================================
Redemptions fees added to shares of beneficial interest (.00)
===================================================================================
Net asset value, end of period $ 15.73
___________________________________________________________________________________
===================================================================================
Total return(b) 18.39%
___________________________________________________________________________________
===================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $13,158
___________________________________________________________________________________
===================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.18%(c)
- -----------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.20%(c)
===================================================================================
Ratio of net investment income to average net assets 0.65%(c)
___________________________________________________________________________________
===================================================================================
Portfolio turnover rate(d) 115%
___________________________________________________________________________________
===================================================================================
</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
$3,030,285.
(d) Not annualized for periods less than one year.
NOTE 13--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators, including
without limitation the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), to resolve
civil enforcement actions and investigations related to market timing activity
and related issues in the AIM Funds, including those formerly advised by IFG.
These regulators alleged, in substance, that IFG and AIM failed to disclose in
the prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that they had entered into certain arrangements
permitting market timing of such Funds, thereby breaching their fiduciary duties
to such Funds. As a result of the foregoing, the regulators alleged that IFG and
AIM breached various Federal and state securities, business and consumer
protection laws. On the same date, A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached a final settlement with the SEC to
resolve an investigation relating to market timing activity and related issues
in the AIM Funds. The SEC also alleged that ADI violated various Federal
securities laws. The SEC also has settled related market timing enforcement
actions brought against certain former officers and employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325 million,
of which $110 million is civil penalties. Of this $325 million total payment,
half has been paid and the remaining half will be paid on or before December 31,
2005. AIM and ADI agreed to pay a total of $50 million, of which $30 million is
civil penalties, all of which has been paid. The entire $325 million IFG
settlement payment will be made available for distribution to the shareholders
of those AIM Funds that IFG formerly advised that were harmed by market timing
activity, and the entire $50 million settlement payment by AIM and ADI will be
made available for distribution to the shareholders of those AIM Funds advised
by AIM that were harmed by market timing activity, all as to be determined by an
independent distribution consultant. The settlement payments will be distributed
in accordance with a methodology to be determined by the independent
distribution consultant, in consultation with AIM and the independent trustees
of the AIM Funds and acceptable to the staff of the SEC. Under the settlements
with the NYAG and COAG, AIM has agreed to reduce management fees on certain
equity and balanced AIM
FS-66
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
Funds by $15 million per year for the next five years, based upon effective fee
rates and assets under management as of July 1, 2004, and not to increase
certain management fees.
Under the terms of the settlements, AIM will make certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year thereafter, AIM will
undergo a compliance review by an independent third party. In addition, under
the terms of the settlements, AIM has undertaken to cause the AIM Funds to
operate in accordance with certain governance policies and practices, including
retaining a full-time independent senior officer whose duties will include
monitoring compliance and managing the process by which proposed management fees
to be charged the AIM Funds are negotiated. Also, commencing in 2008 and not
less than every fifth calendar year thereafter, the AIM Funds will hold
shareholder meetings at which their Boards of Trustees will be elected.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
Funds related to market timing matters.
The SEC has also settled market timing enforcement actions against Raymond R.
Cunningham (the former president and chief executive officer of IFG and a former
member of the board of directors of the AIM Funds formerly advised by IFG),
Timothy J. Miller (the former chief investment officer and a former portfolio
manager for IFG), Thomas A. Kolbe (the former national sales manager of IFG) and
Michael D. Legoski (a former assistant vice president in IFG's sales
department). As part of these settlements, the SEC ordered these individuals to
pay restitution and civil penalties in various amounts and prohibited them from
associating with, or serving as an officer or director of, an investment
advisor, broker, dealer and/or investment company, as applicable, for certain
periods of time.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's agreement
to reduce management fees on certain equity and balanced AIM Funds by $15
million per year for the next five years, based upon effective fee rates and
assets under management as of July 1, 2004). The manner in which the settlement
payments will be distributed is unknown at the present time and will be
determined by an independent distribution consultant appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement payments may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
Regulatory Inquiries and Pending Litigation
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including but not limited to revenue sharing and directed-brokerage
arrangements, investments in securities of other registered investment
companies, contractual plans, issues related to Section 529 college savings
plans, procedures for locating lost security holders and participation in class
action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional regulatory
actions and/or civil lawsuits related to the above or other issues may be filed
against the AIM Funds, IFG, AIM and/or related entities and individuals in the
future. Additional regulatory inquiries related to the above or other issues
also may be received by the AIM Funds, IFG, AIM and/or related entities and
individuals in the future.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD,
FS-67
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
the DOL, the Internal Revenue Service, the United States Attorney's Office for
the Southern District of New York, the United States Attorney's Office for the
Central District of California, the United States Attorney's Office for the
District of Massachusetts, the Massachusetts Securities Division, the U.S.
Postal Inspection Service and the Commodity Futures Trading Commission, some of
which concern one or more AIM Funds. AIM is providing full cooperation with
respect to these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, AIM Management, AMVESCAP, certain
related entities, certain of their current and former officers and/or certain
unrelated third parties) making allegations that are similar in many respects to
those in the settled regulatory actions brought by the SEC, the NYAG and the
COAG concerning market timing activity in the AIM Funds. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
various provisions of the Federal and state securities laws; (ii) violation of
various provisions of ERISA; (iii) breach of fiduciary duty; and/or (iv) breach
of contract. These lawsuits were initiated in both Federal and state courts and
seek such remedies as compensatory damages; restitution; injunctive relief;
disgorgement of management fees; imposition of a constructive trust; removal of
certain directors and/or employees; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements; interest; and attorneys' and
experts' fees.
All lawsuits based on allegations of market timing, late trading, and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act ("ERISA")
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan. The
plaintiffs in one of the underlying lawsuits continue to seek remand of their
lawsuit to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and/or distribution fees and failed to
pass on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of contract.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; rescission of certain Funds' advisory agreements and
distribution plans; interest; prospective relief in the form of reduced fees;
and attorneys' and experts' fees. All of these lawsuits have been transferred to
the United States District Court for the Southern District of Texas, Houston
Division by order of the applicable United States District Court in which they
were initially filed. The plaintiff in one of these lawsuits has challenged this
order.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Limited
Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; and (ii) breach of fiduciary duty. These lawsuits have been
filed in Federal courts and seek such remedies as damages; injunctive relief;
and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
FS-68
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing to
ensure that the AIM Funds participated in class action settlements in which the
AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * *
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
FS-69
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
AIM Mid Cap Core Equity Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM Mid Cap Core Equity Fund (one
of the funds constituting AIM Growth Series, hereafter referred to as the
"Fund") at December 31, 2004, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the periods indicated, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2004 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
February 18, 2005
Houston, Texas
FS-70
FINANCIALS
SCHEDULE OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-90.69%
ADVERTISING-1.27%
Valassis Communications, Inc.(a) 1,338,700 $ 46,867,887
===========================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-1.46%
V. F. Corp. 975,300 54,012,114
===========================================================================
APPLICATION SOFTWARE-3.05%
Fair Issac Corp. 1,000,000 36,680,000
- ---------------------------------------------------------------------------
Intuit Inc.(a) 865,000 38,068,650
- ---------------------------------------------------------------------------
Reynolds & Reynolds Co. (The)-Class A 1,421,400 37,681,314
===========================================================================
112,429,964
===========================================================================
BREWERS-1.28%
Heineken N.V.(Netherlands)(b) 1,418,268 47,088,107
===========================================================================
COMPUTER HARDWARE-1.91%
Diebold, Inc. 930,000 51,828,900
- ---------------------------------------------------------------------------
Intergraph Corp.(a) 700,000 18,851,000
===========================================================================
70,679,900
===========================================================================
CONSUMER FINANCE-0.61%
MoneyGram International, Inc. 1,072,800 22,678,992
===========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-2.00%
Ceridian Corp.(a) 4,046,450 73,969,106
===========================================================================
DISTRIBUTORS-1.23%
Genuine Parts Co. 1,030,000 45,381,800
===========================================================================
DIVERSIFIED BANKS-0.76%
Comerica Inc. 458,600 27,983,772
===========================================================================
DIVERSIFIED CHEMICALS-1.02%
Engelhard Corp. 1,225,000 37,570,750
===========================================================================
DIVERSIFIED COMMERCIAL SERVICES-1.07%
Rentokil Initial PLC (United Kingdom)(b) 14,000,000 39,572,450
===========================================================================
ELECTRIC UTILITIES-2.98%
FPL Group, Inc. 561,200 41,949,700
- ---------------------------------------------------------------------------
Wisconsin Energy Corp. 2,020,000 68,094,200
===========================================================================
110,043,900
===========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-3.49%
Agilent Technologies, Inc.(a) 1,733,400 41,774,940
- ---------------------------------------------------------------------------
Amphenol Corp.-Class A(a) 1,020,000 37,474,800
- ---------------------------------------------------------------------------
Mettler-Toledo International Inc.(a) 968,000 49,668,080
===========================================================================
128,917,820
===========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
ENVIRONMENTAL SERVICES-2.26%
Republic Services, Inc. 2,489,600 $ 83,501,184
===========================================================================
FERTILIZERS & AGRICULTURAL CHEMICALS-1.44%
Scotts Co. (The)-Class A(a) 724,200 53,243,184
===========================================================================
FOOD RETAIL-1.79%
Kroger Co. (The)(a) 3,770,000 66,125,800
===========================================================================
GENERAL MERCHANDISE STORES-0.81%
Family Dollar Stores, Inc. 952,000 29,730,960
===========================================================================
HEALTH CARE SERVICES-2.16%
IMS Health Inc. 1,613,200 37,442,372
- ---------------------------------------------------------------------------
Medco Health Solutions, Inc.(a) 1,012,900 42,136,640
===========================================================================
79,579,012
===========================================================================
HOME FURNISHINGS-2.25%
Mohawk Industries, Inc.(a) 908,500 82,900,625
===========================================================================
INDUSTRIAL MACHINERY-2.70%
Dover Corp. 1,202,600 50,437,044
- ---------------------------------------------------------------------------
ITT Industries, Inc. 583,000 49,234,350
===========================================================================
99,671,394
===========================================================================
INTEGRATED OIL & GAS-2.37%
Amerada Hess Corp. 633,600 52,195,968
- ---------------------------------------------------------------------------
Murphy Oil Corp. 437,950 35,233,077
===========================================================================
87,429,045
===========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-1.09%
CenturyTel, Inc. 1,130,000 40,081,100
===========================================================================
LEISURE PRODUCTS-1.44%
Mattel, Inc. 2,725,550 53,120,969
===========================================================================
METAL & GLASS CONTAINERS-2.57%
Ball Corp. 965,400 42,458,292
- ---------------------------------------------------------------------------
Pactiv Corp.(a) 2,075,000 52,476,750
===========================================================================
94,935,042
===========================================================================
OFFICE ELECTRONICS-1.84%
Xerox Corp.(a) 3,993,800 67,934,538
===========================================================================
OFFICE SERVICES & SUPPLIES-1.00%
Pitney Bowes Inc. 800,000 37,024,000
===========================================================================
OIL & GAS DRILLING-3.05%
Nabors Industries, Ltd. (Bermuda)(a) 725,420 37,206,792
- ---------------------------------------------------------------------------
Noble Corp. (Cayman Islands)(a) 1,519,000 75,555,060
===========================================================================
112,761,852
===========================================================================
</Table>
FS-71
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES-2.90%
BJ Services Co. 781,000 $ 36,347,740
- ---------------------------------------------------------------------------
FMC Technologies, Inc.(a) 1,146,000 36,901,200
- ---------------------------------------------------------------------------
Smith International, Inc.(a) 621,550 33,818,535
===========================================================================
107,067,475
===========================================================================
OIL & GAS EXPLORATION & PRODUCTION-4.09%
Apache Corp. 739,000 37,371,230
- ---------------------------------------------------------------------------
Newfield Exploration Co.(a) 600,000 35,430,000
- ---------------------------------------------------------------------------
Pioneer Natural Resources Co. 1,095,800 38,462,580
- ---------------------------------------------------------------------------
Plains Exploration & Production Co.(a) 1,530,000 39,780,000
===========================================================================
151,043,810
===========================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-2.07%
Williams Cos., Inc. (The) 4,691,500 76,424,535
===========================================================================
PACKAGED FOODS & MEATS-2.90%
Campbell Soup Co. 1,741,500 52,053,435
- ---------------------------------------------------------------------------
Tate & Lyle PLC (United Kingdom)(b) 6,100,000 55,182,037
===========================================================================
107,235,472
===========================================================================
PAPER PRODUCTS-1.42%
Georgia-Pacific Corp. 1,396,000 52,322,080
===========================================================================
PHARMACEUTICALS-3.60%
Forest Laboratories, Inc.(a) 1,700,000 76,262,000
- ---------------------------------------------------------------------------
Teva Pharmaceutical Industries Ltd.-ADR
(Israel) 1,900,000 56,734,000
===========================================================================
132,996,000
===========================================================================
PROPERTY & CASUALTY INSURANCE-1.47%
ACE Ltd. (Cayman Islands) 1,272,000 54,378,000
===========================================================================
PUBLISHING-3.06%
Belo Corp.-Class A 1,496,200 39,260,288
- ---------------------------------------------------------------------------
Knight-Ridder, Inc. 509,000 34,072,460
- ---------------------------------------------------------------------------
Lee Enterprises, Inc. 23,800 1,096,704
- ---------------------------------------------------------------------------
New York Times Co. (The)-Class A 945,400 38,572,320
===========================================================================
113,001,772
===========================================================================
REGIONAL BANKS-5.04%
City National Corp. 425,700 30,075,705
- ---------------------------------------------------------------------------
Compass Bancshares, Inc. 613,000 29,834,710
- ---------------------------------------------------------------------------
Hibernia Corp.-Class A 1,100,000 32,461,000
- ---------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
REGIONAL BANKS-(CONTINUED)
Hudson United Bancorp 649,900 $ 25,593,062
- ---------------------------------------------------------------------------
Marshall & Ilsley Corp. 690,000 30,498,000
- ---------------------------------------------------------------------------
TCF Financial Corp. 1,168,000 37,539,520
===========================================================================
186,001,997
===========================================================================
REINSURANCE-1.05%
RenaissanceRe Holdings Ltd. (Bermuda) 742,000 38,643,360
===========================================================================
RESTAURANTS-1.66%
Outback Steakhouse, Inc. 826,000 37,814,280
- ---------------------------------------------------------------------------
Wendy's International, Inc. 600,100 23,559,926
===========================================================================
61,374,206
===========================================================================
SEMICONDUCTORS-3.14%
Microchip Technology Inc. 1,291,500 34,431,390
- ---------------------------------------------------------------------------
National Semiconductor Corp. 2,457,000 44,103,150
- ---------------------------------------------------------------------------
Xilinx, Inc. 1,259,000 37,329,350
===========================================================================
115,863,890
===========================================================================
SPECIALTY CHEMICALS-6.31%
International Flavors & Fragrances Inc. 2,220,000 95,104,800
- ---------------------------------------------------------------------------
Rohm & Haas Co. 850,000 37,595,500
- ---------------------------------------------------------------------------
Sigma-Aldrich Corp. 850,000 51,391,000
- ---------------------------------------------------------------------------
Valspar Corp. (The) 975,050 48,762,251
===========================================================================
232,853,551
===========================================================================
SYSTEMS SOFTWARE-1.46%
Computer Associates International, Inc. 1,739,600 54,031,976
===========================================================================
THRIFTS & MORTGAGE FINANCE-1.62%
New York Community Bancorp, Inc. 1,630,000 33,529,100
- ---------------------------------------------------------------------------
Webster Financial Corp. 520,000 26,332,800
===========================================================================
59,861,900
===========================================================================
Total Common Stocks & Other Equity
Interests (Cost $2,782,427,210) 3,348,335,291
===========================================================================
MONEY MARKET FUNDS-9.38%
Liquid Assets Portfolio-Institutional
Class(c) 173,231,587 173,231,587
- ---------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(c) 173,231,588 173,231,588
===========================================================================
Total Money Market Funds (Cost
$346,463,175) 346,463,175
===========================================================================
TOTAL INVESTMENTS-100.07% (Cost
$3,128,890,385) 3,694,798,466
===========================================================================
OTHER ASSETS LESS LIABILITIES-(0.07%) (2,641,745)
===========================================================================
NET ASSETS-100.00% $3,692,156,721
___________________________________________________________________________
===========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
aggregate market value of these securities at December 31, 2004 was
$141,842,594, which represented 3.84% of the Fund's Total Investments. See
Note 1A.
(c) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying notes which are an integral part of the financial statements.
FS-72
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$2,782,427,210) $3,348,335,291
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $346,463,175) 346,463,175
============================================================
Total investments (cost $3,128,890,385) 3,694,798,466
============================================================
Foreign currencies, market at value (cost
$107) 109
- ------------------------------------------------------------
Receivables for:
Investments sold 5,074,352
- ------------------------------------------------------------
Fund shares sold 3,680,087
- ------------------------------------------------------------
Dividends 4,223,356
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 81,370
- ------------------------------------------------------------
Other assets 46,806
============================================================
Total assets 3,707,904,546
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 13,019,247
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 157,776
- ------------------------------------------------------------
Accrued distribution fees 1,392,149
- ------------------------------------------------------------
Accrued transfer agent fees 949,234
- ------------------------------------------------------------
Accrued operating expenses 229,419
============================================================
Total liabilities 15,747,825
============================================================
Net assets applicable to shares outstanding $3,692,156,721
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $3,032,813,077
- ------------------------------------------------------------
Undistributed net investment income (loss) (103,846)
- ------------------------------------------------------------
Undistributed net realized gain from
investment securities and foreign
currencies 93,536,835
- ------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 565,910,655
============================================================
$3,692,156,721
____________________________________________________________
============================================================
NET ASSETS:
Class A $2,552,041,118
____________________________________________________________
============================================================
Class B $ 702,360,945
____________________________________________________________
============================================================
Class C $ 324,872,777
____________________________________________________________
============================================================
Class R $ 61,302,903
____________________________________________________________
============================================================
Institutional Class $ 51,578,978
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE,UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 89,092,463
____________________________________________________________
============================================================
Class B 27,294,375
____________________________________________________________
============================================================
Class C 12,639,789
____________________________________________________________
============================================================
Class R 2,147,975
____________________________________________________________
============================================================
Institutional Class 1,769,133
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 28.64
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $28.64 divided by
94.50%) $ 30.31
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 25.73
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 25.70
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 28.54
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 29.15
____________________________________________________________
============================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-73
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $405,552) $ 36,817,579
- --------------------------------------------------------------------------
Dividends from affiliated money market funds (including
securities lending income of $838,913*) 6,866,087
==========================================================================
Total investment income 43,683,666
==========================================================================
EXPENSES:
Advisory fees 22,980,408
- --------------------------------------------------------------------------
Administrative services fees 592,602
- --------------------------------------------------------------------------
Custodian fees 247,985
- --------------------------------------------------------------------------
Distribution fees:
Class A 8,097,059
- --------------------------------------------------------------------------
Class B 7,044,856
- --------------------------------------------------------------------------
Class C 3,172,774
- --------------------------------------------------------------------------
Class R 236,821
- --------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C & R 10,391,471
- --------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 25,980
- --------------------------------------------------------------------------
Trustees' fees and retirement benefits 102,374
- --------------------------------------------------------------------------
Other 1,493,011
==========================================================================
Total expenses 54,385,341
==========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (2,454,287)
==========================================================================
Net expenses 51,931,054
==========================================================================
Net investment income (loss) (8,247,388)
==========================================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES AND
FOREIGN CURRENCIES:
Net realized gain from:
Investment securities 366,533,789
- --------------------------------------------------------------------------
Foreign currencies 211,471
==========================================================================
366,745,260
==========================================================================
Change in net unrealized appreciation of:
Investment securities 79,254,965
- --------------------------------------------------------------------------
Foreign currencies 2,574
==========================================================================
79,257,539
==========================================================================
Net gain from investment securities and foreign currencies 446,002,799
==========================================================================
Net increase in net assets resulting from operations $437,755,411
__________________________________________________________________________
==========================================================================
</Table>
* Dividends from affiliated money market funds are net of income rebate paid to
securities lending counterparties.
See accompanying notes which are an integral part of the financial statements.
FS-74
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (8,247,388) $ (12,705,701)
- ----------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 366,745,260 32,726,586
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and foreign currencies 79,257,539 552,964,014
==============================================================================================
Net increase in net assets resulting from operations 437,755,411 572,984,899
==============================================================================================
Distributions to shareholders from net realized gains:
Class A (165,796,542) --
- ----------------------------------------------------------------------------------------------
Class B (50,732,936) --
- ----------------------------------------------------------------------------------------------
Class C (23,417,554) --
- ----------------------------------------------------------------------------------------------
Class R (3,882,376) --
- ----------------------------------------------------------------------------------------------
Institutional Class (3,241,989) --
==============================================================================================
Decrease in net assets resulting from distributions (247,071,397) --
==============================================================================================
Share transactions-net:
Class A 390,359,539 579,154,494
- ----------------------------------------------------------------------------------------------
Class B (34,584,177) 64,080,894
- ----------------------------------------------------------------------------------------------
Class C 6,470,062 87,744,331
- ----------------------------------------------------------------------------------------------
Class R 31,669,516 20,697,205
- ----------------------------------------------------------------------------------------------
Institutional Class 23,251,227 17,715,683
==============================================================================================
Net increase in net assets resulting from share
transactions 417,166,167 769,392,607
==============================================================================================
Net increase in net assets 607,850,181 1,342,377,506
==============================================================================================
NET ASSETS:
Beginning of year 3,084,306,540 1,741,929,034
==============================================================================================
End of year (including undistributed net investment income
(loss) of $(103,846) and $(40,566), respectively) $3,692,156,721 $3,084,306,540
______________________________________________________________________________________________
==============================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-75
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Mid Cap Core Equity Fund (the "Fund") is a separate series of AIM Growth
Series (the "Trust"). The Trust is organized as a Delaware statutory trust and
is registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of seven
separate series portfolios, each authorized to issue an unlimited number of
shares of beneficial interest. The Fund currently offers multiple classes of
shares. Matters affecting each portfolio or class will be voted on exclusively
by the shareholders of such portfolio or class. The assets, liabilities and
operations of each portfolio are accounted for separately. Information presented
in these financial statements pertains only to the Fund. As of February 27,
2004, the Fund's shares are offered on a limited basis.
The Fund's investment objective is long-term growth of capital. Each company
listed in the Schedule of Investments is organized in the United States of
America unless otherwise noted.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. However, the Fund has not had prior claims or losses pursuant to these
contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
is valued on the basis of prices furnished by independent pricing services
or market makers. Each security reported on the NASDAQ National Market
System is valued at the NASDAQ Official Closing Price ("NOCP") as of the
close of the customary trading session on the valuation date or absent a
NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
FS-76
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.
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 0.725% on the first
$500 million of the Fund's average daily net assets, plus 0.70% on the next $500
million of the Fund's average daily net assets, plus 0.675% on the next $500
million of the Fund's average daily net assets, plus 0.65% on the Fund's average
daily net assets in excess of $1.5 billion. AIM has voluntarily agreed to waive
advisory fees of the Fund in the amount of 25% of the advisory fee AIM receives
from the affiliated money market funds on investments by the Fund in such
affiliated money market funds (excluding investments made in affiliated money
market funds with cash collateral from securities loaned by the Fund). Voluntary
fee waivers or reimbursements may be modified or discontinued at any time upon
consultation with the Board of Trustees without further notice to investors. For
the year ended December 31, 2004, AIM waived fees of $108,680.
For the year ended December 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to reimburse $317,567 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.
FS-77
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. Pursuant to such agreement for the year ended
December 31, 2004, AIM was paid $592,602.
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 daily net assets. AISI did not reimburse fees
during the period under this expense limitation. For the year ended December 31,
2004, the Fund paid AISI $10,391,471 for Class A, Class B, Class C and Class R
shares and $25,980 for Institutional Class shares. AISI may make payments to
intermediaries that provide omnibus account services, sub-accounting services
and/or networking services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C, Class R and Institutional Class shares of the Fund.
The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with
respect to the Fund's Class A, Class B, Class C and Class R shares (collectively
the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors
compensation at the annual rate of 0.35% of the Fund's average daily net assets
of Class A shares, 1.00% of the average daily net assets of Class B and Class C
shares and 0.50% of the average daily net assets of Class R shares. Of these
amounts, up to 0.25% of the average daily net assets of the Class A, Class B,
Class C or Class R shares may be paid to furnish continuing personal shareholder
services to customers who purchase and own shares of such classes. Any amounts
not paid as a service fee under the Plans would constitute an asset-based sales
charge. NASD Rules also impose a cap on the total sales charges, including
asset-based sales charges that may be paid by any class of shares of the Fund.
During the periods the Fund is offered on a limited basis, AIM Distributors has
agreed to waive Class A distribution plan fees equal to 0.10% of the average
daily net assets of Class A shares. Pursuant to the Plans, for the year ended
December 31, 2004, the Class A, Class B, Class C and Class R shares paid
$6,113,548, $7,044,856, $3,172,774 and $236,821, respectively, after AIM
Distributors waived Plan fees of $1,983,511 for Class A shares.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the year
ended December 31, 2004, AIM Distributors advised the Fund that it retained
$342,343 in front-end sales commissions from the sale of Class A shares and
$5,653, $78,355, $51,150 and $0 from Class A, Class B, Class C and Class R
shares, respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest daily available cash balances and cash
collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. The tables below show
the transactions in and earnings from investments in affiliated money market
funds for the year ended December 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $280,649,536 $ 506,744,719 $ (614,162,668) $ -- $173,231,587 $3,042,011 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 280,649,537 506,744,719 (614,162,668) -- 173,231,588 2,985,163 --
===================================================================================================================================
Subtotal $561,299,073 $1,013,489,438 $(1,228,325,336) $ -- $346,463,175 $6,027,174 $ --
___________________________________________________________________________________________________________________________________
===================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME* GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $111,811,023 $ 341,477,447 $ (453,288,470) $ -- $ -- $ 424,951 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 111,811,024 341,477,446 (453,288,470) -- -- 413,962 --
===================================================================================================================================
Subtotal $223,622,047 $ 682,954,893 $ (906,576,940) $ -- $ -- $ 838,913 $ --
===================================================================================================================================
Total $784,921,120 $1,696,444,331 $(2,134,902,276) $ -- $346,463,175 $6,866,087 $ --
___________________________________________________________________________________________________________________________________
===================================================================================================================================
</Table>
* Dividend income is net of income rebate paid to securities lending
counterparties.
FS-78
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended December 31, 2004, the Fund
engaged in purchases and sales of securities of $23,130,457 and $29,647,937
respectively.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions and (ii) custodian credits which
result from periodic overnight cash balances at the custodian. For the year
ended December 31, 2004, the Fund received credits in transfer agency fees of
$43,374 and credits in custodian fees of $1,155 under expense offset
arrangements, which resulted in a reduction of the Fund's total expenses of
$44,529.
NOTE 6--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended December 31, 2004, the Fund paid legal fees of $10,441
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
FS-79
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At December 31, 2004, there were no securities on loan to brokers. For the
year ended December 31, 2004, the Fund received dividends on cash collateral net
of income rebate paid to counterparties of $838,913 for securities lending
transactions.
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31, 2004
and 2003 was as follows:
<Table>
<Caption>
2004 2003
- --------------------------------------------------------------------------------------
DISTRIBUTIONS PAID FROM:
Ordinary income $ 61,010,954 $ --
- --------------------------------------------------------------------------------------
Long-term capital gain 186,060,443 --
======================================================================================
Total $247,071,397 --
______________________________________________________________________________________
======================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- ------------------------------------------------------------------------------
Undistributed ordinary income $ 14,007,038
- ------------------------------------------------------------------------------
Undistributed long-term gain 82,789,737
- ------------------------------------------------------------------------------
Unrealized appreciation -- investments 562,650,715
- ------------------------------------------------------------------------------
Temporary book/tax differences (103,846)
- ------------------------------------------------------------------------------
Shares of beneficial interest 3,032,813,077
==============================================================================
Total net assets $3,692,156,721
______________________________________________________________________________
==============================================================================
</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 on foreign currencies of $2,574.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
The Fund had no capital loss carryforward as of December 31, 2004.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2004 was $2,021,706,718 and $1,669,277,654 respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $576,516,739
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (13,868,598)
==============================================================================
Net unrealized appreciation of investment securities $562,648,141
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $3,132,150,325.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses,
the treatment of a portion of the proceeds from redemption as a tax distribution
and foreign currency transactions, on December 31, 2004, undistributed net
investment income (loss) was increased by $8,184,108, undistributed net realized
gain was decreased by $26,384,108 and shares of beneficial interest increased by
$18,200,000. This reclassification had no effect on the net assets of the Fund.
FS-80
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 and Class R shares
are subject to CDSC. Generally, Class B shares will automatically convert to
Class A shares eight years after the end of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(A)
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
2004 2003
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 26,967,314 $ 758,954,877 39,159,554 $ 919,929,496
- ----------------------------------------------------------------------------------------------------------------------------
Class B 2,582,107 65,607,722 9,715,804 206,896,230
- ----------------------------------------------------------------------------------------------------------------------------
Class C 2,143,852 54,462,214 6,108,343 131,431,251
- ----------------------------------------------------------------------------------------------------------------------------
Class R 1,569,932 44,033,714 1,091,088 25,744,449
- ----------------------------------------------------------------------------------------------------------------------------
Institutional Class 1,058,147 30,243,199 888,554 21,488,316
============================================================================================================================
Issued as reinvestment of dividends:
Class A 5,671,172 160,721,002 -- --
- ----------------------------------------------------------------------------------------------------------------------------
Class B 1,875,385 47,766,053 -- --
- ----------------------------------------------------------------------------------------------------------------------------
Class C 867,525 22,069,827 -- --
- ----------------------------------------------------------------------------------------------------------------------------
Class R 130,679 3,690,363 -- --
- ----------------------------------------------------------------------------------------------------------------------------
Institutional Class 112,239 3,236,984 -- --
============================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 1,357,549 38,348,118 2,043,981 47,199,629
- ----------------------------------------------------------------------------------------------------------------------------
Class B (1,495,064) (38,348,118) (2,234,738) (47,199,629)
============================================================================================================================
Reacquired:
Class A (20,151,373) (567,664,458) (16,620,639) (387,974,631)
- ----------------------------------------------------------------------------------------------------------------------------
Class B (4,286,417) (109,609,834) (4,607,039) (95,615,707)
- ----------------------------------------------------------------------------------------------------------------------------
Class C (2,745,120) (70,061,979) (2,055,754) (43,686,920)
- ----------------------------------------------------------------------------------------------------------------------------
Class R (567,140) (16,054,561) (208,127) (5,047,244)
- ----------------------------------------------------------------------------------------------------------------------------
Institutional Class (358,294) (10,228,956) (157,954) (3,772,633)
============================================================================================================================
14,732,493 $ 417,166,167 33,123,073 $ 769,392,607
____________________________________________________________________________________________________________________________
============================================================================================================================
</Table>
(a) There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and it owns 8% of the outstanding shares of
the Fund. AIM Distributors has an agreement with this entity to sell Fund
shares. The Fund, AIM and/or AIM affiliates may make payments to this
entity, which is considered to be related to the Fund, for providing
services to the Fund, AIM and/or AIM affiliates including but not limited to
services such as, securities brokerage, distribution, third party record
keeping and account servicing. The Trust has no knowledge as to whether all
or any portion of the shares owned of record is also owned beneficially.
FS-81
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 26.92 $ 21.17 $ 23.85 $ 24.04 $ 23.48
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01)(a) (0.08)(a) (0.09)(a) (0.05)(a) 0.10(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 3.71 5.83 (2.56) 0.18 4.10
=================================================================================================================================
Total from investment operations 3.70 5.75 (2.65) 0.13 4.20
=================================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- (0.02) --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (1.98) -- (0.03) (0.30) (3.64)
=================================================================================================================================
Total distributions (1.98) -- (0.03) (0.32) (3.64)
=================================================================================================================================
Net asset value, end of period $ 28.64 $ 26.92 $ 21.17 $ 23.85 $ 24.04
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 13.82% 27.10% (11.13)% 0.56% 18.76%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,552,041 $2,025,407 $1,072,673 $490,118 $259,803
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.30%(c)(d) 1.41% 1.43% 1.39% 1.37%
=================================================================================================================================
Ratio of net investment income (loss) to average
net assets (0.02)%(c) (0.33)% (0.40)% (0.22)% 0.38%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 56% 38% 38% 68% 72%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $2,313,445,525.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.40%.
<Table>
<Caption>
CLASS B
-----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 24.54 $ 19.43 $ 22.03 $ 22.36 $ 22.21
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.19)(a) (0.21)(a) (0.22)(a) (0.19)(a) (0.07)(a)
- -------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.36 5.32 (2.35) 0.16 3.86
===============================================================================================================================
Total from investment operations 3.17 5.11 (2.57) (0.03) 3.79
===============================================================================================================================
Less distributions from net realized gains (1.98) -- (0.03) (0.30) (3.64)
===============================================================================================================================
Net asset value, end of period $ 25.73 $ 24.54 $ 19.43 $ 22.03 $ 22.36
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(b) 13.00% 26.30% (11.69)% (0.10)% 17.98%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $702,361 $702,267 $500,166 $333,783 $210,608
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets 2.04%(c)(d) 2.06% 2.08% 2.05% 2.02%
===============================================================================================================================
Ratio of net investment income (loss) to average net assets (0.76)%(c) (0.98)% (1.05)% (0.87)% (0.27)%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate 56% 38% 38% 68% 72%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $704,485,548.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.05%.
FS-82
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
---------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 24.51 $ 19.41 $ 22.00 $ 22.33 $ 22.19
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.19)(a) (0.21)(a) (0.22)(a) (0.19)(a) (0.07)(a)
- -------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.36 5.31 (2.34) 0.16 3.85
===============================================================================================================================
Total from investment operations 3.17 5.10 (2.56) (0.03) 3.78
===============================================================================================================================
Less distributions from net realized gains (1.98) -- (0.03) (0.30) (3.64)
===============================================================================================================================
Net asset value, end of period $ 25.70 $ 24.51 $ 19.41 $ 22.00 $ 22.33
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(b) 13.01% 26.28% (11.66)% (0.10)% 17.95%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $324,873 $303,296 $161,487 $68,085 $19,466
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets 2.04%(c)(d) 2.06% 2.08% 2.05% 2.02%
===============================================================================================================================
Ratio of net investment income (loss) to average net assets (0.76)%(c) (0.98)% (1.05)% (0.87)% (0.27)%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate 56% 38% 38% 68% 72%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $317,277,441.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.05%.
<Table>
<Caption>
CLASS R
------------------------------------------
JUNE 3, 2002
YEAR ENDED (DATE SALES
DECEMBER 31, COMMENCED) TO
----------------------- DECEMBER 31,
2004 2003 2002
- --------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 26.89 $ 21.18 $24.54
- --------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07)(a) (0.12)(a) (0.07)(a)
- --------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.70 5.83 (3.26)
========================================================================================================
Total from investment operations 3.63 5.71 (3.33)
========================================================================================================
Less distributions from net realized gains (1.98) -- (0.03)
========================================================================================================
Net asset value, end of period $ 28.54 $ 26.89 $21.18
________________________________________________________________________________________________________
========================================================================================================
Total return(b) 13.57% 26.96% (13.59)%
________________________________________________________________________________________________________
========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $61,303 $27,281 $2,786
________________________________________________________________________________________________________
========================================================================================================
Ratio of expenses to average net assets 1.54%(c)(d) 1.56% 1.58%(e)
========================================================================================================
Ratio of net investment income (loss) to average net assets (0.26)%(c) (0.48)% (0.55)%(e)
________________________________________________________________________________________________________
========================================================================================================
Portfolio turnover rate(f) 56% 38% 38%
________________________________________________________________________________________________________
========================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions and is not annualized for periods less than one
year.
(c) Ratios are based on average daily net assets of $47,364,232.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.55%.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-83
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
---------------------------------------------
MARCH 15, 2002
YEAR ENDED (DATE SALES
DECEMBER 31, COMMENCED) TO
--------------------------- DECEMBER 31,
2004 2003 2002
- -----------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 27.23 $ 21.27 $25.03
- -----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.14(a) 0.08(a) 0.04(a)
- -----------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.76 5.88 (3.77)
===========================================================================================================
Total from investment operations 3.90 5.96 (3.73)
===========================================================================================================
Less distributions from net realized gains (1.98) -- (0.03)
===========================================================================================================
Net asset value, end of period $ 29.15 $ 27.23 $21.27
___________________________________________________________________________________________________________
===========================================================================================================
Total return(b) 14.40% 28.02% (14.92)%
___________________________________________________________________________________________________________
===========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $51,579 $26,056 $4,817
___________________________________________________________________________________________________________
===========================================================================================================
Ratio of expenses to average net assets 0.80%(c)(d) 0.76% 0.82%(e)
===========================================================================================================
Ratio of net investment income to average net assets 0.48%(c) 0.32% 0.21%(e)
___________________________________________________________________________________________________________
===========================================================================================================
Portfolio turnover rate(f) 56% 38% 38%
___________________________________________________________________________________________________________
===========================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions and is not annualized for periods less than one
year.
(c) Ratios are based on average daily net assets of $37,490,011.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 0.81%.
(e) Annualized.
(f) Not annualized for periods less than one year.
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators, including
without limitation the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), to resolve
civil enforcement actions and investigations related to market timing activity
and related issues in the AIM Funds, including those formerly advised by IFG.
These regulators alleged, in substance, that IFG and AIM failed to disclose in
the prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that they had entered into certain arrangements
permitting market timing of such Funds, thereby breaching their fiduciary duties
to such Funds. As a result of the foregoing, the regulators alleged that IFG and
AIM breached various Federal and state securities, business and consumer
protection laws. On the same date, A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached a final settlement with the SEC to
resolve an investigation relating to market timing activity and related issues
in the AIM Funds. The SEC also alleged that ADI violated various Federal
securities laws. The SEC also has settled related market timing enforcement
actions brought against certain former officers and employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325 million,
of which $110 million is civil penalties. Of this $325 million total payment,
half has been paid and the remaining half will be paid on or before December 31,
2005. AIM and ADI agreed to pay a total of $50 million, of which $30 million is
civil penalties, all of which has been paid. The entire $325 million IFG
settlement payment will be made available for distribution to the shareholders
of those AIM Funds that IFG formerly advised that were harmed by market timing
activity, and the entire $50 million settlement payment by AIM and ADI will be
made available for distribution to the shareholders of those AIM Funds advised
by AIM that were harmed by market timing activity, all as to be determined by an
independent distribution consultant. The settlement payments will be distributed
in accordance with a methodology to be determined by the independent
distribution consultant, in consultation with AIM and the independent trustees
of the AIM Funds and acceptable to the staff of the SEC. Under the settlements
with the NYAG and COAG, AIM has agreed to reduce management fees on certain
equity and balanced AIM Funds by $15 million per year for the next five years,
based upon effective fee rates and assets under management as of July 1, 2004,
and not to increase certain management fees.
Under the terms of the settlements, AIM will make certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year
FS-84
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
thereafter, AIM will undergo a compliance review by an independent third party.
In addition, under the terms of the settlements, AIM has undertaken to cause the
AIM Funds to operate in accordance with certain governance policies and
practices, including retaining a full-time independent senior officer whose
duties will include monitoring compliance and managing the process by which
proposed management fees to be charged the AIM Funds are negotiated. Also,
commencing in 2008 and not less than every fifth calendar year thereafter, the
AIM Funds will hold shareholder meetings at which their Boards of Trustees will
be elected.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
Funds related to market timing matters.
The SEC has also settled market timing enforcement actions against Raymond R.
Cunningham (the former president and chief executive officer of IFG and a former
member of the board of directors of the AIM Funds formerly advised by IFG),
Timothy J. Miller (the former chief investment officer and a former portfolio
manager for IFG), Thomas A. Kolbe (the former national sales manager of IFG) and
Michael D. Legoski (a former assistant vice president in IFG's sales
department). As part of these settlements, the SEC ordered these individuals to
pay restitution and civil penalties in various amounts and prohibited them from
associating with, or serving as an officer or director of, an investment
advisor, broker, dealer and/or investment company, as applicable, for certain
periods of time.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's agreement
to reduce management fees on certain equity and balanced AIM Funds by $15
million per year for the next five years, based upon effective fee rates and
assets under management as of July 1, 2004). The manner in which the settlement
payments will be distributed is unknown at the present time and will be
determined by an independent distribution consultant appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement payments may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
Regulatory Inquiries and Pending Litigation
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including but not limited to revenue sharing and directed-brokerage
arrangements, investments in securities of other registered investment
companies, contractual plans, issues related to Section 529 college savings
plans, procedures for locating lost security holders and participation in class
action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional regulatory
actions and/or civil lawsuits related to the above or other issues may be filed
against the AIM Funds, IFG, AIM and/or related entities and individuals in the
future. Additional regulatory inquiries related to the above or other issues
also may be received by the AIM Funds, IFG, AIM and/or related entities and
individuals in the future.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the United States Attorney's Office for the Southern
District of New York, the United States Attorney's Office for the Central
District of California, the United States Attorney's Office for the District of
Massachusetts, the Massachusetts Securities Division, the U.S. Postal Inspection
Service and the Commodity Futures Trading Commission, some of which concern one
or more AIM Funds. AIM is providing full cooperation with respect to these
inquiries.
FS-85
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, AIM Management, AMVESCAP, certain
related entities, certain of their current and former officers and/or certain
unrelated third parties) making allegations that are similar in many respects to
those in the settled regulatory actions brought by the SEC, the NYAG and the
COAG concerning market timing activity in the AIM Funds. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
various provisions of the Federal and state securities laws; (ii) violation of
various provisions of ERISA; (iii) breach of fiduciary duty; and/or (iv) breach
of contract. These lawsuits were initiated in both Federal and state courts and
seek such remedies as compensatory damages; restitution; injunctive relief;
disgorgement of management fees; imposition of a constructive trust; removal of
certain directors and/or employees; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements; interest; and attorneys' and
experts' fees.
All lawsuits based on allegations of market timing, late trading, and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act ("ERISA")
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan. The
plaintiffs in one of the underlying lawsuits continue to seek remand of their
lawsuit to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and/or distribution fees and failed to
pass on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of contract.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; rescission of certain Funds' advisory agreements and
distribution plans; interest; prospective relief in the form of reduced fees;
and attorneys' and experts' fees. All of these lawsuits have been transferred to
the United States District Court for the Southern District of Texas, Houston
Division by order of the applicable United States District Court in which they
were initially filed. The plaintiff in one of these lawsuits has challenged this
order.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Limited
Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; and (ii) breach of fiduciary duty. These lawsuits have been
filed in Federal courts and seek such remedies as damages; injunctive relief;
and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing to
ensure that the AIM Funds participated in class action settlements in which the
AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
FS-86
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * *
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
FS-87
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
AIM Moderate Allocation 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 Moderate Allocation Fund (one
of the funds constituting AIM Growth Series, hereafter referred to as the
"Fund") at December 31, 2004, and the results of its operations, the changes in
its net assets and the financial highlights for the period April 30, 2004 (date
operations commenced) through December 31, 2004, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audit. We
conducted our audit of these financial statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at December 31, 2004 by
correspondence with the custodian, provides a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
February 18, 2005
Houston, Texas
FS-88
FINANCIALS
SCHEDULE OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
MUTUAL FUNDS-100.03%(A)
AIM High Yield Fund-Institutional Class-9.88% 3,190,332 $ 14,516,008
- ------------------------------------------------------------------------
AIM International Core Equity
Fund-Institutional Class-10.43%(b) 1,334,007 15,314,403
- ------------------------------------------------------------------------
AIM International Growth Fund-Institutional
Class-7.98%(c) 575,995 11,715,748
- ------------------------------------------------------------------------
AIM Large Cap Basic Value Fund-Institutional
Class-10.06%(c) 1,091,077 14,773,178
- ------------------------------------------------------------------------
AIM Large Cap Growth Fund-Institutional
Class-12.49%(c) 1,838,558 18,348,807
- ------------------------------------------------------------------------
AIM Mid Cap Basic Value Fund-Institutional
Class-5.12%(c) 570,692 7,516,013
- ------------------------------------------------------------------------
AIM Mid Cap Stock Fund-Institutional
Class-5.16%(d) 421,192 7,585,673
- ------------------------------------------------------------------------
AIM Multi-Sector Fund-Institutional
Class-5.12%(c)(e) 345,638 $ 7,521,090
- ------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
MUTUAL FUNDS-(CONTINUED)
AIM Short Term Bond Fund-Institutional
Class-4.71% 692,760 $ 6,920,670
- ------------------------------------------------------------------------
AIM Total Return Bond Fund-Institutional
Class-23.78% 3,332,484 34,924,433
- ------------------------------------------------------------------------
AIM Trimark Small Companies
Fund-Institutional Class-5.30%(c) 604,303 7,789,461
========================================================================
Total Mutual Funds (Cost $138,502,386) 146,925,484
========================================================================
TOTAL INVESTMENTS-100.03% (Cost $138,502,386) 146,925,484
========================================================================
OTHER ASSETS LESS LIABILITIES-(0.03%) (38,800)
========================================================================
NET ASSETS-100.00% $146,886,684
________________________________________________________________________
========================================================================
</Table>
Notes to Schedule of Investments:
(a) The mutual fund and the Fund are affiliated by having the same investment
advisor. See Note 3.
(b) Effective October 15, 2004, the INVESCO International Core Equity Fund was
renamed AIM International Core Equity Fund.
(c) Non-income producing security. A security is determined to be non-income
producing if the security has not declared a distribution in more than one
year from the report date.
(d) Effective October 15, 2004, the INVESCO Mid-Cap Growth Fund was renamed AIM
Mid Cap Stock Fund.
(e) Effective October 15, 2004, the INVESCO Multi-Sector Fund was renamed AIM
Multi-Sector Fund.
See accompanying notes which are an integral part of the financial statements.
FS-89
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
<Table>
ASSETS:
Investments in affiliated underlying funds,
at market value (cost $138,502,386) $146,925,484
- -----------------------------------------------------------
Receivables for:
Fund shares sold 771,447
- -----------------------------------------------------------
Amount due from advisor 2,157
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 3,679
- -----------------------------------------------------------
Other assets 95,093
===========================================================
Total assets 147,797,860
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 766,212
- -----------------------------------------------------------
Fund shares reacquired 5,235
- -----------------------------------------------------------
Trustee deferred compensation and
retirement plans 3,858
- -----------------------------------------------------------
Accrued distribution fees 76,335
- -----------------------------------------------------------
Accrued transfer agent fees 16,582
- -----------------------------------------------------------
Accrued operating expenses 42,954
===========================================================
Total liabilities 911,176
===========================================================
Net assets applicable to shares outstanding $146,886,684
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $138,324,236
- -----------------------------------------------------------
Undistributed net investment income 4,502
- -----------------------------------------------------------
Undistributed net realized gain from
investment securities 134,848
- -----------------------------------------------------------
Unrealized appreciation of investment
securities 8,423,098
===========================================================
$146,886,684
___________________________________________________________
===========================================================
NET ASSETS:
Class A $ 71,430,950
___________________________________________________________
===========================================================
Class B $ 45,845,906
___________________________________________________________
===========================================================
Class C $ 27,338,985
___________________________________________________________
===========================================================
Class R $ 2,160,691
___________________________________________________________
===========================================================
Institutional Class $ 110,152
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 6,556,692
___________________________________________________________
===========================================================
Class B 4,217,641
___________________________________________________________
===========================================================
Class C 2,515,196
___________________________________________________________
===========================================================
Class R 198,434
___________________________________________________________
===========================================================
Institutional Class 10,098
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 10.89
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $10.89 divided
by 94.50%) $ 11.52
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 10.87
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 10.87
___________________________________________________________
===========================================================
Class R:
Net asset value and offering price per
share $ 10.89
___________________________________________________________
===========================================================
Institutional Class:
Net asset value and offering price per
share $ 10.91
___________________________________________________________
===========================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-90
STATEMENT OF OPERATIONS
For the period April 30, 2004 (Date operations commenced) through December 31,
2004
<Table>
INVESTMENT INCOME:
Dividends from affiliated underlying funds $ 821,084
========================================================================
EXPENSES:
Administrative services fees 33,470
- ------------------------------------------------------------------------
Custodian fees 4,503
- ------------------------------------------------------------------------
Distribution fees:
Class A 68,484
- ------------------------------------------------------------------------
Class B 124,720
- ------------------------------------------------------------------------
Class C 92,170
- ------------------------------------------------------------------------
Class R 2,377
- ------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C & R 55,519
- ------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 6
- ------------------------------------------------------------------------
Trustees' fees and retirement benefits 9,106
- ------------------------------------------------------------------------
Registration and filing fees 54,343
- ------------------------------------------------------------------------
Professional fees 37,032
- ------------------------------------------------------------------------
Other 24,104
========================================================================
Total expenses 505,834
========================================================================
Less: Expenses reimbursed and expense offset arrangements (197,254)
========================================================================
Net expenses 308,580
========================================================================
Net investment income 512,504
========================================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES:
Net realized gain from affiliated underlying funds 18,318
- ------------------------------------------------------------------------
Net realized gain from distributions of affiliated
underlying funds 620,000
========================================================================
638,318
========================================================================
Change in net unrealized appreciation of affiliated
underlying funds 8,423,098
========================================================================
Net gain from affiliated underlying funds 9,061,416
========================================================================
Net increase in net assets resulting from operations $9,573,920
________________________________________________________________________
========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-91
STATEMENT OF CHANGES IN NET ASSETS
For the period April 30, 2004 (Date operations commenced) through December 31,
2004
<Table>
<Caption>
2004
- ----------------------------------------------------------------------------
OPERATIONS:
Net investment income from affiliated underlying funds $ 512,504
- ----------------------------------------------------------------------------
Net realized gain from affiliated underlying funds and
capital gain distributions of underlying funds 638,318
- ----------------------------------------------------------------------------
Change in net unrealized appreciation of affiliated
underlying funds 8,423,098
============================================================================
Net increase in net assets resulting from operations 9,573,920
============================================================================
Distributions to shareholders from net investment income:
Class A (574,401)
- ----------------------------------------------------------------------------
Class B (294,431)
- ----------------------------------------------------------------------------
Class C (174,411)
- ----------------------------------------------------------------------------
Class R (16,807)
- ----------------------------------------------------------------------------
Institutional Class (1,044)
============================================================================
Total distributions from net investment income (1,061,094)
============================================================================
Distributions to shareholders from net realized gains:
Class A (4,300)
- ----------------------------------------------------------------------------
Class B (2,835)
- ----------------------------------------------------------------------------
Class C (1,679)
- ----------------------------------------------------------------------------
Class R (132)
- ----------------------------------------------------------------------------
Institutional Class (7)
============================================================================
Total distributions from net realized gains (8,953)
============================================================================
Decrease in net assets resulting from distributions (1,070,047)
============================================================================
Share transactions-net:
Class A 67,422,298
- ----------------------------------------------------------------------------
Class B 43,220,987
- ----------------------------------------------------------------------------
Class C 25,581,696
- ----------------------------------------------------------------------------
Class R 2,056,769
- ----------------------------------------------------------------------------
Institutional Class 101,061
============================================================================
Net increase in net assets resulting from share
transactions 138,382,811
============================================================================
Net increase in net assets 146,886,684
============================================================================
NET ASSETS:
Beginning of period --
============================================================================
End of period (including undistributed net investment
income of $4,502) $146,886,684
____________________________________________________________________________
============================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-92
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Moderate Allocation Fund (the "Fund") is a separate series of AIM Growth
Series (the "Trust"). The Trust is organized as a Delaware statutory trust and
is registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of seven
separate series portfolios, each authorized to issue an unlimited number of
shares of beneficial interest. The Fund currently offers multiple classes of
shares. Matters affecting each portfolio or class will be voted on exclusively
by the shareholders of such portfolio or class. The assets, liabilities and
operations of each portfolio are accounted for separately. Information presented
in these financial statements pertains only to the Fund. The Fund commenced
operations on April 30, 2004.
The Fund's investment objective is to provide total return consistent with a
moderate level of risk relative to the broad stock market. The Fund is a "fund
of funds," in that it invests in the Institutional Class of other mutual funds
("underlying funds") advised by A I M Advisors, Inc. ("AIM"). AIM may change the
Fund's asset class allocations, the underlying funds or the target weightings in
the underlying funds without shareholder approval. The underlying funds may
engage in a number of investment techniques and practices, which involve certain
risks. Each underlying fund's accounting policies are outlined in the underlying
fund's financial statements and are available upon request.
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 -- Investments in underlying funds are valued at the
end of the day net asset value per share.
Securities in the underlying funds, 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 underlying funds' 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 underlying funds' 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
FS-93
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 underlying funds' officers following procedures
approved by the underlying funds' 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. Distributions from income from underlying funds, if any, are recorded
as dividend income on ex-dividend date. Distributions from net realized
capital gains from underlying funds, if any, are recorded as realized gains
on ex-dividend date.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Expenses included in the accompanying financial statements
reflect the expenses of the Fund and do not include any expenses of the
underlying funds. The results of the underlying funds expenses are included
in the realized and unrealized gain/loss on the investments in the
underlying funds.
Fees provided for under the Rule 12b-1 plan of a particular class of the
Fund are charged to the operations of such class. Transfer agency fees and
expenses and other shareholder recordkeeping fees and expenses attributable
to the Institutional Class are charged to such class. Transfer agency fees
and expenses and other shareholder recordkeeping fees and expenses relating
to all other classes are allocated among those classes based on relative
net assets. All other expenses are allocated among the classes based on
relative net assets.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with AIM.
Under the terms of the investment advisory agreement, the Fund does not pay an
advisory fee. However, the fund pays advisory fees to AIM indirectly as a
shareholder of the underlying funds. AIM has contractually agreed to reimburse
expenses to the extent necessary to limit other expenses (excluding certain
items discussed below) of Class A, Class B, Class C, Class R and Institutional
Class shares to 0.05% of average daily net assets, through December 31, 2005. In
determining the advisor's obligation to reimburse expenses, the following
expenses are not taken into account, and could cause other expenses to exceed
the cap stated above: (i) Rule 12b-1 plan fees, if any; (ii) interest; (iii)
taxes; (iv) dividend expense on short sales; (v) 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; (vi)
expenses related to a merger or reorganization, as approved by the Fund's Board
of Trustees; (vii) expenses of the underlying funds that are paid indirectly as
a result of share ownership of the underlying funds and (viii) 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. For
the period April 30, 2004 (date operations commenced) through December 31, 2004,
AIM reimbursed expenses of $140,021.
For the year ended December 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to reimburse $1,693 of expenses incurred
by the Fund related to market timing matters in the AIM Funds, including legal,
audit, shareholder servicing, communication and trustee expenses. These expenses
along with the related expense reimbursement, are included in the Statement of
Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the period April 30, 2004 (date operations
commenced) through December 31, 2004, AIM was paid $33,470 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. AISI may make
payments to intermediaries that provide omnibus account services, sub-accounting
services and/or networking services. For the Institutional Class, the transfer
agent has contractually agreed to reimburse class specific transfer agent fees
and expenses to the extent necessary to limit transfer agent fees to 0.10% of
the average net assets. For the period April 30, 2004 (date operations
commenced) through December 31, 2004, the Fund paid AISI $55,519 for Class A,
Class B, Class C and Class R shares and reimbursed $55,187 for Class A, Class B,
Class C and Class R shares and $6 for Institutional Class shares and AIM
reimbursed fees for the Institutional Class shares of $6.
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,
FS-94
Class B, Class C or Class R shares may be paid to furnish continuing personal
shareholder services to customers who purchase and own shares of such classes.
Any amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. NASD Rules also impose a cap on the total sales
charges, including asset-based sales charges that may be paid by any class of
shares of the Fund. Pursuant to the Plans, for the period April 30, 2004 (date
operations commenced) through December 31, 2004, the Class A, Class B, Class C
and Class R shares paid $68,484, $124,720, $92,170 and $2,377, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the period
April 30, 2004 (date operations commenced) through December 31, 2004, AIM
Distributors advised the Fund that it retained $203,518 in front-end sales
commissions from the sale of Class A shares and $0, $6,749, $801 and $0 from
Class A, Class B, Class C and Class R shares, respectively, for CDSC imposed
upon redemptions by shareholders.
The underlying funds pay no distribution fees and the Fund pays no sales
loads or other similar compensation to AIM Distributors for acquiring underlying
fund shares.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund and the mutual funds below have the same investment advisor and
therefore, are considered to be affiliated. The table below shows the
transactions in and earnings from investments in affiliated mutual funds for the
period April 30, 2004 (date operations commenced) through December 31, 2004.
INVESTMENTS OF AFFILIATES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 04/30/04 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME GAIN (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
AIM High Yield Fund-
Institutional Class $ -- $ 14,082,695 $ (72,829) $ 505,603 $14,516,008 $287,846 $ 539
- ------------------------------------------------------------------------------------------------------------------------------------
AIM International Core
Equity Fund-
Institutional Class -- 13,920,051 (121,587) 1,510,049 15,314,403 143,692 5,890
- ------------------------------------------------------------------------------------------------------------------------------------
AIM International Growth
Fund- Institutional Class -- 10,332,269 (70,846) 1,451,412 11,715,748 -- 2,913
- ------------------------------------------------------------------------------------------------------------------------------------
AIM Large Cap Basic Value
Fund- Institutional Class -- 13,776,360 (87,741) 1,084,950 14,773,178 -- (391)
- ------------------------------------------------------------------------------------------------------------------------------------
AIM Large Cap Growth Fund-
Institutional Class -- 17,220,449 (103,300) 1,229,924 18,348,807 -- 1,734
- ------------------------------------------------------------------------------------------------------------------------------------
AIM Mid Cap Basic Value
Fund- Institutional Class -- 6,888,180 (44,917) 672,259 7,516,013 -- 491
- ------------------------------------------------------------------------------------------------------------------------------------
AIM Mid Cap Stock Fund-
Institutional Class -- 6,910,351 (38,435) 713,703 7,585,673 -- 54
- ------------------------------------------------------------------------------------------------------------------------------------
AIM Multi-Sector Fund-
Institutional Class -- 7,066,075 (40,846) 494,842 7,521,090 -- 178,913
- ------------------------------------------------------------------------------------------------------------------------------------
AIM Short Term Bond Fund-
Institutional Class -- 6,972,390 (35,578) (16,144) 6,920,670 61,725 2
- ------------------------------------------------------------------------------------------------------------------------------------
AIM Total Return Bond Fund-
Institutional Class -- 35,240,995 (179,635) (139,494) 34,924,433 327,821 332,511
- ------------------------------------------------------------------------------------------------------------------------------------
AIM Trimark Small Companies
Fund- Institutional Class -- 6,929,389 (59,422) 915,994 7,789,461 -- 115,662
====================================================================================================================================
Total $ -- $139,339,204 $(855,136) $8,423,098 $146,925,484 $821,084 $638,318*
____________________________________________________________________________________________________________________________________
====================================================================================================================================
</Table>
(*) Includes $620,000 of capital gains received from affiliated underlying
funds.
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions and (ii) custodian credits which
result from periodic overnight cash balances at the custodian. For the period
April 30, 2004 (date operations commenced) through December 31, 2004, the Fund
received credits in transfer agency fees of $331 and credits in custodian fees
of $16 under expense offset arrangements, which resulted in a reduction of the
Fund's total expenses of $347.
FS-95
NOTE 5--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the period April 30, 2004 (date operations commenced) through
December 31, 2004, the Fund paid legal fees of $877 for services rendered by
Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A
member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
The Fund is a participant in an uncommitted unsecured revolving credit facility
with State Street Bank and Trust Company ("SSB"). The Fund may borrow up to the
lesser of (i) $125,000,000, or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan. During the period April 30, 2004 (date
operations commenced) through December 31, 2004, 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 in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 7--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the period April 30, 2004 (date
operations commenced) through December 31, 2004 was as follows:
<Table>
<Caption>
2004
- ------------------------------------------------------------------------
Distributions paid from ordinary income $1,070,047
________________________________________________________________________
========================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- --------------------------------------------------------------------------
Undistributed ordinary income $ 20,689
- --------------------------------------------------------------------------
Undistributed long-term gain 125,484
- --------------------------------------------------------------------------
Unrealized appreciation -- investments 8,418,431
- --------------------------------------------------------------------------
Temporary book/tax differences (2,156)
- --------------------------------------------------------------------------
Shares of beneficial interest 138,324,236
==========================================================================
Total net assets $146,886,684
__________________________________________________________________________
==========================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
The Fund did not have a capital loss carryforward as of December 31, 2004.
FS-96
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the period April 30, 2004 (date operations
commenced) through December 31, 2004 was $139,339,204 and $855,136,
respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $8,574,119
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (155,688)
==============================================================================
Net unrealized appreciation of investment securities $8,418,431
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $138,507,053.
</Table>
NOTE 9--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of stock issuance costs
and dividends from underlying funds, on December 31, 2004, undistributed net
investment income was increased by $553,092, undistributed net realized gain
(loss) was decreased by $494,517 and shares of beneficial interest decreased by
$58,575. This reclassification had no effect on the net assets of the Fund.
NOTE 10--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and Institutional Class shares.
Class A shares are sold with a front-end sales charge. Class B shares and Class
C shares are sold with CDSC. Class R shares and Institutional Class shares are
sold at net asset value. Under certain circumstances, Class A shares and Class R
shares are subject to CDSC. Generally, Class B shares will automatically convert
to Class A shares eight years after the end of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------
APRIL 30, 2004
(DATE OPERATIONS
COMMENCED) TO
DECEMBER 31, 2004
--------------------------
SHARES AMOUNT
- ----------------------------------------------------------------------------------------
Sold:
Class A 6,787,469 $ 69,794,121
- ----------------------------------------------------------------------------------------
Class B 4,360,168 44,695,661
- ----------------------------------------------------------------------------------------
Class C 2,567,290 26,126,832
- ----------------------------------------------------------------------------------------
Class R 212,270 2,203,895
- ----------------------------------------------------------------------------------------
Institutional Class 10,001 100,010
========================================================================================
Issued as reinvestment of dividends:
Class A 49,479 534,374
- ----------------------------------------------------------------------------------------
Class B 25,211 271,771
- ----------------------------------------------------------------------------------------
Class C 14,140 152,429
- ----------------------------------------------------------------------------------------
Class R 1,256 13,567
- ----------------------------------------------------------------------------------------
Institutional Class 97 1,051
========================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 56,416 586,979
- ----------------------------------------------------------------------------------------
Class B (56,538) (586,979)
========================================================================================
Reacquired:
Class A (336,672) (3,493,176)
- ----------------------------------------------------------------------------------------
Class B (111,200) (1,159,466)
- ----------------------------------------------------------------------------------------
Class C (66,234) (697,565)
- ----------------------------------------------------------------------------------------
Class R (15,092) (160,693)
========================================================================================
13,498,061 $138,382,811
________________________________________________________________________________________
========================================================================================
</Table>
FS-97
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the period indicated.
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS R
---------------- ---------------- ---------------- ----------------
APRIL 30, 2004 APRIL 30, 2004 APRIL 30, 2004 APRIL 30, 2004
(DATE OPERATIONS (DATE OPERATIONS (DATE OPERATIONS (DATE OPERATIONS
COMMENCED) TO COMMENCED) TO COMMENCED) TO COMMENCED) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2004 2004 2004 2004
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.00 $ 10.00 $ 10.00 $10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) 0.11 0.06 0.06 0.10
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains on securities (both realized and
unrealized) 0.87 0.88 0.88 0.88
=================================================================================================================================
Total from investment operations 0.98 0.94 0.94 0.98
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.09) (0.07) (0.07) (0.09)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.00) (0.00) (0.00) (0.00)
=================================================================================================================================
Total distributions (0.09) (0.07) (0.07) (0.09)
=================================================================================================================================
Net asset value, end of period $ 10.89 $ 10.87 $ 10.87 $10.89
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 9.85% 9.44% 9.44% 9.80%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $71,431 $45,846 $27,339 $2,161
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With expense reimbursements(c)(d) 0.40% 1.05% 1.05% 0.55%
- ---------------------------------------------------------------------------------------------------------------------------------
Without expense reimbursements(c)(d) 0.87% 1.52% 1.52% 1.02%
=================================================================================================================================
Ratio of net investment income to average net
assets(c) 1.56% 0.91% 0.91% 1.41%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 1% 1% 1% 1%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</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 sale charges and is not
annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$29,111,832, $18,555,857, $13,713,029 and $707,444 for Class A, Class B,
Class C and Class R shares, respectively.
(d) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
underlying funds in which the fund invests. Because the underlying funds
have varied expenses and fee levels and the Fund may own different
proportions at different times, the amount of fees and expenses incurred
indirectly by the Fund will vary. The estimated underlying expenses for
the Fund, expressed as a percentage of average daily net assets of the
Fund was 92%.
(e) Not annualized for periods less than one year.
FS-98
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
-------------------
APRIL 30, 2004
(DATE OPERATIONS
COMMENCED) TO
DECEMBER 31,
2004
- -----------------------------------------------------------------------------------
Net asset value, beginning of period $10.00
- -----------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.13(a)
- -----------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.88
===================================================================================
Total from investment operations 1.01
===================================================================================
Less distributions:
Dividends from net investment income (0.10)
- -----------------------------------------------------------------------------------
Distributions from net realized gains (0.00)
===================================================================================
Total distributions (0.10)
===================================================================================
Net asset value, end of period $10.91
___________________________________________________________________________________
===================================================================================
Total return(b) 10.16%
___________________________________________________________________________________
===================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 110
___________________________________________________________________________________
===================================================================================
Ratio of expenses to average net assets:
With expense reimbursements 0.05%(c)(d)
- -----------------------------------------------------------------------------------
Without expense reimbursements 0.40%(c)(d)
___________________________________________________________________________________
===================================================================================
Ratio of net investment income to average net assets 1.91%(c)
___________________________________________________________________________________
===================================================================================
Portfolio turnover rate(e) 1%
___________________________________________________________________________________
===================================================================================
</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 $102,394.
(d) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
underlying funds in which the fund invests. Because the underlying funds
have varied expenses and fee levels and the Fund may own different
proportions at different times, the amount of fees and expenses incurred
indirectly by the Fund will vary. The estimated underlying expenses for
the Fund, expressed as a percentage of average daily net assets of the
Fund was 92%.
(e) Not annualized for periods less than one year.
NOTE 12--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators, including
without limitation the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), to resolve
civil enforcement actions and investigations related to market timing activity
and related issues in the AIM Funds, including those formerly advised by IFG.
These regulators alleged, in substance, that IFG and AIM failed to disclose in
the prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that they had entered into certain arrangements
permitting market timing of such Funds, thereby breaching their fiduciary duties
to such Funds. As a result of the foregoing, the regulators alleged that IFG and
AIM breached various Federal and state securities, business and consumer
protection laws. On the same date, A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached a final settlement with the SEC to
resolve an investigation relating to market timing activity and related issues
in the AIM Funds. The SEC also alleged that ADI violated various Federal
securities laws. The SEC also has settled related market timing enforcement
actions brought against certain former officers and employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of this $325 million total
payment, half has been paid and the remaining half will be paid on or before
December 31, 2005. AIM and ADI agreed to pay a total of $50 million, of which
$30 million is civil penalties, all of which has been paid. The entire $325
million IFG settlement payment will be made available for distribution to the
shareholders of those AIM Funds that IFG formerly advised that were harmed by
market timing activity, and the entire $50 million settlement payment by AIM and
ADI will be made available for distribution to the shareholders of those AIM
Funds advised by AIM that were harmed by market timing activity, all as to be
determined by an independent distribution consultant. The settlement payments
will be distributed in accordance with a methodology
FS-99
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
to be determined by the independent distribution consultant, in consultation
with AIM and the independent trustees of the AIM Funds and acceptable to the
staff of the SEC. Under the settlements with the NYAG and COAG, AIM has agreed
to reduce management fees on certain equity and balanced AIM Funds by $15
million per year for the next five years, based upon effective fee rates and
assets under management as of July 1, 2004, and not to increase certain
management fees.
Under the terms of the settlements, AIM will make certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year thereafter, AIM will
undergo a compliance review by an independent third party. In addition, under
the terms of the settlements, AIM has undertaken to cause the AIM Funds to
operate in accordance with certain governance policies and practices, including
retaining a full-time independent senior officer whose duties will include
monitoring compliance and managing the process by which proposed management fees
to be charged the AIM Funds are negotiated. Also, commencing in 2008 and not
less than every fifth calendar year thereafter, the AIM Funds will hold
shareholder meetings at which their Boards of Trustees will be elected.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
Funds related to market timing matters.
The SEC has also settled market timing enforcement actions against Raymond
R. Cunningham (the former president and chief executive officer of IFG and a
former member of the board of directors of the AIM Funds formerly advised by
IFG), Timothy J. Miller (the former chief investment officer and a former
portfolio manager for IFG), Thomas A. Kolbe (the former national sales manager
of IFG) and Michael D. Legoski (a former assistant vice president in IFG's sales
department). As part of these settlements, the SEC ordered these individuals to
pay restitution and civil penalties in various amounts and prohibited them from
associating with, or serving as an officer or director of, an investment
advisor, broker, dealer and/or investment company, as applicable, for certain
periods of time.
The payments made in connection with the above-referenced settlements by
IFG, AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on certain equity and balanced AIM Funds by
$15 million per year for the next five years, based upon effective fee rates and
assets under management as of July 1, 2004). The manner in which the settlement
payments will be distributed is unknown at the present time and will be
determined by an independent distribution consultant to be appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement amounts may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
REGULATORY INQUIRIES AND PENDING LITIGATION
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including but not limited to revenue sharing and directed-brokerage
arrangements, investments in securities of other registered investment
companies, contractual plans, issues related to Section 529 college savings
plans, procedures for locating lost security holders and participation in class
action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional regulatory
actions and/or civil lawsuits related to the above or other issues may be filed
against the AIM Funds, IFG, AIM and/or related entities and individuals in the
future. Additional regulatory inquiries related to the above or other issues
also may be received by the AIM Funds, IFG, AIM and/or related entities and
individuals in the future.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
FS-100
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the United States Attorney's Office for the Southern
District of New York, the United States Attorney's Office for the Central
District of California, the United States Attorney's Office for the District of
Massachusetts, the Massachusetts Securities Division, the U.S. Postal Inspection
Service and the Commodity Futures Trading Commission, some of which concern one
or more AIM Funds. AIM is providing full cooperation with respect to these
inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, AIM Management, AMVESCAP PLC
("AMVESCAP"), the parent company of IFG and AIM, certain related entities,
certain of their current and former officers and/or certain unrelated third
parties) making allegations that are similar in many respects to those in the
settled regulatory actions brought by the SEC, the NYAG and the COAG concerning
market timing activity in the AIM Funds. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal and state securities laws; (ii) violation of various
provisions of ERISA; (iii) breach of fiduciary duty; and/or (iv) breach of
contract. These lawsuits were initiated in both Federal and state courts and
seek such remedies as compensatory damages; restitution; injunctive relief;
disgorgement of management fees; imposition of a constructive trust; removal of
certain directors and/or employees; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements; interest; and attorneys' and
experts' fees.
All lawsuits based on allegations of market timing, late trading, and
related issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act ("ERISA")
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan. The
plaintiffs in one of the underlying lawsuits continue to seek remand of their
lawsuit to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and/or distribution fees and failed to
pass on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of contract.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; rescission of certain Funds' advisory agreements and
distribution plans; interest; prospective relief in the form of reduced fees;
and attorneys' and experts' fees. All of these lawsuits have been transferred to
the United States District Court for the Southern District of Texas, Houston
Division by order of the applicable United States District Court in which they
were initially filed. The plaintiff in one of these lawsuits has challenged this
order.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Limited
Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; and (ii) breach of fiduciary duty. These lawsuits have been
filed in Federal courts and seek such remedies as damages; injunctive relief;
and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and
FS-101
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
abetting a breach of fiduciary duty. These lawsuits have been filed in Federal
courts and seek such remedies as compensatory and punitive damages; rescission
of certain Funds' advisory agreements and distribution plans and recovery of all
fees paid; an accounting of all fund-related fees, commissions and soft dollar
payments; restitution of all unlawfully or discriminatorily obtained fees and
charges; and attorneys' and experts' fees.
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing to
ensure that the AIM Funds participated in class action settlements in which the
AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * *
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
FS-102
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
AIM Small Cap 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 Cap Growth Fund (one of
the funds constituting AIM Growth Series, hereafter referred to as the "Fund")
at December 31, 2004, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the five years in the period then ended, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2004 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
February 18, 2005
Houston, Texas
FS-103
FINANCIALS
SCHEDULE OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-98.20%
AEROSPACE & DEFENSE-1.84%
Applied Signal Technology, Inc. 72,900 $ 2,569,725
- ---------------------------------------------------------------------------
Mercury Computer Systems, Inc.(a) 484,800 14,388,864
- ---------------------------------------------------------------------------
United Industrial Corp.(b) 426,200 16,510,988
===========================================================================
33,469,577
===========================================================================
AIR FREIGHT & LOGISTICS-1.37%
Forward Air Corp.(a) 297,600 13,302,720
- ---------------------------------------------------------------------------
UTI Worldwide, Inc. (United Kingdom) 170,000 11,563,400
===========================================================================
24,866,120
===========================================================================
AIRLINES-0.39%
AirTran Holdings, Inc.(a)(b) 656,900 7,028,830
===========================================================================
APPAREL RETAIL-2.55%
Aeropostale, Inc.(a)(b) 363,800 10,706,634
- ---------------------------------------------------------------------------
bebe stores, inc.(b) 549,675 14,830,231
- ---------------------------------------------------------------------------
Jos. A. Bank Clothiers, Inc.(a)(b) 480,174 13,588,924
- ---------------------------------------------------------------------------
Pacific Sunwear of California, Inc.(a) 317,000 7,056,420
===========================================================================
46,182,209
===========================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-1.96%
Fossil, Inc.(a) 349,750 8,967,590
- ---------------------------------------------------------------------------
Oxford Industries, Inc. 315,700 13,038,410
- ---------------------------------------------------------------------------
Quiksilver, Inc.(a)(b) 454,800 13,548,492
===========================================================================
35,554,492
===========================================================================
APPLICATION SOFTWARE-4.52%
Catapult Communications Corp.(a) 344,700 8,327,952
- ---------------------------------------------------------------------------
Epicor Software Corp.(a) 887,700 12,507,693
- ---------------------------------------------------------------------------
Macromedia, Inc.(a) 587,200 18,273,664
- ---------------------------------------------------------------------------
Magma Design Automation, Inc.(a)(b) 303,200 3,808,192
- ---------------------------------------------------------------------------
MicroStrategy Inc.-Class A(a) 241,800 14,568,450
- ---------------------------------------------------------------------------
NAVTEQ Corp.(a) 252,700 11,715,172
- ---------------------------------------------------------------------------
RSA Security Inc.(a)(b) 641,476 12,868,009
===========================================================================
82,069,132
===========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.66%
Affiliated Managers Group, Inc.(a)(b) 176,500 11,956,110
===========================================================================
BIOTECHNOLOGY-4.03%
Affymetrix, Inc.(a)(b) 363,700 13,293,235
- ---------------------------------------------------------------------------
Amylin Pharmaceuticals, Inc.(a) 414,700 9,687,392
- ---------------------------------------------------------------------------
Eyetech Pharmaceuticals Inc.(a)(b) 262,500 11,943,750
- ---------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
BIOTECHNOLOGY-(CONTINUED)
Genencor International Inc.(a) 322,000 5,280,800
- ---------------------------------------------------------------------------
Gen-Probe Inc.(a) 337,000 $ 15,235,770
- ---------------------------------------------------------------------------
Techne Corp.(a)(b) 218,100 8,484,090
- ---------------------------------------------------------------------------
United Therapeutics Corp.(a) 205,500 9,278,325
===========================================================================
73,203,362
===========================================================================
BROADCASTING & CABLE TV-0.67%
Radio One, Inc.-Class A(a) 273,800 4,408,180
- ---------------------------------------------------------------------------
Radio One, Inc.-Class D(a)(b) 480,100 7,739,212
===========================================================================
12,147,392
===========================================================================
BUILDING PRODUCTS-0.66%
Trex Co., Inc.(a)(b) 227,400 11,924,856
===========================================================================
CASINOS & GAMING-1.68%
Penn National Gaming, Inc.(a) 252,900 15,313,095
- ---------------------------------------------------------------------------
Shuffle Master, Inc.(a)(b) 323,400 15,232,140
===========================================================================
30,545,235
===========================================================================
CATALOG RETAIL-1.14%
Coldwater Creek Inc.(a) 303,200 9,359,784
- ---------------------------------------------------------------------------
Insight Enterprises, Inc.(a) 550,000 11,286,000
===========================================================================
20,645,784
===========================================================================
COMMODITY CHEMICALS-0.38%
Spartech Corp. 254,300 6,888,987
===========================================================================
COMMUNICATIONS EQUIPMENT-2.27%
Plantronics, Inc. 241,500 10,015,005
- ---------------------------------------------------------------------------
Polycom, Inc.(a)(b) 660,300 15,398,196
- ---------------------------------------------------------------------------
SafeNet, Inc.(a)(b) 430,100 15,801,874
===========================================================================
41,215,075
===========================================================================
COMPUTER & ELECTRONICS RETAIL-0.82%
GameStop Corp.-Class A(a) 662,900 14,822,444
===========================================================================
COMPUTER HARDWARE-0.69%
Intergraph Corp.(a) 303,200 8,165,176
- ---------------------------------------------------------------------------
PalmOne, Inc.(a) 136,400 4,303,420
===========================================================================
12,468,596
===========================================================================
COMPUTER STORAGE & PERIPHERALS-0.72%
Avid Technology, Inc.(a)(b) 212,200 13,103,350
===========================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.56%
Toro Co. (The) 124,500 10,128,075
===========================================================================
</Table>
FS-104
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
CONSTRUCTION MATERIALS-0.90%
Eagle Materials Inc.(b) 189,700 $ 16,380,595
===========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-1.64%
Euronet Worldwide, Inc.(a) 643,900 16,754,278
- ---------------------------------------------------------------------------
Global Payments Inc.(b) 222,300 13,013,442
===========================================================================
29,767,720
===========================================================================
DIVERSIFIED COMMERCIAL SERVICES-2.31%
Charles River Associates Inc.(a)(b) 224,400 10,495,188
- ---------------------------------------------------------------------------
Corporate Executive Board Co. (The)(b) 208,000 13,923,520
- ---------------------------------------------------------------------------
CoStar Group Inc.(a)(b) 379,000 17,502,220
===========================================================================
41,920,928
===========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.10%
II-VI Inc.(a)(b) 268,300 11,400,067
- ---------------------------------------------------------------------------
Woodward Governor Co. 118,800 8,507,268
===========================================================================
19,907,335
===========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-2.05%
Cognex Corp.(b) 151,600 4,229,640
- ---------------------------------------------------------------------------
Daktronics, Inc.(a)(b) 303,200 7,546,648
- ---------------------------------------------------------------------------
FLIR Systems, Inc.(a)(b) 268,300 17,114,857
- ---------------------------------------------------------------------------
Keithley Instruments, Inc. 424,700 8,366,590
===========================================================================
37,257,735
===========================================================================
ELECTRONIC MANUFACTURING SERVICES-1.05%
Trimble Navigation Ltd.(a)(b) 576,400 19,044,256
===========================================================================
ENVIRONMENTAL SERVICES-0.74%
Stericycle, Inc.(a)(b) 291,600 13,399,020
===========================================================================
FERTILIZERS & AGRICULTURAL CHEMICALS-0.84%
Scotts Co. (The)-Class A(a) 207,100 15,225,992
===========================================================================
FOOD DISTRIBUTORS-0.87%
United Natural Foods, Inc.(a)(b) 505,300 15,714,830
===========================================================================
HEALTH CARE EQUIPMENT-6.03%
American Medical Systems Holdings, Inc.(a) 362,300 15,147,763
- ---------------------------------------------------------------------------
Closure Medical Corp.(a) 328,500 6,405,750
- ---------------------------------------------------------------------------
Integra LifeSciences Holdings(a) 400,300 14,783,079
- ---------------------------------------------------------------------------
Intuitive Surgical, Inc.(a) 381,000 15,247,620
- ---------------------------------------------------------------------------
Mentor Corp.(b) 437,200 14,751,128
- ---------------------------------------------------------------------------
NuVasive, Inc.(a) 454,800 4,661,700
- ---------------------------------------------------------------------------
ResMed Inc.(a)(b) 191,100 9,765,210
- ---------------------------------------------------------------------------
Varian Inc.(a) 305,200 12,516,252
- ---------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
HEALTH CARE EQUIPMENT-(CONTINUED)
VNUS Medical Technologies, Inc.(a) 120,412 $ 1,627,970
- ---------------------------------------------------------------------------
Wright Medical Group, Inc.(a) 511,500 14,577,750
===========================================================================
109,484,222
===========================================================================
HEALTH CARE FACILITIES-2.01%
AmSurg Corp.(a)(b) 355,450 10,499,993
- ---------------------------------------------------------------------------
LifePoint Hospitals, Inc.(a) 398,500 13,875,770
- ---------------------------------------------------------------------------
VCA Antech, Inc.(a)(b) 617,600 12,104,960
===========================================================================
36,480,723
===========================================================================
HEALTH CARE SERVICES-4.66%
Accredo Health, Inc.(a) 521,500 14,455,980
- ---------------------------------------------------------------------------
Advisory Board Co. (The)(a)(b) 200,000 7,376,000
- ---------------------------------------------------------------------------
American Healthways, Inc.(a)(b) 249,100 8,230,264
- ---------------------------------------------------------------------------
Cerner Corp.(a)(b) 305,600 16,248,752
- ---------------------------------------------------------------------------
Covance Inc.(a)(b) 250,000 9,687,500
- ---------------------------------------------------------------------------
ICON PLC-ADR (Ireland)(a)(b) 241,500 9,333,975
- ---------------------------------------------------------------------------
Pediatrix Medical Group, Inc.(a) 145,600 9,325,680
- ---------------------------------------------------------------------------
Renal Care Group, Inc.(a) 273,600 9,846,864
===========================================================================
84,505,015
===========================================================================
HEALTH CARE SUPPLIES-0.83%
Immucor, Inc.(a) 642,844 15,138,976
===========================================================================
HOME ENTERTAINMENT SOFTWARE-0.78%
Activision, Inc.(a) 704,300 14,212,774
===========================================================================
HOMEBUILDING-1.02%
Beazer Homes USA, Inc.(b) 126,400 18,480,944
===========================================================================
HOTELS, RESORTS & CRUISE LINES-1.36%
Choice Hotels International, Inc. 238,400 13,827,200
- ---------------------------------------------------------------------------
Kerzner International Ltd. (Bahamas)(a) 179,400 10,772,970
===========================================================================
24,600,170
===========================================================================
INDUSTRIAL MACHINERY-2.55%
Actuant Corp.-Class A(a) 219,100 11,426,065
- ---------------------------------------------------------------------------
Graco Inc.(b) 267,600 9,994,860
- ---------------------------------------------------------------------------
IDEX Corp. 263,500 10,671,750
- ---------------------------------------------------------------------------
JLG Industries, Inc. 721,200 14,157,156
===========================================================================
46,249,831
===========================================================================
INTERNET SOFTWARE & SERVICES-1.88%
Digital River, Inc.(a) 176,900 7,360,809
- ---------------------------------------------------------------------------
SINA Corp. (Cayman Islands)(a)(b) 212,200 6,803,132
- ---------------------------------------------------------------------------
Websense, Inc.(a)(b) 391,600 19,861,952
===========================================================================
34,025,893
===========================================================================
</Table>
FS-105
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
INVESTMENT BANKING & BROKERAGE-0.94%
Jefferies Group, Inc.(b) 241,500 $ 9,727,620
- ---------------------------------------------------------------------------
Piper Jaffray Cos., Inc.(a)(b) 151,600 7,269,220
===========================================================================
16,996,840
===========================================================================
INVESTMENT COMPANIES-EXCHANGE TRADED
FUNDS-1.54%
iShares Nasdaq Biotechnology Index Fund(a)(b) 371,800 28,033,720
===========================================================================
IT CONSULTING & OTHER SERVICES-1.96%
Anteon International Corp.(a) 346,600 14,508,676
- ---------------------------------------------------------------------------
CACI International Inc.-Class A(a)(b) 133,600 9,102,168
- ---------------------------------------------------------------------------
MPS Group, Inc.(a)(b) 974,900 11,952,274
===========================================================================
35,563,118
===========================================================================
LEISURE PRODUCTS-1.97%
Marvel Enterprises, Inc.(a) 575,800 11,792,384
- ---------------------------------------------------------------------------
Nautilus Group, Inc. (The)(b) 615,500 14,876,635
- ---------------------------------------------------------------------------
RC2 Corp.(a) 278,000 9,062,800
===========================================================================
35,731,819
===========================================================================
MARINE-0.42%
Kirby Corp.(a) 172,200 7,642,236
===========================================================================
MOVIES & ENTERTAINMENT-1.29%
Imax Corp. (Canada)(a)(b) 1,017,100 8,390,058
- ---------------------------------------------------------------------------
Lions Gate Entertainment Corp. (Canada)(a)(b) 1,414,900 15,026,238
===========================================================================
23,416,296
===========================================================================
MULTI-LINE INSURANCE-0.51%
HCC Insurance Holdings, Inc. 280,400 9,286,848
===========================================================================
OIL & GAS DRILLING-1.71%
Grey Wolf, Inc.(a)(b) 1,549,000 8,163,230
- ---------------------------------------------------------------------------
Patterson-UTI Energy, Inc. 475,400 9,246,530
- ---------------------------------------------------------------------------
Unit Corp.(a) 355,100 13,568,371
===========================================================================
30,978,131
===========================================================================
OIL & GAS EQUIPMENT & SERVICES-1.84%
Cal Dive International, Inc(a) 340,800 13,887,600
- ---------------------------------------------------------------------------
Core Laboratories N.V. (Netherlands)(a) 277,900 6,488,965
- ---------------------------------------------------------------------------
FMC Technologies, Inc.(a)(b) 402,500 12,960,500
===========================================================================
33,337,065
===========================================================================
OIL & GAS EXPLORATION & PRODUCTION-1.25%
Harvest Natural Resources, Inc.(a) 549,200 9,484,684
- ---------------------------------------------------------------------------
Quicksilver Resources Inc.(a)(b) 313,700 11,537,886
- ---------------------------------------------------------------------------
Range Resources Corp. 85,200 1,743,192
===========================================================================
22,765,762
===========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
PHARMACEUTICALS-1.56%
First Horizon Pharmaceutical Corp.(a) 563,800 $ 12,905,382
- ---------------------------------------------------------------------------
Medicis Pharmaceutical Corp.-Class A 71,200 2,499,832
- ---------------------------------------------------------------------------
MGI Pharma, Inc.(a)(b) 463,700 12,988,237
===========================================================================
28,393,451
===========================================================================
PROPERTY & CASUALTY INSURANCE-0.89%
Assured Guaranty Ltd. (Bermuda) 328,500 6,461,595
- ---------------------------------------------------------------------------
ProAssurance Corp.(a)(b) 245,800 9,613,238
===========================================================================
16,074,833
===========================================================================
REGIONAL BANKS-4.14%
East West Bancorp, Inc. 363,800 15,265,048
- ---------------------------------------------------------------------------
PrivateBancorp, Inc.(b) 316,800 10,210,464
- ---------------------------------------------------------------------------
Silicon Valley Bancshares(a)(b) 329,100 14,750,262
- ---------------------------------------------------------------------------
Southwest Bancorp. of Texas, Inc. 601,400 14,006,606
- ---------------------------------------------------------------------------
Texas Regional Bancshares, Inc.-Class A 276,200 9,026,216
- ---------------------------------------------------------------------------
UCBH Holdings, Inc. 259,000 11,867,380
===========================================================================
75,125,976
===========================================================================
RESTAURANTS-3.37%
P.F. Chang's China Bistro, Inc.(a)(b) 294,900 16,617,615
- ---------------------------------------------------------------------------
Panera Bread Co.-Class A(a)(b) 339,300 13,680,576
- ---------------------------------------------------------------------------
RARE Hospitality International, Inc.(a)(b) 470,400 14,986,944
- ---------------------------------------------------------------------------
Sonic Corp.(a)(b) 519,800 15,853,900
===========================================================================
61,139,035
===========================================================================
SEMICONDUCTOR EQUIPMENT-2.25%
Cymer, Inc.(a)(b) 466,200 13,771,548
- ---------------------------------------------------------------------------
FEI Co.(a)(b) 305,100 6,407,100
- ---------------------------------------------------------------------------
FormFactor Inc.(a) 511,000 13,868,540
- ---------------------------------------------------------------------------
Varian Semiconductor Equipment Associates,
Inc.(a)(b) 184,600 6,802,510
===========================================================================
40,849,698
===========================================================================
SEMICONDUCTORS-3.42%
ARM Holdings PLC-ADR (United Kingdom) 2,247,845 13,869,204
- ---------------------------------------------------------------------------
Integrated Circuit Systems, Inc.(a)(b) 264,200 5,527,064
- ---------------------------------------------------------------------------
Microsemi Corp.(a)(b) 1,028,452 17,853,927
- ---------------------------------------------------------------------------
Pixelworks, Inc.(a)(b) 518,400 5,878,656
- ---------------------------------------------------------------------------
Power Integrations, Inc.(a)(b) 233,200 4,612,696
- ---------------------------------------------------------------------------
Semtech Corp.(a)(b) 656,700 14,362,029
===========================================================================
62,103,576
===========================================================================
SPECIALTY STORES-2.09%
Guitar Center, Inc.(a) 280,400 14,774,276
- ---------------------------------------------------------------------------
Regis Corp. 303,600 14,011,140
- ---------------------------------------------------------------------------
Steiner Leisure Ltd. (Bahamas)(a) 303,200 9,059,616
===========================================================================
37,845,032
===========================================================================
</Table>
FS-106
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
STEEL-1.60%
Cleveland-Cliffs Inc.(b) 145,500 $ 15,111,630
- ---------------------------------------------------------------------------
Steel Dynamics, Inc. 365,900 13,860,292
===========================================================================
28,971,922
===========================================================================
SYSTEMS SOFTWARE-1.57%
Internet Security Systems, Inc.(a) 647,050 15,043,913
- ---------------------------------------------------------------------------
Macrovision Corp.(a) 522,500 13,438,700
===========================================================================
28,482,613
===========================================================================
TECHNOLOGY DISTRIBUTORS-0.66%
ScanSource, Inc.(a) 192,000 11,934,720
===========================================================================
THRIFTS & MORTGAGE FINANCE-0.39%
W Holding Co., Inc. (Puerto Rico) 309,264 7,094,516
===========================================================================
TRADING COMPANIES & DISTRIBUTORS-1.64%
Hughes Supply, Inc. 411,900 13,324,965
- ---------------------------------------------------------------------------
MSC Industrial Direct Co., Inc.-Class A(b) 454,800 16,363,704
===========================================================================
29,688,669
===========================================================================
TRUCKING-1.66%
Heartland Express, Inc. 458,400 10,300,248
- ---------------------------------------------------------------------------
Knight Transportation, Inc.(b) 377,200 9,354,560
- ---------------------------------------------------------------------------
Old Dominion Freight Line, Inc.(a) 302,800 $ 10,537,440
===========================================================================
30,192,248
===========================================================================
Total Common Stocks & Other Equity
Interests (Cost $1,317,257,929) 1,781,664,709
===========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
MONEY MARKET FUNDS-1.42%
Liquid Assets Portfolio-Institutional
Class(c) 12,837,129 12,837,129
- ---------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(c) 12,837,129 12,837,129
===========================================================================
Total Money Market Funds (Cost
$25,674,258) 25,674,258
===========================================================================
TOTAL INVESTMENTS-99.62% (excluding
investments purchased with cash collateral
from securities loaned) (Cost
$1,342,932,187) 1,807,338,967
===========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-22.69%
Liquid Assets Portfolio-Institutional
Class(c)(d) 205,833,934 205,833,934
- ---------------------------------------------------------------------------
STIC Prime Portfolio-Institutional
Class(c)(d) 205,833,935 205,833,935
===========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $411,667,869) 411,667,869
===========================================================================
TOTAL INVESTMENTS--122.31% (Cost
$1,754,600,056) 2,219,006,836
===========================================================================
OTHER ASSETS LESS LIABILITIES-(22.31%) (404,708,764)
===========================================================================
NET ASSETS-100.00% $1,814,298,072
___________________________________________________________________________
===========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this security has been pledged as collateral for
securities lending transactions at December 31, 2004.
(c) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(d) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying notes which are an integral part of the financial statements.
FS-107
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$1,317,257,929)* $1,781,664,709
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $437,342,127) 437,342,127
============================================================
Total investments (cost $1,754,600,056) 2,219,006,836
============================================================
Cash 1,118,587
- ------------------------------------------------------------
Receivables for:
Investments sold 23,931,419
- ------------------------------------------------------------
Fund shares sold 2,528,979
- ------------------------------------------------------------
Dividends 336,524
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 48,410
- ------------------------------------------------------------
Other assets 47,256
============================================================
Total assets 2,247,018,011
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 5,977,605
- ------------------------------------------------------------
Fund shares reacquired 13,448,836
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 93,833
- ------------------------------------------------------------
Collateral upon return of securities
loaned 411,667,869
- ------------------------------------------------------------
Accrued distribution fees 654,165
- ------------------------------------------------------------
Accrued transfer agent fees 753,872
- ------------------------------------------------------------
Accrued operating expenses 123,759
============================================================
Total liabilities 432,719,939
============================================================
Net assets applicable to shares outstanding $1,814,298,072
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,463,971,511
- ------------------------------------------------------------
Undistributed net investment income (loss) (66,642)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (114,013,577)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities 464,406,780
============================================================
$1,814,298,072
____________________________________________________________
============================================================
NET ASSETS:
Class A $1,491,940,207
____________________________________________________________
============================================================
Class B $ 149,400,330
____________________________________________________________
============================================================
Class C $ 40,904,197
____________________________________________________________
============================================================
Class R $ 19,506,312
____________________________________________________________
============================================================
Institutional Class $ 112,547,026
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 54,323,875
____________________________________________________________
============================================================
Class B 5,834,250
____________________________________________________________
============================================================
Class C 1,598,124
____________________________________________________________
============================================================
Class R 714,984
____________________________________________________________
============================================================
Institutional Class 4,043,911
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 27.46
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $27.46 divided by
94.50%) $ 29.06
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 25.61
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 25.60
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 27.28
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 27.83
____________________________________________________________
============================================================
</Table>
* At December 31, 2004, securities with an aggregate market value of
$401,861,770 were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
FS-108
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $3,874) $ 2,459,439
- --------------------------------------------------------------------------
Dividends from affiliated money market funds (including
securities lending income of $1,647,312*) 2,814,626
- --------------------------------------------------------------------------
Interest 26,067
==========================================================================
Total investment income 5,300,132
==========================================================================
EXPENSES:
Advisory fees 13,134,333
- --------------------------------------------------------------------------
Administrative services fees 437,687
- --------------------------------------------------------------------------
Custodian fees 221,205
- --------------------------------------------------------------------------
Distribution fees:
Class A 5,494,140
- --------------------------------------------------------------------------
Class B 1,619,722
- --------------------------------------------------------------------------
Class C 442,711
- --------------------------------------------------------------------------
Class R 70,406
- --------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C and R 7,012,833
- --------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 108,068
- --------------------------------------------------------------------------
Trustees' fees and retirement benefits 63,744
- --------------------------------------------------------------------------
Other 826,209
==========================================================================
Total expenses 29,431,058
==========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (1,818,806)
==========================================================================
Net expenses 27,612,252
==========================================================================
Net investment income (loss) (22,312,120)
==========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FUTURES CONTRACTS AND OPTION CONTRACTS:
Net realized gain from:
Investment securities 139,099,401
- --------------------------------------------------------------------------
Futures contracts 3,221,283
- --------------------------------------------------------------------------
Option contracts written 1,450,816
==========================================================================
143,771,500
==========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (18,993,996)
- --------------------------------------------------------------------------
Futures contracts (396,045)
- --------------------------------------------------------------------------
Option contracts written (160,935)
==========================================================================
(19,550,976)
==========================================================================
Net gain from investment securities, futures contracts and
option contracts 124,220,524
==========================================================================
Net increase in net assets resulting from operations $101,908,404
__________________________________________________________________________
==========================================================================
</Table>
* Dividends from affiliated money market funds are net of income rebate paid to
securities lending counterparties.
See accompanying notes which are an integral part of the financial statements.
FS-109
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (22,312,120) $ (15,248,461)
- ----------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
futures contracts and option contracts 143,771,500 (29,706,227)
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, futures contracts and option
contracts (19,550,976) 528,393,585
==============================================================================================
Net increase in net assets resulting from operations 101,908,404 483,438,897
==============================================================================================
Share transactions-net:
Class A (192,987,130) 413,411,002
- ----------------------------------------------------------------------------------------------
Class B (41,206,105) (22,623,106)
- ----------------------------------------------------------------------------------------------
Class C (11,365,203) (6,128,935)
- ----------------------------------------------------------------------------------------------
Class R 9,247,057 6,293,596
- ----------------------------------------------------------------------------------------------
Institutional Class (3,899,271) 89,071,755
==============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (240,210,652) 480,024,312
==============================================================================================
Net increase (decrease) in net assets (138,302,248) 963,463,209
==============================================================================================
NET ASSETS:
Beginning of year 1,952,600,320 989,137,111
==============================================================================================
End of year (including undistributed net investment income
(loss) of $(66,642) and $(28,833), respectively) $1,814,298,072 $1,952,600,320
______________________________________________________________________________________________
==============================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-110
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Small Cap Growth Fund (the "Fund") is a separate series of AIM Growth Series
(the "Trust"). The Trust is organized as a Delaware statutory trust and is
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of seven
separate series portfolios, each authorized to issue an unlimited number of
shares of beneficial interest. The Fund currently offers multiple classes of
shares. Matters affecting each portfolio or class will be voted on exclusively
by the shareholders of such portfolio or class. The assets, liabilities and
operations of each portfolio are accounted for separately. Information presented
in these financial statements pertains only to the Fund. Effective as of the
close of business on March 18, 2002, the Fund's shares were offered on a limited
basis to certain investors.
The Fund's investment objective is long-term growth of capital. Each company
listed in the Schedule of Investments is organized in the United States of
America unless otherwise noted.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. However, the Fund has not had prior claims or losses pursuant to these
contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
is valued on the basis of prices furnished by independent pricing services
or market makers. Each security reported on the NASDAQ National Market
System is valued at the NASDAQ Official Closing Price ("NOCP") as of the
close of the customary trading session on the valuation date or absent a
NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
FS-111
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. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received. A risk in writing a
call option is that the Fund gives up the opportunity for profit if the
market price of the security increases and the option is exercised.
G. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. If the Fund were unable
to liquidate a futures contract and/or enter into an offsetting closing
transaction, the Fund would continue to be subject to market risk with
respect to the value of the contracts and continue to be required to
maintain the margin deposits on the futures contracts.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.725% on the first
$500 million of the Fund's average daily net assets, plus 0.70% on the next $500
million of the Fund's average daily net assets, plus 0.675% on the next $500
million of the Fund's average daily net assets, plus 0.65% on the Fund's average
daily net assets in excess of $1.5 billion. AIM has voluntarily agreed to waive
advisory fees of the Fund in the amount of 25% of the advisory fee AIM receives
from the affiliated money market funds on investments by the Fund in such
affiliated money market funds (excluding investments made in affiliated money
market funds with cash collateral from securities loaned by the Fund). Voluntary
fee waivers or reimbursements may be modified or discontinued at any time upon
consultation with the Board of Trustees without further notice to investors. For
the year ended December 31, 2004, AIM waived fees of $26,987.
For the year ended December 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to reimburse $196,996 of expenses
incurred by the Fund in connection with matters related to recently settled
regulatory actions and investigations concerning market timing activity
FS-112
in the AIM Funds, including legal, audit, shareholder servicing, communication
and trustee expenses. These expenses along with the related expense
reimbursement, are included in the Statement of Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended December 31, 2004, AIM was
paid $437,687 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the Institutional
Class, the transfer agent has contractually agreed to reimburse class specific
transfer agent fees and expenses to the extent necessary to limit transfer agent
fees to 0.10% of the average net assets. AISI did not reimburse fees during the
period under this expense limitation. For the year ended December 31, 2004, the
Fund paid AISI $7,012,833 for Class A, Class B, Class C and Class R shares and
$108,068 for Institutional Class shares. AISI may make payments to
intermediaries that provide omnibus account services, sub-accounting services
and/or networking services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C, Class R and Institutional Class shares of the Fund.
The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with
respect to the Fund's Class A, Class B, Class C and Class R shares (collectively
the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors
compensation at the annual rate of 0.35% of the Fund's average daily net assets
of Class A shares, 1.00% of the average daily net assets of Class B and Class C
shares and 0.50% of the average daily net assets of Class R shares. Of these
amounts, to 0.25% of the average daily net assets of the Class A, Class B, Class
C or Class R shares may be paid to furnish continuing personal shareholder
services to customers who purchase and own shares of such classes. Any amounts
not paid as a service fee under the Plans would constitute an asset-based sales
charge. NASD Rules also impose a cap on the total sales charges, including
asset-based sales charges that may be paid by any class of shares of the Fund.
During the periods the Fund is offered on a limited basis, AIM Distributors has
agreed to waive Class A distribution plan fees equal to 0.10% of the average
daily net assets of Class A shares. Pursuant to the Plans, for the year ended
December 31, 2004, the Class A, Class B, Class C and Class R shares paid
$3,924,386, $1,619,722, $442,711 and $70,406, respectively, after AIM
Distributors waived Plan fees of $1,569,754 for Class A shares.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During year ended
December 31, 2004, AIM Distributors advised the Fund that it retained $41,724 in
front-end sales commissions from the sale of Class A shares and $6,044, $15,985,
$2,627 and $0 from Class A, Class B, Class C and Class R shares, respectively,
for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest daily available cash balances and cash
collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. The tables below show
the transactions in and earnings from investments in affiliated money market
funds for the year ended December 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 84,830,758 $ 332,236,523 $ (404,230,152) $ -- $ 12,837,129 $ 591,781 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 84,830,758 332,236,523 (404,230,152) -- 12,837,129 575,533 --
===================================================================================================================================
Subtotal $169,661,516 $ 664,473,046 $ (808,460,304) $ -- $ 25,674,258 $1,167,314 $ --
===================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME* GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $211,081,067 $ 329,924,652 $ (335,171,785) $ -- $205,833,934 $ 830,048 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 211,081,067 329,386,289 (334,633,421) -- 205,833,935 817,264 --
===================================================================================================================================
Subtotal $422,162,134 $ 659,310,941 $ (669,805,206) $ -- $411,667,869 $1,647,312 $ --
===================================================================================================================================
Total $591,823,650 $1,323,783,987 $(1,478,265,510) $ -- $437,342,127 $2,814,626 $ --
___________________________________________________________________________________________________________________________________
===================================================================================================================================
</Table>
* Dividend income is net of income rebate paid to securities lending
counterparties.
FS-113
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended December 31, 2004, the Fund
engaged in purchases and sales of securities of $16,523,190 and $28,686,347,
respectively.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions and (ii) custodian credits which
result from periodic overnight cash balances at the custodian. For the year
ended December 31, 2004, the Fund received credits in transfer agency fees of
$23,112 and credits in custodian fees of $1,957 under expense offset
arrangements, which resulted in a reduction of the Fund's total expenses of
$25,069.
NOTE 6--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended December 31, 2004, the Fund paid legal fees of $7,300
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 2004, the Fund did not borrow or lend under
the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
FS-114
At December 31, 2004, securities with an aggregate value of $401,861,770 were
on loan to brokers. The loans were secured by cash collateral of $411,667,869
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended December 31, 2004, the Fund received dividends on cash
collateral net of income rebate paid to counterparties of $1,647,312 for
securities lending transactions.
NOTE 9--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- --------------------------------------------------------------------------------------
CALL OPTION CONTRACTS
------------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- --------------------------------------------------------------------------------------
Beginning of year 2,430 $ 330,885
- --------------------------------------------------------------------------------------
Written 31,826 3,538,860
- --------------------------------------------------------------------------------------
Closed (6,421) (957,208)
- --------------------------------------------------------------------------------------
Exercised (21,143) (2,001,374)
- --------------------------------------------------------------------------------------
Expired (6,692) (911,163)
======================================================================================
End of year -- $ --
______________________________________________________________________________________
======================================================================================
</Table>
NOTE 10--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS OF SHAREHOLDERS:
There were no ordinary income & long term capital distributions paid during the
years ended December, 2004 and 2003.
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- ----------------------------------------------------------------------------
Unrealized appreciation -- investments $ 463,808,860
- ----------------------------------------------------------------------------
Temporary book/tax differences (66,642)
- ----------------------------------------------------------------------------
Capital loss carryforward (113,415,657)
- ----------------------------------------------------------------------------
Shares of beneficial interest 1,463,971,511
============================================================================
Total net assets $1,814,298,072
____________________________________________________________________________
============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund utilized $137,224,987 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2004 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- ---------------------------------------------------------------------------
December 31, 2010 $ 73,388,721
- ---------------------------------------------------------------------------
December 31, 2011 40,026,936
===========================================================================
Total capital loss carryforward $113,415,657
___________________________________________________________________________
===========================================================================
</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.
FS-115
NOTE 11--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2004 was $1,244,219,069 and $1,375,084,416, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $481,823,360
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (18,014,500)
==============================================================================
Net unrealized appreciation of investment securities $463,808,860
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $1,755,197,976.
</Table>
NOTE 12--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses,
on December 31, 2004, undistributed net investment income was increased by
$22,274,311, and shares of beneficial interest decreased by $22,274,311. This
reclassification had no effect on the net assets of the Fund.
NOTE 13--SHARE INFORMATION
The Fund currently consists of 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 and Institutional Class shares are sold at
net asset value. Under certain circumstances, Class A shares and Class R shares
are subject to CDSC. Generally, Class B shares will automatically convert to
Class A shares eight years after the end of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(a)
- --------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
2004 2003
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 24,314,386 $ 628,943,607 44,350,453 $ 956,041,602
- --------------------------------------------------------------------------------------------------------------------------
Class B 287,423 6,942,558 539,006 10,928,150
- --------------------------------------------------------------------------------------------------------------------------
Class C 266,409 6,403,144 417,319 8,478,871
- --------------------------------------------------------------------------------------------------------------------------
Class R 553,344 14,127,974 327,479 7,328,256
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class 1,807,401 46,669,980 4,738,755 105,874,188
==========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 267,852 6,898,694 198,401 4,346,224
- --------------------------------------------------------------------------------------------------------------------------
Class B (286,124) (6,898,694) (210,505) (4,346,224)
==========================================================================================================================
Reacquired:
Class A (32,593,314) (828,829,431) (25,018,347) (546,976,824)
- --------------------------------------------------------------------------------------------------------------------------
Class B (1,739,802) (41,249,969) (1,490,295) (29,205,032)
- --------------------------------------------------------------------------------------------------------------------------
Class C (740,566) (17,768,347) (730,852) (14,607,806)
- --------------------------------------------------------------------------------------------------------------------------
Class R (190,940) (4,880,917) (45,477) (1,034,660)
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class (1,936,260) (50,569,251) (720,702) (16,802,433)
==========================================================================================================================
(9,990,191) $(240,210,652) 22,355,235 $ 480,024,312
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
(a) There are two entities that are each record owners of more than 5% of
the outstanding shares of the Fund and in the aggregate they own 18% of
the outstanding shares of the Fund. AIM Distributors has an agreement
with these entities to sell Fund shares. The Fund, AIM and/or AIM
affiliates may make payments to these entities, which are considered to
be related to the Fund, for providing services to the Fund, AIM and/or
AIM affiliates including but not limited to services such as, securities
brokerage, distribution, third party record keeping and account
servicing. The Trust has no knowledge as to whether all or any portion
of the shares owned of record by these shareholders are also owned
beneficially.
FS-116
NOTE 14--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
--------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 25.71 $ 18.47 $ 25.67 $ 29.81 $ 31.87
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.32) (0.21)(a) (0.19)(a) (0.18)(a) (0.13)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 2.07 7.45 (7.01) (3.93) (0.12)
=================================================================================================================================
Total from investment operations 1.75 7.24 (7.20) (4.11) (0.25)
=================================================================================================================================
Less distributions from net realized gains -- -- -- (0.03) (1.81)
=================================================================================================================================
Net asset value, end of period $ 27.46 $ 25.71 $ 18.47 $ 25.67 $ 29.81
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 6.81% 39.20% (28.05)% (13.79)% (0.74)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,491,940 $1,602,724 $790,700 $679,104 $566,458
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 1.40%(c) 1.27% 1.35% 1.31% 1.13%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.51%(c) 1.37% 1.43% 1.39% 1.23%
=================================================================================================================================
Ratio of net investment income (loss) to
average net assets (1.12)(c) (0.98)% (0.91)% (0.70)% (0.40)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 69% 32% 22% 37% 62%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average net assets of $1,569,754,408.
<Table>
<Caption>
CLASS B
-----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 24.15 $ 17.49 $ 24.48 $ 28.64 $ 30.92
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.52) (0.35)(a) (0.33)(a) (0.35)(a) (0.40)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 1.98 7.01 (6.66) (3.78) (0.07)
=================================================================================================================================
Total from investment operations 1.46 6.66 (6.99) (4.13) (0.47)
=================================================================================================================================
Less distributions from net realized gains -- -- -- (0.03) (1.81)
=================================================================================================================================
Net asset value, end of period $ 25.61 $ 24.15 $ 17.49 $ 24.48 $ 28.64
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 6.05% 38.08% (28.55)% (14.42)% (1.48)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $149,400 $182,700 $152,577 $212,958 $231,293
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.15%(c) 2.02% 2.08% 2.03% 1.88%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 2.16%(c) 2.02% 2.08% 2.04% 1.88%
=================================================================================================================================
Ratio of net investment income (loss) to average
net assets (1.87)%(c) (1.73)% (1.64)% (1.43)% (1.15)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 69% 32% 22% 37% 62%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $161,972,181.
FS-117
NOTE 14--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 24.14 $ 17.48 $ 24.47 $ 28.63 $ 30.91
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.52) (0.35)(a) (0.33)(a) (0.35)(a) (0.39)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.98 7.01 (6.66) (3.78) (0.08)
=================================================================================================================================
Total from investment operations 1.46 6.66 (6.99) (4.13) (0.47)
=================================================================================================================================
Less distributions from net realized gains -- -- -- (0.03) (1.81)
=================================================================================================================================
Net asset value, end of period $ 25.60 $ 24.14 $ 17.48 $ 24.47 $ 28.63
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 6.05% 38.10% (28.57)% (14.43)% (1.48)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $40,904 $50,031 $41,693 $46,833 $41,738
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.15%(c) 2.02% 2.08% 2.03% 1.88%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.16%(c) 2.02% 2.08% 2.04% 1.88%
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (1.87)%(c) (1.73)% (1.64)% (1.43)% (1.15)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 69% 32% 22% 37% 62%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $44,271,092.
<Table>
<Caption>
CLASS R
-------------------------------------------------
JUNE 30, 2002
YEAR ENDED (DATE SALES
DECEMBER 31, COMMENCED) TO
--------------------------- DECEMBER 31,
2004 2003 2002
- ---------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 25.61 $18.44 $ 22.64
- ---------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.27) (0.28)(a) (0.13)(a)
- ---------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.94 7.45 (4.07)
===============================================================================================================
Total from investment operations 1.67 7.17 (4.20)
===============================================================================================================
Net asset value, end of period $ 27.28 $25.61 $ 18.44
_______________________________________________________________________________________________________________
===============================================================================================================
Total return(b) 6.52% 38.88% (18.55)%
_______________________________________________________________________________________________________________
===============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $19,506 $9,029 $ 1,301
_______________________________________________________________________________________________________________
===============================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.65%(c) 1.52% 1.61%(d)
- ---------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.66%(c) 1.52% 1.61%(d)
===============================================================================================================
Ratio of net investment income (loss) to average net assets (1.37)%(c) (1.23)% (1.17)%(d)
_______________________________________________________________________________________________________________
===============================================================================================================
Portfolio turnover rate(e) 69% 32% 22%
_______________________________________________________________________________________________________________
===============================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $14,081,118.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-118
NOTE 14--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
-----------------------------------------------------
MARCH 15, 2002
YEAR ENDED (DATE SALES
DECEMBER 31, COMMENCED) TO
------------------------------ DECEMBER 31,
2004 2003 2002
- -------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 25.91 $ 18.53 $ 24.61
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.16) (0.12)(a) (0.07)(a)
- -------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.08 7.50 (6.01)
===================================================================================================================
Total from investment operations 1.92 7.38 (6.08)
===================================================================================================================
Net asset value, end of period $ 27.83 $ 25.91 $ 18.53
___________________________________________________________________________________________________________________
===================================================================================================================
Total return(b) 7.41% 39.83% (24.71)%
___________________________________________________________________________________________________________________
===================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $112,547 $108,116 $ 2,866
___________________________________________________________________________________________________________________
===================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.85%(c) 0.80% 0.89%(d)
- -------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.86%(c) 0.80% 0.89%(d)
===================================================================================================================
Ratio of net investment income (loss) to average net assets (0.57)%(c) (0.51)% (0.45)%(d)
___________________________________________________________________________________________________________________
===================================================================================================================
Portfolio turnover rate(e) 69% 32% 22%
___________________________________________________________________________________________________________________
===================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $115,203,195.
(d) Annualized.
(e) Not annualized for periods less than one year.
NOTE 15--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators, including
without limitation the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), to resolve
civil enforcement actions and investigations related to market timing activity
and related issues in the AIM Funds, including those formerly advised by IFG.
These regulators alleged, in substance, that IFG and AIM failed to disclose in
the prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that they had entered into certain arrangements
permitting market timing of such Funds, thereby breaching their fiduciary duties
to such Funds. As a result of the foregoing, the regulators alleged that IFG and
AIM breached various Federal and state securities, business and consumer
protection laws. On the same date, A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached a final settlement with the SEC to
resolve an investigation relating to market timing activity and related issues
in the AIM Funds. The SEC also alleged that ADI violated various Federal
securities laws. The SEC also has settled related market timing enforcement
actions brought against certain former officers and employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325 million,
of which $110 million is civil penalties. Of this $325 million total payment,
half has been paid and the remaining half will be paid on or before December 31,
2005. AIM and ADI agreed to pay a total of $50 million, of which $30 million is
civil penalties, all of which has been paid. The entire $325 million IFG
settlement payment will be made available for distribution to the shareholders
of those AIM Funds that IFG formerly advised that were harmed by market timing
activity, and the entire $50 million settlement payment by AIM and ADI will be
made available for distribution to the shareholders of those AIM Funds advised
by AIM that were harmed by market timing activity, all as to be determined by an
independent distribution consultant. The settlement payments will be distributed
in accordance with a methodology to be determined by the independent
distribution consultant, in consultation with AIM and the independent trustees
of the AIM Funds and acceptable to the staff of the SEC. Under the settlements
with the NYAG and COAG, AIM has agreed to reduce management fees on certain
equity and balanced AIM Funds by $15 million per year for the next five years,
based upon effective fee rates and assets under management as of July 1, 2004,
and not to increase certain management fees.
Under the terms of the settlements, AIM will make certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year
FS-119
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
thereafter, AIM will undergo a compliance review by an independent third party.
In addition, under the terms of the settlements, AIM has undertaken to cause the
AIM Funds to operate in accordance with certain governance policies and
practices, including retaining a full-time independent senior officer whose
duties will include monitoring compliance and managing the process by which
proposed management fees to be charged the AIM Funds are negotiated. Also,
commencing in 2008 and not less than every fifth calendar year thereafter, the
AIM Funds will hold shareholder meetings at which their Boards of Trustees will
be elected.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
Funds related to market timing matters.
The SEC has also settled market timing enforcement actions against Raymond R.
Cunningham (the former president and chief executive officer of IFG and a former
member of the board of directors of the AIM Funds formerly advised by IFG),
Timothy J. Miller (the former chief investment officer and a former portfolio
manager for IFG), Thomas A. Kolbe (the former national sales manager of IFG) and
Michael D. Legoski (a former assistant vice president in IFG's sales
department). As part of these settlements, the SEC ordered these individuals to
pay restitution and civil penalties in various amounts and prohibited them from
associating with, or serving as an officer or director of, an investment
advisor, broker, dealer and/or investment company, as applicable, for certain
periods of time.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's agreement
to reduce management fees on certain equity and balanced AIM Funds by $15
million per year for the next five years, based upon effective fee rates and
assets under management as of July 1, 2004). The manner in which the settlement
payments will be distributed is unknown at the present time and will be
determined by an independent distribution consultant appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement payments may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
Regulatory Inquiries and Pending Litigation
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including but not limited to revenue sharing and directed-brokerage
arrangements, investments in securities of other registered investment
companies, contractual plans, issues related to Section 529 college savings
plans, procedures for locating lost security holders and participation in class
action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional regulatory
actions and/or civil lawsuits related to the above or other issues may be filed
against the AIM Funds, IFG, AIM and/or related entities and individuals in the
future. Additional regulatory inquiries related to the above or other issues
also may be received by the AIM Funds, IFG, AIM and/or related entities and
individuals in the future.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the United States Attorney's Office for the Southern
District of New York, the United States Attorney's Office for the Central
District of California, the United States Attorney's Office for the District of
Massachusetts, the Massachusetts Securities Division, the U.S. Postal Inspection
Service and the Commodity Futures Trading Commission, some of which concern one
or more AIM Funds. AIM is providing full cooperation with respect to these
inquiries.
F-120
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, AIM Management, AMVESCAP, certain
related entities, certain of their current and former officers and/or certain
unrelated third parties) making allegations that are similar in many respects to
those in the settled regulatory actions brought by the SEC, the NYAG and the
COAG concerning market timing activity in the AIM Funds. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
various provisions of the Federal and state securities laws; (ii) violation of
various provisions of ERISA; (iii) breach of fiduciary duty; and/or (iv) breach
of contract. These lawsuits were initiated in both Federal and state courts and
seek such remedies as compensatory damages; restitution; injunctive relief;
disgorgement of management fees; imposition of a constructive trust; removal of
certain directors and/or employees; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements; interest; and attorneys' and
experts' fees.
All lawsuits based on allegations of market timing, late trading, and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act ("ERISA")
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan. The
plaintiffs in one of the underlying lawsuits continue to seek remand of their
lawsuit to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and/or distribution fees and failed to
pass on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of contract.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; rescission of certain Funds' advisory agreements and
distribution plans; interest; prospective relief in the form of reduced fees;
and attorneys' and experts' fees. All of these lawsuits have been transferred to
the United States District Court for the Southern District of Texas, Houston
Division by order of the applicable United States District Court in which they
were initially filed. The plaintiff in one of these lawsuits has challenged this
order.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Limited
Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; and (ii) breach of fiduciary duty. These lawsuits have been
filed in Federal courts and seek such remedies as damages; injunctive relief;
and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing to
ensure that the AIM Funds participated in class action settlements in which the
AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
FS-121
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * *
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
FS-122
FINANCIALS
SCHEDULE OF INVESTMENTS
June 30, 2005
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-98.31%
ADVERTISING-4.66%
Interpublic Group of Cos., Inc. (The)(a)(b) 12,182,700 $ 148,385,286
- ---------------------------------------------------------------------------
Omnicom Group Inc. 2,040,000 162,914,400
===========================================================================
311,299,686
===========================================================================
AEROSPACE & DEFENSE-1.17%
Honeywell International Inc. 2,131,300 78,069,519
===========================================================================
APPAREL RETAIL-1.84%
Gap, Inc. (The)(b) 6,232,300 123,087,925
===========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-2.19%
Bank of New York Co., Inc. (The) 5,085,000 146,346,300
===========================================================================
BREWERS-0.83%
Molson Coors Brewing Co.-Class B(b) 893,700 55,409,400
===========================================================================
BUILDING PRODUCTS-4.16%
American Standard Cos. Inc. 3,732,000 156,445,440
- ---------------------------------------------------------------------------
Masco Corp.(b) 3,823,800 121,443,888
===========================================================================
277,889,328
===========================================================================
COMMUNICATIONS EQUIPMENT-0.52%
Motorola, Inc. 1,896,600 34,631,916
===========================================================================
COMPUTER STORAGE & PERIPHERALS-0.75%
Lexmark International, Inc.-Class A(a) 773,000 50,113,590
===========================================================================
CONSUMER ELECTRONICS-1.26%
Koninklijke (Royal) Philips Electronics N.V.-
New York Shares (Netherlands) 3,333,098 83,960,739
===========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-4.77%
Ceridian Corp.(a)(b) 6,071,300 118,268,924
- ---------------------------------------------------------------------------
First Data Corp. 5,001,000 200,740,140
===========================================================================
319,009,064
===========================================================================
DIVERSIFIED COMMERCIAL & PROFESSIONAL
SERVICES-2.42%
Cendant Corp. 7,235,000 161,846,950
===========================================================================
ENVIRONMENTAL & FACILITIES SERVICES-2.72%
Waste Management, Inc. 6,422,167 182,004,213
===========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
<Caption>
FOOD RETAIL-3.26%
Kroger Co. (The)(a)(b) 7,161,400 $ 136,281,442
- ---------------------------------------------------------------------------
Safeway Inc.(b) 3,605,000 81,436,950
===========================================================================
217,718,392
===========================================================================
GENERAL MERCHANDISE STORES-1.94%
Target Corp.(b) 2,379,300 129,457,713
===========================================================================
HEALTH CARE DISTRIBUTORS-7.16%
Cardinal Health, Inc.(b) 4,729,000 272,295,820
- ---------------------------------------------------------------------------
McKesson Corp. 4,606,900 206,343,051
===========================================================================
478,638,871
===========================================================================
HEALTH CARE EQUIPMENT-1.94%
Waters Corp.(a) 3,487,100 129,615,507
===========================================================================
HEALTH CARE FACILITIES-2.41%
HCA Inc. 2,844,000 161,169,480
===========================================================================
INDUSTRIAL CONGLOMERATES-3.79%
Tyco International Ltd. (Bermuda)(b) 8,667,000 253,076,400
===========================================================================
INDUSTRIAL MACHINERY-1.08%
Parker Hannifin Corp. 1,159,200 71,881,992
===========================================================================
INVESTMENT BANKING & BROKERAGE-4.23%
Merrill Lynch & Co., Inc. 2,447,000 134,609,470
- ---------------------------------------------------------------------------
Morgan Stanley 2,816,900 147,802,743
===========================================================================
282,412,213
===========================================================================
LEISURE PRODUCTS-0.42%
Mattel, Inc.(b) 1,536,460 28,117,218
===========================================================================
MANAGED HEALTH CARE-3.51%
UnitedHealth Group Inc. 4,498,800 234,567,432
===========================================================================
MOVIES & ENTERTAINMENT-2.23%
Walt Disney Co. (The) 5,925,000 149,191,500
===========================================================================
MULTI-LINE INSURANCE-2.03%
Genworth Financial Inc.-Class A 4,479,400 135,412,262
===========================================================================
OIL & GAS DRILLING-2.84%
ENSCO International Inc. 1,093,700 39,099,775
- ---------------------------------------------------------------------------
Transocean Inc. (Cayman Islands)(a) 2,789,598 150,554,604
===========================================================================
189,654,379
===========================================================================
</Table>
FS-123
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES-4.54%
Halliburton Co.(b) 4,200,000 $ 200,844,000
- ---------------------------------------------------------------------------
Weatherford International Ltd. (Bermuda)(a) 1,767,300 102,468,054
===========================================================================
303,312,054
===========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-5.69%
Citigroup Inc. 3,859,597 178,429,169
- ---------------------------------------------------------------------------
JPMorgan Chase & Co. 5,723,360 202,149,075
===========================================================================
380,578,244
===========================================================================
PACKAGED FOODS & MEATS-1.55%
Unilever N.V. (Netherlands)(c) 1,605,000 103,951,112
===========================================================================
PHARMACEUTICALS-8.23%
Pfizer Inc. 6,100,300 168,246,274
- ---------------------------------------------------------------------------
Sanofi-Aventis (France)(c) 2,973,760 243,554,381
- ---------------------------------------------------------------------------
Wyeth(b) 3,110,000 138,395,000
===========================================================================
550,195,655
===========================================================================
PROPERTY & CASUALTY INSURANCE-2.28%
ACE Ltd. (Cayman Islands)(b) 3,397,000 152,355,450
===========================================================================
SEMICONDUCTOR EQUIPMENT-1.05%
Novellus Systems, Inc.(a)(b) 2,834,000 70,028,140
===========================================================================
SPECIALIZED CONSUMER SERVICES-2.02%
H&R Block, Inc.(b) 2,310,400 134,811,840
===========================================================================
SYSTEMS SOFTWARE-3.41%
Computer Associates International, Inc.(b) 8,293,047 227,892,932
===========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
<Caption>
THRIFTS & MORTGAGE FINANCE-5.41%
Fannie Mae(b) 3,540,000 $ 206,736,000
- ---------------------------------------------------------------------------
MGIC Investment Corp.(b) 1,234,100 80,488,002
- ---------------------------------------------------------------------------
Radian Group Inc. 1,578,856 74,553,580
===========================================================================
361,777,582
===========================================================================
Total Common Stocks & Other Equity
Interests (Cost $5,222,431,546) 6,569,484,998
===========================================================================
MONEY MARKET FUNDS-1.86%
Liquid Assets Portfolio-Institutional
Class(d) 62,024,340 62,024,340
- ---------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(d) 62,024,340 62,024,340
===========================================================================
Total Money Market Funds (Cost
$124,048,680) 124,048,680
===========================================================================
TOTAL INVESTMENTS-100.17% (excluding
investments purchased with cash collateral
from securities loaned) (Cost
$5,346,480,226) 6,693,533,678
===========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-12.99%
Liquid Assets Portfolio-Institutional
Class(d)(e) 434,113,793 434,113,793
- ---------------------------------------------------------------------------
STIC Prime Portfolio-Institutional
Class(d)(e) 434,113,793 434,113,793
===========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $868,227,586) 868,227,586
===========================================================================
TOTAL INVESTMENTS-113.16% (Cost
$6,214,707,812) 7,561,761,264
===========================================================================
OTHER ASSETS LESS LIABILITIES-(13.16%) (879,523,251)
===========================================================================
NET ASSETS-100.00% $6,682,238,013
___________________________________________________________________________
===========================================================================
</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 June 30, 2005.
(c) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
aggregate market value of these securities at June 30, 2005 was
$347,505,493, which represented 4.60% of the Fund's Total Investments. See
Note 1A.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(e) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying notes which are an integral part of the financial statements.
FS-124
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2005
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$5,222,431,546)* $6,569,484,998
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $992,276,266) 992,276,266
============================================================
Total investments (cost $6,214,707,812) 7,561,761,264
============================================================
Receivables for:
Investments sold 5,119,064
- ------------------------------------------------------------
Fund shares sold 4,167,661
- ------------------------------------------------------------
Dividends 7,142,621
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 157,639
- ------------------------------------------------------------
Other assets 170,840
============================================================
Total assets 7,578,519,089
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 22,827,324
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 377,262
- ------------------------------------------------------------
Collateral upon return of securities
loaned 868,227,586
- ------------------------------------------------------------
Accrued distribution fees 3,130,382
- ------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 3,542
- ------------------------------------------------------------
Accrued transfer agent fees 1,293,618
- ------------------------------------------------------------
Accrued operating expenses 421,362
============================================================
Total liabilities 896,281,076
============================================================
Net assets applicable to shares outstanding $6,682,238,013
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $5,681,467,183
- ------------------------------------------------------------
Undistributed net investment income (loss) (2,600,767)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign
currencies (343,640,879)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 1,347,012,476
============================================================
$6,682,238,013
____________________________________________________________
============================================================
NET ASSETS:
Class A $4,117,049,326
____________________________________________________________
============================================================
Class B $1,778,417,412
____________________________________________________________
============================================================
Class C $ 605,850,187
____________________________________________________________
============================================================
Class R $ 32,427,267
____________________________________________________________
============================================================
Institutional Class $ 148,493,821
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 127,268,808
____________________________________________________________
============================================================
Class B 58,404,096
____________________________________________________________
============================================================
Class C 19,899,738
____________________________________________________________
============================================================
Class R 1,007,542
____________________________________________________________
============================================================
Institutional Class 4,503,671
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 32.35
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $32.35 divided
by 94.50%) $ 34.23
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 30.45
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 30.45
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 32.18
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 32.97
____________________________________________________________
============================================================
</Table>
* At June 30, 2005, securities with an aggregate market value of $851,203,515
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
FS-125
STATEMENT OF OPERATIONS
For the six months ended June 30, 2005
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $1,489,084) $ 46,172,814
- ---------------------------------------------------------------------------
Dividends from affiliated money market funds (includes
securities lending income of $108,018 after compensation
to counterparties of $7,986,401) 1,701,461
===========================================================================
Total investment income 47,874,275
===========================================================================
EXPENSES:
Advisory fees 22,792,328
- ---------------------------------------------------------------------------
Administrative services fees 346,465
- ---------------------------------------------------------------------------
Custodian fees 317,148
- ---------------------------------------------------------------------------
Distribution fees:
Class A 7,440,008
- ---------------------------------------------------------------------------
Class B 9,262,862
- ---------------------------------------------------------------------------
Class C 3,148,497
- ---------------------------------------------------------------------------
Class R 77,002
- ---------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C and R 8,099,270
- ---------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 41,953
- ---------------------------------------------------------------------------
Trustees' and officer's fees and benefits 104,535
- ---------------------------------------------------------------------------
Other 773,825
===========================================================================
Total expenses 52,403,893
===========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangement (2,165,967)
===========================================================================
Net expenses 50,237,926
===========================================================================
Net investment income (loss) (2,363,651)
===========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities (includes gains from securities sold
to affiliates of $1,434,142) 185,373,081
- ---------------------------------------------------------------------------
Foreign currencies (438,147)
===========================================================================
184,934,934
===========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (213,662,214)
- ---------------------------------------------------------------------------
Foreign currencies (40,976)
===========================================================================
(213,703,190)
===========================================================================
Net gain (loss) from investment securities and foreign
currencies (28,768,256)
===========================================================================
Net increase (decrease) in net assets resulting from
operations $ (31,131,907)
___________________________________________________________________________
===========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-126
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 2005 and the year ended December 31, 2004
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2005 2004
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (2,363,651) $ (24,613,460)
- ----------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 184,934,934 115,956,728
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies (213,703,190) 603,140,110
==============================================================================================
Net increase (decrease) in net assets resulting from
operations (31,131,907) 694,483,378
==============================================================================================
Share transactions-net:
Class A (349,399,207) 229,943,250
- ----------------------------------------------------------------------------------------------
Class B (194,279,746) (146,534,200)
- ----------------------------------------------------------------------------------------------
Class C (70,903,090) (49,796,419)
- ----------------------------------------------------------------------------------------------
Class R 3,268,495 14,533,591
- ----------------------------------------------------------------------------------------------
Institutional Class 44,594,350 96,937,383
==============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (566,719,198) 145,083,605
==============================================================================================
Net increase (decrease) in net assets (597,851,105) 839,566,983
==============================================================================================
NET ASSETS:
Beginning of period 7,280,089,118 6,440,522,135
==============================================================================================
End of period (including undistributed net investment
income (loss) of $(2,600,767) and $(237,116),
respectively) $6,682,238,013 $7,280,089,118
______________________________________________________________________________________________
==============================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-127
NOTES TO FINANCIAL STATEMENTS
June 30, 2005
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Basic Value Fund (the "Fund") is a separate series of AIM Growth Series (the
"Trust"). The Trust is organized as a Delaware statutory trust and is registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as an
open-end series management investment company consisting of nine separate series
portfolios, each authorized to issue an unlimited number of shares of beneficial
interest. The Fund currently offers multiple classes of shares. Matters
affecting each portfolio or class will be voted on exclusively by the
shareholders of such portfolio or class. The assets, liabilities and operations
of each portfolio are accounted for separately. Information presented in these
financial statements pertains only to the Fund.
The Fund's investment objective is long-term growth of capital. Each company
listed in the Schedule of Investments is organized in the United States of
America unless otherwise noted.
Under the Trust's organizational documents, 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.
FS-128
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.
FS-129
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:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- ----------------------------------------------------------------------
First $500 million 0.725%
- ----------------------------------------------------------------------
Next $500 million 0.70%
- ----------------------------------------------------------------------
Next $500 million 0.675%
- ----------------------------------------------------------------------
Over $1.5 billion 0.65%
______________________________________________________________________
======================================================================
</Table>
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 0.695%
- ----------------------------------------------------------------------
Next $250 million 0.67%
- ----------------------------------------------------------------------
Next $500 million 0.645%
- ----------------------------------------------------------------------
Next $1.5 billion 0.62%
- ----------------------------------------------------------------------
Next $2.5 billion 0.595%
- ----------------------------------------------------------------------
Next $2.5 billion 0.57%
- ----------------------------------------------------------------------
Next $2.5 billion 0.545%
- ----------------------------------------------------------------------
Over $10 billion 0.52%
______________________________________________________________________
======================================================================
</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 June 30, 2005, AIM waived fees of $2,001,681.
At the request of the Trustees of the Trust, AMVESCAP PLC ("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 six months ended June 30, 2005, AMVESCAP reimbursed expenses of the Fund in
the amount of $69,424.
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 June 30, 2005, AIM was paid $346,465.
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 June 30, 2005, the
Fund paid AISI $8,099,270 for Class A, Class B, Class C and Class R share
classes and $41,953 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. Effective July 1, 2005, the Trustees
approved a permanent reduction in the annual rate payable by the Fund to ADI to
0.25% of the average daily net assets of Class A 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 June 30, 2005, the Class A, Class B, Class C and
Class R shares paid $7,440,008, $9,262,862, $3,148,497 and $77,002,
respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the six
months ended June 30, 2005, ADI advised the Fund that it retained $270,486 in
front-end sales commissions from the sale of Class A shares and $17,617,
$222,024, $30,426 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.
FS-130
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 June 30, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 06/30/05 INCOME GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 49,840,942 $ 381,124,059 $ (368,940,661) $ -- $ 62,024,340 $ 792,246 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 49,840,942 381,124,059 (368,940,661) -- 62,024,340 801,197 --
===================================================================================================================================
Subtotal $ 99,681,884 $ 762,248,118 $ (737,881,322) $ -- $124,048,680 $1,593,443 $ --
===================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 06/30/05 INCOME* GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $312,297,068 $ 612,893,035 $ (491,076,310) $ -- $434,113,793 $ 53,608 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 312,297,069 612,893,035 (491,076,311) -- 434,113,793 54,410 --
===================================================================================================================================
Subtotal $624,594,137 $1,225,786,070 $ (982,152,621) $ -- $868,227,586 $ 108,018 $ --
===================================================================================================================================
Total $724,276,021 $1,988,034,188 $(1,720,033,943) $ -- $992,276,266 $1,701,461 $ --
___________________________________________________________________________________________________________________________________
===================================================================================================================================
</Table>
* 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 six months ended June 30, 2005, the
Fund engaged in securities purchases of $0 and sales of $4,925,700, which
resulted in net realized gains of $1,434,142.
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 June 30, 2005,
the Fund received credits from this arrangement, which resulted in the reduction
of the Fund's total expenses of $94,862.
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 June 30, 2005, the Fund paid legal fees of
$15,335 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-131
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 six months ended June 30, 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 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 June 30, 2005, securities with an aggregate value of $851,203,515 were on
loan to brokers. The loans were secured by cash collateral of $868,227,586
received by the Fund and subsequently invested in affiliated money market funds.
For the six months ended June 30, 2005, the Fund received dividends on cash
collateral of $108,018 for securities lending transactions, which are net of
compensation to counterparties.
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 December 31, 2004 which
expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
December 31, 2010 $320,850,425
- -----------------------------------------------------------------------------
December 31, 2011 197,141,083
=============================================================================
Total capital loss carryforward $517,991,508
_____________________________________________________________________________
=============================================================================
</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.
FS-132
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended June 30, 2005 was $290,741,212 and $841,529,288, 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 $1,584,694,933
- --------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (245,845,952)
================================================================================
Net unrealized appreciation of investment securities $1,338,848,981
________________________________________________________________________________
================================================================================
Cost of investments for tax purposes is $6,222,912,283.
</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 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)
- ----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2005 DECEMBER 31, 2004
---------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 11,274,923 $ 360,525,339 45,643,967 $ 1,367,897,119
- ----------------------------------------------------------------------------------------------------------------------------
Class B 2,415,002 72,755,441 11,128,015 316,220,520
- ----------------------------------------------------------------------------------------------------------------------------
Class C 990,540 29,849,144 4,433,952 125,791,675
- ----------------------------------------------------------------------------------------------------------------------------
Class R 223,273 7,130,598 668,236 19,850,960
- ----------------------------------------------------------------------------------------------------------------------------
Institutional Class 1,762,701 57,290,547 3,074,246 97,385,847
============================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 1,424,242 45,462,751 3,531,163 106,295,761
- ----------------------------------------------------------------------------------------------------------------------------
Class B (1,510,508) (45,462,751) (3,727,321) (106,295,761)
============================================================================================================================
Reacquired:
Class A (23,629,033) (755,387,297) (41,338,578) (1,244,249,630)
- ----------------------------------------------------------------------------------------------------------------------------
Class B (7,355,207) (221,572,436) (12,577,796) (356,458,959)
- ----------------------------------------------------------------------------------------------------------------------------
Class C (3,344,370) (100,752,234) (6,194,731) (175,588,094)
- ----------------------------------------------------------------------------------------------------------------------------
Class R (121,672) (3,862,103) (177,088) (5,317,369)
- ----------------------------------------------------------------------------------------------------------------------------
Institutional Class (390,616) (12,696,197) (14,498) (448,464)
============================================================================================================================
(18,260,725) $(566,719,198) 4,449,567 $ 145,083,605
____________________________________________________________________________________________________________________________
============================================================================================================================
</Table>
(a)There is one entity that is a record owner of more than 5% of the outstanding
shares of the Fund and it owns 9% of the outstanding shares of the Fund. AIM
Distributors has an agreement with this entity to sell Fund shares. The Fund,
AIM, and/or AIM affiliates may make payments to this entity, which is
considered to be related to the Fund, for providing services to the Fund, AIM
and/or AIM affiliates including but not limited to services such as,
securities brokerage, distribution, third party record keeping and account
servicing. The Trust has no knowledge as to whether all or any portion of the
shares owned of record by this entity are also owned beneficially.
FS-133
NOTE 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
---------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ----------------------------------------------------------------------
2005 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 32.42 $ 29.24 $ 21.86 $ 28.44 $ 28.41 $ 23.84
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.03 (0.03) (0.06) (0.04)(a) (0.02)(a) 0.06
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (0.10) 3.21 7.44 (6.54) 0.06 4.74
=================================================================================================================================
Total from investment operations (0.07) 3.18 7.38 (6.58) 0.04 4.80
=================================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- (0.00) (0.00) (0.03)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- (0.00) (0.01) (0.20)
=================================================================================================================================
Total distributions -- -- -- (0.00) (0.01) (0.23)
=================================================================================================================================
Net asset value, end of period $ 32.35 $ 32.42 $ 29.24 $ 21.86 $ 28.44 $ 28.41
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) (0.22)% 10.88% 33.76% (23.14)% 0.16% 20.20%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $4,117,049 $4,480,701 $3,812,300 $2,534,964 $2,066,536 $448,668
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 1.23%(c) 1.29% 1.34% 1.33% 1.30% 1.32%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.29%(c) 1.31% 1.34% 1.33% 1.30% 1.32%
=================================================================================================================================
Ratio of net investment income (loss) to
average net assets 0.16%(c) (0.11)% (0.28)% (0.17)% (0.05)% 0.49%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(d) 4% 15% 20% 30% 20% 56%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$4,286,665,717.
(d) Not annualized for periods less than one year.
FS-134
NOTE 12--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS B
---------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ----------------------------------------------------------------------
2005 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 30.62 $ 27.80 $ 20.91 $ 27.38 $ 27.54 $ 23.23
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.08) (0.23) (0.21) (0.20)(a) (0.19)(a) (0.02)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (0.09) 3.05 7.10 (6.27) 0.04 4.53
=================================================================================================================================
Total from investment operations (0.17) 2.82 6.89 (6.47) (0.15) 4.51
=================================================================================================================================
Less distributions from net realized
gains -- -- -- (0.00) (0.01) (0.20)
=================================================================================================================================
Net asset value, end of period $ 30.45 $ 30.62 $ 27.80 $ 20.91 $ 27.38 $ 27.54
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) (0.56)% 10.14% 32.95% (23.63)% (0.53)% 19.47%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,778,417 $1,985,690 $1,946,590 $1,498,499 $1,538,292 $241,157
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 1.88%(c) 1.94% 1.99% 1.98% 1.95% 1.97%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.94%(c) 1.96% 1.99% 1.98% 1.95% 1.97%
=================================================================================================================================
Ratio of net investment income (loss) to
average net assets (0.49)%(c) (0.76)% (0.93)% (0.82)% (0.70)% (0.16)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(d) 4% 15% 20% 30% 20% 56%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$1,867,925,288.
(d) Not annualized for periods less than one year.
FS-135
NOTE 12--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS C
-------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, --------------------------------------------------------------
2005 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 30.61 $ 27.79 $ 20.91 $ 27.38 $ 27.54 $ 23.23
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.08) (0.23) (0.21) (0.20)(a) (0.19)(a) (0.02)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (0.08) 3.05 7.09 (6.27) 0.04 4.53
=================================================================================================================================
Total from investment operations (0.16) 2.82 6.88 (6.47) (0.15) 4.51
=================================================================================================================================
Less distributions from net realized gains -- -- -- (0.00) (0.01) (0.20)
=================================================================================================================================
Net asset value, end of period $ 30.45 $ 30.61 $ 27.79 $ 20.91 $ 27.38 $ 27.54
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) (0.52)% 10.15% 32.90% (23.63)% (0.53)% 19.47%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $605,850 $681,234 $667,412 $518,575 $566,627 $193,863
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.88%(c) 1.94% 1.99% 1.98% 1.95% 1.97%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.94%(c) 1.96% 1.99% 1.98% 1.95% 1.97%
=================================================================================================================================
Ratio of net investment income (loss) to average
net assets (0.49)%(c) (0.76)% (0.93)% (0.82)% (0.70)% (0.16)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(d) 4% 15% 20% 30% 20% 56%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</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
$634,917,907.
(d) Not annualized for periods less than one year.
<Table>
<Caption>
CLASS R
----------------------------------------------------
JUNE 3, 2002
SIX MONTHS YEAR ENDED (DATE SALES
ENDED DECEMBER 31, COMMENCED) TO
JUNE 30, ------------------ DECEMBER 31,
2005 2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 32.28 $ 29.16 $ 21.84 $27.54
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.00 (0.06) (0.06) (0.05)(a)
- ------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.10) 3.18 7.38 (5.65)
==================================================================================================================
Total from investment operations (0.10) 3.12 7.32 (5.70)
==================================================================================================================
Net asset value, end of period $ 32.18 $ 32.28 $ 29.16 $21.84
__________________________________________________________________________________________________________________
==================================================================================================================
Total return(b) (0.31)% 10.70% 33.52% (20.70)%
__________________________________________________________________________________________________________________
==================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $32,427 $29,245 $12,097 $1,421
__________________________________________________________________________________________________________________
==================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.38%(c) 1.44% 1.49% 1.54%(d)
- ------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.44%(c) 1.46% 1.49% 1.54%(d)
==================================================================================================================
Ratio of net investment income (loss) to average net assets 0.01%(c) (0.26)% (0.43)% (0.37)%(d)
__________________________________________________________________________________________________________________
==================================================================================================================
Portfolio turnover rate(e) 4% 15% 20% 30%
__________________________________________________________________________________________________________________
==================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$31,056,209.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-136
NOTE 12--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
-----------------------------------------------------
MARCH 15, 2002
SIX MONTHS YEAR ENDED (DATE SALES
ENDED DECEMBER 31, COMMENCED) TO
JUNE 30, ------------------ DECEMBER 31,
2005 2004 2003 2002
- -------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 32.96 $ 29.56 $21.95 $29.63
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.10 0.02 0.08 0.06(a)
- -------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.09) 3.38 7.53 (7.74)
===================================================================================================================
Total from investment operations 0.01 3.40 7.61 (7.68)
===================================================================================================================
Net asset value, end of period $ 32.97 $ 32.96 $29.56 $21.95
___________________________________________________________________________________________________________________
===================================================================================================================
Total return(b) 0.03% 11.50% 34.67% (25.92)%
___________________________________________________________________________________________________________________
===================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $148,494 $103,219 $2,123 $1,471
___________________________________________________________________________________________________________________
===================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.71%(c) 0.71% 0.71% 0.81%(d)
- -------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.77%(c) 0.73% 0.71% 0.81%(d)
===================================================================================================================
Ratio of net investment income to average net assets 0.68%(c) 0.47% 0.35% 0.35%(d)
___________________________________________________________________________________________________________________
===================================================================================================================
Portfolio turnover rate(e) 4% 15% 20% 30%
___________________________________________________________________________________________________________________
===================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$135,193,259.
(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), 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) is being created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Additionally, AIM and ADI
agreed to create 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. 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
FS-137
NOTE 13--LEGAL PROCEEDINGS--(CONTINUED)
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 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 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.
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.
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.
FS-138
FINANCIALS
SCHEDULE OF INVESTMENTS
June 30, 2005
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------
MUTUAL FUNDS-90.04%(A)
AIM Charter Fund-Institutional
Class-4.97% 227,174 $ 2,955,531
- --------------------------------------------------------------
AIM International Core Equity
Fund-Institutional Class-2.49% 131,396 1,480,827
- --------------------------------------------------------------
AIM Large Cap Basic Value
Fund-Institutional Class-4.99%(b) 219,116 2,966,836
- --------------------------------------------------------------
AIM Large Cap Growth
Fund-Institutional Class-5.01%(b) 300,893 2,975,834
- --------------------------------------------------------------
AIM Limited Maturity Treasury
Fund-Institutional Class-15.01% 878,873 8,920,562
- --------------------------------------------------------------
AIM Multi-Sector Fund-Institutional
Class-2.50% 64,835 1,484,080
- --------------------------------------------------------------
AIM Short Term Bond
Fund-Institutional Class-25.01% 1,490,760 14,862,877
- --------------------------------------------------------------
AIM Total Return Bond
Fund-Institutional Class-25.02% 1,405,077 14,865,716
- --------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------
AIM Trimark Endeavor
Fund-Institutional Class-5.04%(b) 235,647 $ 2,992,728
==============================================================
Total Mutual Funds (Cost
$52,737,066) 53,504,991
==============================================================
<Caption>
PAR
(000)
REPURCHASE AGREEMENTS-9.98%
State Street Bank & Trust 2.68%,
07/01/05 (Cost $5,931,464)(c) $ 5,931 5,931,464
==============================================================
TOTAL INVESTMENTS-100.02% (Cost
$58,668,530) 59,436,455
==============================================================
OTHER ASSETS LESS
LIABILITIES-(0.02%) (12,110)
==============================================================
NET ASSETS-100.00% $59,424,345
______________________________________________________________
==============================================================
</Table>
Notes to Schedule of Investments:
(a) The mutual funds and the Fund are affiliated by having the same
investment advisor. See Note 3.
(b) Non-income producing security. A security is determined to be non-income
producing if the security has not declared a distribution in more than
one year from the report date.
(c) Repurchase agreement entered into 06/30/05 with a maturing value of
$5,931,906. Collateralized by $6,145,000 U.S. Government obligations,
3.13% due 12/15/07 with a market value at 06/30/05 of $6,050,263.
See accompanying notes which are an integral part of the financial statements.
FS-139
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2005
(Unaudited)
<Table>
ASSETS:
Investments in affiliated underlying funds,
at market value (cost $52,737,066) $53,504,991
- -----------------------------------------------------------
Repurchase agreements (cost $5,931,464) 5,931,464
===========================================================
Total investments (cost $58,668,530) 59,436,455
===========================================================
Receivables for:
Investments sold 3,830
- -----------------------------------------------------------
Fund shares sold 59,487
- -----------------------------------------------------------
Interest 442
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 2,641
- -----------------------------------------------------------
Other assets 43,465
===========================================================
Total assets 59,546,320
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 25,453
- -----------------------------------------------------------
Fund shares reacquired 64,184
- -----------------------------------------------------------
Trustee deferred compensation and retirement
plans 2,801
- -----------------------------------------------------------
Accrued distribution fees 17,036
- -----------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 111
- -----------------------------------------------------------
Accrued transfer agent fees 6,949
- -----------------------------------------------------------
Accrued operating expenses 5,441
===========================================================
Total liabilities 121,975
===========================================================
Net assets applicable to shares outstanding $59,424,345
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $57,928,898
- -----------------------------------------------------------
Undistributed net investment income 363,485
- -----------------------------------------------------------
Undistributed net realized gain from
investment securities 364,037
- -----------------------------------------------------------
Unrealized appreciation of investment
securities 767,925
===========================================================
$59,424,345
===========================================================
NET ASSETS:
Class A $28,327,785
___________________________________________________________
===========================================================
Class B $16,708,414
___________________________________________________________
===========================================================
Class C $11,424,252
___________________________________________________________
===========================================================
Class R $ 2,858,311
___________________________________________________________
===========================================================
Institutional Class $ 105,583
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Class A 2,718,414
___________________________________________________________
===========================================================
Class B 1,613,670
___________________________________________________________
===========================================================
Class C 1,103,798
___________________________________________________________
===========================================================
Class R 274,977
___________________________________________________________
===========================================================
Institutional Class 10,108
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 10.42
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $10.42 divided by
94.50%) $ 11.03
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per share $ 10.35
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per share $ 10.35
___________________________________________________________
===========================================================
Class R:
Net asset value and offering price per share $ 10.39
___________________________________________________________
===========================================================
Institutional Class:
Net asset value and offering price per share $ 10.45
___________________________________________________________
===========================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-140
STATEMENT OF OPERATIONS
For the six months ended June 30, 2005
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends from affiliated underlying funds $ 515,301
- -----------------------------------------------------------------------
Interest 64,102
=======================================================================
Total investment income 579,403
=======================================================================
EXPENSES:
Administrative services fees 24,795
- -----------------------------------------------------------------------
Custodian fees 4,197
- -----------------------------------------------------------------------
Distribution fees:
Class A 42,098
- -----------------------------------------------------------------------
Class B 67,426
- -----------------------------------------------------------------------
Class C 47,623
- -----------------------------------------------------------------------
Class R 7,094
- -----------------------------------------------------------------------
Transfer agent fees -- Class A, B, C & R 38,814
- -----------------------------------------------------------------------
Trustees' and officer's fees and benefits 7,028
- -----------------------------------------------------------------------
Registration and filing fees 61,415
- -----------------------------------------------------------------------
Professional services fees 25,291
- -----------------------------------------------------------------------
Other 20,381
=======================================================================
Total expenses 346,162
=======================================================================
Less: Expenses reimbursed and expense offset arrangement (131,763)
=======================================================================
Net expenses 214,399
=======================================================================
Net investment income 365,004
=======================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES:
Net realized gain from affiliated underlying funds 310,418
=======================================================================
Change in net unrealized appreciation (depreciation) of
affiliated underlying funds (107,971)
=======================================================================
Net gain from affiliated underlying funds 202,447
=======================================================================
Net increase in net assets resulting from operations $ 567,451
_______________________________________________________________________
=======================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-141
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 2005 and the year ended December 31, 2004
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2005 2004
- -----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income from affiliated underlying funds $ 365,004 $ 199,269
- -----------------------------------------------------------------------------------------
Net realized gain from underlying funds and capital gain
distributions of affiliated underlying funds 310,418 198,462
- -----------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
affiliated underlying funds (107,971) 875,896
=========================================================================================
Net increase in net assets resulting from operations 567,451 1,273,627
=========================================================================================
Distributions to shareholders from net investment income:
Class A -- (183,596)
- -----------------------------------------------------------------------------------------
Class B -- (76,559)
- -----------------------------------------------------------------------------------------
Class C -- (85,197)
- -----------------------------------------------------------------------------------------
Class R -- (14,664)
- -----------------------------------------------------------------------------------------
Institutional Class -- (1,076)
=========================================================================================
Total distributions from net investment income -- (361,092)
=========================================================================================
Distributions to shareholders from net realized gains:
Class A -- (5,147)
- -----------------------------------------------------------------------------------------
Class B -- (2,734)
- -----------------------------------------------------------------------------------------
Class C -- (3,043)
- -----------------------------------------------------------------------------------------
Class R -- (432)
- -----------------------------------------------------------------------------------------
Institutional Class -- (27)
=========================================================================================
Total distributions from net realized gains -- (11,383)
=========================================================================================
Decrease in net assets resulting from distributions -- (372,475)
=========================================================================================
Share transactions-net:
Class A 7,903,787 19,747,738
- -----------------------------------------------------------------------------------------
Class B 6,126,979 10,218,111
- -----------------------------------------------------------------------------------------
Class C (409,248) 11,486,975
- -----------------------------------------------------------------------------------------
Class R 1,235,930 1,544,357
- -----------------------------------------------------------------------------------------
Institutional Class -- 101,113
=========================================================================================
Net increase in net assets resulting from share
transactions 14,857,448 43,098,294
=========================================================================================
Net increase in net assets 15,424,899 43,999,446
=========================================================================================
NET ASSETS:
Beginning of period 43,999,446 --
=========================================================================================
End of period (including undistributed net investment
income (loss) of $363,485 and $(1,519), respectively) $59,424,345 $43,999,446
_________________________________________________________________________________________
=========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-142
NOTES TO FINANCIAL STATEMENTS
June 30, 2005
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Conservative Allocation Fund (the "Fund") is a separate series of AIM Growth
Series (the "Trust"). The Trust is organized as a Delaware statutory trust and
is registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of nine
separate series portfolios, each authorized to issue an unlimited number of
shares of beneficial interest. The Fund currently offers multiple classes of
shares. Matters affecting each portfolio or class will be voted on exclusively
by the shareholders of such portfolio or class. The assets, liabilities and
operations of each portfolio are accounted for separately. Information presented
in these financial statements pertains only to the Fund.
The Fund's investment objective is to provide total return consistent with a
lower level of risk relative to the broad stock market. The Fund is a "fund of
funds," in that it invests in the Institutional Class of other mutual funds
("underlying funds") advised by A I M Advisors, Inc. ("AIM"). AIM may change the
Fund's asset class allocations, the underlying funds or the target weightings in
the underlying funds without shareholder approval. The underlying funds may
engage in a number of investment techniques and practices, which involve certain
risks. Each underlying fund's accounting policies are outlined in the underlying
fund's financial statements and are available upon request.
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 -- Investments in underlying funds are valued at the
end of the day net asset value per share.
Securities in the underlying funds, 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 underlying funds' 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 underlying funds' 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
FS-143
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 underlying funds' officers following procedures
approved by the underlying funds' 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. Distributions from income from underlying funds, if any, are recorded
as dividend income on ex-dividend date. Distributions from net realized
capital gains from underlying funds, if any, are recorded as realized gains
on the ex-dividend date. Interest income is recorded on the accrual basis
from settlement date.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Expenses included in the accompanying financial statements
reflect the expenses of the Fund and do not include any expenses of the
underlying funds. The results of the underlying funds expenses are included
in the realized and unrealized gain/loss on the investments in the
underlying funds.
Fees provided for under the Rule 12b-1 plan of a particular class of the
Fund are charged to the operations of such class. Transfer agency fees and
expenses and other shareholder recordkeeping fees and expenses attributable
to the Institutional Class are charged to such class. Transfer agency fees
and expenses and other shareholder recordkeeping fees and expenses relating
to all other classes are allocated among those classes based on relative
net assets. All other expenses are allocated among the classes based on
relative net assets.
F. REPURCHASE AGREEMENTS -- The Fund may enter into repurchase agreements.
Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. Eligible securities for collateral
are U.S. Government Securities, U.S. Government Agency Securities and/or
Investment Grade Debt Securities. Collateral consisting of U.S. Government
Securities and U.S. Government Agency Securities is marked to market daily
to ensure its market value is at least 102% of the sales price of the
repurchase agreement. Collateral consisting of Investment Grade Debt
Securities is marked to market daily to ensure its market value is at least
105% of the sales price of the repurchase agreement. The investments in
some repurchase agreements, pursuant to 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.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with AIM.
Under the terms of the investment advisory agreement, the Fund does not pay an
advisory fee. However, the Fund pays advisory fees to AIM indirectly as a
shareholder of the underlying funds.
AIM has contractually agreed to reimburse expenses to the extent necessary
to limit other expenses (excluding certain items discussed below) of Class A,
Class B, Class C, Class R and Institutional Class shares to 0.20% of average
daily net assets, respectively, through December 31, 2005. In determining the
advisor's obligation to reimburse expenses, the following expenses are not taken
into account, and could cause other expenses to exceed the limit stated above:
(i) Rule 12b-1 plan fees, if any; (ii) interest; (iii) taxes; (iv) dividend
expense on short sales; (v) 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; (vi) expenses related to a merger or
reorganization, as approved by the Fund's Board of Trustees; and (vii) expenses
of the underlying funds that are paid indirectly as a result of share ownership
of the underlying funds; and (viii) 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. To
the extent that the annualized expense ratio does not exceed the expense
limitation, AIM will retain its ability to be reimbursed for such fee waivers or
reimbursements prior to the end of each fiscal year.
For the six months ended June 30, 2005, AIM reimbursed expenses of $130,023.
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 six months
ended June 30, 2005, AMVESCAP reimbursed expenses of the Fund in the amount of
$1,070.
FS-144
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 June 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 June 30, 2005, the
Fund paid AISI $38,814 for Class A, Class B, Class C and Class R share classes
and $0 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. Effective July 1, 2005, the Trustees
approved a permanent reduction in the annual rate payable by the Fund to ADI to
0.25% of the average daily net assets of Class A 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 June 30, 2005, the Class A, Class B, Class C and
Class R shares paid $42,098, $67,426, $47,623 and $7,094, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the six
months ended June 30, 2005, ADI advised the Fund that it retained $48,437 in
front-end sales commissions from the sale of Class A shares and $2, $10,776,
$1,707 and $0 from Class A, Class B, Class C and Class R shares, respectively,
for CDSC imposed upon redemptions by shareholders.
The underlying funds pay no distribution fees and the Fund pays no sales
loads or other similar compensation to ADI for acquiring underlying fund shares.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or ADI.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund and the mutual funds below have the same investment advisor and
therefore, are considered to be affiliated. The table below shows the
transactions in and earnings from investments in affiliated mutual funds for the
six months ended June 30, 2005.
<Table>
<Caption>
CHANGE IN
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 06/30/05 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
AIM Charter
Fund-
Institutional
Class $ 2,288,956 $ 1,284,689 $ (598,934) $ (50,327) $ 2,955,531 $ -- $ 31,147
- ----------------------------------------------------------------------------------------------------------------------------------
AIM
International
Core Equity
Fund-
Institutional
Class 1,211,075 642,345 (344,722) (69,140) 1,480,827 -- 41,269
- ----------------------------------------------------------------------------------------------------------------------------------
AIM Large Cap
Basic Value
Fund-
Institutional
Class 2,333,821 1,284,688 (665,305) (42,782) 2,966,836 -- 56,414
- ----------------------------------------------------------------------------------------------------------------------------------
AIM Large Cap
Growth Fund-
Institutional
Class 2,321,950 1,284,688 (631,274) (41,067) 2,975,834 -- 41,537
- ----------------------------------------------------------------------------------------------------------------------------------
AIM Limited
Maturity
Fund-
Institutional
Class 6,415,786 4,141,282 (1,606,590) (16,719) 8,920,562 93,060 (13,197)
- ----------------------------------------------------------------------------------------------------------------------------------
AIM
Multi-Sector
Fund-
Institutional
Class 1,191,575 642,344 (427,944) 24,056 1,484,080 -- 54,049
- ----------------------------------------------------------------------------------------------------------------------------------
AIM Short Term
Bond Fund-
Institutional
Class 10,744,498 6,825,857 (2,693,459) (4,283) 14,862,877 203,628 (9,736)
- ----------------------------------------------------------------------------------------------------------------------------------
AIM Total
Return Bond
Fund-
Institutional
Class 10,845,845 6,642,058 (2,779,640) 133,642 14,865,716 218,613 23,811
- ----------------------------------------------------------------------------------------------------------------------------------
AIM Trimark
Endeavor
Fund-
Institutional
Class 2,379,953 1,284,688 (715,686) (41,351) 2,992,728 -- 85,124
==================================================================================================================================
Total $39,733,459 $24,032,639 $(10,463,554) $(107,971) $53,504,991 $515,301 $310,418
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
FS-145
NOTE 4--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer agent
for clearing shareholder transactions. For the six months ended June 30, 2005,
the Fund received credits from this arrangement, which resulted in a reduction
of the Fund's total expenses of $670.
NOTE 5--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 June 30, 2005, the Fund paid legal fees of
$2,040 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
The Fund is a participant in an uncommitted unsecured revolving credit facility
with State Street Bank and Trust Company ("SSB"). The Fund may borrow up to the
lesser of (i) $125,000,000, or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan. During the six months ended June 30, 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 in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 7--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.
The Fund did not have a capital loss carryforward as of December 31, 2004.
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the six months ended June 30, 2005 was
$24,032,639 and $10,463,554, 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 $859,528
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (92,264)
==============================================================================
Net unrealized appreciation of investment securities $767,264
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $58,669,191.
</Table>
FS-146
NOTE 9--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and Institutional Class shares.
Class A shares are sold with a front-end sales charge. Class B shares and Class
C shares are sold with CDSC. Class R shares and Institutional Class shares are
sold at net asset value. Under certain circumstances, Class A shares and Class R
shares are subject to CDSC. Generally, Class B shares will automatically convert
to Class A shares eight years after the end of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ------------------------------------------------------------------------------------------------------------------
APRIL 30, 2004
(DATE OPERATIONS
SIX MONTHS ENDED COMMENCED) TO
JUNE 30, 2005 DECEMBER 31, 2004
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------
Sold:
Class A 1,525,519 $15,720,789 2,129,826 $21,567,020
- ------------------------------------------------------------------------------------------------------------------
Class B 813,224 8,331,611 1,120,422 11,295,205
- ------------------------------------------------------------------------------------------------------------------
Class C 523,380 5,362,420 1,195,865 12,024,756
- ------------------------------------------------------------------------------------------------------------------
Class R 292,612 2,998,971 166,330 1,674,671
- ------------------------------------------------------------------------------------------------------------------
Institutional Class -- -- 10,001 100,010
==================================================================================================================
Issued as reinvestment of dividends:
Class A -- -- 17,350 178,529
- ------------------------------------------------------------------------------------------------------------------
Class B -- -- 6,647 68,130
- ------------------------------------------------------------------------------------------------------------------
Class C -- -- 8,491 87,033
- ------------------------------------------------------------------------------------------------------------------
Class R -- -- 1,468 15,096
- ------------------------------------------------------------------------------------------------------------------
Institutional Class -- -- 107 1,103
==================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 25,952 268,546 32,087 329,905
- ------------------------------------------------------------------------------------------------------------------
Class B (26,099) (268,546) (32,212) (329,905)
==================================================================================================================
Reacquired:
Class A (783,742) (8,085,548) (228,578) (2,327,716)
- ------------------------------------------------------------------------------------------------------------------
Class B (188,376) (1,936,086) (79,936) (815,319)
- ------------------------------------------------------------------------------------------------------------------
Class C (562,728) (5,771,668) (61,210) (624,814)
- ------------------------------------------------------------------------------------------------------------------
Class R (171,327) (1,763,041) (14,106) (145,410)
==================================================================================================================
1,448,415 $14,857,448 4,272,552 $43,098,294
__________________________________________________________________________________________________________________
==================================================================================================================
</Table>
FS-147
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the period indicated.
<Table>
<Caption>
CLASS A
---------------------------------
APRIL 30, 2004
SIX MONTHS (DATE OPERATIONS
ENDED COMMENCED) TO
JUNE 30, DECEMBER 31,
2005 2004
- -----------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.32 $ 10.00
- -----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.08 0.06
- -----------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.02 0.36
===============================================================================================
Total from investment operations 0.10 0.42
===============================================================================================
Less distributions:
Dividends from net investment income -- (0.10)
- -----------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.00)
===============================================================================================
Total distributions -- (0.10)
===============================================================================================
Net asset value, end of period $ 10.42 $ 10.32
_______________________________________________________________________________________________
===============================================================================================
Total return(a) 0.97% 4.19%
_______________________________________________________________________________________________
===============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $28,328 $20,124
_______________________________________________________________________________________________
===============================================================================================
Ratio of expenses to average net assets:
With expense reimbursements 0.55%(b) 0.55%(c)
- -----------------------------------------------------------------------------------------------
Without expense reimbursements 1.08%(b) 1.41%(c)
===============================================================================================
Estimated underlying fund expenses(d) 0.63% 0.63%
_______________________________________________________________________________________________
===============================================================================================
Ratio of net investment income to average net assets 1.77%(b) 1.74%(c)
_______________________________________________________________________________________________
===============================================================================================
Portfolio turnover rate(e) 23% 9%
_______________________________________________________________________________________________
===============================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purpose 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.
(b) Ratios are annualized and based on average daily net assets of
$24,255,323.
(c) Annualized.
(d) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
underlying funds in which the Fund invests. Because the underlying funds
have varied expenses and fee levels and the Fund may own different
proportions at different times, the amount of fees and expenses incurred
indirectly by the Fund will vary.
(e) Not annualized for periods of less than one year.
FS-148
NOTE 10--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS B
---------------------------------
APRIL 30, 2004
SIX MONTHS (DATE OPERATIONS
ENDED COMMENCED) TO
JUNE 30, DECEMBER 31,
2005 2004
- -----------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.28 $ 10.00
- -----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.05 0.04
- -----------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.02 0.32
===============================================================================================
Total from investment operations 0.07 0.36
===============================================================================================
Less distributions:
Dividends from net investment income -- (0.08)
- -----------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.00)
===============================================================================================
Total distributions -- (0.08)
===============================================================================================
Net asset value, end of period $ 10.35 $ 10.28
_______________________________________________________________________________________________
===============================================================================================
Total return(a) 0.68% 3.59%
_______________________________________________________________________________________________
===============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $16,708 $10,436
_______________________________________________________________________________________________
===============================================================================================
Ratio of expenses to average net assets:
With expense reimbursements 1.20%(b) 1.20%(c)
- -----------------------------------------------------------------------------------------------
Without expense reimbursements 1.73%(b) 2.06%(c)
===============================================================================================
Estimated underlying fund expenses(d) 0.63% 0.63%
_______________________________________________________________________________________________
===============================================================================================
Ratio of net investment income to average net assets 1.12%(b) 1.09%(c)
_______________________________________________________________________________________________
===============================================================================================
Portfolio turnover rate(e) 23% 9%
_______________________________________________________________________________________________
===============================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purpose 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.
(b) Ratios are annualized and based on average daily net assets of
$13,596,980.
(c) Annualized.
(d) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
underlying funds in which the Fund invests. Because the underlying funds
have varied expenses and fee levels and the Fund may own different
proportions at different times, the amount of fees and expenses incurred
indirectly by the Fund will vary.
(e) Not annualized for periods of less than one year.
FS-149
NOTE 10--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS C
---------------------------------
APRIL 30, 2004
SIX MONTHS (DATE OPERATIONS
ENDED COMMENCED) TO
JUNE 30, DECEMBER 31,
2005 2004
- -----------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.28 $ 10.00
- -----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.05 0.04
- -----------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.02 0.32
===============================================================================================
Total from investment operations 0.07 0.36
===============================================================================================
Less distributions:
Dividends from net investment income -- (0.08)
- -----------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.00)
===============================================================================================
Total distributions -- (0.08)
===============================================================================================
Net asset value, end of period $ 10.35 $ 10.28
_______________________________________________________________________________________________
===============================================================================================
Total return(a) 0.68% 3.59%
_______________________________________________________________________________________________
===============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $11,424 $11,751
_______________________________________________________________________________________________
===============================================================================================
Ratio of expenses to average net assets:
With expense reimbursements 1.20%(b) 1.20%(c)
- -----------------------------------------------------------------------------------------------
Without expense reimbursements 1.73%(b) 2.06%(c)
===============================================================================================
Estimated underlying fund expenses(d) 0.63% 0.63%
_______________________________________________________________________________________________
===============================================================================================
Ratio of net investment income to average net assets 1.12%(b) 1.09%(c)
_______________________________________________________________________________________________
===============================================================================================
Portfolio turnover rate(e) 23% 9%
_______________________________________________________________________________________________
===============================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purpose 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.
(b) Ratios are annualized and based on average daily net assets of
$9,603,566.
(c) Annualized.
(d) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
underlying funds in which the Fund invests. Because the underlying funds
have varied expenses and fee levels and the Fund may own different
proportions at different times, the amount of fees and expenses incurred
indirectly by the Fund will vary.
(e) Not annualized for periods of less than one year.
FS-150
NOTE 10--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS R
---------------------------------
APRIL 30, 2004
SIX MONTHS (DATE OPERATIONS
ENDED COMMENCED) TO
JUNE 30, DECEMBER 31,
2005 2004
- -----------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.31 $10.00
- -----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.08 0.06
- -----------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.00) 0.34
===============================================================================================
Total from investment operations 0.08 0.40
===============================================================================================
Less distributions:
Dividends from net investment income -- (0.09)
- -----------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.00)
===============================================================================================
Total distributions -- (0.09)
===============================================================================================
Net asset value, end of period $10.39 $10.31
_______________________________________________________________________________________________
===============================================================================================
Total return(a) 0.78% 4.05%
_______________________________________________________________________________________________
===============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,858 $1,584
_______________________________________________________________________________________________
===============================================================================================
Ratio of expenses to average net assets:
With expense reimbursements 0.70%(b) 0.70%(c)
- -----------------------------------------------------------------------------------------------
Without expense reimbursements 1.23%(b) 1.56%(c)
===============================================================================================
Estimated underlying fund expenses(d) 0.63% 0.63%
_______________________________________________________________________________________________
===============================================================================================
Ratio of net investment income to average net assets 1.62%(b) 1.59%(c)
_______________________________________________________________________________________________
===============================================================================================
Portfolio turnover rate(e) 23% 9%
_______________________________________________________________________________________________
===============================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purpose 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.
(b) Ratios are annualized and based on average daily net assets of
$2,860,850.
(c) Annualized.
(d) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
underlying funds in which the Fund invests. Because the underlying funds
have varied expenses and fee levels and the Fund may own different
proportions at different times, the amount of fees and expenses incurred
indirectly by the Fund will vary.
(e) Not annualized for periods of less than one year.
FS-151
NOTE 10--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
---------------------------------
APRIL 30, 2004
SIX MONTHS (DATE OPERATIONS
ENDED COMMENCED) TO
JUNE 30, DECEMBER 31,
2005 2004
- -----------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.32 $10.00
- -----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.11 0.14
- -----------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.02 0.29
===============================================================================================
Total from investment operations 0.13 0.43
===============================================================================================
Less distributions:
Dividends from net investment income -- (0.11)
- -----------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.00)
===============================================================================================
Total distributions -- (0.11)
===============================================================================================
Net asset value, end of period $10.45 $10.32
_______________________________________________________________________________________________
===============================================================================================
Total return(a) 1.26% 4.31%
_______________________________________________________________________________________________
===============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 106 $ 104
_______________________________________________________________________________________________
===============================================================================================
Ratio of expenses to average net assets:
With expense reimbursements 0.20%(b) 0.20%(c)
- -----------------------------------------------------------------------------------------------
Without expense reimbursements 0.57%(b) 0.96%(c)
===============================================================================================
Estimated underlying fund expenses(d) 0.63% 0.63%
_______________________________________________________________________________________________
===============================================================================================
Ratio of net investment income to average net assets 2.12%(b) 2.09%(c)
_______________________________________________________________________________________________
===============================================================================================
Portfolio turnover rate(e) 23% 9%
_______________________________________________________________________________________________
===============================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purpose 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.
(b) Ratios are annualized and based on average daily net assets of $104,319.
(c) Annualized.
(d) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
underlying funds in which the Fund invests. Because the underlying funds
have varied expenses and fee levels and the Fund may own different
proportions at different times, the amount of fees and expenses incurred
indirectly by the Fund will vary.
(e) Not annualized for periods of less than one year.
NOTE 11--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
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) is being created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Additionally, AIM and ADI
agreed to create 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. 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.
FS-152
NOTE 11--LEGAL PROCEEDINGS--(CONTINUED)
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 ss. 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.
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.
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.
FS-153
FINANCIALS
SCHEDULE OF INVESTMENTS
June 30, 2005
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
DOMESTIC COMMON STOCKS-52.29%
APPAREL RETAIL-1.58%
Abercrombie & Fitch Co.-Class A 28,200 $ 1,937,340
- ------------------------------------------------------------------------
Genesco Inc.(a) 53,700 1,991,733
- ------------------------------------------------------------------------
Men's Wearhouse, Inc. (The)(a) 58,500 2,014,155
========================================================================
5,943,228
========================================================================
APPLICATION SOFTWARE-0.64%
Synopsys, Inc.(a) 144,600 2,410,482
========================================================================
AUTO PARTS & EQUIPMENT-0.41%
Tenneco Automotive Inc.(a) 92,200 1,534,208
========================================================================
AUTOMOTIVE RETAIL-0.34%
CSK Auto Corp.(a) 75,400 1,257,672
========================================================================
COMPUTER HARDWARE-3.37%
Apple Computer, Inc.(a) 98,600 3,629,466
- ------------------------------------------------------------------------
Dell Inc.(a)(b) 228,200 9,016,182
========================================================================
12,645,648
========================================================================
COMPUTER STORAGE & PERIPHERALS-0.57%
EMC Corp.(a) 80,500 1,103,655
- ------------------------------------------------------------------------
Western Digital Corp.(a) 78,400 1,052,128
========================================================================
2,155,783
========================================================================
DEPARTMENT STORES-0.38%
J.C. Penney Co., Inc. 27,200 1,430,176
========================================================================
DIVERSIFIED BANKS-1.29%
Wachovia Corp. 97,300 4,826,080
========================================================================
ELECTRIC UTILITIES-1.11%
Edison International 54,800 2,222,140
- ------------------------------------------------------------------------
PG&E Corp. 52,100 1,955,834
========================================================================
4,177,974
========================================================================
FOOTWEAR-0.39%
K-Swiss Inc.-Class A 44,800 1,448,832
========================================================================
GAS UTILITIES-1.34%
Northwest Natural Gas Co. 70,900 2,711,216
- ------------------------------------------------------------------------
Questar Corp. 35,200 2,319,680
========================================================================
5,030,896
========================================================================
HEALTH CARE EQUIPMENT-0.94%
Hospira, Inc.(a) 90,900 3,545,100
========================================================================
HEALTH CARE FACILITIES-0.31%
HCA Inc. 20,500 1,161,735
========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
HOMEBUILDING-0.29%
Hovnanian Enterprises, Inc.-Class A(a) 16,500 $ 1,075,800
========================================================================
INDEPENDENT POWER PRODUCERS & ENERGY
TRADERS-0.24%
TXU Corp. 11,000 913,990
========================================================================
INDUSTRIAL CONGLOMERATES-2.33%
3M Co.(b) 120,700 8,726,610
========================================================================
INTEGRATED OIL & GAS-1.84%
Exxon Mobil Corp. 60,200 3,459,694
- ------------------------------------------------------------------------
Occidental Petroleum Corp. 44,800 3,446,464
========================================================================
6,906,158
========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.28%
CenturyTel, Inc. 30,500 1,056,215
========================================================================
INTERNET RETAIL-0.62%
Netflix Inc.(a)(b) 142,900 2,344,989
========================================================================
INVESTMENT BANKING & BROKERAGE-0.42%
Goldman Sachs Group, Inc. (The) 15,500 1,581,310
========================================================================
LEISURE PRODUCTS-0.36%
JAKKS Pacific, Inc.(a) 69,800 1,340,858
========================================================================
LIFE & HEALTH INSURANCE-2.55%
Prudential Financial, Inc. 145,500 9,553,530
========================================================================
MANAGED HEALTH CARE-3.88%
Aetna Inc. 11,300 935,866
- ------------------------------------------------------------------------
CIGNA Corp. 40,700 4,356,121
- ------------------------------------------------------------------------
UnitedHealth Group Inc. 177,600 9,260,064
========================================================================
14,552,051
========================================================================
OIL & GAS EXPLORATION & PRODUCTION-4.03%
Apache Corp. 40,100 2,590,460
- ------------------------------------------------------------------------
Burlington Resources Inc. 17,800 983,272
- ------------------------------------------------------------------------
Houston Exploration Co. (The)(a) 102,500 5,437,625
- ------------------------------------------------------------------------
Remington Oil & Gas Corp.(a) 170,600 6,090,420
========================================================================
15,101,777
========================================================================
OIL & GAS STORAGE & TRANSPORTATION-0.36%
Overseas Shipholding Group, Inc. 22,800 1,360,020
========================================================================
PAPER PRODUCTS-1.22%
Georgia-Pacific Corp. 143,500 4,563,300
========================================================================
</Table>
FS-154
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
PHARMACEUTICALS-3.34%
Johnson & Johnson(b) 138,500 $ 9,002,500
- ------------------------------------------------------------------------
Wyeth 79,600 3,542,200
========================================================================
12,544,700
========================================================================
RAILROADS-2.00%
Burlington Northern Santa Fe Corp. 159,600 7,513,968
========================================================================
RESTAURANTS-0.27%
Texas Roadhouse, Inc.-Class A(a) 28,800 1,000,800
========================================================================
SEMICONDUCTORS-4.60%
Intel Corp.(b) 343,100 8,941,186
- ------------------------------------------------------------------------
Linear Technology Corp.(b) 204,400 7,499,436
- ------------------------------------------------------------------------
Maxim Integrated Products, Inc. 20,900 798,589
========================================================================
17,239,211
========================================================================
SPECIALIZED FINANCE-3.22%
CIT Group Inc. 61,900 2,659,843
- ------------------------------------------------------------------------
Moody's Corp.(b) 209,900 9,437,104
========================================================================
12,096,947
========================================================================
SPECIALTY STORES-0.35%
Movie Gallery, Inc. 49,200 1,300,356
========================================================================
SYSTEMS SOFTWARE-1.08%
Adobe Systems Inc.(b) 141,600 4,052,592
========================================================================
THRIFTS & MORTGAGE FINANCE-1.20%
Countrywide Financial Corp. 32,100 1,239,381
- ------------------------------------------------------------------------
Fremont General Corp. 93,200 2,267,556
- ------------------------------------------------------------------------
Harbor Florida Bancshares, Inc. 26,500 992,160
========================================================================
4,499,097
========================================================================
TOBACCO-3.48%
Reynolds American Inc. 109,200 8,604,960
- ------------------------------------------------------------------------
UST Inc. 97,300 4,442,718
========================================================================
13,047,678
========================================================================
TRUCKING-1.66%
CNF Inc. 53,200 2,388,680
- ------------------------------------------------------------------------
Laidlaw International Inc.(a) 159,500 3,843,950
========================================================================
6,232,630
========================================================================
Total Domestic Common Stocks (Cost
$179,189,486) 196,172,401
========================================================================
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-42.81%
AUSTRALIA-0.66%
Australia & New Zealand Banking Group Ltd.
(Diversified Banks)(c) 60,200 994,599
- ------------------------------------------------------------------------
Suncorp-Metway Ltd. (Other Diversified
Financial Services)(c) 96,686 1,477,334
========================================================================
2,471,933
========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
BRAZIL-0.28%
Banco Itau Holding Financeira S.A.-ADR
(Diversified Banks)(b) 11,400 $ 1,054,500
========================================================================
CANADA-0.20%
Inmet Mining Corp. (Diversified Metals &
Mining)(a) 57,900 749,002
========================================================================
CAYMAN ISLANDS-1.94%
ACE Ltd. (Property & Casualty Insurance) 53,000 2,377,050
- ------------------------------------------------------------------------
Seagate Technology (Computer Storage &
Peripherals)(a) 279,500 4,905,225
========================================================================
7,282,275
========================================================================
DENMARK-1.72%
Danske Bank A.S. (Diversified Banks)(c) 104,900 3,150,921
- ------------------------------------------------------------------------
William Demant Holdings A.S. (Health Care
Equipment)(b)(c) 66,547 3,307,703
========================================================================
6,458,624
========================================================================
FINLAND-0.49%
Nokia Oyj (Communications Equipment)(c) 110,600 1,840,354
========================================================================
FRANCE-5.00%
Assurances Generales de France (Multi-Line
Insurance)(b)(c) 36,368 2,971,717
- ------------------------------------------------------------------------
AXA (Multi-Line Insurance)(c) 89,751 2,234,643
- ------------------------------------------------------------------------
PagesJaunes S.A. (Publishing)(c) 313,714 7,328,036
- ------------------------------------------------------------------------
Societe Generale (Diversified Banks)(c) 61,290 6,215,259
========================================================================
18,749,655
========================================================================
GERMANY-2.56%
Adidas-Salomon A.G. (Apparel, Accessories &
Luxury Goods)(c) 18,595 3,101,887
- ------------------------------------------------------------------------
BASF A.G. (Diversified Chemicals)(c) 46,696 3,090,822
- ------------------------------------------------------------------------
ThyssenKrupp A.G. (Steel)(c) 196,698 3,400,724
========================================================================
9,593,433
========================================================================
GREECE-2.80%
OPAP S.A. (Casinos & Gaming)(c) 364,102 10,519,600
========================================================================
ITALY-0.45%
Milano Assicurazioni S.p.A (Multi-Line
Insurance)(c) 270,700 1,683,712
========================================================================
JAPAN-8.88%
Chubu Electric Power Co., Inc. (Electric
Utilities)(b)(c) 294,100 7,047,805
- ------------------------------------------------------------------------
Chugoku Electric Power Co., Inc. (The)
(Electric Utilities)(c) 46,400 904,652
- ------------------------------------------------------------------------
Fuji Fire and Marine Insurance Co., Ltd.
(The) (Property & Casualty Insurance)(c) 351,000 1,106,943
- ------------------------------------------------------------------------
Hokuriku Electric Power Co. (Electric
Utilities)(b)(c) 181,700 3,462,866
- ------------------------------------------------------------------------
Kyushu Electric Power Co., Inc. (Electric
Utilities)(c) 406,000 8,815,593
- ------------------------------------------------------------------------
</Table>
FS-155
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
JAPAN-(CONTINUED)
Matsui Securities Co., Ltd. (Investment
Banking & Brokerage)(b)(c) 121,800 $ 1,299,036
- ------------------------------------------------------------------------
Mizuho Financial Group, Inc. (Diversified
Banks)(c) 192 863,061
- ------------------------------------------------------------------------
Nikko Cordial Corp. (Investment Banking &
Brokerage)(c) 209,000 913,182
- ------------------------------------------------------------------------
Nissin Co., Ltd. (Consumer Finance)(b)(c) 471,679 881,048
- ------------------------------------------------------------------------
NTT DoCoMo, Inc. (Wireless Telecommunication
Services)(c) 2,496 3,677,480
- ------------------------------------------------------------------------
Tokai Tokyo Securities Co., Ltd. (Investment
Banking & Brokerage)(b)(c) 340,000 1,016,553
- ------------------------------------------------------------------------
Yamato Kogyo Co., Ltd. (Steel)(b)(c) 279,000 3,309,878
========================================================================
33,298,097
========================================================================
NETHERLANDS-2.87%
DSM N.V. (Specialty Chemicals)(c) 12,743 871,172
- ------------------------------------------------------------------------
ING Groep N.V.-Dutch Ctfs. (Other Diversified
Financial Services)(c) 310,788 8,735,747
- ------------------------------------------------------------------------
Koninklijke (Royal) KPN N.V. (Integrated
Telecommunication Services)(c) 140,062 1,171,446
========================================================================
10,778,365
========================================================================
NORWAY-2.10%
Norsk Hydro A.S.A. (Oil & Gas Exploration &
Production)(b)(c) 39,342 3,576,384
- ------------------------------------------------------------------------
Orkla A.S.A. (Packaged Foods & Meats)(c) 22,550 829,894
- ------------------------------------------------------------------------
Storebrand A.S.A. (Multi-Line Insurance)(c) 372,600 3,476,362
========================================================================
7,882,640
========================================================================
SOUTH KOREA-0.42%
POSCO (Steel)(c) 8,990 1,565,650
========================================================================
SPAIN-0.64%
Telefonica Publicidad e Informacion, S.A.
(Publishing)(c) 274,224 2,389,977
========================================================================
SWEDEN-0.90%
ForeningsSparbanken A.B. (Diversified
Banks)(c) 103,100 2,260,789
- ------------------------------------------------------------------------
Hennes & Mauritz A.B.-Class B (Apparel
Retail)(c) 31,700 1,112,186
========================================================================
3,372,975
========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
TAIWAN-1.61%
China Steel Corp. (Steel)(c) 5,998,310 $ 6,048,217
========================================================================
UNITED KINGDOM-9.29%
Aviva PLC (Multi-Line Insurance)(c) 187,527 2,082,269
- ------------------------------------------------------------------------
GlaxoSmithKline PLC (Pharmaceuticals)(c) 191,370 4,624,175
- ------------------------------------------------------------------------
Legal & General Group PLC (Life & Health
Insurance)(c) 2,607,517 5,352,700
- ------------------------------------------------------------------------
Lloyds TSB Group PLC (Diversified Banks)(c) 870,938 7,355,093
- ------------------------------------------------------------------------
Old Mutual PLC (Life & Health Insurance)(c) 2,105,995 4,590,214
- ------------------------------------------------------------------------
Reckitt Benckiser PLC (Household Products)(c) 58,580 1,720,790
- ------------------------------------------------------------------------
Tesco PLC (Food Retail)(c) 1,600,339 9,117,184
========================================================================
34,842,425
========================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $154,844,983) 160,581,434
========================================================================
MONEY MARKET FUNDS-4.09%
Liquid Assets Portfolio-Institutional
Class(d) 7,667,722 7,667,722
- ------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(d) 7,667,722 7,667,722
========================================================================
Total Money Market Funds (Cost
$15,335,444) 15,335,444
========================================================================
TOTAL INVESTMENTS-99.19% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $349,369,913) 372,089,279
________________________________________________________________________
========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-11.96%
Liquid Assets Portfolio-Institutional
Class(d)(e) 22,440,326 22,440,326
- ------------------------------------------------------------------------
STIC Prime Portfolio-Institutional
Class(d)(e) 22,440,327 22,440,327
========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $44,880,653) 44,880,653
========================================================================
TOTAL INVESTMENTS-111.15% (Cost $394,250,566) 416,969,932
========================================================================
OTHER ASSETS LESS LIABILITIES-(11.15%) (41,829,586)
========================================================================
NET ASSETS-100.00% $375,140,346
________________________________________________________________________
========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
Ctfs - Certificates
</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 June 30, 2005.
(c) In accordance with the procedures established by the Board of Trustees,
the foreign security is fair valued using adjusted closing market
prices. The aggregate market value of these securities at June 30, 2005
was $151,495,657, which represented 36.33% of the Fund's Total
Investments. See Note 1A.
(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 7.
See accompanying notes which are an integral part of the financial statements.
FS-156
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2005
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$334,034,469)* $356,753,835
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $60,216,097) 60,216,097
===========================================================
Total investments (cost $394,250,566) 416,969,932
- -----------------------------------------------------------
Foreign currencies, at market value (cost
$2,573,679) 2,543,344
- -----------------------------------------------------------
Receivables for:
Fund shares sold 1,125,371
- -----------------------------------------------------------
Dividends 426,024
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 13,656
- -----------------------------------------------------------
Other assets 54,533
===========================================================
Total assets 421,132,860
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Fund shares reacquired 783,404
- -----------------------------------------------------------
Trustee deferred compensation and
retirement plans 20,576
- -----------------------------------------------------------
Collateral upon return of securities loaned 44,880,653
- -----------------------------------------------------------
Accrued distribution fees 193,987
- -----------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 137
- -----------------------------------------------------------
Accrued transfer agent fees 42,590
- -----------------------------------------------------------
Accrued operating expenses 71,167
===========================================================
Total liabilities 45,992,514
===========================================================
Net assets applicable to shares outstanding $375,140,346
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $313,987,518
- -----------------------------------------------------------
Undistributed net investment income 2,233,179
- -----------------------------------------------------------
Undistributed net realized gain from
investment securities, foreign currencies
and futures contracts 36,240,212
- -----------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 22,679,437
===========================================================
$375,140,346
___________________________________________________________
===========================================================
NET ASSETS:
Class A $227,171,376
___________________________________________________________
===========================================================
Class B $ 87,536,730
___________________________________________________________
===========================================================
Class C $ 30,097,616
___________________________________________________________
===========================================================
Institutional Class $ 30,334,624
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 14,341,652
___________________________________________________________
===========================================================
Class B 5,746,823
___________________________________________________________
===========================================================
Class C 1,978,521
___________________________________________________________
===========================================================
Institutional Class 1,900,216
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 15.84
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $15.84 divided by
95.25%) $ 16.63
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 15.23
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 15.21
___________________________________________________________
===========================================================
Institutional Class:
Net asset value and offering price per
share $ 15.96
___________________________________________________________
===========================================================
</Table>
* At June 30, 2005, securities with an aggregate market value of $43,051,392
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
FS-157
STATEMENT OF OPERATIONS
For the six months ended June 30, 2005
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $383,736) $ 4,802,218
- --------------------------------------------------------------------------
Dividends from affiliated money market funds (includes
securities lending income of $29,688, after compensation
to counterparties of $444,198) 259,367
- --------------------------------------------------------------------------
Interest 2,966
==========================================================================
Total investment income 5,064,551
==========================================================================
EXPENSES:
Advisory fees 1,609,086
- --------------------------------------------------------------------------
Administrative services fees 52,835
- --------------------------------------------------------------------------
Custodian fees 73,467
- --------------------------------------------------------------------------
Distribution fees:
Class A 355,379
- --------------------------------------------------------------------------
Class B 399,936
- --------------------------------------------------------------------------
Class C 126,692
- --------------------------------------------------------------------------
Transfer agent fees -- Class A, B and C 337,616
- --------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 2,843
- --------------------------------------------------------------------------
Trustees' and officer's fees and benefits 10,674
- --------------------------------------------------------------------------
Other 152,278
==========================================================================
Total expenses 3,120,806
==========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (306,234)
- --------------------------------------------------------------------------
Net expenses 2,814,572
==========================================================================
Net investment income 2,249,979
==========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND FUTURES CONTRACTS:
Net realized gain (loss) from:
Investment securities 30,821,413
- --------------------------------------------------------------------------
Foreign currencies 136,253
- --------------------------------------------------------------------------
Futures contracts (12,751)
==========================================================================
30,944,915
==========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (29,466,862)
- --------------------------------------------------------------------------
Foreign currencies (46,550)
==========================================================================
(29,513,412)
==========================================================================
Net gain from investment securities, foreign currencies and
futures contracts 1,431,503
==========================================================================
Net increase in net assets resulting from operations $ 3,681,482
__________________________________________________________________________
==========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-158
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 2005 and the year ended December 31, 2004
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2005 2004
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ 2,249,979 $ (599,591)
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies and futures contracts 30,944,915 16,401,355
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies (29,513,412) 29,616,874
==========================================================================================
Net increase in net assets resulting from operations 3,681,482 45,418,638
==========================================================================================
Distributions to shareholders from net realized gains:
Class A -- (8,703,573)
- ------------------------------------------------------------------------------------------
Class B -- (3,757,370)
- ------------------------------------------------------------------------------------------
Class C -- (988,497)
- ------------------------------------------------------------------------------------------
Institutional Class -- (647,260)
==========================================================================================
Decrease in net assets resulting from distributions -- (14,096,700)
- ------------------------------------------------------------------------------------------
Share transactions-net:
Class A 42,250,361 53,265,793
- ------------------------------------------------------------------------------------------
Class B 12,673,643 2,659,676
- ------------------------------------------------------------------------------------------
Class C 9,467,869 8,517,732
- ------------------------------------------------------------------------------------------
Institutional Class 16,998,350 12,681,245
==========================================================================================
Net increase in net assets resulting from share
transactions 81,390,223 77,124,446
==========================================================================================
Net increase in net assets 85,071,705 108,446,384
==========================================================================================
NET ASSETS:
Beginning of period 290,068,641 181,622,257
==========================================================================================
End of period (including undistributed net investment
income (loss) of $2,233,179 and $(16,800), respectively) $375,140,346 $290,068,641
__________________________________________________________________________________________
==========================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
June 30, 2005
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Global Equity Fund (the "Fund") is a separate series of AIM Growth Series
(the "Trust"). The Trust is organized as a Delaware statutory trust and is
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of nine
separate series portfolios, each authorized to issue an unlimited number of
shares of beneficial interest. The Fund currently offers multiple classes of
shares. Matters affecting each portfolio or class will be voted on exclusively
by the shareholders of such portfolio or class. The assets, liabilities and
operations of each portfolio are accounted for separately. Information presented
in these financial statements pertains only to the Fund.
The Fund's investment objective is long-term growth of capital. Each company
listed in the Schedule of Investments is organized in the United States of
America unless otherwise noted.
Under the Trust's organizational documents, 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.
FS-159
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.
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.
FS-160
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. REDEMPTION FEES -- The Fund has instituted a 2% redemption fee on all share
classes that is to be retained by the Fund to offset transaction costs and
other expenses associated with short-term redemptions and exchanges. The
fee, subject to certain exceptions, is imposed on certain redemptions,
including exchanges of shares held less than 30 days. The redemption fee is
accounted for as an addition to shares of beneficial interest by the Fund
and is allocated among the share classes based on the relative net assets
of each class.
G. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i) sales
of foreign currencies, (ii) currency gains or losses realized between the
trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
H. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
I. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are 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 substitute 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 daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- ----------------------------------------------------------------------
First $500 million 0.975%
- ----------------------------------------------------------------------
Next $500 million 0.95%
- ----------------------------------------------------------------------
Next $500 million 0.925%
- ----------------------------------------------------------------------
Over $1.5 billion 0.90%
______________________________________________________________________
======================================================================
</Table>
FS-161
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 0.80%
- ---------------------------------------------------------------------
Next $250 million 0.78%
- ---------------------------------------------------------------------
Next $500 million 0.76%
- ---------------------------------------------------------------------
Next $1.5 billion 0.74%
- ---------------------------------------------------------------------
Next $2.5 billion 0.72%
- ---------------------------------------------------------------------
Next $2.5 billion 0.70%
- ---------------------------------------------------------------------
Next $2.5 billion 0.68%
- ---------------------------------------------------------------------
Over $10 billion 0.66%
_____________________________________________________________________
=====================================================================
</Table>
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 and
Institutional Class shares to 1.75%, 2.50%, 2.50% and 1.50% of average daily net
assets, respectively, through December 31, 2005. In determining the advisor's
obligation to waive advisory fees and/or reimburse expenses, the following
expenses are not taken into account, and could cause the total annual fund
operating expenses to exceed the limits stated above: (i) interest; (ii) taxes;
(iii) dividend expense on short sales; (iv) extraordinary items (these are
expenses that are not anticipated to arise from the Fund's day-to-day
operations), or items designated as such by the Fund's Board of Trustees; (v)
expenses related to a merger or reorganization, as approved by the Fund's Board
of Trustees; and (vi) expenses that the Fund has incurred but did not actually
pay because of an expense offset arrangement. Currently, in addition to the
expense reimbursement arrangement with AMVESCAP PLC ("AMVESCAP") described more
fully below, the only 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. To
the extent that the annualized expense ratio does not exceed the expense
limitation, AIM will retain its ability to be reimbursed for such fee waivers or
reimbursements prior to the end of each fiscal year. 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 six months ended June 30, 2005, AIM waived fees of $299,230.
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 six months
ended June 30, 2005, AMVESCAP reimbursed expenses of the Fund in the amount of
$1,442.
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 June 30, 2005, AIM was paid $52,835.
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 June 30, 2005, the
Fund paid AISI $337,616 for Class A, Class B and Class C share classes and
$2,843 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 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 and Class C 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 and 1.00% of the average daily net assets of
Class B and Class C shares. Effective July 1, 2005, the Trustees approved a
permanent reduction in the annual rate payable by the Fund to ADI to 0.25% of
the average daily net assets of Class A shares. Of these amounts, up to 0.25% of
the average daily net assets of the Class A, Class B or Class C shares may be
paid to furnish continuing personal shareholder services to customers who
purchase and own shares of such classes. Any amounts not paid as a service fee
under the Plans would constitute an asset-based sales charge. NASD Rules impose
a cap on the total sales charges, including asset-based sales charges that may
be paid by any class of shares of the Fund. Pursuant to the Plans, for the six
months ended June 30, 2005, the Class A, Class B and Class C shares paid
$355,379, $399,936 and $126,692, 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
FS-162
deducted from redemption proceeds prior to remittance to the shareholder. During
the six months ended June 30, 2005, ADI advised the Fund that it retained
$58,712 in front-end sales commissions from the sale of Class A shares and $4,
$11,590 and $1,149 from Class A, Class B and Class C shares, respectively, for
CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or ADI.
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 June 30, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 06/30/05 INCOME
- ------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $ 7,135,683 $48,242,723 $(47,710,684) $ -- $ 7,667,722 $114,221
- ------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 7,135,683 48,242,723 (47,710,684) -- 7,667,722 115,458
========================================================================================================================
Subtotal $14,271,366 $96,485,446 $(95,421,368) $ -- $15,335,444 $229,679
________________________________________________________________________________________________________________________
========================================================================================================================
<Caption>
REALIZED
FUND GAIN (LOSS)
- -----------------------------
Liquid Assets
Portfolio-Institutional
Class $ --
- -----------------------------
STIC Prime
Portfolio-Institutional
Class --
=============================
Subtotal $ --
_____________________________
=============================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 06/30/05 INCOME*
- ------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $12,166,970 $ 75,975,728 $ (65,702,372) $ -- $22,440,326 $ 14,728
- ------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 12,166,971 75,975,728 (65,702,372) -- 22,440,327 14,960
========================================================================================================================
Subtotal $24,333,941 $151,951,456 $(131,404,744) $ -- $44,880,653 $ 29,688
========================================================================================================================
Total $38,605,307 $248,436,902 $(226,826,112) $ -- $60,216,097 $259,367
________________________________________________________________________________________________________________________
========================================================================================================================
<Caption>
REALIZED
FUND GAIN (LOSS)
- ---------------------------
Liquid Assets
Portfolio-Institutional
Class $ --
- ---------------------------
STIC Prime
Portfolio-Institutional
Class --
===========================
Subtotal $ --
===========================
Total $ --
___________________________
===========================
</Table>
* Net of compensation to counterparties.
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions and (ii) custodian credits which
result from periodic overnight cash balances at the custodian. For the six
months ended June 30, 2005, the Fund received credits from these arrangements,
which resulted in the reduction of the Fund's total expenses of $5,562.
NOTE 5--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 June 30, 2005, the Fund paid legal fees of
$2,526 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-163
NOTE 6--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the six months ended June 30, 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 in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 7--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At June 30, 2005, securities with an aggregate value of $43,051,392 were on
loan to brokers. The loans were secured by cash collateral of $44,880,653
received by the Fund and subsequently invested in affiliated money market funds.
For the six months ended June 30, 2005, the Fund received dividends on cash
collateral of $29,688 for securities lending transactions, which are net of
compensation to counterparties.
NOTE 8--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
The Fund did not have a capital loss carryforward as of December 31, 2004.
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended June 30, 2005 was $315,657,362 and $235,416,062, 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 $31,062,408
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (8,350,758)
===============================================================================
Net unrealized appreciation of investment securities $22,711,650
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $394,258,282.
</Table>
FS-164
NOTE 10--SHARE INFORMATION
The Fund currently offers four different classes of shares: Class A shares,
Class B shares, Class C 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. Institutional Class shares are sold at net asset value. Under
certain circumstances, Class A shares are subject to CDSC. Generally, Class B
shares will automatically convert to Class A shares eight years after the end of
the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(a)
- ----------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2005 DECEMBER 31, 2004
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 3,571,871 $ 56,168,864 3,988,346 $ 58,566,755
- ----------------------------------------------------------------------------------------------------------------------
Class B 1,714,931 25,954,397 1,895,283 26,890,560
- ----------------------------------------------------------------------------------------------------------------------
Class C 744,135 11,242,236 790,970 11,285,487
- ----------------------------------------------------------------------------------------------------------------------
Institutional Class(b) 1,090,421 17,421,491 842,987 12,784,860
======================================================================================================================
Issued as reinvestment of dividends:
Class A -- -- 529,315 8,130,282
- ----------------------------------------------------------------------------------------------------------------------
Class B -- -- 236,432 3,503,919
- ----------------------------------------------------------------------------------------------------------------------
Class C -- -- 64,371 952,680
- ----------------------------------------------------------------------------------------------------------------------
Institutional Class(b) -- -- 37 576
======================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 417,358 6,563,406 1,088,278 15,900,255
- ----------------------------------------------------------------------------------------------------------------------
Class B (433,247) (6,563,406) (1,123,493) (15,900,255)
======================================================================================================================
Reacquired:(c)
Class A (1,302,351) (20,481,909) (2,017,034) (29,331,499)
- ----------------------------------------------------------------------------------------------------------------------
Class B (443,717) (6,717,348) (846,484) (11,834,548)
- ----------------------------------------------------------------------------------------------------------------------
Class C (116,796) (1,774,367) (264,781) (3,720,435)
- ----------------------------------------------------------------------------------------------------------------------
Institutional Class(b) (26,572) (423,141) (6,657) (104,191)
======================================================================================================================
5,216,033 $ 81,390,223 5,177,570 $ 77,124,446
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) There are two entities that are each record owners of more than 5% of
the outstanding shares of the Fund and in the aggregate they own 12% of
the outstanding shares of the Fund. AIM Distributors has an agreement
with these entities to sell Fund shares. The Fund, AIM and/or AIM
affiliates may make payments to these entities, which are considered to
be related to the Fund, for providing services to the Fund, AIM and/or
AIM affiliates including but not limited to services such as, securities
brokerage, distribution, third party record keeping and account
servicing. The Trust has no knowledge as to whether all or any portion
of the shares owned of record by these shareholders are also owned
beneficially.
(b) Institutional Class shares commenced sales on April 30, 2004.
(c) Amount is net of redemption fees of $5,064, $200 and $5 for Class A,
Class B and Class C shares, respectively, for the six months ended June
30, 2005 and $4,833, $2,171, $476 and $107 for Class A, Class B, Class C
and Institutional shares, respectively, for the year ended December 31,
2004.
FS-165
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
-------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, --------------------------------------------------------------------
2005 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 15.65 $ 13.54 $ 9.95 $ 11.00 $ 13.33 $ 15.78
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.12(a) (0.02)(a) (0.06)(a) (0.02)(a) (0.10)(a) (0.19)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.07 2.93 3.79 (1.03) (2.17) (1.11)
=================================================================================================================================
Total from investment operations 0.19 2.91 3.73 (1.05) (2.27) (1.30)
=================================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- -- (0.06) --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.80) (0.14) -- -- (1.15)
=================================================================================================================================
Total distributions -- (0.80) (0.14) -- (0.06) (1.15)
=================================================================================================================================
Redemptions fees added to shares of
beneficial interest 0.00 0.00 0.00 -- -- --
=================================================================================================================================
Net asset value, end of period $ 15.84 $ 15.65 $ 13.54 $ 9.95 $ 11.00 $ 13.33
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 1.21% 21.64% 37.51% (9.55)% (17.03)% (7.90)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $227,171 $182,416 $109,205 $68,335 $80,630 $20,751
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 1.54%(c) 1.94% 2.00% 2.00% 2.00% 2.00%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.72%(c) 1.96% 2.05% 2.05% 2.25% 2.14%
=================================================================================================================================
Ratio of net investment income (loss) to
average net assets 1.53%(c) (0.11)% (0.50)% (0.18)% (0.94)% (1.27)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(d) 76% 115% 178% 80% 154% 260%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</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
$204,756,476.
(d) Not annualized for periods less than one year.
FS-166
NOTE 11--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS B
-------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, --------------------------------------------------------------------
2005 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 15.10 $ 13.15 $ 9.71 $ 10.80 $ 13.12 $ 15.62
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.07(a) (0.09)(a) (0.11)(a) (0.07)(a) (0.15)(a) (0.26)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.06 2.84 3.69 (1.02) (2.13) (1.09)
=================================================================================================================================
Total from investment operations 0.13 2.75 3.58 (1.09) (2.28) (1.35)
=================================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- -- (0.04) --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.80) (0.14) -- -- (1.15)
=================================================================================================================================
Total distributions -- (0.80) (0.14) -- (0.04) (1.15)
=================================================================================================================================
Redemptions fees added to shares of
beneficial interest 0.00 0.00 0.00 -- -- --
=================================================================================================================================
Net asset value, end of period $ 15.23 $ 15.10 $ 13.15 $ 9.71 $ 10.80 $ 13.12
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 0.86% 21.06% 36.90% (10.09)% (17.36)% (8.30)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $87,537 $74,120 $62,424 $54,029 $81,459 $22,279
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 2.19%(c) 2.44% 2.50% 2.50% 2.50% 2.50%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 2.37%(c) 2.46% 2.55% 2.55% 2.75% 2.64%
=================================================================================================================================
Ratio of net investment income (loss) to
average net assets 0.88%(c) (0.61)% (1.00)% (0.68)% (1.44)% (1.77)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(d) 76% 115% 178% 80% 154% 260%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$80,649,979.
(d) Not annualized for periods less than one year.
FS-167
NOTE 11--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS C
----------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -----------------------------------------------------------------
2005 2004 2003 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 15.08 $ 13.14 $ 9.71 $10.79 $13.11 $15.62
- ------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.07(a) (0.09)(a) (0.11)(a) (0.07)(a) (0.16)(a) (0.26)(a)
- ------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.06 2.83 3.68 (1.01) (2.12) (1.10)
==============================================================================================================================
Total from investment operations 0.13 2.74 3.57 (1.08) (2.28) (1.36)
==============================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- -- (0.04) --
- ------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.80) (0.14) -- -- (1.15)
==============================================================================================================================
Total distributions -- (0.80) (0.14) -- (0.04) (1.15)
==============================================================================================================================
Redemptions fees added to shares of
beneficial interest 0.00 0.00 0.00 -- -- --
==============================================================================================================================
Net asset value, end of period $ 15.21 $ 15.08 $13.14 $ 9.71 $10.79 $13.11
______________________________________________________________________________________________________________________________
==============================================================================================================================
Total return(b) 0.86% 21.00% 36.79% (10.01)% (17.37)% (8.37)%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $30,098 $20,375 $9,993 $4,551 $4,600 $1,789
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 2.19%(c) 2.44% 2.50% 2.50% 2.50% 2.50%
- ------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 2.37%(c) 2.46% 2.55% 2.55% 2.75% 2.64%
==============================================================================================================================
Ratio of net investment income (loss) to
average net assets 0.88%(c) (0.61)% (1.00)% (0.68)% (1.44)% (1.77)%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Portfolio turnover rate(d) 76% 115% 178% 80% 154% 260%
______________________________________________________________________________________________________________________________
==============================================================================================================================
</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
$25,548,305.
(d) Not annualized for periods less than one year.
<Table>
<Caption>
INSTITUTIONAL CLASS
-------------------------------
APRIL 30, 2004
SIX MONTHS (DATE SALES
ENDED COMMENCED) TO
JUNE 30, DECEMBER 31,
2005 2004
- ---------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 15.73 $ 13.98
- ---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.16(a) 0.07(a)
- ---------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.07 2.48
=============================================================================================
Total from investment operations 0.23 2.55
=============================================================================================
Less distributions from net realized gains -- (0.80)
- ---------------------------------------------------------------------------------------------
Redemptions fees added to shares of beneficial interest 0.00 0.00
=============================================================================================
Net asset value, end of period $ 15.96 $ 15.73
_____________________________________________________________________________________________
=============================================================================================
Total return(b) 1.46% 18.39%
_____________________________________________________________________________________________
=============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $30,335 $13,158
_____________________________________________________________________________________________
=============================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.00%(c) 1.18%(d)
- ---------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.18%(c) 1.20%(d)
=============================================================================================
Ratio of net investment income to average net assets 2.07%(c) 0.65%(d)
_____________________________________________________________________________________________
=============================================================================================
Portfolio turnover rate(e) 76% 115%
_____________________________________________________________________________________________
=============================================================================================
</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
$21,849,474.
(d) Not annualized for periods less than one year.
(e) Annualized.
FS-168
NOTE 12--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), 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) is being created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Additionally, AIM and ADI
agreed to create 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. 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
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 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.
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.
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.
FS-169
FINANCIALS
SCHEDULE OF INVESTMENTS
June 30, 2005
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
MUTUAL FUNDS-100.05%(A)
AIM Dynamics Fund-Institutional
Class-5.04%(b) 483,893 $ 8,221,334
- -----------------------------------------------------------------------
AIM High Yield Fund-Institutional Class-5.04% 1,845,212 8,211,192
- -----------------------------------------------------------------------
AIM International Core Equity
Fund-Institutional Class-12.44% 1,799,255 20,277,605
- -----------------------------------------------------------------------
AIM International Growth Fund-Institutional
Class-12.47%(b) 989,447 20,333,137
- -----------------------------------------------------------------------
AIM Large Cap Basic Value Fund-Institutional
Class-17.44%(b) 2,100,311 28,438,215
- -----------------------------------------------------------------------
AIM Large Cap Growth Fund-Institutional
Class-20.00%(b) 3,296,160 32,599,024
- -----------------------------------------------------------------------
</Table>
<Table>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
MUTUAL FUNDS-(CONTINUED)
AIM Multi-Sector Fund-Institutional
Class-12.47% 887,812 $ 20,322,022
- -----------------------------------------------------------------------
AIM Real Estate Fund-Institutional
Class-5.03% 302,716 8,206,619
- -----------------------------------------------------------------------
AIM Small Cap Growth Fund-Institutional
Class-10.12%(b) 580,102 16,492,310
=======================================================================
TOTAL INVESTMENTS-100.05% (Cost $155,102,245) 163,101,458
=======================================================================
OTHER ASSETS LESS LIABILITIES-(0.05%) (85,497)
=======================================================================
NET ASSETS-100.00% $163,015,961
_______________________________________________________________________
=======================================================================
</Table>
Notes to Schedule of Investments:
(a) The mutual funds and the Fund are affiliated by having the same investment
advisor. See Note 3.
(b) Non-income producing security. A security is determined to be non-income
producing if the security has not declared a distribution in more than one
year from the report date.
See accompanying notes which are an integral part of the financial statements.
FS-170
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2005
(Unaudited)
<Table>
ASSETS:
Investments in affiliated underlying funds,
at market value (cost $155,102,245) $163,101,458
- -----------------------------------------------------------
Cash 60,140
- -----------------------------------------------------------
Receivables for:
Fund shares sold 575,932
- -----------------------------------------------------------
Dividends 49,283
- -----------------------------------------------------------
Fund expenses absorbed 10,177
- -----------------------------------------------------------
Investment for trustee deferred
compensation and retirement plans 2,907
- -----------------------------------------------------------
Other assets 53,900
===========================================================
Total assets 163,853,797
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 670,802
- -----------------------------------------------------------
Fund shares reacquired 14,555
- -----------------------------------------------------------
Trustee deferred compensation and
retirement plans 3,547
- -----------------------------------------------------------
Accrued distribution fees 82,337
- -----------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 116
- -----------------------------------------------------------
Accrued transfer agent fees 32,832
- -----------------------------------------------------------
Accrued operating expenses 33,647
===========================================================
Total liabilities 837,836
===========================================================
Net assets applicable to shares outstanding $163,015,961
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $154,688,239
- -----------------------------------------------------------
Undistributed net investment income (loss) (193,396)
- -----------------------------------------------------------
Undistributed net realized gain from
investment securities 521,905
- -----------------------------------------------------------
Unrealized appreciation of investment
securities 7,999,213
===========================================================
$163,015,961
___________________________________________________________
===========================================================
NET ASSETS:
Class A $ 83,246,742
___________________________________________________________
===========================================================
Class B $ 46,793,430
___________________________________________________________
===========================================================
Class C $ 24,932,668
___________________________________________________________
===========================================================
Class R $ 7,928,668
___________________________________________________________
===========================================================
Institutional Class $ 114,453
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 7,337,057
___________________________________________________________
===========================================================
Class B 4,148,602
___________________________________________________________
===========================================================
Class C 2,211,057
___________________________________________________________
===========================================================
Class R 700,080
___________________________________________________________
===========================================================
Institutional Class 10,057
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 11.35
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $11.35 divided
by 94.50%) $ 12.01
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 11.28
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 11.28
___________________________________________________________
===========================================================
Class R:
Net asset value and offering price per
share $ 11.33
___________________________________________________________
===========================================================
Institutional Class:
Net asset value and offering price per
share $ 11.38
___________________________________________________________
===========================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-171
STATEMENT OF OPERATIONS
For the six months ended June 30, 2005
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends from affiliated underlying funds $ 297,423
========================================================================
EXPENSES:
Administrative services fees 24,795
- ------------------------------------------------------------------------
Custodian fees 4,129
- ------------------------------------------------------------------------
Distribution fees:
Class A 105,890
- ------------------------------------------------------------------------
Class B 174,219
- ------------------------------------------------------------------------
Class C 90,753
- ------------------------------------------------------------------------
Class R 15,576
- ------------------------------------------------------------------------
Market timing and litigation expenses 38,425
- ------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C and R 162,109
- ------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 4
- ------------------------------------------------------------------------
Trustees' and officer's fees and benefits 7,994
- ------------------------------------------------------------------------
Registration and filing fees 73,425
- ------------------------------------------------------------------------
Other 49,274
========================================================================
Total expenses 746,593
========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangement (257,708)
========================================================================
Net expenses 488,885
========================================================================
Net investment income (loss) (191,462)
========================================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES:
Net realized gain from affiliated underlying funds 374,241
========================================================================
Change in net unrealized appreciation of affiliated
underlying funds 2,034,659
========================================================================
Net gain from affiliated underlying funds 2,408,900
========================================================================
Net increase in net assets resulting from operations $2,217,438
________________________________________________________________________
========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-172
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 2005 and the period April 30, 2004
(Date operations commenced) through December 31, 2004
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2005 2004
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) from affiliated underlying
funds $ (191,462) $ 18,446
- ------------------------------------------------------------------------------------------
Net realized gain from affiliated underlying funds 374,241 350,300
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of affiliated
underlying funds 2,034,659 5,964,554
==========================================================================================
Net increase in net assets resulting from operations 2,217,438 6,333,300
==========================================================================================
Distributions to shareholders from net investment income:
Class A -- (166,197)
- ------------------------------------------------------------------------------------------
Class B -- (56,952)
- ------------------------------------------------------------------------------------------
Class C -- (29,244)
- ------------------------------------------------------------------------------------------
Class R -- (5,483)
- ------------------------------------------------------------------------------------------
Institutional Class -- (617)
==========================================================================================
Total distributions from net investment income -- (258,493)
==========================================================================================
Distributions to shareholders from net realized gains:
Class A -- (3,264)
- ------------------------------------------------------------------------------------------
Class B -- (1,898)
- ------------------------------------------------------------------------------------------
Class C -- (975)
- ------------------------------------------------------------------------------------------
Class R -- (119)
- ------------------------------------------------------------------------------------------
Institutional Class -- (10)
==========================================================================================
Total distributions from net realized gains -- (6,266)
==========================================================================================
Decrease in net assets resulting from distributions -- (264,759)
==========================================================================================
Share transactions-net:
Class A 42,672,084 36,288,349
- ------------------------------------------------------------------------------------------
Class B 23,868,897 20,477,991
- ------------------------------------------------------------------------------------------
Class C 13,078,949 10,599,924
- ------------------------------------------------------------------------------------------
Class R 6,427,772 1,215,379
- ------------------------------------------------------------------------------------------
Institutional Class -- 100,637
==========================================================================================
Net increase in net assets resulting from share
transactions 86,047,702 68,682,280
==========================================================================================
Net increase in net assets 88,265,140 74,750,821
==========================================================================================
NET ASSETS:
Beginning of period 74,750,821 --
==========================================================================================
End of period (including undistributed net investment
income (loss) of $(193,396) and $(1,934), respectively) $163,015,961 $74,750,821
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-173
NOTES TO FINANCIAL STATEMENTS
June 30, 2005
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Growth Allocation Fund, formerly AIM Aggressive Allocation Fund, (the
"Fund") is a separate series of AIM Growth Series (the "Trust"). The Trust is
organized as a Delaware statutory trust and is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end series
management investment company consisting of nine separate series portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is to provide long-term growth of capital
consistent with a higher level of risk relative to the broad stock market. The
Fund is a "fund of funds," in that it invests in the Institutional Class of
other mutual funds ("underlying funds") advised by A I M Advisors, Inc. ("AIM").
AIM may change the Fund's asset class allocations, the underlying funds or the
target weightings in the underlying funds without shareholder approval. The
underlying funds may engage in a number of investment techniques and practices,
which involve certain risks. Each underlying fund's accounting policies are
outlined in the underlying fund's financial statements and are available upon
request.
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 -- Investments in underlying funds are valued at the
end of the day net asset value per share.
Securities in the underlying funds, 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 underlying funds' 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 underlying funds' 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
FS-174
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 underlying funds' officers following procedures
approved by the underlying funds' 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. Distributions from income from underlying funds, if any, are recorded
as dividend income on ex-dividend date. Distributions from net realized
capital gains from underlying funds, if any, are recorded as realized gains
on the ex-dividend date.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Expenses included in the accompanying financial statements
reflect the expenses of the Fund and do not include any expenses of the
underlying funds. The results of the underlying funds expenses are included
in the realized and unrealized gain/loss on the investments in the
underlying funds.
Fees provided for under the Rule 12b-1 plan of a particular class of the
Fund are charged to the operations of such class. Transfer agency fees and
expenses and other shareholder recordkeeping fees and expenses attributable
to the Institutional Class are charged to such class. Transfer agency fees
and expenses and other shareholder recordkeeping fees and expenses relating
to all other classes are allocated among those classes based on relative
net assets. All other expenses are allocated among the classes based on
relative net assets.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with AIM.
Under the terms of the investment advisory agreement, the Fund does not pay an
advisory fee. However, the Fund pays advisory fees to AIM indirectly as a
shareholder of the underlying funds.
AIM has contractually agreed to reimburse expenses to the extent necessary
to limit other expenses (excluding certain items discussed below) of Class A,
Class B, Class C, Class R and Institutional Class shares to 0.17% of average
daily net assets, respectively, through December 31, 2005. In determining the
advisor's obligation to reimburse expenses, the following expenses are not taken
into account, and could cause other expenses to exceed the limit stated above:
(i) Rule 12b-1 plan fees, if any; (ii) interest; (iii) taxes; (iv) dividend
expense on short sales; (v) 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; (vi) expenses related to a merger or
reorganization, as approved by the Fund's Board of Trustees; and (vii) expenses
of the underlying funds that are paid indirectly as a result of share ownership
of the underlying funds; and (viii) 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. To
the extent that the annualized expense ratio does not exceed the expense
limitation, AIM will retain its ability to be reimbursed for such fee waivers or
reimbursements prior to the end of each fiscal year.
For the six months ended June 30, 2005, AIM waived fees of $57,170 and
reimbursed expenses of $160,517.
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 six months
ended June 30, 2005, AMVESCAP reimbursed expenses of the Fund in the amount of
$38,425.
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 June 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 June 30, 2005, the
Fund paid AISI $162,109 for Class A, Class B, Class C and Class R share classes
and $4 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
FS-175
the average daily net assets of Class R shares. Effective July 1, 2005, the
Trustees approved a permanent reduction in the annual rate payable by the Fund
to ADI to 0.25% of the average daily net assets of Class A 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 June 30, 2005, the Class A,
Class B, Class C and Class R shares paid $105,890, $174,219, $90,753 and
$15,576, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the six
months ended June 30, 2005, ADI advised the Fund that it retained $122,488 in
front-end sales commissions from the sale of Class A shares and $4, $12,448,
$3,469 and $0 from Class A, Class B, Class C and Class R shares, respectively,
for CDSC imposed upon redemptions by shareholders.
The underlying funds pay no distribution fees and the Fund pays no sales
loads or other similar compensation to ADI for acquiring underlying fund shares.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or ADI.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund and the mutual funds below have the same investment advisor and
therefore, are considered to be affiliated. The table below shows the
transactions in and earnings from investments in affiliated mutual funds for the
six months ended June 30, 2005.
INVESTMENTS IN AFFILIATES:
<Table>
<Caption>
CHANGE IN
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 06/30/05 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
AIM Dynamics
Fund-
Institutional
Class $ 3,781,016 $ 4,312,664 $ (46,313) $ 170,016 $ 8,221,334 $ -- $ 3,951
- ----------------------------------------------------------------------------------------------------------------------------------
AIM High Yield
Fund-
Institutional
Class 3,610,019 4,734,403 (29,663) (104,222) 8,211,192 210,308 655
- ----------------------------------------------------------------------------------------------------------------------------------
AIM
International
Core Equity
Fund-
Institutional
Class 9,502,721 11,130,717 (76,549) (288,903) 20,277,605 -- 9,619
- ----------------------------------------------------------------------------------------------------------------------------------
AIM
International
Growth Fund-
Institutional
Class 9,688,825 10,781,660 (349,398) 145,678 20,333,137 -- 66,372
- ----------------------------------------------------------------------------------------------------------------------------------
AIM Large Cap
Basic Value
Fund-
Institutional
Class 12,836,834 15,535,845 (104,858) 165,608 28,438,215 -- 4,786
- ----------------------------------------------------------------------------------------------------------------------------------
AIM Large Cap
Growth Fund-
Institutional
Class 14,582,137 17,939,362 (117,929) 190,134 32,599,024 -- 5,320
- ----------------------------------------------------------------------------------------------------------------------------------
AIM
Multi-Sector
Fund-
Institutional
Class 9,340,168 10,781,660 (778,195) 871,600 20,322,022 -- 106,789
- ----------------------------------------------------------------------------------------------------------------------------------
AIM Real Estate
Fund-
Institutional
Class 3,967,454 4,399,934 (693,024) 363,441 8,206,619 87,115 168,814
- ----------------------------------------------------------------------------------------------------------------------------------
AIM Small Cap
Growth Fund-
Institutional
Class 7,438,317 8,625,328 (100,577) 521,307 16,492,310 -- 7,935
==================================================================================================================================
Total $74,747,491 $88,241,573 $(2,296,506) $2,034,659 $163,101,458 $297,423 $374,241
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
NOTE 4--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer agent
for clearing shareholder transactions. For the six months ended June 30, 2005,
the Fund received credits from this arrangement, which resulted in the reduction
of the Fund's total expenses of $1,596.
FS-176
NOTE 5--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 June 30, 2005, the Fund paid legal fees of
$2,116 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
The Fund is a participant in an uncommitted unsecured revolving credit facility
with State Street Bank and Trust Company ("SSB"). The Fund may borrow up to the
lesser of (i) $125,000,000, or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan. During the six months ended June 30, 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 in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 7--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.
The Fund did not have a capital loss carryforward as of December 31, 2004.
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the six months ended June 30, 2005 was
$88,241,573 and $2,296,506, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $7,995,102
==============================================================================
Net unrealized appreciation of investment securities $7,995,102
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $155,106,356.
</Table>
FS-177
NOTE 9--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and Institutional Class shares.
Class A shares are sold with a front-end sales charge. Class B shares and Class
C shares are sold with CDSC. Class R shares and Institutional Class shares are
sold at net asset value. Under certain circumstances, Class A shares and Class R
shares are subject to CDSC. Generally, Class B shares will automatically convert
to Class A shares eight years after the end of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ------------------------------------------------------------------------------------------------------------------
APRIL 30, 2004
(DATE OPERATIONS
COMMENCED) TO
SIX MONTHS ENDED DECEMBER 31,
JUNE 30, 2005 2004
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------
Sold:
Class A 4,149,814 $46,096,603 3,574,709 $37,105,068
- ------------------------------------------------------------------------------------------------------------------
Class B 2,467,357 27,313,855 2,065,422 21,235,832
- ------------------------------------------------------------------------------------------------------------------
Class C 1,301,152 14,385,668 1,082,947 11,184,543
- ------------------------------------------------------------------------------------------------------------------
Class R 620,367 6,870,639 142,688 1,465,707
- ------------------------------------------------------------------------------------------------------------------
Institutional Class -- -- 10,001 100,010
==================================================================================================================
Issued as reinvestment of dividends:
Class A -- -- 14,820 164,949
- ------------------------------------------------------------------------------------------------------------------
Class B -- -- 5,195 57,658
- ------------------------------------------------------------------------------------------------------------------
Class C -- -- 2,647 29,375
- ------------------------------------------------------------------------------------------------------------------
Class R -- -- 504 5,602
- ------------------------------------------------------------------------------------------------------------------
Institutional Class -- -- 56 627
==================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 93,076 1,031,746 14,680 152,114
- ------------------------------------------------------------------------------------------------------------------
Class B (93,518) (1,031,746) (14,728) (152,114)
==================================================================================================================
Reacquired:
Class A (401,309) (4,456,265) (108,733) (1,133,782)
- ------------------------------------------------------------------------------------------------------------------
Class B (218,151) (2,413,212) (62,975) (663,385)
- ------------------------------------------------------------------------------------------------------------------
Class C (117,993) (1,306,719) (57,696) (613,994)
- ------------------------------------------------------------------------------------------------------------------
Class R (39,639) (442,867) (23,840) (255,930)
==================================================================================================================
7,761,156 $86,047,702 6,645,697 $68,682,280
__________________________________________________________________________________________________________________
==================================================================================================================
</Table>
FS-178
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the period indicated.
<Table>
<Caption>
CLASS A
------------------------------------
APRIL 30, 2004
SIX MONTHS (DATE OPERATIONS
ENDED COMMENCED) TO
JUNE 30, DECEMBER 31,
2005 2004
- --------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.26 $ 10.00
- --------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.00)(a) 0.03(a)
- --------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.09 1.28
==================================================================================================
Total from investment operations 0.09 1.31
==================================================================================================
Less distributions:
Dividends from net investment income -- (0.05)
- --------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.00)
==================================================================================================
Total distributions -- (0.05)
==================================================================================================
Net asset value, end of period $ 11.35 $ 11.26
__________________________________________________________________________________________________
==================================================================================================
Total return(b) 0.80% 13.12%
__________________________________________________________________________________________________
==================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $83,247 $39,368
__________________________________________________________________________________________________
==================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.52%(c) 0.52%(d)
- --------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.95%(c) 1.31%(d)
==================================================================================================
Estimated underlying fund expenses(e) 0.96% 0.96%
==================================================================================================
Ratio of net investment income to average net assets (0.02)%(c) 0.40%(d)
__________________________________________________________________________________________________
==================================================================================================
Portfolio turnover rate(f) 2% 2%
__________________________________________________________________________________________________
==================================================================================================
</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, if any, and is
not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$61,010,223.
(d) Annualized.
(e) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
underlying funds in which the fund invests. Because the underlying funds
have varied expenses and fee levels and the Fund may own different
proportions at different times, the amount of fees and expenses incurred
indirectly by the Fund will vary.
(f) Not annualized for periods less than one year.
FS-179
NOTE 10--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS B
------------------------------------
APRIL 30, 2004
SIX MONTHS (DATE OPERATIONS
ENDED COMMENCED) TO
JUNE 30, DECEMBER 31,
2005 2004
- --------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.23 $ 10.00
- --------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)(a) (0.02)(a)
- --------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.09 1.28
==================================================================================================
Total from investment operations 0.05 1.26
==================================================================================================
Less distributions:
Dividends from net investment income -- (0.03)
- --------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.00)
==================================================================================================
Total distributions -- (0.03)
==================================================================================================
Net asset value, end of period $ 11.28 $ 11.23
__________________________________________________________________________________________________
==================================================================================================
Total return(b) 0.45% 12.61%
__________________________________________________________________________________________________
==================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $46,793 $22,384
__________________________________________________________________________________________________
==================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.17%(c) 1.17%(d)
- --------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.60%(c) 1.96%(d)
==================================================================================================
Estimated underlying fund expenses(e) 0.96% 0.96%
==================================================================================================
Ratio of net investment income (loss) to average net assets (0.67)%(c) (0.25)%(d)
__________________________________________________________________________________________________
==================================================================================================
Portfolio turnover rate(f) 2% 2%
__________________________________________________________________________________________________
==================================================================================================
</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, if any, and is
not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$35,132,637.
(d) Annualized.
(e) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
underlying funds in which the fund invests. Because the underlying funds
have varied expenses and fee levels and the Fund may own different
proportions at different times, the amount of fees and expenses incurred
indirectly by the Fund will vary.
(f) Not annualized for periods less than one year.
FS-180
NOTE 10--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS C
------------------------------------
APRIL 30, 2004
SIX MONTHS (DATE OPERATIONS
ENDED COMMENCED) TO
JUNE 30, DECEMBER 31,
2005 2004
- --------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.23 $ 10.00
- --------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)(a) (0.02)(a)
- --------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.09 1.28
==================================================================================================
Total from investment operations 0.05 1.26
==================================================================================================
Less distributions:
Dividends from net investment income -- (0.03)
- --------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.00)
==================================================================================================
Total distributions -- (0.03)
==================================================================================================
Net asset value, end of period $ 11.28 $ 11.23
__________________________________________________________________________________________________
==================================================================================================
Total return(b) 0.45% 12.61%
__________________________________________________________________________________________________
==================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $24,933 $11,543
__________________________________________________________________________________________________
==================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.17%(c) 1.17%(d)
- --------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.60%(c) 1.96%(d)
==================================================================================================
Estimated underlying fund expenses(e) 0.96% 0.96%
==================================================================================================
Ratio of net investment income (loss) to average net assets (0.67)%(c) (0.25)%(d)
__________________________________________________________________________________________________
==================================================================================================
Portfolio turnover rate(f) 2% 2%
__________________________________________________________________________________________________
==================================================================================================
</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, if any, and is
not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$18,301,103.
(d) Annualized.
(e) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
underlying funds in which the fund invests. Because the underlying funds
have varied expenses and fee levels and the Fund may own different
proportions at different times, the amount of fees and expenses incurred
indirectly by the Fund will vary.
(f) Not annualized for periods less than one year.
FS-181
NOTE 10--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS R
------------------------------------
APRIL 30, 2004
SIX MONTHS (DATE OPERATIONS
ENDED COMMENCED) TO
JUNE 30, DECEMBER 31,
2005 2004
- --------------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.25 $10.00
- --------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01)(a) 0.02(a)
- --------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.09 1.28
==================================================================================================
Total from investment operations 0.08 1.30
==================================================================================================
Less distributions:
Dividends from net investment income -- (0.05)
- --------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.00)
==================================================================================================
Total distributions -- (0.05)
==================================================================================================
Net asset value, end of period $11.33 $11.25
__________________________________________________________________________________________________
==================================================================================================
Total return(b) 0.71% 12.98%
__________________________________________________________________________________________________
==================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $7,929 $1,342
__________________________________________________________________________________________________
==================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.67%(c) 0.67%(d)
- --------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.10%(c) 1.46%(d)
==================================================================================================
Estimated underlying fund expenses(e) 0.96% 0.96%
==================================================================================================
Ratio of net investment income to average net assets (0.17)%(c) 0.25%(d)
__________________________________________________________________________________________________
==================================================================================================
Portfolio turnover rate(f) 2% 2%
__________________________________________________________________________________________________
==================================================================================================
</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, if any, and is
not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$6,281,830.
(d) Annualized.
(e) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
underlying funds in which the fund invests. Because the underlying funds
have varied expenses and fee levels and the Fund may own different
proportions at different times, the amount of fees and expenses incurred
indirectly by the Fund will vary.
(f) Not annualized for periods less than one year.
FS-182
NOTE 10--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
------------------------------------
APRIL 30, 2004
SIX MONTHS (DATE OPERATIONS
ENDED COMMENCED) TO
JUNE 30, DECEMBER 31,
2005 2004
- --------------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.28 $10.00
- --------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.02(a) 0.05(a)
- --------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.08 1.29
==================================================================================================
Total from investment operations 0.10 1.34
==================================================================================================
Less distributions:
Dividends from net investment income -- (0.06)
- --------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.00)
==================================================================================================
Total distributions -- (0.06)
==================================================================================================
Net asset value, end of period $11.38 $11.28
__________________________________________________________________________________________________
==================================================================================================
Total return(b) 0.89% 13.44%
__________________________________________________________________________________________________
==================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 114 $ 113
__________________________________________________________________________________________________
==================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.17%(c) 0.17%(d)
- --------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.34%(c) 0.75%(d)
==================================================================================================
Estimated underlying fund expenses(e) 0.96% 0.96%
==================================================================================================
Ratio of net investment income to average net assets 0.33%(c) 0.75%(d)
__________________________________________________________________________________________________
==================================================================================================
Portfolio turnover rate(f) 2% 2%
__________________________________________________________________________________________________
==================================================================================================
</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 $112,065.
(d) Annualized.
(e) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
underlying funds in which the fund invests. Because the underlying funds
have varied expenses and fee levels and the Fund may own different
proportions at different times, the amount of fees and expenses incurred
indirectly by the Fund will vary.
(f) Not annualized for periods less than one year.
NOTE 11--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
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) is being created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Additionally, AIM and ADI
agreed to create 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. 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.
FS-183
NOTE 11--LEGAL PROCEEDINGS--(CONTINUED)
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
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 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.
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.
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.
FS-184
FINANCIALS
SCHEDULE OF INVESTMENTS
June 30, 2005
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-84.90%
ADVERTISING-1.32%
Valassis Communications, Inc.(a) 1,338,700 $ 49,598,835
===========================================================================
APPLICATION SOFTWARE-1.99%
Fair Isaac Corp. 1,000,000 36,500,000
- ---------------------------------------------------------------------------
Reynolds & Reynolds Co. (The)-Class A 1,421,400 38,420,442
===========================================================================
74,920,442
===========================================================================
BIOTECHNOLOGY-1.07%
Techne Corp.(a) 879,251 40,366,414
===========================================================================
BREWERS-1.62%
Heineken N.V. (Netherlands)(b) 1,975,462 60,946,425
===========================================================================
CASINOS & GAMING-1.25%
GTECH Holdings Corp. 1,610,300 47,085,172
===========================================================================
COMPUTER HARDWARE-1.35%
Diebold, Inc. 1,125,200 50,757,772
===========================================================================
COMPUTER STORAGE & PERIPHERALS-1.56%
Lexmark International, Inc.-Class A(a) 906,700 58,781,361
===========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-1.48%
Ceridian Corp.(a) 1,915,350 37,311,018
- ---------------------------------------------------------------------------
Sabre Holdings Corp.-Class A 911,000 18,174,450
===========================================================================
55,485,468
===========================================================================
DISTRIBUTORS-0.91%
Genuine Parts Co. 830,900 34,141,681
===========================================================================
DIVERSIFIED CHEMICALS-0.93%
Engelhard Corp. 1,225,000 34,973,750
===========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-3.02%
Agilent Technologies, Inc.(a) 1,733,400 39,902,868
- ---------------------------------------------------------------------------
Amphenol Corp.-Class A 897,200 36,040,524
- ---------------------------------------------------------------------------
Mettler-Toledo International Inc.(a) 810,400 37,748,432
===========================================================================
113,691,824
===========================================================================
ENVIRONMENTAL & FACILITIES SERVICES-2.38%
Rentokil Initial PLC (United Kingdom) 18,047,578 51,656,513
- ---------------------------------------------------------------------------
Republic Services, Inc. 1,046,000 37,666,460
===========================================================================
89,322,973
===========================================================================
FERTILIZERS & AGRICULTURAL CHEMICALS-1.00%
Scotts Miracle-Gro Co. (The)-Class A(a) 530,600 37,784,026
===========================================================================
FOOD RETAIL-1.91%
Kroger Co. (The)(a) 3,770,000 71,743,100
===========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
<Caption>
GENERAL MERCHANDISE STORES-0.66%
Family Dollar Stores, Inc. 952,000 $ 24,847,200
===========================================================================
HEALTH CARE EQUIPMENT-1.32%
Waters Corp.(a) 1,331,300 49,484,421
===========================================================================
HEALTH CARE SERVICES-1.06%
IMS Health Inc. 1,613,200 39,958,964
===========================================================================
HOME FURNISHINGS-2.35%
Ethan Allen Interiors Inc. 1,200,000 40,212,000
- ---------------------------------------------------------------------------
Mohawk Industries, Inc.(a) 585,600 48,312,000
===========================================================================
88,524,000
===========================================================================
HOME IMPROVEMENT RETAIL-1.05%
Sherwin-Williams Co. (The) 836,100 39,371,949
===========================================================================
INDUSTRIAL MACHINERY-4.95%
Briggs & Stratton Corp. 1,480,200 51,244,524
- ---------------------------------------------------------------------------
Dover Corp. 1,803,800 65,622,244
- ---------------------------------------------------------------------------
ITT Industries, Inc. 401,600 39,208,208
- ---------------------------------------------------------------------------
Pall Corp. 988,200 30,001,752
===========================================================================
186,076,728
===========================================================================
INTEGRATED OIL & GAS-2.45%
Amerada Hess Corp. 345,600 36,809,856
- ---------------------------------------------------------------------------
Murphy Oil Corp. 1,060,100 55,369,023
===========================================================================
92,178,879
===========================================================================
LEISURE PRODUCTS-1.88%
Mattel, Inc. 3,860,850 70,653,555
===========================================================================
METAL & GLASS CONTAINERS-1.76%
Ball Corp. 854,800 30,738,608
- ---------------------------------------------------------------------------
Pactiv Corp.(a) 1,650,000 35,607,000
===========================================================================
66,345,608
===========================================================================
MULTI-UTILITIES-1.07%
Wisconsin Energy Corp. 1,034,100 40,329,900
===========================================================================
OFFICE ELECTRONICS-1.77%
Xerox Corp.(a) 4,824,800 66,533,992
===========================================================================
OFFICE SERVICES & SUPPLIES-0.93%
Pitney Bowes Inc. 800,000 34,840,000
===========================================================================
OIL & GAS DRILLING-2.28%
Nabors Industries, Ltd. (Bermuda)(a) 725,420 43,974,960
- ---------------------------------------------------------------------------
Noble Corp. (Cayman Islands) 677,300 41,660,723
===========================================================================
85,635,683
===========================================================================
</Table>
FS-185
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES-4.72%
BJ Services Co. 1,393,100 $ 73,109,888
- ---------------------------------------------------------------------------
FMC Technologies, Inc.(a) 1,627,500 52,031,175
- ---------------------------------------------------------------------------
Smith International, Inc. 821,150 52,307,255
===========================================================================
177,448,318
===========================================================================
OIL & GAS EXPLORATION & PRODUCTION-3.93%
Newfield Exploration Co.(a) 950,100 37,899,489
- ---------------------------------------------------------------------------
Plains Exploration & Production Co.(a) 1,242,000 44,128,260
- ---------------------------------------------------------------------------
Southwestern Energy Co.(a) 1,401,000 65,818,980
===========================================================================
147,846,729
===========================================================================
OIL & GAS STORAGE & TRANSPORTATION-2.37%
Williams Cos., Inc. (The) 4,691,500 89,138,500
===========================================================================
PACKAGED FOODS & MEATS-2.39%
Campbell Soup Co. 1,224,300 37,671,711
- ---------------------------------------------------------------------------
Tate & Lyle PLC (United Kingdom)(b) 6,100,000 52,017,547
===========================================================================
89,689,258
===========================================================================
PAPER PRODUCTS-1.18%
Georgia-Pacific Corp. 1,396,000 44,392,800
===========================================================================
PHARMACEUTICALS-2.27%
Forest Laboratories, Inc.(a) 1,277,800 49,642,530
- ---------------------------------------------------------------------------
Teva Pharmaceutical Industries Ltd.-ADR
(Israel) 1,144,000 35,624,160
===========================================================================
85,266,690
===========================================================================
PROPERTY & CASUALTY INSURANCE-2.03%
ACE Ltd. (Cayman Islands) 855,100 38,351,235
- ---------------------------------------------------------------------------
Axis Capital Holding Ltd. (Bermuda) 1,338,200 37,871,060
===========================================================================
76,222,295
===========================================================================
PUBLISHING-2.66%
Belo Corp.-Class A 2,035,200 48,783,744
- ---------------------------------------------------------------------------
Knight-Ridder, Inc. 833,100 51,102,354
===========================================================================
99,886,098
===========================================================================
REGIONAL BANKS-3.16%
City National Corp. 425,700 30,526,947
- ---------------------------------------------------------------------------
Compass Bancshares, Inc. 613,000 27,585,000
- ---------------------------------------------------------------------------
Marshall & Ilsley Corp. 690,000 30,670,500
- ---------------------------------------------------------------------------
TCF Financial Corp. 1,168,000 30,227,840
===========================================================================
119,010,287
===========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
<Caption>
REINSURANCE-1.96%
Montpelier Re Holdings Ltd. (Bermuda) 1,074,400 $ 37,152,752
- ---------------------------------------------------------------------------
Renaissance Re Holdings Ltd. (Bermuda) 742,000 36,536,080
===========================================================================
73,688,832
===========================================================================
RESTAURANTS-0.99%
Outback Steakhouse, Inc. 826,000 37,368,240
===========================================================================
SEMICONDUCTORS-2.98%
International Rectifier Corp.(a) 841,000 40,132,520
- ---------------------------------------------------------------------------
National Semiconductor Corp. 1,813,600 39,953,608
- ---------------------------------------------------------------------------
Xilinx, Inc. 1,259,000 32,104,500
===========================================================================
112,190,628
===========================================================================
SPECIALIZED CONSUMER SERVICES-2.60%
H&R Block, Inc. 742,000 43,295,700
- ---------------------------------------------------------------------------
Service Corp. International 6,798,000 54,519,960
===========================================================================
97,815,660
===========================================================================
SPECIALTY CHEMICALS-4.04%
International Flavors & Fragrances Inc. 1,370,900 49,653,998
- ---------------------------------------------------------------------------
Rohm and Haas Co. 850,000 39,389,000
- ---------------------------------------------------------------------------
Sigma-Aldrich Corp. 1,121,000 62,820,840
===========================================================================
151,863,838
===========================================================================
SYSTEMS SOFTWARE-1.27%
Computer Associates International, Inc. 1,739,600 47,804,208
===========================================================================
THRIFTS & MORTGAGE FINANCE-1.03%
New York Community Bancorp, Inc. 2,131,200 38,617,344
===========================================================================
Total Common Stocks & Other Equity
Interests (Cost $2,712,990,175) 3,192,629,847
===========================================================================
MONEY MARKET FUNDS-15.22%
Liquid Assets Portfolio-Institutional
Class(c) 286,266,172 286,266,172
- ---------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(c) 286,266,173 286,266,173
===========================================================================
Total Money Market Funds (Cost
$572,532,345) 572,532,345
===========================================================================
TOTAL INVESTMENTS-100.12% (Cost
$3,285,522,520) 3,765,162,192
===========================================================================
OTHER ASSETS LESS LIABILITIES-(0.12%) (4,521,762)
===========================================================================
NET ASSETS-100.00% $3,760,640,430
___________________________________________________________________________
===========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) In accordance with the procedures established by the Board of Trustees,
the foreign security is fair valued using adjusted closing market
prices. The aggregate market value of these securities at June 30, 2005
was $112,963,972, which represented 3.00% of the Fund's Total
Investments. See Note 1A.
(c) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying notes which are an integral part of the financial statements.
FS-186
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2005
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$2,712,990,175) $3,192,629,847
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $572,532,345) 572,532,345
============================================================
Total investments (cost $3,285,522,520) 3,765,162,192
============================================================
Foreign currencies, at market value (cost
$10,288) 10,320
- ------------------------------------------------------------
Receivables for:
Fund shares sold 5,294,371
- ------------------------------------------------------------
Dividends 3,781,043
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 75,747
- ------------------------------------------------------------
Other assets 114,398
============================================================
Total assets 3,774,438,071
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 1,273,049
- ------------------------------------------------------------
Fund shares reacquired 9,827,208
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 177,016
- ------------------------------------------------------------
Accrued distribution fees 1,323,178
- ------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 470
- ------------------------------------------------------------
Accrued transfer agent fees 973,564
- ------------------------------------------------------------
Accrued operating expenses 223,156
============================================================
Total liabilities 13,797,641
============================================================
Net assets applicable to shares outstanding $3,760,640,430
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $3,044,279,399
- ------------------------------------------------------------
Undistributed net investment income (loss) (440,485)
- ------------------------------------------------------------
Undistributed net realized gain from
investment securities and foreign
currencies 237,161,814
- ------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 479,639,702
============================================================
$3,760,640,430
____________________________________________________________
============================================================
NET ASSETS:
Class A $2,685,301,578
____________________________________________________________
============================================================
Class B $ 641,076,679
____________________________________________________________
============================================================
Class C $ 301,575,909
____________________________________________________________
============================================================
Class R $ 75,675,527
____________________________________________________________
============================================================
Institutional Class $ 57,010,737
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 92,222,083
____________________________________________________________
============================================================
Class B 24,599,433
____________________________________________________________
============================================================
Class C 11,585,813
____________________________________________________________
============================================================
Class R 2,611,755
____________________________________________________________
============================================================
Institutional Class 1,918,996
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 29.12
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $29.12 divided by
94.50%) $ 30.81
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 26.06
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 26.03
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 28.97
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 29.71
____________________________________________________________
============================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-187
STATEMENT OF OPERATIONS
For the six months ended June 30, 2005
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $104,745) $ 19,201,537
- --------------------------------------------------------------------------
Dividends from affiliated money market funds (includes
securities lending income of $6,870) 7,256,696
==========================================================================
Total investment income 26,458,233
==========================================================================
EXPENSES:
Advisory fees 12,184,210
- --------------------------------------------------------------------------
Administrative services fees 297,505
- --------------------------------------------------------------------------
Custodian fees 147,444
- --------------------------------------------------------------------------
Distribution fees:
Class A 4,457,921
- --------------------------------------------------------------------------
Class B 3,296,010
- --------------------------------------------------------------------------
Class C 1,535,550
- --------------------------------------------------------------------------
Class R 169,470
- --------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C and R 5,642,185
- --------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 18,375
- --------------------------------------------------------------------------
Trustees' and officer's fees and benefits 56,323
- --------------------------------------------------------------------------
Other 408,924
==========================================================================
Total expenses 28,213,917
==========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (1,419,045)
==========================================================================
Net expenses 26,794,872
==========================================================================
Net investment income (loss) (336,639)
==========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain from:
Investment securities (includes gains from securities sold
to affiliates of $7,334,807) 143,499,624
- --------------------------------------------------------------------------
Foreign currencies 125,355
==========================================================================
143,624,979
==========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (86,268,410)
- --------------------------------------------------------------------------
Foreign currencies (2,543)
==========================================================================
(86,270,953)
==========================================================================
Net gain from investment securities and foreign currencies 57,354,026
==========================================================================
Net increase in net assets resulting from operations $ 57,017,387
__________________________________________________________________________
==========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-188
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 2005 and the year ended December 31, 2004
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2005 2004
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (336,639) $ (8,247,388)
- ----------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 143,624,979 366,745,260
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies (86,270,953) 79,257,539
==============================================================================================
Net increase in net assets resulting from operations 57,017,387 437,755,411
==============================================================================================
Distributions to shareholders from net realized gains:
Class A -- (165,796,542)
- ----------------------------------------------------------------------------------------------
Class B -- (50,732,936)
- ----------------------------------------------------------------------------------------------
Class C -- (23,417,554)
- ----------------------------------------------------------------------------------------------
Class R -- (3,882,376)
- ----------------------------------------------------------------------------------------------
Institutional Class -- (3,241,989)
==============================================================================================
Decrease in net assets resulting from distributions -- (247,071,397)
==============================================================================================
Share transactions-net:
Class A 89,833,179 390,359,539
- ----------------------------------------------------------------------------------------------
Class B (68,928,062) (34,584,177)
- ----------------------------------------------------------------------------------------------
Class C (27,003,728) 6,470,062
- ----------------------------------------------------------------------------------------------
Class R 13,163,929 31,669,516
- ----------------------------------------------------------------------------------------------
Institutional Class 4,401,004 23,251,227
==============================================================================================
Net increase in net assets resulting from share
transactions 11,466,322 417,166,167
==============================================================================================
Net increase in net assets 68,483,709 607,850,181
==============================================================================================
NET ASSETS:
Beginning of period 3,692,156,721 3,084,306,540
==============================================================================================
End of period (including undistributed net investment income
(loss) of $(440,485) and $(103,846), respectively) $3,760,640,430 $3,692,156,721
______________________________________________________________________________________________
==============================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-189
NOTES TO FINANCIAL STATEMENTS
June 30, 2005
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Mid Cap Core Equity Fund (the "Fund") is a separate series of AIM Growth
Series (the "Trust"). The Trust is organized as a Delaware statutory trust and
is registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of nine
separate series portfolios, each authorized to issue an unlimited number of
shares of beneficial interest. The Fund currently offers multiple classes of
shares. Matters affecting each portfolio or class will be voted on exclusively
by the shareholders of such portfolio or class. The assets, liabilities and
operations of each portfolio are accounted for separately. Information presented
in these financial statements pertains only to the Fund. As of February 27,
2004, the Fund's shares are offered on a limited basis.
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 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
FS-190
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.
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.
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:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- ----------------------------------------------------------------------
First $500 million 0.725%
- ----------------------------------------------------------------------
Next $500 million 0.70%
- ----------------------------------------------------------------------
Next $500 million 0.675%
- ----------------------------------------------------------------------
Over $1.5 billion 0.65%
______________________________________________________________________
======================================================================
</Table>
FS-191
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 June 30, 2005, AIM waived fees of $69,036.
At the request of the Trustees of the Trust, AMVESCAP PLC ("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 six months ended June 30, 2005, AMVESCAP reimbursed expenses of the Fund in
the amount of $26,452.
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 June 30, 2005, AIM was paid $297,505.
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 June 30, 2005, the
Fund paid AISI $5,642,185 for Class A, Class B, Class C and Class R share
classes and $18,375 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. Effective July 1, 2005, the Trustees
approved a permanent reduction in the annual rate payable by the Fund to ADI to
0.25% of the average daily net assets of Class A 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. Through June 30,
2005, during the periods the Fund was offered on a limited basis, ADI had agreed
to waive 0.10% of Rule 12b-1 plan fees on Class A shares. Pursuant to the Plans,
for the six months ended June 30, 2005, the Class A, Class B, Class C and Class
R shares paid $3,184,229, $3,296,010, $1,535,550 and $169,470 respectively,
after ADI waived Plan fees of $1,273,692 for Class A shares.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the six
months ended June 30, 2005, ADI advised the Fund that it retained $98,795 in
front-end sales commissions from the sale of Class A shares and $4,428, $81,955,
$8,427 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.
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 June 30, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 06/30/05 INCOME
- -------------------------------------------------------------------------------------------------------------------------
Liquid Assets Portfolio-
Institutional Class $173,231,587 $336,373,924 $(223,339,339) $ -- $286,266,172 $3,606,751
- -------------------------------------------------------------------------------------------------------------------------
STIC Prime Portfolio-
Institutional Class 173,231,588 336,373,924 (223,339,339) -- 286,266,173 3,643,075
=========================================================================================================================
Subtotal $346,463,175 $672,747,848 $(446,678,678) $ -- $572,532,345 $7,249,826
_________________________________________________________________________________________________________________________
=========================================================================================================================
<Caption>
REALIZED
FUND GAIN (LOSS)
- --------------------------
Liquid Assets Portfolio-
Institutional Class $ --
- --------------------------
STIC Prime Portfolio-
Institutional Class --
==========================
Subtotal $ --
__________________________
==========================
</Table>
FS-192
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 06/30/05 INCOME
- -------------------------------------------------------------------------------------------------------------------------
Liquid Assets Portfolio-
Institutional Class $ -- $ 2,916,174 $ (2,916,174) $ -- $ -- $ 3,431
- -------------------------------------------------------------------------------------------------------------------------
STIC Prime Portfolio-
Institutional Class -- 2,916,174 (2,916,174) -- -- 3,439
=========================================================================================================================
Subtotal $ -- $ 5,832,348 $ (5,832,348) $ -- $ -- $ 6,870
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total $346,463,175 $678,580,196 $(452,511,026) $ -- $572,532,345 $7,256,696
_________________________________________________________________________________________________________________________
=========================================================================================================================
<Caption>
REALIZED
FUND GAIN (LOSS)
- --------------------------
Liquid Assets Portfolio-
Institutional Class $ --
- --------------------------
STIC Prime Portfolio-
Institutional Class --
==========================
Subtotal $ --
__________________________
==========================
Total $ --
__________________________
==========================
</Table>
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures, each transaction is effected at the current market price.
Pursuant to these procedures, during the six months ended June 30, 2005, the
Fund engaged in securities purchases of $17,588,109 and sales of $44,517,360,
which resulted in net realized gains of $7,334,807.
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 six
months ended June 30, 2005, the Fund received credits from these arrangements,
which resulted in the reduction of the Fund's total expenses of $49,865.
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 June 30, 2005, the Fund paid legal fees of
$8,840 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 six months ended June 30, 2005, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
FS-193
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 June 30, 2005, there were no securities on loan to brokers. For the six
months ended June 30, 2005, the Fund received dividends on cash collateral of
$6,870 for securities lending transactions.
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.
The Fund did not have a capital loss carryforward as of December 31, 2004.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended June 30, 2005 was $862,126,083 and $1,075,063,329 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 $505,887,863
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (29,508,131)
==============================================================================
Net unrealized appreciation of investment securities $476,379,732
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $3,288,782,460.
</Table>
FS-194
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 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)
- --------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2005 DECEMBER 31, 2004
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 15,135,080 $ 432,453,908 26,967,314 $ 758,954,877
- --------------------------------------------------------------------------------------------------------------------------
Class B 524,056 13,397,623 2,582,107 65,607,722
- --------------------------------------------------------------------------------------------------------------------------
Class C 507,970 12,964,472 2,143,852 54,462,214
- --------------------------------------------------------------------------------------------------------------------------
Class R 741,835 21,059,982 1,569,932 44,033,714
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class 363,496 10,580,672 1,058,147 30,243,199
==========================================================================================================================
Issued as reinvestment of dividends:
Class A -- -- 5,671,172 160,721,002
- --------------------------------------------------------------------------------------------------------------------------
Class B -- -- 1,875,385 47,766,053
- --------------------------------------------------------------------------------------------------------------------------
Class C -- -- 867,525 22,069,827
- --------------------------------------------------------------------------------------------------------------------------
Class R -- -- 130,679 3,690,363
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class -- -- 112,239 3,236,984
==========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 546,371 15,565,730 1,357,549 38,348,118
- --------------------------------------------------------------------------------------------------------------------------
Class B (609,389) (15,565,730) (1,495,064) (38,348,118)
==========================================================================================================================
Reacquired:
Class A (12,551,831) (358,186,459) (20,151,373) (567,664,458)
- --------------------------------------------------------------------------------------------------------------------------
Class B (2,609,609) (66,759,955) (4,286,417) (109,609,834)
- --------------------------------------------------------------------------------------------------------------------------
Class C (1,561,946) (39,968,200) (2,745,120) (70,061,979)
- --------------------------------------------------------------------------------------------------------------------------
Class R (278,055) (7,896,053) (567,140) (16,054,561)
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class (213,633) (6,179,668) (358,294) (10,228,956)
==========================================================================================================================
(5,655) $ 11,466,322 14,732,493 $ 417,166,167
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
(a) There are two entities that are each record owners of more than 5% of
the outstanding shares of the Fund and in the aggregate they own 15% 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.
FS-195
NOTE 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
---------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, --------------------------------------------------------------------------
2005 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 28.64 $ 26.92 $ 21.17 $ 23.85 $ 24.04 $ 23.48
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.03(a) (0.01)(a) (0.08)(a) (0.09)(a) (0.05)(a) 0.10(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 0.45 3.71 5.83 (2.56) 0.18 4.10
=================================================================================================================================
Total from investment
operations 0.48 3.70 5.75 (2.65) 0.13 4.20
=================================================================================================================================
Less distributions:
Dividends from net investment
income -- -- -- -- (0.02) --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized
gains -- (1.98) -- (0.03) (0.30) (3.64)
=================================================================================================================================
Total distributions -- (1.98) -- (0.03) (0.32) (3.64)
=================================================================================================================================
Net asset value, end of period $ 29.12 $ 28.64 $ 26.92 $ 21.17 $ 23.85 $ 24.04
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 1.68% 13.82% 27.10% (11.13)% 0.56% 18.76%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $2,685,302 $2,552,041 $2,025,407 $1,072,673 $490,118 $259,803
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets 1.28%(c)(d) 1.30%(d) 1.41% 1.43% 1.39% 1.37%
=================================================================================================================================
Ratio of net investment income
(loss) to average net assets 0.18%(c) (0.02)% (0.33)% (0.40)% (0.22)% 0.38%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 27% 56% 38% 38% 68% 72%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$2,568,494,359.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.39% (annualized) and 1.40 for the six months ended June 30, 2005
and for the year ended December 31, 2004, respectively.
(e) Not annualized for periods less than one year.
FS-196
NOTE 12--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS B
----------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, --------------------------------------------------------------------
2005 2004 2003 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 25.73 $ 24.54 $ 19.43 $ 22.03 $ 22.36 $ 22.21
- ------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07)(a) (0.19)(a) (0.21)(a) (0.22)(a) (0.19)(a) (0.07)(a)
- ------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 0.40 3.36 5.32 (2.35) 0.16 3.86
==============================================================================================================================
Total from investment operations 0.33 3.17 5.11 (2.57) (0.03) 3.79
==============================================================================================================================
Less distributions from net realized
gains -- (1.98) -- (0.03) (0.30) (3.64)
==============================================================================================================================
Net asset value, end of period $ 26.06 $ 25.73 $ 24.54 $ 19.43 $ 22.03 $ 22.36
______________________________________________________________________________________________________________________________
==============================================================================================================================
Total return(b) 1.28% 13.00% 26.30% (11.69)% (0.10)% 17.98%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $641,077 $702,361 $702,267 $500,166 $333,783 $210,608
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratio of expenses to average net
assets 2.03%(c)(d) 2.04%(d) 2.06% 2.08% 2.05% 2.02%
==============================================================================================================================
Ratio of net investment income
(loss) to average net assets (0.57)%(c) (0.76)% (0.98)% (1.05)% (0.87)% (0.27)%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Portfolio turnover rate(e) 27% 56% 38% 38% 68% 72%
______________________________________________________________________________________________________________________________
==============================================================================================================================
</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
$664,664,937.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.04% (annualized) and 2.05% for the six months ended June 30, 2005
and for the year ended December 31, 2004, respectively.
(e) Not annualized for periods less than one year.
<Table>
<Caption>
CLASS C
--------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ------------------------------------------------------------------
2005 2004 2003 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 25.70 $ 24.51 $ 19.41 $ 22.00 $ 22.33 $ 22.19
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07)(a) (0.19)(a) (0.21)(a) (0.22)(a) (0.19)(a) (0.07)(a)
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 0.40 3.36 5.31 (2.34) 0.16 3.85
============================================================================================================================
Total from investment operations 0.33 3.17 5.10 (2.56) (0.03) 3.78
============================================================================================================================
Less distributions from net realized
gains -- (1.98) -- (0.03) (0.30) (3.64)
============================================================================================================================
Net asset value, end of period $ 26.03 $ 25.70 $ 24.51 $ 19.41 $ 22.00 $ 22.33
____________________________________________________________________________________________________________________________
============================================================================================================================
Total return(b) 1.28% 13.01% 26.28% (11.66)% (0.10)% 17.95%
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $301,576 $324,873 $303,296 $161,487 $68,085 $19,466
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratio of expenses to average net
assets 2.03%(c)(d) 2.04%(d) 2.06% 2.08% 2.05% 2.02%
============================================================================================================================
Ratio of net investment income
(loss) to average net assets (0.57)%(c) (0.76)% (0.98)% (1.05)% (0.87)% (0.27)%
____________________________________________________________________________________________________________________________
============================================================================================================================
Portfolio turnover rate(e) 27% 56% 38% 38% 68% 72%
____________________________________________________________________________________________________________________________
============================================================================================================================
</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
$309,655,071.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.04% (annualized) and 2.05 for the six months ended June 30, 2005
and for the year ended December 31, 2004, respectively.
(e) Not annualized for periods less than one year.
FS-197
NOTE 12--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS R
----------------------------------------------------
JUNE 3, 2002
SIX MONTHS YEAR ENDED (DATE SALES
ENDED DECEMBER 31, COMMENCED) TO
JUNE 30, ------------------ DECEMBER 31,
2005 2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 28.54 $ 26.89 $ 21.18 $ 24.54
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01)(a) (0.07)(a) (0.12)(a) (0.07)(a)
- ------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.44 3.70 5.83 (3.26)
==================================================================================================================
Total from investment operations 0.43 3.63 5.71 (3.33)
==================================================================================================================
Less distributions from net realized gains -- (1.98) -- (0.03)
==================================================================================================================
Net asset value, end of period $ 28.97 $ 28.54 $ 26.89 $ 21.18
__________________________________________________________________________________________________________________
==================================================================================================================
Total return(b) 1.51% 13.57% 26.96% (13.59)%
__________________________________________________________________________________________________________________
==================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $75,676 $61,303 $27,281 $ 2,786
__________________________________________________________________________________________________________________
==================================================================================================================
Ratio of expenses to average net assets 1.53%(c)(d) 1.54%(d) 1.56% 1.58%(e)
==================================================================================================================
Ratio of net investment income (loss) to average net assets (0.07)%(c) (0.26)% (0.48)% (0.55)%(e)
__________________________________________________________________________________________________________________
==================================================================================================================
Portfolio turnover rate(f) 27% 56% 38% 38%
__________________________________________________________________________________________________________________
==================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$68,349,969.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.54% (annualized) and 1.55 for the six months ended June 30, 2005
and for the year ended December 31, 2004, respectively.
(e) Annualized.
(f) Not annualized for periods less than one year.
<Table>
<Caption>
INSTITUTIONAL CLASS
----------------------------------------------------
MARCH 15,
2002
SIX MONTHS YEAR ENDED (DATE SALES
ENDED DECEMBER 31, COMMENCED) TO
JUNE 30, ------------------ DECEMBER 31,
2005 2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 29.15 $ 27.23 $ 21.27 $ 25.03
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.10(a) 0.14(a) 0.08(a) 0.04(a)
- ------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.46 3.76 5.88 (3.77)
==================================================================================================================
Total from investment operations 0.56 3.90 5.96 (3.73)
==================================================================================================================
Less distributions from net realized gains -- (1.98) -- (0.03)
==================================================================================================================
Net asset value, end of period $ 29.71 $ 29.15 $ 27.23 $ 21.27
__________________________________________________________________________________________________________________
==================================================================================================================
Total return(b) 1.92% 14.40% 28.02% (14.92)%
__________________________________________________________________________________________________________________
==================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $57,011 $51,579 $26,056 $ 4,817
__________________________________________________________________________________________________________________
==================================================================================================================
Ratio of expenses to average net assets 0.78%(c)(d) 0.80%(d) 0.76% 0.82%(e)
==================================================================================================================
Ratio of net investment income to average net assets 0.68%(c) 0.48% 0.32% 0.21%(e)
__________________________________________________________________________________________________________________
==================================================================================================================
Portfolio turnover rate(f) 27% 56% 38% 38%
__________________________________________________________________________________________________________________
==================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$53,507,801.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 0.79% (annualized) and 0.81 for the six months ended June 30, 2005
and for the year ended December 31, 2004, respectively.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-198
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), 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) is being created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Additionally, AIM and ADI
agreed to create 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. 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
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 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.
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.
FS-199
NOTE 13--LEGAL PROCEEDINGS--(CONTINUED)
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.
FS-200
FINANCIALS
SCHEDULE OF INVESTMENTS
June 30, 2005
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
MUTUAL FUNDS-100.05%(A)
AIM High Yield Fund-Institutional
Class-10.07% 6,863,880 $ 30,544,266
- ------------------------------------------------------------------------
AIM International Core Equity Fund-
Institutional Class-9.95%(b) 2,676,769 30,167,190
- ------------------------------------------------------------------------
AIM International Growth Fund-Institutional
Class-7.48%(b) 1,104,011 22,687,432
- ------------------------------------------------------------------------
AIM Large Cap Basic Value
Fund-Institutional Class-9.97%(b) 2,231,928 30,220,306
- ------------------------------------------------------------------------
AIM Large Cap Growth Fund-Institutional
Class-12.50%(b) 3,831,126 37,889,841
- ------------------------------------------------------------------------
AIM Mid Cap Basic Value Fund-Institutional
Class-5.04%(b) 1,131,803 15,279,346
- ------------------------------------------------------------------------
AIM Mid Cap Stock Fund-Institutional
Class-5.04% 835,705 15,268,325
- ------------------------------------------------------------------------
</Table>
<Table>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
MUTUAL FUNDS-100.05%(A)-(continued)
AIM Multi-Sector Fund-Institutional
Class-4.99% 660,410 $ 15,116,788
- ------------------------------------------------------------------------
AIM Short Term Bond Fund-
Institutional-Class 4.99% 1,518,318 15,137,627
- ------------------------------------------------------------------------
AIM Total Return Bond Fund-Institutional
Class-24.97% 7,155,178 75,701,779
- ------------------------------------------------------------------------
AIM Trimark Small Companies
Fund-Institutional Class-5.05% 1,140,329 15,303,216
========================================================================
TOTAL INVESTMENTS-100.05%
(Cost $292,706,416) 303,316,116
========================================================================
OTHER ASSETS LESS LIABILITIES-(0.05%) (140,575)
========================================================================
NET ASSETS-100.00% $303,175,541
________________________________________________________________________
========================================================================
</Table>
Notes to Schedule of Investments:
(a)
The mutual funds and the Fund are affiliated by having the same investment
advisor. See Note 3.
(b)
Non-income producing security. A security is determined to be non-income
producing if the security has not declared a distribution in more than one
year from the report date.
See accompanying notes which are an integral part of the financial statements.
FS-201
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2005
(Unaudited)
<Table>
ASSETS:
Investments in affiliated underlying funds,
at market value (cost $292,706,416) $303,316,116
- -----------------------------------------------------------
Cash 53,051
- -----------------------------------------------------------
Receivables for:
Fund shares sold 990,897
- -----------------------------------------------------------
Dividends 450,942
- -----------------------------------------------------------
Fund expenses absorbed 31,459
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 3,801
- -----------------------------------------------------------
Other assets 62,698
===========================================================
Total assets 304,908,964
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 1,316,263
- -----------------------------------------------------------
Fund shares reacquired 178,641
- -----------------------------------------------------------
Trustee deferred compensation and
retirement plans 5,199
- -----------------------------------------------------------
Accrued distribution fees 161,254
- -----------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 540
- -----------------------------------------------------------
Accrued transfer agent fees 33,684
- -----------------------------------------------------------
Accrued operating expenses 37,842
===========================================================
Total liabilities 1,733,423
===========================================================
Net assets applicable to shares outstanding $303,175,541
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $290,729,855
- -----------------------------------------------------------
Undistributed net investment income 1,137,281
- -----------------------------------------------------------
Undistributed net realized gain from
investment securities 698,705
- -----------------------------------------------------------
Unrealized appreciation of investment
securities 10,609,700
===========================================================
$303,175,541
___________________________________________________________
===========================================================
NET ASSETS:
Class A $147,144,862
___________________________________________________________
===========================================================
Class B $ 90,583,401
___________________________________________________________
===========================================================
Class C $ 56,822,427
___________________________________________________________
===========================================================
Class R $ 8,490,525
___________________________________________________________
===========================================================
Institutional Class $ 134,326
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 13,357,974
___________________________________________________________
===========================================================
Class B 8,268,849
___________________________________________________________
===========================================================
Class C 5,186,925
___________________________________________________________
===========================================================
Class R 771,765
___________________________________________________________
===========================================================
Institutional Class 12,158
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 11.02
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $11.02 divided by
94.50%) $ 11.66
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 10.95
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 10.95
___________________________________________________________
===========================================================
Class R:
Net asset value and offering price per
share $ 11.00
___________________________________________________________
===========================================================
Institutional Class:
Net asset value and offering price per
share $ 11.05
___________________________________________________________
===========================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-202
STATEMENT OF OPERATIONS
For the six months ended June 30, 2005
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends from affiliated underlying funds $1,950,294
========================================================================
EXPENSES:
Administrative services fees 45,686
- ------------------------------------------------------------------------
Custodian fees 4,171
- ------------------------------------------------------------------------
Distribution fees:
Class A 188,363
- ------------------------------------------------------------------------
Class B 340,360
- ------------------------------------------------------------------------
Class C 218,046
- ------------------------------------------------------------------------
Class R 13,399
- ------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C and R 214,246
- ------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 5
- ------------------------------------------------------------------------
Trustees' and officer's fees and benefits 9,186
- ------------------------------------------------------------------------
Registration and filing fees 78,619
- ------------------------------------------------------------------------
Other 53,057
========================================================================
Total expenses 1,165,138
========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangement (347,623)
========================================================================
Net expenses 817,515
========================================================================
Net investment income 1,132,779
========================================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES:
Net realized gain from affiliated underlying funds 563,857
- ------------------------------------------------------------------------
Change in net unrealized appreciation of affiliated
underlying funds 2,186,602
========================================================================
Net gain from affiliated underlying funds 2,750,459
========================================================================
Net increase in net assets resulting from operations $3,883,238
________________________________________________________________________
========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-203
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 2005 and the period April 30, 2004 (Date
operations commenced) through December 31, 2004
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2005 2004
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 1,132,779 $ 512,504
- ------------------------------------------------------------------------------------------
Net realized gain from affiliated underlying funds and
capital gain distributions of underlying funds 563,857 638,318
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of affiliated
underlying funds 2,186,602 8,423,098
==========================================================================================
Net increase in net assets resulting from operations 3,883,238 9,573,920
==========================================================================================
Distributions to shareholders from net investment income:
Class A -- (574,401)
- ------------------------------------------------------------------------------------------
Class B -- (294,431)
- ------------------------------------------------------------------------------------------
Class C -- (174,411)
- ------------------------------------------------------------------------------------------
Class R -- (16,807)
- ------------------------------------------------------------------------------------------
Institutional Class -- (1,044)
==========================================================================================
Total distributions from net investment income -- (1,061,094)
==========================================================================================
Distributions to shareholders from net realized gains:
Class A -- (4,300)
- ------------------------------------------------------------------------------------------
Class B -- (2,835)
- ------------------------------------------------------------------------------------------
Class C -- (1,679)
- ------------------------------------------------------------------------------------------
Class R -- (132)
- ------------------------------------------------------------------------------------------
Institutional Class -- (7)
==========================================================================================
Total distributions from net realized gains -- (8,953)
==========================================================================================
Decrease in net assets resulting from distributions -- (1,070,047)
==========================================================================================
Share transactions-net:
Class A 73,645,755 67,422,298
- ------------------------------------------------------------------------------------------
Class B 43,709,316 43,220,987
- ------------------------------------------------------------------------------------------
Class C 28,832,284 25,581,696
- ------------------------------------------------------------------------------------------
Class R 6,195,791 2,056,769
- ------------------------------------------------------------------------------------------
Institutional Class 22,473 101,061
==========================================================================================
Net increase in net assets resulting from share
transactions 152,405,619 138,382,811
==========================================================================================
Net increase in net assets 156,288,857 146,886,684
==========================================================================================
NET ASSETS:
Beginning of period 146,886,684 --
==========================================================================================
End of period (including undistributed net investment income
of $1,137,281 and $4,502, respectively) $303,175,541 $146,886,684
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-204
NOTES TO FINANCIAL STATEMENTS
June 30, 2005
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Moderate Allocation Fund (the "Fund") is a separate series of AIM Growth
Series (the "Trust"). The Trust is organized as a Delaware statutory trust and
is registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of nine
separate series portfolios, each authorized to issue an unlimited number of
shares of beneficial interest. The Fund currently offers multiple classes of
shares. Matters affecting each portfolio or class will be voted on exclusively
by the shareholders of such portfolio or class. The assets, liabilities and
operations of each portfolio are accounted for separately. Information presented
in these financial statements pertains only to the Fund.
The Fund's investment objective is to provide total return consistent with a
moderate level of risk relative to the broad stock market. The Fund is a "fund
of funds," in that it invests in the Institutional Class of other mutual funds
("underlying funds") advised by A I M Advisors, Inc. ("AIM"). AIM may change the
Fund's asset class allocations, the underlying funds or the target weightings in
the underlying funds without shareholder approval. The underlying funds may
engage in a number of investment techniques and practices, which involve certain
risks. Each underlying fund's accounting policies are outlined in the underlying
fund's financial statements and are available upon request.
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 -- Investments in underlying funds are valued at the
end of the day net asset value per share.
Securities in the underlying funds, 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 underlying funds' 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 underlying funds' 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
FS-205
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 underlying funds' officers following procedures
approved by the underlying funds' 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. Distributions from income from underlying funds, if any, are recorded
as dividend income on ex-dividend date. Distributions from net realized
capital gains from underlying funds, if any, are recorded as realized gains
on the ex-dividend date.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Expenses included in the accompanying financial statements
reflect the expenses of the Fund and do not include any expenses of the
underlying funds. The results of the underlying funds expenses are included
in the realized and unrealized gain/loss on the investments in the
underlying funds.
Fees provided for under the Rule 12b-1 plan of a particular class of the
Fund are charged to the operations of such class. Transfer agency fees and
expenses and other shareholder recordkeeping fees and expenses attributable
to the Institutional Class are charged to such class. Transfer agency fees
and expenses and other shareholder recordkeeping fees and expenses relating
to all other classes are allocated among those classes based on relative
net assets. All other expenses are allocated among the classes based on
relative net assets.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with AIM.
Under the terms of the investment advisory agreement, the Fund does not pay an
advisory fee. However, the Fund pays advisory fees to AIM indirectly as a
shareholder of the underlying funds.
AIM has contractually agreed to reimburse expenses to the extent necessary
to limit other expenses (excluding certain items discussed below) of Class A,
Class B, Class C, Class R and Institutional Class shares to 0.05% of average
daily net assets, respectively, through December 31, 2005. In determining the
advisor's obligation to reimburse expenses, the following expenses are not taken
into account, and could cause other expenses to exceed the limit stated above:
(i) Rule 12b-1 plan fees, if any; (ii) interest; (iii) taxes; (iv) dividend
expense on short sales; (v) 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; (vi) expenses related to a merger or
reorganization, as approved by the Fund's Board of Trustees; and (vii) expenses
of the underlying funds that are paid indirectly as a result of share ownership
of the underlying funds; and (viii) 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. To
the extent that the annualized expense ratio does not exceed the expense
limitation, AIM will retain its ability to be reimbursed for such fee waivers or
reimbursements prior to the end of each fiscal year.
For the six months ended June 30, 2005, AIM waived fees of $131,911 and
reimbursed expenses of $211,288.
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 six months
ended June 30, 2005, AMVESCAP reimbursed expenses of the Fund in the amount of
$1,462.
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 June 30, 2005, AIM was paid $45,686.
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 June 30, 2005, the
Fund paid AISI $214,246 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. Effective July 1, 2005, the Trustees
approved a permanent reduction in the annual rate payable by the Fund to ADI to
0.25% of the average daily net assets of Class A shares. Of these amounts, up to
0.25% of the average daily net assets of the Class A, Class B,
FS-206
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 June 30, 2005, the Class A,
Class B, Class C and Class R shares paid $188,363, $340,360, $218,046 and
$13,399, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the six
months ended June 30, 2005, ADI advised the Fund that it retained $217,243 in
front-end sales commissions from the sale of Class A shares and $5, $26,896,
$5,540 and $0 from Class A, Class B, Class C and Class R shares, respectively,
for CDSC imposed upon redemptions by shareholders.
The underlying funds pay no distribution fees and the Fund pays no sales
loads or other similar compensation to ADI for acquiring underlying fund shares.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or ADI.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund and the mutual funds below have the same investment advisor and
therefore, are considered to be affiliated. The table below shows the
transactions in and earnings from investments in affiliated mutual funds for the
six months ended June 30, 2005.
INVESTMENTS IN AFFILIATES:
<Table>
<Caption>
CHANGE IN
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 06/30/05 INCOME
- ------------------------------------------------------------------------------------------------------------------------
AIM High Yield Fund-
Institutional Class $14,516,008 $ 16,558,330 $ (148,304) $ (387,299) $30,544,266 $ 797,731
- ------------------------------------------------------------------------------------------------------------------------
AIM International Core
Equity Fund-
Institutional Class 15,314,403 15,433,434 (152,285) (453,465) 30,167,190 --
- ------------------------------------------------------------------------------------------------------------------------
AIM International Growth
Fund- Institutional Class 11,715,748 11,489,260 (761,750) 91,383 22,687,432 --
- ------------------------------------------------------------------------------------------------------------------------
AIM Large Cap Basic Value
Fund- Institutional Class 14,773,178 15,415,507 (150,182) 170,249 30,220,306 --
- ------------------------------------------------------------------------------------------------------------------------
AIM Large Cap Growth Fund-
Institutional Class 18,348,807 19,503,381 (185,361) 210,140 37,889,841 --
- ------------------------------------------------------------------------------------------------------------------------
AIM Mid Cap Basic Value
Fund- Institutional Class 7,516,013 7,659,506 (393,707) 446,746 15,279,346 --
- ------------------------------------------------------------------------------------------------------------------------
AIM Mid Cap Stock Fund-
Institutional Class 7,585,673 7,659,506 (336,405) 320,686 15,268,325 --
- ------------------------------------------------------------------------------------------------------------------------
AIM Multi-Sector Fund-
Institutional Class 7,521,090 7,659,506 (805,224) 625,665 15,116,788 --
- ------------------------------------------------------------------------------------------------------------------------
AIM Short Term Bond Fund-
Institutional Class 6,920,670 8,291,602 (72,613) (1,850) 15,137,627 181,169
- ------------------------------------------------------------------------------------------------------------------------
AIM Total Return Bond Fund-
Institutional Class 34,924,433 40,382,629 (366,607) 754,963 75,701,779 971,394
- ------------------------------------------------------------------------------------------------------------------------
AIM Trimark Small Companies
Fund- Institutional Class 7,789,461 7,659,506 (699,556) 409,384 15,303,216 --
========================================================================================================================
Total $146,925,484 $157,712,167 $(4,071,994) $2,186,602 $303,316,116 $1,950,294
________________________________________________________________________________________________________________________
========================================================================================================================
<Caption>
REALIZED
FUND GAIN (LOSS)
- ---------------------------
AIM High Yield Fund-
Institutional Class $ 5,531
- ---------------------------
AIM International Core
Equity Fund-
Institutional Class 25,103
- ---------------------------
AIM International Growth
Fund- Institutional Class 152,791
- ---------------------------
AIM Large Cap Basic Value
Fund- Institutional Class 11,554
- ---------------------------
AIM Large Cap Growth Fund-
Institutional Class 12,874
- ---------------------------
AIM Mid Cap Basic Value
Fund- Institutional Class 50,788
- ---------------------------
AIM Mid Cap Stock Fund-
Institutional Class 38,865
- ---------------------------
AIM Multi-Sector Fund-
Institutional Class 115,751
- ---------------------------
AIM Short Term Bond Fund-
Institutional Class (182)
- ---------------------------
AIM Total Return Bond Fund-
Institutional Class 6,361
- ---------------------------
AIM Trimark Small Companies
Fund- Institutional Class 144,421
===========================
Total $563,857
___________________________
===========================
</Table>
NOTE 4--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer agent
for clearing shareholder transactions. For the six months ended June 30, 2005,
the Fund received credits from this arrangement, which resulted in the reduction
of the Fund's total expenses of $2,962.
FS-207
NOTE 5--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 June 30, 2005, the Fund paid legal fees of
$2,278 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
The Fund is a participant in an uncommitted unsecured revolving credit facility
with State Street Bank and Trust Company ("SSB"). The Fund may borrow up to the
lesser of (i) $125,000,000, or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan. During the six months ended June 30, 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 in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 7--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.
The Fund did not have a capital loss carryforward as of December 31, 2004.
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the six months ended June 30, 2005 was
$157,712,167 and $4,071,994, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $10,623,072
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (18,023)
===============================================================================
Net unrealized appreciation of investment securities $10,605,049
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $292,711,067.
</Table>
FS-208
NOTE 9--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and Institutional Class shares.
Class A shares are sold with a front-end sales charge. Class B shares and Class
C shares are sold with CDSC. Class R shares and Institutional Class shares are
sold at net asset value. Under certain circumstances, Class A shares and Class R
shares are subject to CDSC. Generally, Class B shares will automatically convert
to Class A shares eight years after the end of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------------------------------------
APRIL 30, 2004
(DATE OPERATIONS
SIX MONTHS ENDED COMMENCED) TO
JUNE 30, 2005 DECEMBER 31, 2004
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 7,387,202 $ 80,009,592 6,787,469 $ 69,794,121
- ----------------------------------------------------------------------------------------------------------------------
Class B 4,622,787 49,877,667 4,360,168 44,695,661
- ----------------------------------------------------------------------------------------------------------------------
Class C 2,984,429 32,207,150 2,567,290 26,126,832
- ----------------------------------------------------------------------------------------------------------------------
Class R 836,985 9,079,386 212,270 2,203,895
- ----------------------------------------------------------------------------------------------------------------------
Institutional Class 2,060 22,473 10,001 100,010
======================================================================================================================
Issued as reinvestment of dividends:
Class A -- -- 49,479 534,374
- ----------------------------------------------------------------------------------------------------------------------
Class B -- -- 25,211 271,771
- ----------------------------------------------------------------------------------------------------------------------
Class C -- -- 14,140 152,429
- ----------------------------------------------------------------------------------------------------------------------
Class R -- -- 1,256 13,567
- ----------------------------------------------------------------------------------------------------------------------
Institutional Class -- -- 97 1,051
======================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 200,444 2,171,905 56,416 586,979
- ----------------------------------------------------------------------------------------------------------------------
Class B (201,303) (2,171,905) (56,538) (586,979)
======================================================================================================================
Reacquired:
Class A (786,364) (8,535,742) (336,672) (3,493,176)
- ----------------------------------------------------------------------------------------------------------------------
Class B (370,276) (3,996,446) (111,200) (1,159,466)
- ----------------------------------------------------------------------------------------------------------------------
Class C (312,700) (3,374,866) (66,234) (697,565)
- ----------------------------------------------------------------------------------------------------------------------
Class R (263,654) (2,883,595) (15,092) (160,693)
======================================================================================================================
14,099,610 $152,405,619 13,498,061 $138,382,811
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
FS-209
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the period indicated.
<Table>
<Caption>
CLASS A
---------------------------------
APRIL 30, 2004
SIX MONTHS (DATE OPERATIONS
ENDED COMMENCED) TO
JUNE 30, DECEMBER 31,
2005 2004
- -----------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.89 $ 10.00
- -----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.07(a) 0.11(a)
- -----------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.06 0.87
===============================================================================================
Total from investment operations 0.13 0.98
===============================================================================================
Less distributions:
Dividends from net investment income -- (0.09)
- -----------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.00)
===============================================================================================
Total distributions -- (0.09)
===============================================================================================
Net asset value, end of period $ 11.02 $ 10.89
_______________________________________________________________________________________________
===============================================================================================
Total return(b) 1.19% 9.85%
_______________________________________________________________________________________________
===============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $147,145 $71,431
_______________________________________________________________________________________________
===============================================================================================
Ratio of expenses to average net assets:
With expense reimbursements 0.40%(c) 0.40%(d)
- -----------------------------------------------------------------------------------------------
Without expense reimbursements 0.71%(c) 0.87%(d)
===============================================================================================
Estimated underlying fund expenses(e) 0.92% 0.92%
===============================================================================================
Ratio of net investment income to average net assets 1.33%(c) 1.56%(d)
_______________________________________________________________________________________________
===============================================================================================
Portfolio turnover rate(f) 2% 1%
_______________________________________________________________________________________________
===============================================================================================
</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 sale charges and is not
annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$108,527,734.
(d) Annualized.
(e) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
underlying funds in which the Fund invests. Because the underlying funds
have varied expenses and fee levels and the Fund may own different
proportions at different times, the amount of fees and expenses incurred
indirectly by the Fund will vary.
(f) Not annualized for periods less than one year.
FS-210
NOTE 10--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS B
---------------------------------
APRIL 30, 2004
SIX MONTHS (DATE OPERATIONS
ENDED COMMENCED) TO
JUNE 30, DECEMBER 31,
2005 2004
- -----------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.87 $ 10.00
- -----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.04(a) 0.06(a)
- -----------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.04 0.88
===============================================================================================
Total from investment operations 0.08 0.94
===============================================================================================
Less distributions:
Dividends from net investment income -- (0.07)
- -----------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.00)
===============================================================================================
Total distributions -- (0.07)
===============================================================================================
Net asset value, end of period $ 10.95 $ 10.87
_______________________________________________________________________________________________
===============================================================================================
Total return(b) 0.74% 9.44%
_______________________________________________________________________________________________
===============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $90,583 $45,846
_______________________________________________________________________________________________
===============================================================================================
Ratio of expenses to average net assets:
With expense reimbursements 1.05%(c) 1.05%(d)
- -----------------------------------------------------------------------------------------------
Without expense reimbursements 1.36%(c) 1.52%(d)
===============================================================================================
Estimated underlying fund expenses(e) 0.92% 0.92%
===============================================================================================
Ratio of net investment income to average net assets 0.68%(c) 0.91%(d)
_______________________________________________________________________________________________
===============================================================================================
Portfolio turnover rate(f) 2% 1%
_______________________________________________________________________________________________
===============================================================================================
</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 sale charges and is not
annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$68,636,016.
(d) Annualized.
(e) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
underlying funds in which the Fund invests. Because the underlying funds
have varied expenses and fee levels and the Fund may own different
proportions at different times, the amount of fees and expenses incurred
indirectly by the Fund will vary.
(f) Not annualized for periods less than one year.
FS-211
NOTE 10--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS C
---------------------------------
APRIL 30, 2004
SIX MONTHS (DATE OPERATIONS
ENDED COMMENCED) TO
JUNE 30, DECEMBER 31,
2005 2004
- -----------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.87 $ 10.00
- -----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.04(a) 0.06(a)
- -----------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.04 0.88
===============================================================================================
Total from investment operations 0.08 0.94
===============================================================================================
Less distributions:
Dividends from net investment income -- (0.07)
- -----------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.00)
===============================================================================================
Total distributions -- (0.07)
===============================================================================================
Net asset value, end of period $ 10.95 $ 10.87
_______________________________________________________________________________________________
===============================================================================================
Total return(b) 0.74% 9.44%
_______________________________________________________________________________________________
===============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $56,822 $27,339
_______________________________________________________________________________________________
===============================================================================================
Ratio of expenses to average net assets:
With expense reimbursements 1.05%(c) 1.05%(d)
- -----------------------------------------------------------------------------------------------
Without expense reimbursements 1.36%(c) 1.52%(d)
===============================================================================================
Estimated underlying fund expenses(e) 0.92% 0.92%
===============================================================================================
Ratio of net investment income to average net assets 0.68%(c) 0.91%(d)
_______________________________________________________________________________________________
===============================================================================================
Portfolio turnover rate(f) 2% 1%
_______________________________________________________________________________________________
===============================================================================================
</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 sale charges and is not
annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$43,970,684.
(d) Annualized.
(e) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
underlying funds in which the Fund invests. Because the underlying funds
have varied expenses and fee levels and the Fund may own different
proportions at different times, the amount of fees and expenses incurred
indirectly by the Fund will vary.
(f) Not annualized for periods less than one year.
FS-212
NOTE 10--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS R
---------------------------------
APRIL 30, 2004
SIX MONTHS (DATE OPERATIONS
ENDED COMMENCED) TO
JUNE 30, DECEMBER 31,
2005 2004
- -----------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.89 $10.00
- -----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.06(a) 0.10(a)
- -----------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.05 0.88
===============================================================================================
Total from investment operations 0.11 0.98
===============================================================================================
Less distributions:
Dividends from net investment income -- (0.09)
- -----------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.00)
===============================================================================================
Total distributions -- (0.09)
===============================================================================================
Net asset value, end of period $11.00 $10.89
_______________________________________________________________________________________________
===============================================================================================
Total return(b) 1.01% 9.80%
_______________________________________________________________________________________________
===============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $8,491 $2,161
_______________________________________________________________________________________________
===============================================================================================
Ratio of expenses to average net assets:
With expense reimbursements 0.55%(c) 0.55%(d)
- -----------------------------------------------------------------------------------------------
Without expense reimbursements 0.86%(c) 1.02%(d)
===============================================================================================
Estimated underlying fund expenses(e) 0.92% 0.92%
===============================================================================================
Ratio of net investment income to average net assets 1.18%(c) 1.41%(d)
_______________________________________________________________________________________________
===============================================================================================
Portfolio turnover rate(f) 2% 1%
_______________________________________________________________________________________________
===============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$5,404,123.
(d) Annualized.
(e) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
underlying funds in which the Fund invests. Because the underlying funds
have varied expenses and fee levels and the Fund may own different
proportions at different times, the amount of fees and expenses incurred
indirectly by the Fund will vary.
(f) Not annualized for periods less than one year.
FS-213
NOTE 10--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
---------------------------------
APRIL 30, 2004
SIX MONTHS (DATE OPERATIONS
ENDED COMMENCED) TO
JUNE 30, DECEMBER 31,
2005 2004
- -----------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.91 $10.00
- -----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.09(a) 0.13(a)
- -----------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.05 0.88
===============================================================================================
Total from investment operations 0.14 1.01
===============================================================================================
Less distributions:
Dividends from net investment income -- (0.10)
- -----------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.00)
===============================================================================================
Total distributions -- (0.10)
===============================================================================================
Net asset value, end of period $11.05 $10.91
_______________________________________________________________________________________________
===============================================================================================
Total return(b) 1.28% 10.16%
_______________________________________________________________________________________________
===============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 134 $ 110
_______________________________________________________________________________________________
===============================================================================================
Ratio of expenses to average net assets:
With expense reimbursements 0.05%(c) 0.05%(d)
- -----------------------------------------------------------------------------------------------
Without expense reimbursements 0.18%(c) 0.40%(d)
===============================================================================================
Estimated underlying fund expenses(e) 0.92% 0.92%
===============================================================================================
Ratio of net investment income to average net assets 1.68%(c) 1.91%(d)
_______________________________________________________________________________________________
===============================================================================================
Portfolio turnover rate(f) 2% 1%
_______________________________________________________________________________________________
===============================================================================================
</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 $113,554.
(d) Annualized.
(e) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
underlying funds in which the Fund invests. Because the underlying funds
have varied expenses and fee levels and the Fund may own different
proportions at different times, the amount of fees and expenses incurred
indirectly by the Fund will vary.
(f) Not annualized for periods less than one year.
NOTE 11--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
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) is being created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Additionally, AIM and ADI
agreed to create 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. 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.
FS-214
NOTE 11--LEGAL PROCEEDINGS--(CONTINUED)
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
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 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.
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.
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.
FS-215
FINANCIALS
SCHEDULE OF INVESTMENTS
June 30, 2005
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------
MUTUAL FUNDS-100.04%(a)
AIM Dynamics Fund-Institutional
Class-5.04%(b) 29,119 $ 494,730
- -------------------------------------------------------------------
AIM High Yield Fund-Institutional
Class-10.05% 221,916 987,527
- -------------------------------------------------------------------
AIM International Core Equity
Fund-Institutional Class-10.95%(b) 95,405 1,075,210
- -------------------------------------------------------------------
AIM International Growth Fund-Institutional
Class-10.98%(b) 52,460 1,078,055
- -------------------------------------------------------------------
AIM Large Cap Basic Value Fund-Institutional
Class-13.95%(b) 101,199 1,370,233
- -------------------------------------------------------------------
AIM Large Cap Growth Fund-Institutional
Class-16.49%(b) 163,739 1,619,380
- -------------------------------------------------------------------
AIM Mid Cap Basic Value Fund-Institutional
Class-5.03%(b) 36,635 494,576
- -------------------------------------------------------------------
</Table>
<Table>
MARKET
SHARES VALUE
- -------------------------------------------------------------------
<Caption>
AIM Multi-Sector Fund-Institutional
Class-7.48% 32,088 $ 734,483
- -------------------------------------------------------------------
AIM Real Estate Fund-Institutional
Class-2.51% 9,114 247,082
- -------------------------------------------------------------------
AIM Small Cap Equity Fund-Institutional
Class-7.58%(b) 58,365 744,157
- -------------------------------------------------------------------
AIM Total Return Bond Fund-Institutional
Class-9.98% 92,676 980,515
===================================================================
Total Mutual Funds (Cost $9,715,955) 9,825,948
===================================================================
TOTAL INVESTMENTS-100.04% (Cost $9,715,955) 9,825,948
===================================================================
OTHER ASSETS LESS LIABILITIES-(0.04%) (4,226)
===================================================================
NET ASSETS-(100%) $9,821,722
___________________________________________________________________
===================================================================
</Table>
Notes to Schedule of Investments:
(a) The mutual funds and the Fund are affiliated by having the same
investment advisor. See Note 3.
(b) Non-income producing security. A security is determined to be non-income
producing if the security has not declared a distribution in more than
one year from the report date.
See accompanying notes which are an integral part of the financial statements.
FS-216
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2005
(Unaudited)
<Table>
ASSETS:
Investments in affiliated underlying funds, at
market value (cost $9,715,955) $ 9,825,948
- -----------------------------------------------------------
Receivables for:
Fund shares sold 259,111
- -----------------------------------------------------------
Fund expenses absorbed 28,727
- -----------------------------------------------------------
Other assets 3,485
===========================================================
Total assets 10,117,271
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 259,111
- -----------------------------------------------------------
Accrued distribution fees 3,637
- -----------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 108
- -----------------------------------------------------------
Accrued operating expenses 32,693
===========================================================
Total liabilities 295,549
===========================================================
Net assets applicable to shares outstanding $ 9,821,722
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 9,707,078
- -----------------------------------------------------------
Undistributed net investment income 3,329
- -----------------------------------------------------------
Undistributed net realized gain from
investment securities 1,322
- -----------------------------------------------------------
Unrealized appreciation of investment
securities 109,993
===========================================================
$ 9,821,722
___________________________________________________________
===========================================================
NET ASSETS:
Class A $ 4,907,804
___________________________________________________________
===========================================================
Class B $ 3,636,245
___________________________________________________________
===========================================================
Class C $ 1,143,726
___________________________________________________________
===========================================================
Class R $ 81,293
___________________________________________________________
===========================================================
Institutional Class $ 52,654
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Class A 463,485
___________________________________________________________
===========================================================
Class B 343,759
___________________________________________________________
===========================================================
Class C 108,198
___________________________________________________________
===========================================================
Class R 7,683
___________________________________________________________
===========================================================
Institutional Class 4,971
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 10.59
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $10.59 divided by
94.50%) $ 11.21
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per share $ 10.58
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per share $ 10.57
___________________________________________________________
===========================================================
Class R:
Net asset value and offering price per share $ 10.58
___________________________________________________________
===========================================================
Institutional Class:
Net asset value and offering price per share $ 10.59
___________________________________________________________
===========================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-217
STATEMENT OF OPERATIONS
For the period April 29, 2005 (Date operations commenced) through June 30, 2005
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends from affiliated underlying funds $ 8,834
======================================================================
EXPENSES:
Administrative services fees 8,630
- ----------------------------------------------------------------------
Custodian fees 1,200
- ----------------------------------------------------------------------
Distribution fees:
Class A 1,053
- ----------------------------------------------------------------------
Class B 2,882
- ----------------------------------------------------------------------
Class C 700
- ----------------------------------------------------------------------
Class R 56
- ----------------------------------------------------------------------
Transfer agent fees -- Class A, B, C and R 918
- ----------------------------------------------------------------------
Trustees' and officer's fees and benefits 2,671
- ----------------------------------------------------------------------
Reports to shareholders 11,000
- ----------------------------------------------------------------------
Professional services fees 18,962
- ----------------------------------------------------------------------
Other 3,654
======================================================================
Total expenses 51,726
======================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangement (46,221)
======================================================================
Net expenses 5,505
======================================================================
Net investment income 3,329
======================================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES:
Net realized gain from affiliated underlying funds 1,322
======================================================================
Change in net unrealized appreciation of affiliated
underlying funds 109,993
======================================================================
Net gain from affiliated underlying funds 111,315
======================================================================
Net increase in net assets resulting from operations $114,644
______________________________________________________________________
======================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-218
STATEMENT OF CHANGES IN NET ASSETS
For the period April 29, 2005 (Date operations commenced) through June 30, 2005
(Unaudited)
<Table>
<Caption>
JUNE 30,
2005
- --------------------------------------------------------------------------
OPERATIONS:
Net investment income from affiliated underlying funds $ 3,329
- --------------------------------------------------------------------------
Net realized gain from affiliated underlying funds 1,322
- --------------------------------------------------------------------------
Change in net unrealized appreciation of affiliated
underlying funds 109,993
==========================================================================
Net increase in net assets resulting from operations 114,644
==========================================================================
Share transactions-net:
Class A 4,858,770
- --------------------------------------------------------------------------
Class B 3,583,848
- --------------------------------------------------------------------------
Class C 1,136,076
- --------------------------------------------------------------------------
Class R 78,374
- --------------------------------------------------------------------------
Institutional Class 50,010
==========================================================================
Net increase in net assets resulting from share
transactions 9,707,078
==========================================================================
Net increase in net assets 9,821,722
==========================================================================
NET ASSETS:
Beginning of period --
==========================================================================
End of period (including undistributed net investment
income of $3,329) $9,821,722
__________________________________________________________________________
==========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-219
NOTES TO FINANCIAL STATEMENTS
June 30, 2005
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Moderate Growth Allocation Fund (the "Fund") is a separate series of AIM
Growth Series (the "Trust"). The Trust is organized as a Delaware statutory
trust and is registered under the Investment Company Act of 1940, as amended
(the "1940 Act"), as an open-end series management investment company consisting
of nine separate series portfolios, each authorized to issue an unlimited number
of shares of beneficial interest. The Fund currently offers multiple classes of
shares. Matters affecting each portfolio or class will be voted on exclusively
by the shareholders of such portfolio or class. The assets, liabilities and
operations of each portfolio are accounted for separately. Information presented
in these financial statements pertains only to the Fund. The Fund commenced
operations on April 29, 2005.
The Fund's investment objective is to provide long-term growth of capital
consistent with a higher level of risk relative to the broad stock market. The
Fund is a "fund of funds," in that it invests in the Institutional Class of
other mutual funds ("underlying funds") advised by A I M Advisors, Inc. ("AIM").
AIM may change the Fund's asset class allocations, the underlying funds or the
target weightings in the underlying funds without shareholder approval. The
underlying funds may engage in a number of investment techniques and practices,
which involve certain risks. Each underlying fund's accounting policies are
outlined in the underlying fund's financial statements and are available upon
request.
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 -- Investments in underlying funds are valued at the
end of the day net asset value per share.
Securities in the underlying funds, 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 underlying funds' 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 underlying funds' 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
FS-220
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 underlying funds' officers following procedures
approved by the underlying funds' 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. Distributions from income from underlying funds, if any, are recorded
as dividend income on ex-dividend date. Distributions from net realized
capital gains from underlying funds, if any, are recorded as realized gains
on the ex-dividend date.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Expenses included in the accompanying financial statements
reflect the expenses of the Fund and do not include any expenses of the
underlying funds. The results of the underlying funds expenses are included
in the realized and unrealized gain/loss on the investments in the
underlying funds.
Fees provided for under the Rule 12b-1 plan of a particular class of the
Fund are charged to the operations of such class. Transfer agency fees and
expenses and other shareholder recordkeeping fees and expenses attributable
to the Institutional Class are charged to such class. Transfer agency fees
and expenses and other shareholder recordkeeping fees and expenses relating
to all other classes are allocated among those classes based on relative
net assets. All other expenses are allocated among the classes based on
relative net assets.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with AIM.
Under the terms of the investment advisory agreement, the Fund does not pay an
advisory fee. However, the Fund pays advisory fees to AIM indirectly as a
shareholder of the underlying funds.
AIM has contractually agreed to reimburse expenses to the extent necessary
to limit other expenses (excluding certain items discussed below) of Class A,
Class B, Class C, Class R and Institutional Class shares to 0.12% of average
daily net assets, respectively, through December 31, 2005. In determining the
advisor's obligation to reimburse expenses, the following expenses are not taken
into account, and could cause other expenses to exceed the limit stated above:
(i) Rule 12b-1 plan fees, if any; (ii) interest; (iii) taxes; (iv) dividend
expense on short sales; (v) 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; (vi) expenses related to a merger or
reorganization, as approved by the Fund's Board of Trustees; and (vii) expenses
of the underlying funds that are paid indirectly as a result of share ownership
of the underlying funds; and (viii) 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. To
the extent that the annualized expense ratio does not exceed the expense
limitation, AIM will retain its ability to be reimbursed for such fee waivers or
reimbursements prior to the end of each fiscal year.
For the period April 29, 2005 (date operations commenced) through June 30,
2005, AIM waived fees of $45,303 and reimbursed expenses of $918.
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. For the period April 29, 2005 (date operations commenced)
through June 30, 2005, AMVESCAP did not reimburse any expenses.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. Pursuant to such agreement, for the period
April 29, 2005 (date operations commenced) through June 30, 2005, AIM was paid
$8,630.
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 period April 29, 2005 (date
operations commenced) through June 30, 2005, the Fund paid AISI $0 for Class A,
Class B, Class C and Class R share classes and $0 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. Effective July 1, 2005, the Trustees
approved a permanent reduction in the annual rate payable by the Fund to ADI to
0.25% of the average daily net assets of Class A shares. Of these amounts, up to
0.25% of the average daily net assets of the Class A, Class B,
FS-221
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 period April 29, 2005 (date operations commenced)
through June 30, 2005, the Class A, Class B, Class C and Class R shares paid
$1,053, $2,882, $700 and $56, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the period
April 29, 2005 (date operations commenced) through June 30, 2005, ADI advised
the Fund that it retained $6,629 in front-end sales commissions from the sale of
Class A shares and $0, $191, $0 and $0 from Class A, Class B, Class C and Class
R shares, respectively, for CDSC imposed upon redemptions by shareholders.
The underlying funds pay no distribution fees and the Fund pays no sales
loads or other similar compensation to ADI for acquiring underlying fund shares.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or ADI.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund and the mutual funds below have the same investment advisor and
therefore, are considered to be affiliated. The table below shows the
transactions in and earnings from investments in affiliated mutual funds for the
period April 29, 2005 (date operations commenced) through June 30, 2005.
<Table>
<Caption>
UNREALIZED CHANGE IN
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 04/29/05 AT COST FROM SALES (DEPRECIATION) 06/30/05 INCOME GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------------
AIM Dynamics Fund-
Institutional Class $ -- $ 485,356 $ (3,190) $ 12,339 $ 494,730 $ -- $ 225
- ---------------------------------------------------------------------------------------------------------------------------------
AIM High Yield
Fund-Institutional Class -- 976,001 (963) 12,471 987,527 5,290 18
- ---------------------------------------------------------------------------------------------------------------------------------
AIM International Core
Equity Fund-
Institutional Class -- 1,077,294 (144) (1,943) 1,075,210 -- 3
- ---------------------------------------------------------------------------------------------------------------------------------
AIM International Growth
Fund- Institutional
Class -- 1,067,783 (2,773) 12,934 1,078,055 -- 111
- ---------------------------------------------------------------------------------------------------------------------------------
AIM Large Cap Basic Value
Fund- Institutional
Class -- 1,366,138 (184) 4,271 1,370,233 -- 8
- ---------------------------------------------------------------------------------------------------------------------------------
AIM Large Cap Growth Fund-
Institutional Class -- 1,601,674 (222) 17,912 1,619,380 -- 16
- ---------------------------------------------------------------------------------------------------------------------------------
AIM Mid Cap Basic Value
Fund- Institutional
Class -- 485,356 (2,523) 11,574 494,576 -- 169
- ---------------------------------------------------------------------------------------------------------------------------------
AIM Muti-Sector
Fund-Institutional Class -- 728,033 (8,042) 13,891 734,483 -- 601
- ---------------------------------------------------------------------------------------------------------------------------------
AIM Real Estate
Fund-Institutional Class -- 243,748 (1,911) 5,119 247,082 1,071 126
- ---------------------------------------------------------------------------------------------------------------------------------
AIM Small Cap Equity Fund-
Institutional Class -- 728,034 (596) 16,675 744,157 -- 44
- ---------------------------------------------------------------------------------------------------------------------------------
AIM Total Return Bond
Fund- Institutional
Class -- 975,894 (130) 4,750 980,515 2,473 1
=================================================================================================================================
Total $ -- $9,735,311 $(20,678) $109,993 $9,825,948 $8,834 $1,322
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
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 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.
FS-222
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 period April 29, 2005 (date operations commenced) through June
30, 2005, the Fund paid legal fees of $219 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
The Fund is a participant in an uncommitted unsecured revolving credit facility
with State Street Bank and Trust Company ("SSB"). The Fund may borrow up to the
lesser of (i) $125,000,000, or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the period April 29, 2005 (date operations commenced) through June
30, 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 in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 6--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.
NOTE 7--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the period April 29, 2005 (date operations
commenced) through June 30, 2005 was $9,735,311 and $20,678, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $111,936
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (1,943)
==============================================================================
Net unrealized appreciation of investment securities $109,993
______________________________________________________________________________
==============================================================================
Cost of investments is the same for tax and financial statement purposes.
</Table>
FS-223
NOTE 8--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)
- -----------------------------------------------------------------------------------
APRIL 29, 2005
(DATE OPERATIONS
COMMENCED) TO
JUNE 30, 2005
---------------------
SHARES AMOUNT
- -----------------------------------------------------------------------------------
Sold:
Class A 466,653 $4,892,359
- -----------------------------------------------------------------------------------
Class B 348,268 3,630,749
- -----------------------------------------------------------------------------------
Class C 108,358 1,137,743
- -----------------------------------------------------------------------------------
Class R 7,683 78,374
- -----------------------------------------------------------------------------------
Institutional Class 4,971 50,010
===================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 45 472
- -----------------------------------------------------------------------------------
Class B (45) (472)
===================================================================================
Reacquired:
Class A (3,213) (34,061)
- -----------------------------------------------------------------------------------
Class B (4,464) (46,429)
- -----------------------------------------------------------------------------------
Class C (160) (1,667)
===================================================================================
928,096 $9,707,078
___________________________________________________________________________________
===================================================================================
</Table>
(a) There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and it owns 5% of the outstanding shares
of the Fund. AIM Distributors has an agreement with this entity to sell
Fund shares. The Fund, AIM, and/or AIM affiliates may make payments to
this entity, which is considered to be related to the Fund, for
providing services to the Fund, AIM and/or AIM affiliates including but
not limited to services such as, securities brokerage, distribution,
third party record keeping and account servicing. The Trust has no
knowledge as to whether all or any portion of the shares owned of record
by this shareholder are also owned beneficially.
FS-224
NOTE 9--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the period indicated.
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS R INSTITUTIONAL CLASS
--------- --------- --------- --------- ----------------------
APRIL 29, 2005 (DATE OPERATIONS COMMENCED) TO JUNE 30, 2005
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.06 $10.06 $10.06 $10.06 $10.06
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) 0.02 0.00 0.00 0.01 0.02
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains on securities (both realized and
unrealized) 0.51 0.52 0.51 0.51 0.51
=================================================================================================================================
Total from investment operations 0.53 0.52 0.51 0.52 0.53
=================================================================================================================================
Net asset value, end of period $10.59 $10.58 $10.57 $10.58 $10.59
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 5.27% 5.17% 5.07% 5.17% 5.27%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $4,908 $3,636 $1,144 $ 81 $ 53
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With expense reimbursements(c) 0.47% 1.12% 1.12% 0.62% 0.12%
- ---------------------------------------------------------------------------------------------------------------------------------
Without expense reimbursements(c) 7.28% 7.93% 7.93% 7.43% 6.79%
=================================================================================================================================
Estimated underlying fund expenses(d) 0.93% 0.93% 0.93% 0.93% 0.93%
=================================================================================================================================
Ratio of net investment income to average net
assets(c) 0.83% 0.18% 0.18% 0.68% 1.18%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 0% 0% 0% 0% 0%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</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, if any, and is
not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$1,743,339, $1,669,411, $405,622, $64,823 and $51,804 for Class A, Class
B, Class C, Class R and the Institutional Class, respectively.
(d) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
underlying funds in which the fund invests. Because the underlying funds
have varied expenses and fee levels and the Fund may own different
proportions at different times, the amount of fees and expenses incurred
indirectly by the Fund will vary.
(e) Not annualized for periods less than one year.
FS-225
NOTE 10--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) is being created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Additionally, AIM and ADI
agreed to create 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. 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
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 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.
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.
FS-226
NOTE 10--LEGAL PROCEEDINGS--(CONTINUED)
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.
FS-227
FINANCIALS
SCHEDULE OF INVESTMENTS
June 30, 2005
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------
MUTUAL FUNDS-100.04%(A)
AIM Capital Development Fund-Institutional
Class-2.52% 4,887 $ 92,171
- ------------------------------------------------------------------
AIM High Yield Fund-Institutional Class-5.03% 41,377 184,126
- ------------------------------------------------------------------
AIM Intermediate Government
Fund-Institutional Class-15.01% 61,741 548,874
- ------------------------------------------------------------------
AIM International Core Equity
Fund-Institutional Class-4.98% 16,172 182,260
- ------------------------------------------------------------------
AIM International Growth Fund-Institutional
Class-2.50%(b) 4,446 91,361
- ------------------------------------------------------------------
AIM Large Cap Basic Value Fund-Institutional
Class-11.23%(b) 30,324 410,591
- ------------------------------------------------------------------
AIM Large Cap Growth Fund-Institutional
Class-11.25%(b) 41,623 411,655
- ------------------------------------------------------------------
</Table>
<Table>
MARKET
SHARES VALUE
- ------------------------------------------------------------------
<Caption>
MUTUAL FUNDS-(CONTINUED)
AIM Mid Cap Basic Value Fund-Institutional
Class-5.04%(b) 13,657 $ 184,369
- ------------------------------------------------------------------
AIM Multi-Sector Fund-Institutional
Class-2.50% 3,988 91,295
- ------------------------------------------------------------------
AIM Short Term Bond Fund-Institutional
Class-14.99% 55,005 548,386
- ------------------------------------------------------------------
AIM Total Return Bond Fund-Institutional
Class-24.99% 86,404 914,151
==================================================================
TOTAL INVESTMENTS-100.04% (Cost $3,636,397) 3,659,239
==================================================================
OTHER ASSETS LESS LIABILITIES-(0.04%) (1,568)
==================================================================
NET ASSETS-100.00% $3,657,671
__________________________________________________________________
==================================================================
</Table>
Notes to Schedule of Investments:
(a) The mutual funds and the Fund are affiliated by having the same investment
advisor. See Note 3.
(b) Non-income producing security. A security is determined to be non-income
producing if the security has not declared a distribution in more than one
year from the report date.
See accompanying notes which are an integral part of the financial statements.
FS-228
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2005
(Unaudited)
<Table>
ASSETS:
Investments in affiliated underlying funds, at
market value (cost $3,636,397) $3,659,239
- -----------------------------------------------------------
Receivables for:
Fund shares sold 225,354
- -----------------------------------------------------------
Fund expenses absorbed 16,084
- -----------------------------------------------------------
Other assets 876
===========================================================
Total assets 3,901,553
___________________________________________________________
===========================================================
LIABILITIES:
Payables for investments purchased 225,354
- -----------------------------------------------------------
Accrued distribution fees 1,320
- -----------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 108
- -----------------------------------------------------------
Accrued operating expenses 17,100
===========================================================
Total liabilities 243,882
===========================================================
Net assets applicable to shares outstanding $3,657,671
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $3,628,367
- -----------------------------------------------------------
Undistributed net investment income 4,905
- -----------------------------------------------------------
Undistributed net realized gain from investment
securities 1,557
- -----------------------------------------------------------
Unrealized appreciation of investment
securities 22,842
===========================================================
$3,657,671
___________________________________________________________
===========================================================
NET ASSETS:
Class A $2,020,675
___________________________________________________________
===========================================================
Class B $1,098,914
___________________________________________________________
===========================================================
Class C $ 419,802
___________________________________________________________
===========================================================
Class R $ 66,751
___________________________________________________________
===========================================================
Institutional Class $ 51,529
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Class A 195,589
___________________________________________________________
===========================================================
Class B 106,540
___________________________________________________________
===========================================================
Class C 40,685
___________________________________________________________
===========================================================
Class R 6,464
___________________________________________________________
===========================================================
Institutional Class 4,986
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 10.33
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $10.33 divided by
94.50%) $ 10.93
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per share $ 10.31
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per share $ 10.32
___________________________________________________________
===========================================================
Class R:
Net asset value and offering price per share $ 10.33
___________________________________________________________
===========================================================
Institutional Class:
Net asset value and offering price per share $ 10.33
___________________________________________________________
===========================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-229
STATEMENT OF OPERATIONS
For the period April 29, 2005 (Date operations commenced) through June 30, 2005
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends from affiliated underlying funds $ 7,036
======================================================================
EXPENSES:
Administrative services fees 8,630
- ----------------------------------------------------------------------
Custodian fees 1,100
- ----------------------------------------------------------------------
Distribution fees:
Class A 424
- ----------------------------------------------------------------------
Class B 1,093
- ----------------------------------------------------------------------
Class C 195
- ----------------------------------------------------------------------
Class R 45
- ----------------------------------------------------------------------
Transfer agent fees - Class A, B, C and R 295
- ----------------------------------------------------------------------
Trustees' and officer's fees and benefits 2,668
- ----------------------------------------------------------------------
Reports to shareholders 3,000
- ----------------------------------------------------------------------
Professional services fees 13,219
- ----------------------------------------------------------------------
Other 1,624
======================================================================
Total expenses 32,293
======================================================================
Less: Fees waived and expenses reimbursed (30,162)
======================================================================
Net expenses 2,131
======================================================================
Net investment income 4,905
======================================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES:
Net realized gain from affiliated underlying funds 1,557
======================================================================
Change in net unrealized appreciation of affiliated
underlying funds 22,842
======================================================================
Net gain from affiliated underlying funds 24,399
======================================================================
Net increase in net assets resulting from operations $ 29,304
______________________________________________________________________
======================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-230
STATEMENT OF CHANGES IN NET ASSETS
For the period April 29, 2005 (Date operations commenced) through June 30, 2005
(Unaudited)
<Table>
<Caption>
2005
- --------------------------------------------------------------------------
OPERATIONS:
Net investment income from affiliated underlying funds $ 4,905
- --------------------------------------------------------------------------
Net realized gain from affiliated underlying funds 1,557
- --------------------------------------------------------------------------
Change in net unrealized appreciation of affiliated
underlying funds 22,842
==========================================================================
Net increase in net assets resulting from operations 29,304
==========================================================================
Share transactions-net:
Class A 2,009,165
- --------------------------------------------------------------------------
Class B 1,086,465
- --------------------------------------------------------------------------
Class C 417,464
- --------------------------------------------------------------------------
Class R 65,263
- --------------------------------------------------------------------------
Institutional Class 50,010
==========================================================================
Net increase in net assets resulting from share
transactions 3,628,367
==========================================================================
Net increase in net assets 3,657,671
==========================================================================
NET ASSETS:
Beginning of period --
==========================================================================
End of period (including undistributed net investment
income of $4,905) $3,657,671
__________________________________________________________________________
==========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-231
NOTES TO FINANCIAL STATEMENTS
June 30, 2005
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Moderately Conservative Allocation Fund (the "Fund") is a separate series of
AIM Growth Series (the "Trust"). The Trust is organized as a Delaware statutory
trust and is registered under the Investment Company Act of 1940, as amended
(the "1940 Act"), as an open-end series management investment company consisting
of nine separate series portfolios, each authorized to issue an unlimited number
of shares of beneficial interest. The Fund currently offers multiple classes of
shares. Matters affecting each portfolio or class will be voted on exclusively
by the shareholders of such portfolio or class. The assets, liabilities and
operations of each portfolio are accounted for separately. Information presented
in these financial statements pertains only to the Fund. The Fund commenced
operations on April 29, 2005.
The Fund's investment objective is to provide total return consistent with a
lower level of risk relative to the broad stock market. The Fund is a "fund of
funds," in that it invests in the Institutional Class of other mutual funds
("underlying funds") advised by A I M Advisors, Inc. ("AIM"). AIM may change the
Fund's asset class allocations, the underlying funds or the target weightings in
the underlying funds without shareholder approval. The underlying funds may
engage in a number of investment techniques and practices, which involve certain
risks. Each underlying fund's accounting policies are outlined in the underlying
fund's financial statements and are available upon request.
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 -- Investments in underlying funds are valued at the
end of the day net asset value per share.
Securities in the underlying funds, 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 underlying funds' 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 underlying funds' Board of Trustees. Adjustments
to closing prices to reflect fair value may also be based on a screening
process of an
FS-232
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 underlying funds' officers following procedures
approved by the underlying funds' 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. Distributions from income from underlying funds, if any, are recorded
as dividend income on ex-dividend date. Distributions from net realized
capital gains from underlying funds, if any, are recorded as realized gains
on the ex-dividend date.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Expenses included in the accompanying financial statements
reflect the expenses of the Fund and do not include any expenses of the
underlying funds. The results of the underlying funds expenses are included
in the realized and unrealized gain/loss on the investments in the
underlying funds.
Fees provided for under the Rule 12b-1 plan of a particular class of the
Fund are charged to the operations of such class. Transfer agency fees and
expenses and other shareholder recordkeeping fees and expenses attributable
to the Institutional Class are charged to such class. Transfer agency fees
and expenses and other shareholder recordkeeping fees and expenses relating
to all other classes are allocated among those classes based on relative
net assets. All other expenses are allocated among the classes based on
relative net assets.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with AIM.
Under the terms of the investment advisory agreement, the Fund does not pay an
advisory fee. However, the Fund pays advisory fees to AIM indirectly as a
shareholder of the underlying funds.
AIM has contractually agreed to reimburse expenses to the extent necessary
to limit other expenses (excluding certain items discussed below) of Class A,
Class B, Class C, Class R and Institutional Class shares to 0.14% of average
daily net assets, respectively, through December 31, 2005. In determining the
advisor's obligation to reimburse expenses, the following expenses are not taken
into account, and could cause other expenses to exceed the limit stated above:
(i) Rule 12b-1 plan fees, if any; (ii) interest; (iii) taxes; (iv) dividend
expense on short sales; (v) 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; (vi) expenses related to a merger or
reorganization, as approved by the Fund's Board of Trustees; and (vii) expenses
of the underlying funds that are paid indirectly as a result of share ownership
of the underlying funds; and (viii) 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. To
the extent that the annualized expense ratio does not exceed the expense
limitation, AIM will retain its ability to be reimbursed for such fee waivers or
reimbursements prior to the end of each fiscal year.
For the period April 29, 2005 (date operations commenced) through June 30,
2005, AIM waived fees of $29,867 and reimbursed expenses of $295.
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. For the period April 29, 2005 (date operations commenced)
through June 30, 2005, AMVESCAP did not reimburse any expenses.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. Pursuant to such agreement, for the period
April 29, 2005 (date operations commenced) through June 30, 2005, AIM was paid
$8,630.
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 period April 29, 2005 (date
operations commenced) through June 30, 2005, the Fund paid AISI $295 for Class
A, Class B, Class C and Class R share classes and $0 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
FS-233
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. Effective July 1, 2005, the Trustees
approved a permanent reduction in the annual rate payable by the Fund to ADI to
0.25% of the average daily net assets of Class A 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 period April 29, 2005 (date operations commenced) through June
30, 2005, the Class A, Class B, Class C and Class R shares paid $424, $1,093,
$195 and $45, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the period
April 29, 2005 (date operations commenced) through June 30, 2005, ADI advised
the Fund that it retained $5,956 in front-end sales commissions from the sale of
Class A shares and $0, $0, $0 and $0 from Class A, Class B, Class C and Class R
shares, respectively, for CDSC imposed upon redemptions by shareholders.
The underlying funds pay no distribution fees and the Fund pays no sales
loads or other similar compensation to ADI for acquiring underlying fund shares.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or ADI.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund and the mutual funds below have the same investment advisor and
therefore, are considered to be affiliated. The table below shows the
transactions in and earnings from investments in affiliated mutual funds for the
period April 29, 2005 (date operations commenced) through June 30, 2005.
INVESTMENTS IN AFFILIATES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 04/29/05 AT COST FROM SALES (DEPRECIATION) 06/30/05 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
AIM Capital
Development
Fund-
Institutional
Class $ -- $ 92,442 $ (2,716) $ 2,285 $ 92,171 $ -- $ 160
- ----------------------------------------------------------------------------------------------------------------------------------
AIM High Yield
Fund-
Institutional
Class -- 185,934 (4,179) 2,366 184,126 1,049 5
- ----------------------------------------------------------------------------------------------------------------------------------
AIM
Intermediate
Government
Fund-
Institutional
Class -- 559,656 (10,405) (365) 548,874 2,128 (12)
- ----------------------------------------------------------------------------------------------------------------------------------
AIM
International
Core Equity
Fund-
Institutional
Class -- 185,840 (3,490) (152) 182,260 -- 62
- ----------------------------------------------------------------------------------------------------------------------------------
AIM
International
Growth Fund-
Institutional
Class -- 92,442 (2,336) 1,192 91,361 -- 63
- ----------------------------------------------------------------------------------------------------------------------------------
AIM Large Cap
Basic Value
Fund-
Institutional
Class -- 416,665 (7,928) 1,554 410,591 -- 300
- ----------------------------------------------------------------------------------------------------------------------------------
AIM Large Cap
Growth Fund-
Institutional
Class -- 415,989 (9,693) 4,869 411,655 -- 490
- ----------------------------------------------------------------------------------------------------------------------------------
AIM Mid Cap
Basic Value-
Institutional
Class -- 184,884 (5,307) 4,518 184,369 -- 274
- ----------------------------------------------------------------------------------------------------------------------------------
AIM
Multi-Sector
Fund-
Institutional
Class -- 92,442 (3,136) 1,808 91,295 -- 181
- ----------------------------------------------------------------------------------------------------------------------------------
AIM Short Term
Bond Fund-
Institutional
Class -- 558,345 (10,409) 450 548,386 1,406 --
- ----------------------------------------------------------------------------------------------------------------------------------
AIM Total
Return Bond
Fund-
Institutional
Class -- 927,176 (17,376) 4,317 914,151 2,453 34
==================================================================================================================================
Total $ -- $3,711,815 $(76,975) $22,842 $3,659,239 $7,036 $1,557
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
FS-234
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 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 period April 29, 2005 (date operations commenced) through June
30, 2005, the Fund paid legal fees of $219 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
The Fund is a participant in an uncommitted unsecured revolving credit facility
with State Street Bank and Trust Company ("SSB"). The Fund may borrow up to the
lesser of (i) $125,000,000, or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan. During the period April 29, 2005 (date
operations commenced) through June 30, 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 in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 6--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.
NOTE 7--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the period April 29, 2005 (date operations
commenced) through June 30, 2005 was $3,711,815 and $76,975, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $23,358
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (516)
===============================================================================
Net unrealized appreciation of investment securities $22,842
_______________________________________________________________________________
===============================================================================
Investments have the same cost for tax and financial statement purposes.
</Table>
FS-235
NOTE 8--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)
- ------------------------------------------------------------------------------------
APRIL 29, 2005
(DATE OPERATIONS
COMMENCED) TO
JUNE 30,
2005
----------------------
SHARES AMOUNT
- ------------------------------------------------------------------------------------
Sold:
Class A 195,721 $2,010,513
- ------------------------------------------------------------------------------------
Class B 106,540 1,086,465
- ------------------------------------------------------------------------------------
Class C 40,685 417,464
- ------------------------------------------------------------------------------------
Class R 6,464 65,263
- ------------------------------------------------------------------------------------
Institutional Class 4,986 50,010
====================================================================================
Reacquired:
Class A (132) (1,348)
====================================================================================
354,264 $3,628,367
____________________________________________________________________________________
====================================================================================
</Table>
(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 18% of the
outstanding shares of the Fund. AIM Distributors may have 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.
FS-236
NOTE 9--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the period indicated.
<Table>
<Caption>
INSTITUTIONAL
CLASS A CLASS B CLASS C CLASS R CLASS
---------------------------------------------------------------------
APRIL 29, 2005 (DATE OPERATIONS COMMENCED) TO JUNE 30, 2005
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.03 $10.03 $10.03 $10.03 $10.03
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.04(a) 0.03(a) 0.03(a) 0.04(a) 0.04(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.26 0.25 0.26 0.26 0.26
=================================================================================================================================
Total from investment operations 0.30 0.28 0.29 0.30 0.30
=================================================================================================================================
Net asset value, end of period $10.33 $10.31 $10.32 $10.33 $10.33
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 2.99% 2.79% 2.89% 2.99% 2.99%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,021 $1,099 $ 420 $ 67 $ 52
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements(c) 0.49% 1.14% 1.14% 0.64% 0.14%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements(c) 11.76% 12.41% 12.41% 11.91% 11.30%
=================================================================================================================================
Estimated underlying fund expenses(d) 0.76% 0.76% 0.76% 0.76% 0.76%
=================================================================================================================================
Ratio of net investment income to average net assets(c) 2.14% 1.49% 1.49% 1.99% 2.49%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 4% 4% 4% 4% 4%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</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, if any, and is
not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $701,532,
$633,609, $113,146, $51,723 and $50,999 for Class A, Class B, Class C,
Class R and Institutional Class, respectively.
(d) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
underlying funds in which the fund invests. Because the underlying funds
have varied expenses and fee levels and the Fund may own different
proportions at different times, the amount of fees and expenses incurred
indirectly by the Fund will vary.
(e) Not annualized for periods less than one year.
FS-237
NOTE 10--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) is being created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Additionally, AIM and ADI
agreed to create 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. 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 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 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.
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.
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,
FS-238
NOTE 10--LEGAL PROCEEDINGS--(CONTINUED)
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.
FS-239
FINANCIALS
SCHEDULE OF INVESTMENTS
June 30, 2005
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-98.12%
AEROSPACE & DEFENSE-1.74%
Mercury Computer Systems, Inc.(a) 484,800 $ 13,268,976
- ---------------------------------------------------------------------------
United Industrial Corp. 426,200 15,232,388
===========================================================================
28,501,364
===========================================================================
AIR FREIGHT & LOGISTICS-1.50%
Forward Air Corp. 446,400 12,619,728
- ---------------------------------------------------------------------------
UTi Worldwide, Inc. (United Kingdom)(b) 170,000 11,835,400
===========================================================================
24,455,128
===========================================================================
APPAREL RETAIL-4.24%
Aeropostale, Inc.(a)(b) 501,100 16,836,960
- ---------------------------------------------------------------------------
bebe stores, inc.(b) 393,262 10,409,645
- ---------------------------------------------------------------------------
Children's Place Retail Stores, Inc.
(The)(a)(b) 298,400 13,926,328
- ---------------------------------------------------------------------------
Jos. A. Bank Clothiers, Inc.(a) 480,174 20,791,534
- ---------------------------------------------------------------------------
Pacific Sunwear of California, Inc.(a)(b) 317,000 7,287,830
===========================================================================
69,252,297
===========================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.85%
Warnaco Group, Inc. (The)(a)(b) 599,700 13,943,025
===========================================================================
APPLICATION SOFTWARE-3.50%
ANSYS, Inc.(a) 123,300 4,378,383
- ---------------------------------------------------------------------------
Catapult Communications Corp.(a) 344,700 5,880,582
- ---------------------------------------------------------------------------
Epicor Software Corp.(a) 887,700 11,717,640
- ---------------------------------------------------------------------------
Macromedia, Inc.(a) 587,200 22,442,784
- ---------------------------------------------------------------------------
MicroStrategy Inc.-Class A(a)(b) 241,800 12,825,072
===========================================================================
57,244,461
===========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.74%
Affiliated Managers Group, Inc.(a)(b) 176,500 12,060,245
===========================================================================
BIOTECHNOLOGY-2.85%
Affymetrix, Inc.(a)(b) 242,400 13,072,632
- ---------------------------------------------------------------------------
Amylin Pharmaceuticals, Inc.(a)(b) 414,700 8,679,671
- ---------------------------------------------------------------------------
Myriad Genetics, Inc.(a)(b) 353,000 5,524,450
- ---------------------------------------------------------------------------
Protein Design Labs, Inc.(a) 462,800 9,353,188
- ---------------------------------------------------------------------------
United Therapeutics Corp.(a)(b) 205,500 9,905,100
===========================================================================
46,535,041
===========================================================================
BROADCASTING & CABLE TV-0.59%
Radio One, Inc.-Class A(a) 273,800 3,485,474
- ---------------------------------------------------------------------------
Radio One, Inc.-Class D(a)(b) 480,100 6,130,877
===========================================================================
9,616,351
===========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
CASINOS & GAMING-0.56%
Penn National Gaming, Inc.(a) 250,000 $ 9,125,000
===========================================================================
COMMUNICATIONS EQUIPMENT-3.04%
F5 Networks, Inc.(a)(b) 181,406 8,568,712
- ---------------------------------------------------------------------------
NETGEAR, Inc.(a) 658,300 12,244,380
- ---------------------------------------------------------------------------
Plantronics, Inc.(b) 241,500 8,780,940
- ---------------------------------------------------------------------------
Polycom, Inc.(a)(b) 660,300 9,845,073
- ---------------------------------------------------------------------------
SafeNet, Inc.(a)(b) 302,000 10,286,120
===========================================================================
49,725,225
===========================================================================
COMPUTER & ELECTRONICS RETAIL-0.78%
GameStop Corp.-Class A(a)(b) 391,900 12,819,049
===========================================================================
COMPUTER HARDWARE-0.69%
Avid Technology, Inc.(a)(b) 212,200 11,306,016
===========================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.59%
Toro Co. (The) 249,000 9,613,890
===========================================================================
CONSTRUCTION MATERIALS-1.07%
Eagle Materials Inc.(b) 189,700 17,564,323
===========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-1.87%
Euronet Worldwide, Inc.(a) 531,400 15,447,798
- ---------------------------------------------------------------------------
Global Payments Inc.(b) 222,300 15,071,940
===========================================================================
30,519,738
===========================================================================
DIVERSIFIED CHEMICALS-0.87%
FMC Corp.(a)(b) 252,400 14,169,736
===========================================================================
DIVERSIFIED COMMERCIAL & PROFESSIONAL
SERVICES-2.75%
Corporate Executive Board Co. (The) 208,000 16,292,640
- ---------------------------------------------------------------------------
CoStar Group Inc.(a)(b) 379,000 16,524,400
- ---------------------------------------------------------------------------
CRA International Inc.(a)(b) 224,400 12,083,940
===========================================================================
44,900,980
===========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-0.68%
Thomas & Betts Corp.(a) 392,100 11,072,904
===========================================================================
</Table>
FS-240
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
ELECTRONIC EQUIPMENT MANUFACTURERS-1.85%
Daktronics, Inc.(b) 31,600 $ 632,316
- ---------------------------------------------------------------------------
FARO Technologies, Inc.(a) 500,500 13,643,630
- ---------------------------------------------------------------------------
FLIR Systems, Inc.(a)(b) 536,600 16,012,144
===========================================================================
30,288,090
===========================================================================
ELECTRONIC MANUFACTURING SERVICES-0.86%
Trimble Navigation Ltd.(a)(b) 361,000 14,068,170
===========================================================================
ENVIRONMENTAL & FACILITIES SERVICES-0.90%
Stericycle, Inc.(a)(b) 291,600 14,673,312
===========================================================================
FERTILIZERS & AGRICULTURAL CHEMICALS-0.90%
Scotts Miracle-Gro Co. (The)-Class A(a)(b) 207,100 14,747,591
===========================================================================
FOOD DISTRIBUTORS-0.94%
United Natural Foods, Inc.(a)(b) 505,300 15,345,961
===========================================================================
FOOTWEAR-0.64%
Wolverine World Wide, Inc. 435,600 10,458,756
===========================================================================
HEALTH CARE EQUIPMENT-6.49%
American Medical Systems Holdings, Inc.(a) 724,600 14,962,990
- ---------------------------------------------------------------------------
Integra LifeSciences Holdings(a) 400,300 11,688,760
- ---------------------------------------------------------------------------
Intuitive Surgical, Inc.(a)(b) 257,900 12,028,456
- ---------------------------------------------------------------------------
Mentor Corp.(b) 437,200 18,135,056
- ---------------------------------------------------------------------------
NuVasive, Inc.(a) 687,500 11,426,250
- ---------------------------------------------------------------------------
ResMed Inc.(a)(b) 191,100 12,610,689
- ---------------------------------------------------------------------------
Varian Inc.(a)(b) 305,200 11,533,508
- ---------------------------------------------------------------------------
Wright Medical Group, Inc.(a) 511,500 13,657,050
===========================================================================
106,042,759
===========================================================================
HEALTH CARE FACILITIES-2.75%
AmSurg Corp.(a)(b) 355,450 9,842,410
- ---------------------------------------------------------------------------
LifePoint Hospitals, Inc.(a) 398,500 20,132,220
- ---------------------------------------------------------------------------
VCA Antech, Inc.(a)(b) 617,600 14,976,800
===========================================================================
44,951,430
===========================================================================
HEALTH CARE SERVICES-2.75%
Advisory Board Co. (The)(a) 200,000 9,748,000
- ---------------------------------------------------------------------------
Cerner Corp.(a)(b) 305,600 20,771,632
- ---------------------------------------------------------------------------
Pediatrix Medical Group, Inc.(a) 194,600 14,310,884
- ---------------------------------------------------------------------------
Per-Se Technologies, Inc.(a) 8,186 172,070
===========================================================================
45,002,586
===========================================================================
HEALTH CARE SUPPLIES-2.07%
Gen-Probe Inc.(a)(b) 337,000 12,209,510
- ---------------------------------------------------------------------------
Immucor, Inc.(a) 380,244 11,008,064
- ---------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
HEALTH CARE SUPPLIES-(CONTINUED)
Millipore Corp.(a)(b) 186,900 $ 10,602,837
===========================================================================
33,820,411
===========================================================================
HOME FURNISHINGS-0.91%
Tempur-Pedic International Inc.(a) 671,600 14,896,088
===========================================================================
HOMEBUILDING-0.90%
Beazer Homes USA, Inc.(b) 257,600 14,721,840
===========================================================================
HOTELS, RESORTS & CRUISE LINES-1.58%
Choice Hotels International, Inc. 238,400 15,662,880
- ---------------------------------------------------------------------------
Kerzner International Ltd. (Bahamas)(a) 179,400 10,216,830
===========================================================================
25,879,710
===========================================================================
HOUSEHOLD PRODUCTS-0.74%
Church & Dwight Co., Inc.(b) 335,900 12,159,580
===========================================================================
HYPERMARKETS & SUPER CENTERS-0.82%
BJ's Wholesale Club, Inc.(a)(b) 415,000 13,483,350
===========================================================================
INDUSTRIAL MACHINERY-3.04%
Actuant Corp.-Class A(a) 219,100 10,503,654
- ---------------------------------------------------------------------------
Graco Inc. 267,600 9,117,132
- ---------------------------------------------------------------------------
IDEX Corp. 263,500 10,173,735
- ---------------------------------------------------------------------------
JLG Industries, Inc.(b) 721,200 19,818,576
===========================================================================
49,613,097
===========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.17%
NeuStar, Inc.-Class A(a) 109,200 2,795,520
===========================================================================
INTERNET SOFTWARE & SERVICES-1.61%
Blue Coat Systems, Inc.(a) 165,800 4,954,104
- ---------------------------------------------------------------------------
ValueClick, Inc.(a) 1,026,900 12,661,677
- ---------------------------------------------------------------------------
Websense, Inc.(a)(b) 182,300 8,759,515
===========================================================================
26,375,296
===========================================================================
INVESTMENT BANKING & BROKERAGE-0.56%
Jefferies Group, Inc.(b) 241,500 9,150,435
===========================================================================
INVESTMENT COMPANIES-EXCHANGE TRADED
FUNDS-0.51%
iShares Nasdaq Biotechnology Index Fund(b) 123,900 8,412,810
===========================================================================
IT CONSULTING & OTHER SERVICES-1.33%
MPS Group, Inc.(a) 974,900 9,183,558
- ---------------------------------------------------------------------------
Sapient Corp.(a) 1,574,000 12,481,820
===========================================================================
21,665,378
===========================================================================
</Table>
FS-241
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
LEISURE PRODUCTS-2.56%
Marvel Enterprises, Inc.(a) 681,500 $ 13,439,180
- ---------------------------------------------------------------------------
Nautilus, Inc.(b) 615,500 17,541,750
- ---------------------------------------------------------------------------
RC2 Corp.(a) 288,300 10,831,431
===========================================================================
41,812,361
===========================================================================
MANAGED HEALTH CARE-0.55%
Centene Corp.(a)(b) 268,400 9,012,872
===========================================================================
MARINE-0.48%
Kirby Corp.(a) 172,200 7,766,220
===========================================================================
MOVIES & ENTERTAINMENT-1.51%
Imax Corp. (Canada)(a)(b) 1,017,100 10,109,974
- ---------------------------------------------------------------------------
Lions Gate Entertainment Corp. (Canada)(a)(b) 1,414,900 14,516,874
===========================================================================
24,626,848
===========================================================================
MULTI-LINE INSURANCE-0.65%
HCC Insurance Holdings, Inc. 280,400 10,618,748
===========================================================================
OIL & GAS DRILLING-0.96%
Unit Corp.(a)(b) 355,100 15,627,951
===========================================================================
OIL & GAS EQUIPMENT & SERVICES-2.59%
Cal Dive International, Inc.(a)(b) 340,800 17,847,696
- ---------------------------------------------------------------------------
Core Laboratories N.V. (Netherlands)(a) 432,700 11,605,014
- ---------------------------------------------------------------------------
FMC Technologies, Inc.(a)(b) 402,500 12,867,925
===========================================================================
42,320,635
===========================================================================
OIL & GAS EXPLORATION & PRODUCTION-1.84%
Encore Acquisition Co.(a) 354,200 14,522,200
- ---------------------------------------------------------------------------
Range Resources Corp. 578,800 15,569,720
===========================================================================
30,091,920
===========================================================================
PHARMACEUTICALS-1.27%
First Horizon Pharmaceutical Corp.(a) 563,800 10,734,752
- ---------------------------------------------------------------------------
MGI Pharma, Inc.(a)(b) 463,700 10,090,112
===========================================================================
20,824,864
===========================================================================
PROPERTY & CASUALTY INSURANCE-0.63%
ProAssurance Corp.(a)(b) 245,800 10,264,608
===========================================================================
REAL ESTATE-1.20%
BioMed Realty Trust, Inc. 221,500 5,282,775
- ---------------------------------------------------------------------------
Pan Pacific Retail Properties, Inc. 214,700 14,251,786
===========================================================================
19,534,561
===========================================================================
REGIONAL BANKS-4.00%
Amegy Bancorp., Inc.(b) 564,800 12,640,224
- ---------------------------------------------------------------------------
East West Bancorp, Inc.(b) 380,100 12,767,559
- ---------------------------------------------------------------------------
PrivateBancorp, Inc.(b) 244,000 8,632,720
- ---------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
REGIONAL BANKS-(CONTINUED)
SVB Financial Group(a)(b) 329,100 $ 15,763,890
- ---------------------------------------------------------------------------
Texas Capital Bancshares, Inc.(a) 363,500 7,175,490
- ---------------------------------------------------------------------------
Texas Regional Bancshares, Inc.-Class A 276,200 8,418,576
===========================================================================
65,398,459
===========================================================================
RESTAURANTS-4.32%
Jack in the Box Inc.(a)(b) 387,900 14,709,168
- ---------------------------------------------------------------------------
P.F. Chang's China Bistro, Inc.(a)(b) 294,900 17,393,202
- ---------------------------------------------------------------------------
Panera Bread Co.-Class A(a)(b) 133,400 8,282,139
- ---------------------------------------------------------------------------
RARE Hospitality International, Inc.(a)(b) 470,400 14,333,088
- ---------------------------------------------------------------------------
Sonic Corp.(a) 519,800 15,869,494
===========================================================================
70,587,091
===========================================================================
SEMICONDUCTOR EQUIPMENT-2.42%
FormFactor Inc.(a) 511,000 13,500,620
- ---------------------------------------------------------------------------
Tessera Technologies Inc.(a)(b) 405,000 13,531,050
- ---------------------------------------------------------------------------
Varian Semiconductor Equipment
Associates, Inc.(a)(b) 339,300 12,554,100
===========================================================================
39,585,770
===========================================================================
SEMICONDUCTORS-2.32%
ARM Holdings PLC-ADR (United Kingdom)(b) 2,247,845 13,801,768
- ---------------------------------------------------------------------------
Microsemi Corp.(a) 871,752 16,388,938
- ---------------------------------------------------------------------------
Semtech Corp.(a)(b) 114,600 1,908,090
- ---------------------------------------------------------------------------
Sigmatel Inc.(a)(b) 334,900 5,746,884
===========================================================================
37,845,680
===========================================================================
SPECIALTY STORES-2.17%
Guitar Center, Inc.(a)(b) 210,600 12,292,722
- ---------------------------------------------------------------------------
Regis Corp. 303,600 11,864,688
- ---------------------------------------------------------------------------
Steiner Leisure Ltd. (Bahamas)(a)(b) 303,200 11,239,624
===========================================================================
35,397,034
===========================================================================
STEEL-0.73%
Carpenter Technology Corp. 231,700 12,002,060
===========================================================================
SYSTEMS SOFTWARE-1.52%
Internet Security Systems, Inc.(a)(b) 647,050 13,128,645
- ---------------------------------------------------------------------------
Macrovision Corp.(a)(b) 522,500 11,777,150
===========================================================================
24,905,795
===========================================================================
TRADING COMPANIES & DISTRIBUTORS-1.65%
Hughes Supply, Inc.(b) 411,900 11,574,390
- ---------------------------------------------------------------------------
MSC Industrial Direct Co., Inc.-Class A 454,800 15,349,500
===========================================================================
26,923,890
===========================================================================
TRUCKING-2.46%
Heartland Express, Inc.(b) 458,400 8,906,712
- ---------------------------------------------------------------------------
Knight Transportation, Inc.(b) 377,200 9,177,276
- ---------------------------------------------------------------------------
</Table>
FS-242
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
TRUCKING-(CONTINUED)
Old Dominion Freight Line, Inc.(a) 302,800 $ 8,124,124
- ---------------------------------------------------------------------------
Swift Transportation Co., Inc.(a) 604,300 14,074,147
===========================================================================
40,282,259
===========================================================================
WIRELESS TELECOMMUNICATION SERVICES-1.06%
Alamosa Holdings, Inc.(a)(b) 1,244,000 17,291,600
===========================================================================
Total Common Stocks & Other Equity
Interests (Cost $1,233,962,928) 1,603,698,169
===========================================================================
MONEY MARKET FUNDS-0.20%
Liquid Assets Portfolio-Institutional
Class(c) 1,604,407 1,604,407
- ---------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(c) 1,604,407 1,604,407
===========================================================================
Total Money Market Funds (Cost
$3,208,814) 3,208,814
===========================================================================
TOTAL INVESTMENTS-98.32% (excluding
investments purchased with cash collateral
from securities loaned) (Cost
$1,237,171,742) 1,606,906,983
===========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-31.80%
Liquid Assets Portfolio-Institutional
Class(c)(d) 259,866,765 $ 259,866,765
- ---------------------------------------------------------------------------
STIC Prime Portfolio-Institutional
Class(c)(d) 259,866,765 259,866,765
===========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $519,733,530) 519,733,530
===========================================================================
TOTAL INVESTMENTS-130.12% (Cost
$1,756,905,272) 2,126,640,513
===========================================================================
OTHER ASSETS LESS LIABILITIES-(30.12%) (492,264,937)
===========================================================================
NET ASSETS-100.00% $1,634,375,576
___________________________________________________________________________
===========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this security has been pledged as collateral for
securities lending transactions at June 30, 2005.
(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.
FS-243
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2005
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$1,233,962,928)* $1,603,698,169
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $522,942,344) 522,942,344
============================================================
Total investments (cost $1,756,905,272) 2,126,640,513
============================================================
Receivables for:
Investments sold 58,281,850
- ------------------------------------------------------------
Investments sold to affiliates 1,051,240
- ------------------------------------------------------------
Fund shares sold 1,735,931
- ------------------------------------------------------------
Dividends 351,873
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 43,762
- ------------------------------------------------------------
Other assets 65,029
============================================================
Total assets 2,188,170,198
============================================================
LIABILITIES:
Payables for:
Investments purchased 9,141,152
- ------------------------------------------------------------
Fund shares reacquired 23,351,789
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 100,842
- ------------------------------------------------------------
Collateral upon return of securities
loaned 519,733,530
- ------------------------------------------------------------
Accrued distribution fees 592,167
- ------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 293
- ------------------------------------------------------------
Accrued transfer agent fees 727,152
- ------------------------------------------------------------
Accrued operating expenses 147,697
============================================================
Total liabilities 553,794,622
============================================================
Net assets applicable to shares outstanding $1,634,375,576
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,257,987,670
- ------------------------------------------------------------
Undistributed net investment income (loss) (8,988,017)
- ------------------------------------------------------------
Undistributed net realized gain from
investment securities 15,640,682
- ------------------------------------------------------------
Unrealized appreciation of investment
securities 369,735,241
============================================================
$1,634,375,576
____________________________________________________________
============================================================
NET ASSETS:
Class A $1,317,363,266
____________________________________________________________
============================================================
Class B $ 128,149,741
____________________________________________________________
============================================================
Class C $ 33,702,255
____________________________________________________________
============================================================
Class R $ 19,118,672
____________________________________________________________
============================================================
Institutional Class $ 136,041,642
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 47,105,407
____________________________________________________________
============================================================
Class B 4,932,949
____________________________________________________________
============================================================
Class C 1,297,954
____________________________________________________________
============================================================
Class R 689,075
____________________________________________________________
============================================================
Institutional Class 4,785,421
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 27.97
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $27.97 divided by
94.50%) $ 29.60
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 25.98
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 25.97
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 27.75
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 28.43
____________________________________________________________
============================================================
</Table>
* At June 30, 2005, securities with an aggregate market value of $501,481,933
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
FS-244
STATEMENT OF OPERATIONS
For the six months ended June 30, 2005
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $1,857) $ 1,937,877
- --------------------------------------------------------------------------
Dividends from affiliated money market funds (includes
securities lending income of $1,385,046 after compensation
to counterparties of $3,982,930) 1,777,293
==========================================================================
Total investment income 3,715,170
==========================================================================
EXPENSES:
Advisory fees 5,767,732
- --------------------------------------------------------------------------
Administrative services fees 202,135
- --------------------------------------------------------------------------
Custodian fees 79,754
- --------------------------------------------------------------------------
Distribution fees:
Class A 2,377,475
- --------------------------------------------------------------------------
Class B 666,420
- --------------------------------------------------------------------------
Class C 178,097
- --------------------------------------------------------------------------
Class R 46,687
- --------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C & R 3,725,041
- --------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 54,019
- --------------------------------------------------------------------------
Trustees' and officer's fees and benefits 30,189
- --------------------------------------------------------------------------
Other 225,302
==========================================================================
Total expenses 13,352,851
==========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (716,306)
==========================================================================
Net expenses 12,636,545
==========================================================================
Net investment income (loss) (8,921,375)
==========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES:
Net realized gain from investment securities (includes gains
from securities sold to affiliates of $455,846) 129,654,259
- --------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (94,671,539)
==========================================================================
Net gain from investment securities 34,982,720
==========================================================================
Net increase in net assets resulting from operations $ 26,061,345
__________________________________________________________________________
==========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-245
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 2005 and the year ended December 31, 2004
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2005 2004
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (8,921,375) $ (22,312,120)
- ----------------------------------------------------------------------------------------------
Net realized gain from investment securities, futures
contracts and option contracts 129,654,259 143,771,500
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, futures contracts and option
contracts (94,671,539) (19,550,976)
==============================================================================================
Net increase in net assets resulting from operations 26,061,345 101,908,404
==============================================================================================
Share transactions-net:
Class A (196,069,989) (192,987,130)
- ----------------------------------------------------------------------------------------------
Class B (22,552,985) (41,206,105)
- ----------------------------------------------------------------------------------------------
Class C (7,505,965) (11,365,203)
- ----------------------------------------------------------------------------------------------
Class R (672,011) 9,247,057
- ----------------------------------------------------------------------------------------------
Institutional Class 20,817,109 (3,899,271)
==============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (205,983,841) (240,210,652)
==============================================================================================
Net increase (decrease) in net assets (179,922,496) (138,302,248)
==============================================================================================
NET ASSETS:
Beginning of period 1,814,298,072 1,952,600,320
==============================================================================================
End of period (including undistributed net investment
income (loss) of $(8,988,017) and $(66,642),
respectively) $1,634,375,576 $1,814,298,072
______________________________________________________________________________________________
==============================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-246
NOTES TO FINANCIAL STATEMENTS
June 30, 2005
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Small Cap Growth Fund (the "Fund") is a separate series of AIM Growth Series
(the "Trust"). The Trust is organized as a Delaware statutory trust and is
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of nine
separate series portfolios, each authorized to issue an unlimited number of
shares of beneficial interest. The Fund currently offers multiple classes of
shares. Matters affecting each portfolio or class will be voted on exclusively
by the shareholders of such portfolio or class. The assets, liabilities and
operations of each portfolio are accounted for separately. Information presented
in these financial statements pertains only to the Fund. Effective as of the
close of business on March 18, 2002, the Fund's shares were offered on a limited
basis to certain investors.
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 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.
FS-247
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. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received. A risk in writing a
call option is that the Fund gives up the opportunity for profit if the
market price of the security increases and the option is exercised.
G. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are 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.
H. 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 substitute such collateral no later than the next business day.
This practice does not apply to securities pledged as collateral for
securities lending transactions.
FS-248
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:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- ----------------------------------------------------------------------
First $500 million 0.725%
- ----------------------------------------------------------------------
Next $500 million 0.70%
- ----------------------------------------------------------------------
Next $500 million 0.675%
- ----------------------------------------------------------------------
Over $1.5 billion 0.65%
______________________________________________________________________
======================================================================
</Table>
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 June 30, 2005, AIM waived fees of $4,328.
At the request of the Trustees of the Trust, AMVESCAP PLC ("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 six months ended June 30, 2005, AMVESCAP reimbursed expenses of the Fund in
the amount of $9,011.
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 June 30, 2005, AIM was paid $202,135.
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 June 30, 2005, the
Fund paid AISI $3,725,041 for Class A, Class B, Class C and Class R share
classes and $54,019 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. Effective July 1, 2005, the Trustees
approved a permanent reduction in the annual rate payable by the Fund to ADI to
0.25% of the average daily net assets of Class A shares. Of these amounts, 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. Through June 30,
2005, during the periods the Fund was offered on a limited basis, ADI had agreed
to waive 0.10% of Rule 12b-1 plan fees on Class A shares. Pursuant to the Plans,
for the six months ended June 30, 2005, the Class A, Class B, Class C and Class
R shares paid $1,698,196, $666,420, $178,097 and $46,687, respectively, after
ADI waived Plan fees of $679,279 for Class A shares.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During six months
ended June 30, 2005, ADI advised the Fund that it retained $13,652 in front-end
sales commissions from the sale of Class A shares and $771, $15,905, $1,250 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.
FS-249
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 June 30, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 06/30/05 INCOME GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $12,837,129 $140,008,077 $(151,240,799) $ -- $1,604,407 $195,051 $ --
- ---------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 12,837,129 140,008,077 (151,240,799) -- 1,604,407 197,196 --
=================================================================================================================================
Subtotal $25,674,258 $280,016,154 $(302,481,598) $ -- $3,208,814 $392,247 $ --
=================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 06/30/05 INCOME* GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $205,833,934 $273,994,216 $(219,961,385) $ -- $259,866,765 $ 687,059 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 205,833,935 273,994,215 (219,961,385) -- 259,866,765 697,987 --
===================================================================================================================================
Subtotal $411,667,869 $547,988,431 $(439,922,770) $ -- $519,733,530 $1,385,046 $ --
===================================================================================================================================
Total $437,342,127 $828,004,585 $(742,404,368) $ -- $522,942,344 $1,777,293 $ --
___________________________________________________________________________________________________________________________________
===================================================================================================================================
</Table>
*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 six months ended June 30, 2005, the
Fund engaged in securities purchases of $339,783 and sales of $4,108,852, which
resulted in net realized gains of $455,846.
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 six
months ended June 30, 2005, the Fund received credits from these arrangements,
which resulted in the reduction of the Fund's total expenses of $23,688.
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 June 30, 2005, the Fund paid legal fees of
$5,241 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-250
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 six months ended June 30, 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 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 June 30, 2005, securities with an aggregate value of $501,481,933 were on
loan to brokers. The loans were secured by cash collateral of $519,733,530
received by the Fund and subsequently invested in affiliated money market funds.
For the six months ended June 30, 2005, the Fund received dividends on cash
collateral of $1,385,046 for securities lending transactions, which are net of
compensation to counterparties.
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 December 31, 2004 which
expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
December 31, 2010 $ 73,388,721
- -----------------------------------------------------------------------------
December 31, 2011 40,026,936
=============================================================================
Total capital loss carryforward $113,415,657
_____________________________________________________________________________
=============================================================================
</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.
FS-251
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended June 30, 2005 was $388,062,802 and $600,913,503, 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 $407,963,169
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (38,476,785)
==============================================================================
Net unrealized appreciation of investment securities $369,486,384
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $1,757,154,129.
</Table>
NOTE 11--SHARE INFORMATION
The Fund currently consists of 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 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)
- --------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2005 DECEMBER 31, 2004
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 8,122,317 $ 218,690,104 24,314,386 $ 628,943,607
- --------------------------------------------------------------------------------------------------------------------------
Class B 83,357 2,079,941 287,423 6,942,558
- --------------------------------------------------------------------------------------------------------------------------
Class C 82,184 2,051,604 266,409 6,403,144
- --------------------------------------------------------------------------------------------------------------------------
Class R 167,591 4,476,864 553,344 14,127,974
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class 1,294,205 35,866,657 1,807,401 46,669,980
==========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 106,664 2,864,146 267,852 6,898,694
- --------------------------------------------------------------------------------------------------------------------------
Class B (114,608) (2,864,146) (286,124) (6,898,694)
==========================================================================================================================
Reacquired:
Class A (15,447,449) (417,624,239) (32,593,314) (828,829,431)
- --------------------------------------------------------------------------------------------------------------------------
Class B (870,050) (21,768,780) (1,739,802) (41,249,969)
- --------------------------------------------------------------------------------------------------------------------------
Class C (382,354) (9,557,569) (740,566) (17,768,347)
- --------------------------------------------------------------------------------------------------------------------------
Class R (193,500) (5,148,875) (190,940) (4,880,917)
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class (552,695) (15,049,548) (1,936,260) (50,569,251)
==========================================================================================================================
(7,704,338) $(205,983,841) (9,990,191) $(240,210,652)
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
(a) There are two entities that are each record owners of more than 5% of
the outstanding shares of the Fund and in the aggregate they own 19% of
the outstanding shares of the Fund. AIM Distributors has an agreement
with these entities to sell Fund shares. The Fund, AIM and/or AIM
affiliates may make payments to these entities, which are considered to
be related to the Fund, for providing services to the Fund, AIM and/or
AIM affiliates including but not limited to services such as, securities
brokerage, distribution, third party record keeping and account
servicing. The Trust has no knowledge as to whether all or any portion
of the shares owned of record by these shareholders are also owned
beneficially.
FS-252
NOTE 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
--------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ---------------------------------------------------------------------
2005 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 27.46 $ 25.71 $ 18.47 $ 25.67 $ 29.81 $ 31.87
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.14)(a) (0.32) (0.21)(a) (0.19)(a) (0.18)(a) (0.13)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.65 2.07 7.45 (7.01) (3.93) (0.12)
=================================================================================================================================
Total from investment operations 0.51 1.75 7.24 (7.20) (4.11) (0.25)
=================================================================================================================================
Less distributions:
Distributions from net realized gains -- -- -- -- (0.03) (1.81)
=================================================================================================================================
Net asset value, end of period $ 27.97 $ 27.46 $ 25.71 $ 18.47 $ 25.67 $ 29.81
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 1.86% 6.81% 39.20% (28.05)% (13.79)% (0.74)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,317,363 $1,491,940 $1,602,724 $790,700 $679,104 $566,458
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 1.49%(c) 1.40% 1.27% 1.35% 1.31% 1.13%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.59%(c) 1.51% 1.37% 1.43% 1.39% 1.23%
=================================================================================================================================
Ratio of net investment income (loss) to
average net assets (1.04)%(c) (1.12)% (0.98)% (0.91)% (0.70)% (0.40)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(d) 24% 69% 32% 22% 37% 62%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</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 net assets of $1,369,815,685.
(d) Not annualized for periods less than one year.
FS-253
NOTE 12--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS B
-------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, --------------------------------------------------------------------
2005 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 25.61 $ 24.15 $ 17.49 $ 24.48 $ 28.64 $ 30.92
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.22)(a) (0.52) (0.35)(a) (0.33)(a) (0.35)(a) (0.40)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.59 1.98 7.01 (6.66) (3.78) (0.07)
=================================================================================================================================
Total from investment operations 0.37 1.46 6.66 (6.99) (4.13) (0.47)
=================================================================================================================================
Less distributions from net realized gains -- -- -- -- (0.03) (1.81)
=================================================================================================================================
Net asset value, end of period $ 25.98 $ 25.61 $ 24.15 $ 17.49 $ 24.48 $ 28.64
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 1.44% 6.05% 38.08% (28.55)% (14.42)% (1.48)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $128,150 $149,400 $182,700 $152,577 $212,958 $231,293
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 2.24%(c) 2.15%(d) 2.02% 2.08% 2.03%(d) 1.88%
=================================================================================================================================
Ratio of net investment income (loss) to
average net assets (1.79)%(c) (1.87)% (1.73)% (1.64)% (1.43)% (1.15)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 24% 69% 32% 22% 37% 62%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</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
$134,388,574.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
for 2004 and 2001 was 2.16% and 2.04%, respectively.
(e) Not annualized for periods less than one year.
FS-254
NOTE 12--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS C
--------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ---------------------------------------------------------------
2005 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 25.60 $ 24.14 $ 17.48 $ 24.47 $ 28.63 $ 30.91
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.22)(a) (0.52) (0.35)(a) (0.33)(a) (0.35)(a) (0.39)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.59 1.98 7.01 (6.66) (3.78) (0.08)
=================================================================================================================================
Total from investment operations 0.37 1.46 6.66 (6.99) (4.13) (0.47)
=================================================================================================================================
Less distributions from net realized gains -- -- -- -- (0.03) (1.81)
=================================================================================================================================
Net asset value, end of period $ 25.97 $ 25.60 $ 24.14 $ 17.48 $ 24.47 $ 28.63
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 1.45% 6.05% 38.10% (28.57)% (14.43)% (1.48)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $33,702 $40,904 $50,031 $41,693 $46,833 $41,738
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 2.24%(c) 2.15%(d) 2.02% 2.08% 2.03%(d) 1.88%
=================================================================================================================================
Ratio of net investment income (loss) to
average net assets (1.79)%(c) (1.87)% (1.73)% (1.64)% (1.43)% (1.15)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 24% 69% 32% 22% 37% 62%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</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
$35,914,542.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
for 2004 and 2001 was 2.16% and 2.04%, respectively.
(e) Not annualized for periods less than one year.
FS-255
NOTE 12--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS R
---------------------------------------------------------
JUNE 3, 2002
SIX MONTHS YEAR ENDED (DATE SALES
ENDED DECEMBER 31, COMMENCED) TO
JUNE 30, -------------------- DECEMBER 31,
2005 2004 2003 2002
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 27.28 $ 25.61 $18.44 $ 22.64
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.17)(a) (0.27) (0.28)(a) (0.13)(a)
- -----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.64 1.94 7.45 (4.07)
=======================================================================================================================
Total from investment operations 0.47 1.67 7.17 (4.20)
=======================================================================================================================
Net asset value, end of period $ 27.75 $ 27.28 $25.61 $ 18.44
_______________________________________________________________________________________________________________________
=======================================================================================================================
Total return(b) 1.72% 6.52% 38.88% (18.55)%
_______________________________________________________________________________________________________________________
=======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $19,119 $19,506 $9,029 $ 1,301
_______________________________________________________________________________________________________________________
=======================================================================================================================
Ratio of expenses to average net assets 1.74%(c) 1.65%(d) 1.52% 1.61%(e)
=======================================================================================================================
Ratio of net investment income (loss) to average net assets (1.29)%(c) (1.37)% (1.23)% (1.17)%(e)
_______________________________________________________________________________________________________________________
=======================================================================================================================
Portfolio turnover rate(f) 24% 69% 32% 22%
_______________________________________________________________________________________________________________________
=======================================================================================================================
</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
$18,829,781.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.66%.
(e) Annualized.
(f) Not annualized for periods less than one year.
<Table>
<Caption>
INSTITUTIONAL CLASS
-------------------------------------------------------------
MARCH 15, 2002
SIX MONTHS YEAR ENDED (DATE SALES
ENDED DECEMBER 31, COMMENCED) TO
JUNE 30, ----------------------- DECEMBER 31,
2005 2004 2003 2002
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 27.83 $ 25.91 $ 18.53 $ 24.61
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05)(a) (0.16) (0.12)(a) (0.07)(a)
- ---------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.65 2.08 7.50 (6.01)
===========================================================================================================================
Total from investment operations 0.60 1.92 7.38 (6.08)
===========================================================================================================================
Net asset value, end of period $ 28.43 $ 27.83 $ 25.91 $ 18.53
___________________________________________________________________________________________________________________________
===========================================================================================================================
Total return(b) 2.15% 7.41% 39.83% (24.71)%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $136,042 $112,547 $108,116 $ 2,866
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratio of expenses to average net assets 0.85%(c) 0.85%(d) 0.80% 0.89%(e)
===========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.40)%(c) (0.57)% (0.51)% (0.45)%(e)
___________________________________________________________________________________________________________________________
===========================================================================================================================
Portfolio turnover rate(f) 24% 69% 32% 22%
___________________________________________________________________________________________________________________________
===========================================================================================================================
</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
$115,060,776.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 0.86%.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-256
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), 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) is being created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Additionally, AIM and ADI
agreed to create 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. 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
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 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.
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.
FS-257
NOTE 13--LEGAL PROCEEDINGS--(CONTINUED)
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.
FS-258
APPENDIX II
AIM SMALL COMPANY GROWTH FUND
Annual Report to Shareholders . July 31, 2005
[COVER IMAGE]
FORMERLY INVESCO SMALL COMPANY GROWTH FUND
[YOUR GOALS. OUR SOLUTIONS.]
- REGISTERED TRADEMARK -
[AIM INVESTMENTS LOGO]
- REGISTERED TRADEMARk -
AIM SMALL COMPANY GROWTH FUND SEEKS TO PROVIDE LONG-TERM CAPITAL GROWTH.
- - Unless otherwise stated, information presented in this report is as of July
31, 2005, and is based on total net assets.
- - Effective October 15, 2004, INVESCO Small Company Growth Fund was renamed AIM
Small Company Growth Fund.
ABOUT SHARE CLASSES
- - Class B shares are not available as an investment for retirement plans
maintained pursuant to Section 401 of the Internal Revenue Code, including
401(k) plans, money purchase pension plans and profit sharing plans. Plans that
had existing accounts invested in Class B shares prior to September 30, 2003,
will continue to be allowed to make additional purchases.
- - 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. Only existing Class K
shareholders of a Fund, as of August 15, 2005, may continue to invest in the
Fund's Class K shares.
- - Investor Class shares are closed to most investors. For more information on
who may continue to invest in the Investor Class shares, please see the
prospectus.
PRINCIPAL RISKS OF INVESTING IN THE FUND
- - The prices of initial public offering (IPO) securities may go up and down more
than prices of equity securities of companies with longer trading histories. In
addition, companies offering securities in IPOs may have less experienced
management or limited operating histories. There can be no assurance that the
Fund will have favorable IPO investment opportunities.
- - Investing in small and mid-size companies involves risks not associated with
investing in more established companies, including business risk, significant
stock price fluctuations and illiquidity.
- - The Fund may invest up to 25% of its assets in the securities of non-U.S.
issuers. Securities of Canadian issuers and American Depositary Receipts are not
subject to this 25% limitation.
International investing presents certain risks not associated with investing
solely in the United States. These include risks relating to fluctuations in the
value of the U.S. dollar relative to the values of other currencies, the custody
arrangements made for the Fund's foreign holdings, differences in accounting,
political risks and the lesser degree of public information required to be
provided by non-U.S. companies.
- - At any given time, the Fund may be subject to sector risk, which means a
certain sector may underperform other sectors or the market as a whole. The Fund
is not limited with respect to the sectors in which it can invest.
- - Portfolio turnover is greater than that of most funds, which may affect
performance.
ABOUT INDEXES USED IN THIS REPORT
- - The unmanaged Standard & Poor's Composite Index of 500 Stocks (the S&P 500
- --REGISTERED TRADEMARK-- INDEX) is an index of common stocks frequently used as
a general measure of U.S. stock market performance.
- - The unmanaged RUSSELL 2000 --REGISTERED TRADEMARK-- GROWTH INDEX is a subset
of the unmanaged RUSSELL 2000 --REGISTERED TRADEMARK-- INDEX, which represents
the performance of the stocks of small-capitalization companies; the Growth
subset measures the performance of Russell 2000 companies with higher price/book
ratios and higher forecasted growth values.
- - The unmanaged LIPPER SMALL-CAP GROWTH FUND INDEX represents an average of the
performance of the 30 largest small-capitalization growth funds tracked by
Lipper, Inc., an independent mutual fund performance monitor.
- - The Fund is not managed to track the performance of any particular index,
including the indexes defined here, and consequently, the performance of the
Fund may deviate significantly from the performance of the indexes. Performance
of an index of funds reflects fund expenses; performance of a market index does
not.
- - A direct investment cannot be made in an index. Unless otherwise indicated,
index results include reinvested dividends, and they do not reflect sales
charges. Performance of an index of funds reflects fund expenses; performance of
a market index does not.
OTHER INFORMATION
- - Industry classifications used in this report are generally according to the
Global Industry Classification Standard, which was developed by and is the
exclusive property and a service mark of Morgan Stanley Capital International
Inc. and Standard & Poor's.
- - The returns shown in the management's discussion of fund performance are based
on net asset values calculated for shareholder transactions. Generally accepted
accounting principles require adjustments to be made to the net assets of the
fund at period end for financial reporting purposes, and as such, the net asset
values for shareholder transactions and the returns based on those net asset
values may differ from the net asset values and returns reported in the
Financial Highlights.
The Fund provides a complete list of its holdings four
times in each fiscal year, at the quarter-ends. For the second and fourth
quarters, the lists appear in the Fund's semiannual and annual reports to share-
holders. For the first and third quarters, the Fund files the lists with the
Securities and Exchange Commission (SEC) on Form N-Q. The most recent list of
portfolio holdings is available at AIMinvestments.com. From our home page, click
on Products & Performance, then Mutual Funds, then Fund Overview. Select your
Fund from the drop-down menu and click on Complete Quarterly Holdings.
Shareholders can also look up the Fund's Forms N-Q on the SEC's Web site at
sec.gov. And copies of the Fund's Forms N-Q may be reviewed and copied at the
SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549-0102. You can obtain information on the operation of the Public Reference
Room, including information about duplicating fee charges, by calling 202-
942-8090 or 800-732-0330, or by electronic request at the following e-mail
address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-1474 and
002-26125.
CONTINUED ON PAGE 6
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
FUND NASDAQ SYMBOLS
Class A Shares ISGAX
Class B Shares ISGBX
Class C Shares ISGCX
Class K Shares ISCKX
Investor Class Shares FIEGX
- --------------------------------------------------------------------------------
AIM SMALL COMPANY GROWTH FUND
DEAR FELLOW AIM FUNDS SHAREHOLDERS:
[GRAHAM PHOTO] We would like to call your attention to two new elements in
this report on your Fund. First, on Page 2, is a letter from
Bruce Crockett, the independent Chair of the Board of
Trustees of the AIM Funds. We first introduced you to Mr.
Crockett in the semiannual report on your Fund dated January
31 of this year. Mr. Crockett has been on our Funds' Board
since 1992; he assumed his responsibilities as Chair last
October.
ROBERT H. GRAHAM Mr. Crockett has expressed an interest in keeping
shareholders informed of the work of the Board regularly via
letters in the Fund reports. We certainly consider this a
valuable addition to the reports. The Board is charged with
looking out for the interests of shareholders, and Mr.
Crockett's letter provides insight into some of the many
issues the Board addresses in governing your Fund.
One of the most important decisions the Board makes each
year is whether to approve the advisory agreement your Fund
has with AIM. Essentially, this agreement hires AIM to
manage the assets in your Fund. A discussion of the factors
the Board considered in reviewing the agreement is the
second new element in the report, and we encourage you to
read it. It appears on Pages 8 and 9.
[WILLIAMSON PHOTO] Of course, this report also includes your Fund managers'
discussion of how they managed the Fund during the fiscal
year ended July 31. That discussion begins on Page 3.
MARK H. WILLIAMSON All in all, it was a good year for investors as solid
economic growth and generally impressive company earnings
offset concerns about rising oil prices and the Federal
Reserve's repeated increases in short-term interest rates.
Most domestic and international equity indexes ended up
producing double-digit returns for the fiscal year. Bond
returns, though more muted as is typical, were also
positive.
Further information about the markets, your Fund, and
investing in general is always available on our widely
acclaimed Web site, AIMinvestments.com. We invite you to
visit it 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.
September 16, 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.
1
AIM SMALL COMPANY GROWTH FUND
DEAR AIM FUNDS SHAREHOLDERS:
As independent Chair of the Board of Trustees of the AIM
Funds, I'm writing to report on the work being done by your
Board.
[CROCKETT PHOTO] At our most recent meeting in June 2005, your Board
approved voluntary fee reductions from A I M Advisors, Inc.
(AIM) that save shareholders approximately $20.8 million
annually, based on asset levels as of March 31, 2005. The
majority of these expense reductions, which took effect July
1, 2005, will be achieved by a permanent reduction to 0.25%
of the Rule 12b-1 fees on Class A and Class A3 shares of
those AIM Funds that previously charged these fees at a
higher rate.
BRUCE L. CROCKETT Our June meeting, which was the culmination of more than
two and one-half months of review and discussions, took
place over a three-day period. The meeting included your
Board's annual comprehensive evaluation of each fund's
advisory agreement with AIM. After this evaluation, in which
questions about fees, performance and operations were
addressed by AIM, your Board approved all advisory
agreements for the year beginning July 1, 2005. You can find
information on the factors considered and conclusions
reached by your Board in its evaluation of each fund's
advisory agreement at AIMinvestments.com. (Go to "Products &
Performance" and click on "Investment Advisory Agreement
Renewals.") The advisory agreement information about your
Fund is also included in this annual report on Pages 8 and
9. I encourage you to review it.
Together with monitoring fund expenses, fund performance is
your Board's priority. Our initial goal is to work with AIM
to bring about improvement in every AIM Fund that has been
underperforming its category.
Your Board has a well-defined process and structure for
monitoring all funds and identifying and assisting AIM in
improving underperforming funds. Our Investments
Committee--which functions along with Audit, Governance,
Valuation and Compliance Committees--is the only one of
these five standing committees to include all 13 independent
Board members. Further, our Investments Committee is divided
into three underlying subcommittees, each responsible for,
among other things, reviewing the performance, fees and
expenses of the funds that have been assigned to it.
At subcommittee meetings, held throughout the year, the
performance of every AIM Fund is evaluated. If a fund has
underperformed its peer group for a meaningful period, we
work closely with AIM to discover the causes and help
develop the right responses. In some cases, AIM may
determine that a change in portfolio management strategy or
portfolio managers is required. In other cases, where a fund
no longer seems viable, it may be merged with a similar
fund, being careful to consider the needs of all
shareholders affected by the decision. Following AIM's
recommendation and your Board's approval, eight funds were
recently merged.
Be assured that your Board is working closely with the
management of AIM to help you reach your investment goals.
Should you or your advisor have questions or comments about
the governance of AIM Funds, I invite you to write to me at
AIM Investments, AIM Investments Tower, 11 Greenway Plaza,
Suite 100, Houston, TX 77046. Your Board looks forward to
keeping you informed about the governance of your funds.
Sincerely,
/s/ BRUCE L. CROCKETT
Bruce L. Crockett
Independent Chair
On Behalf of the Board of Trustees
AIM Funds
September 16, 2005
2
AIM SMALL COMPANY GROWTH 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 double-digit returns for the period. The Fund's long-term performance can
be found on Pages 6 and 7.
Our focus on small-cap stocks enabled it to outperform the large-cap oriented
S&P 500 Index, as small-cap stocks generally outperformed their large-cap
counterparts. The Fund also outperformed its Lipper peer group and its style
specific benchmark, as the portfolio's holdings in industrials and information
technology generally outperformed those in the Russell 2000 Growth Index.
- --------------------------------------------------------------------------------
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 26.12%
Class B Shares 25.36
Class C Shares 25.41
Class K Shares 26.00
Investor Class Shares 26.22
S&P 500 Index (Broad Market Index) 14.04
Russell 2000 Growth Index
(Style-specific Index) 22.58
Lipper Small-Cap Growth Fund Index
(Peer Group Index) 23.15
SOURCE: LIPPER, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HOW WE INVEST
We select stocks based on analysis of individual companies,
focusing on small-cap growth companies with high growth potential as
demonstrated by consistent and accelerating earnings growth. We use a three-step
process that includes quantitative, fundamental and valuation analysis:
1. Our proprietary quantitative models and screening tools reduce an
investment universe of thousands of companies to a more manageable list of
investment candidates.
2. Our fundamental research includes financial statement analysis and
meetings with company management teams to define a company's key drivers of
success and to assess their durability. The goal is to ascertain the level,
quality and duration of a company's growth prospects, and to gain confidence in
the management team.
3. Our valuation analysis assesses the degree to which expected future growth
is discounted in the stock price.
A stock that successfully passes this selection process is a viable candidate
for the portfolio. We also carefully scrutinize the risk/reward of each of our
holdings to ensure a continued fit. We consider selling or trimming a stock when
it no longer meets our investment criteria, including when:
- - a company experiences decelerating or disappointing earnings
- - a stock approaches or hits its target price
- - the company's fundamental business prospects deteriorate
- - a more attractive opportunity presents itself
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.
While value stocks outperformed growth stocks for the entire year, the
performance of growth stocks improved toward the end of the period. The Fund's
focus on the stocks of companies with strong earnings growth helped it take
advantage of this trend. Investors generally favored small-cap stocks over
large-cap stocks because the former tend to outperform in an expanding economic
environment.
Every stock market sector registered positive returns for the portfolio.
Changes in the portfolio's sector weightings over the year
(CONTINUED)
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
BY SECTOR
[PIE CHART]
1. Health Care Equipment 5.2% 1. Alliance Data Systems Corp. 1.7%
2. Biotechnology 4.9 2. Regal Entertainment Group-Class A 1.4
Information Technology 18.2% 3. Application Software 4.2 3. Cytyc Corp. 1.4
Financials 10.1% 4. Pharmaceuticals 4.1 4. Investors Financial Services Corp. 1.3
Health Care 19.4% 5. Asset Management & 5. Henry (Jack) & Associates, Inc. 1.3
Money Market Funds Plus Custody Banks 3.7
Other Assets Less Liabilities 8.1% 6. Ceradyne, Inc. 1.2
Materials 1.0% 7. Advanced Medical Optics, Inc. 1.1
Industrials 15.4% TOTAL NET ASSETS $455.2 million 8. Jackson Hewitt Tax Service Inc. 1.1
Telecommunication Services 1.5% TOTAL NUMBER OF HOLDINGS* 150 9. Medicis Pharmaceutical
Consumer Discretionary 18.0% Corp.-Class A 1.1
Consumer Staples 2.6% 10. Barrett (Bill) Corp. 1.1
Energy 5.7%
The Fund's holdings are subject to change, and there is no assurance that the
Fund will continue to hold any particular security.
*Excluding money market fund holdings.
- --------------------------------------------------------------------------------
3
AIM SMALL COMPANY GROWTH FUND
largely reflected our stock selection process, which is based on an analysis of
individual companies rather than an attempt to predict economic and market
trends. For example, we increased our holdings in financials stocks as we found
them attractively valued and observed improving company fundamentals in this
sector. This sector provided positive returns for the Fund, as our financials
holdings generally outperformed those of the Russell 2000 Growth Index by a wide
margin. Indeed, AFFILIATED MANAGERS GROUP (AMG), an asset management company,
was the best-performing stock for the Fund. The company's net income increased
to $59.7 million for the first six months of 2005 compared to $37.1 million for
the same period for the previous year. AMG officials cited its "broad
participation in the major segments of the investment management industry" as a
reason for the firm's increased income. The company is in the process of making
an acquisition that it contends will enhance its market presence.
Over the year, we maintained about the same weighting in industrials, the
best-performing sector for the Fund. The portfolio benefited from strong stock
selection in such industries as aerospace and defense and trading companies and
distributors. Collectively, industrials stocks provided positive returns for the
portfolio even though a stock in this sector, SIRVA, detracted the most from
Fund performance for the year. Sirva, a global relocation services firm, saw its
stock decline when it announced it would not meet its previously issued earnings
guidance for the fourth quarter of 2004.
We also increased the Fund's exposure to consumer discretionary stocks, as
many retailers continued to benefit from healthy consumer spending and to
energy, as rising oil prices boosted stocks in this sector. ROWAN COMPANIES, a
contract drilling services provider, was one of the best-performing stocks for
the Fund. The company reported net income of $42.3 million for the quarter ended
June 30, 2005, compared to a loss of $2.1 million for the same period in 2004,
as the firm's offshore rig usage increased.
The Fund's information technology stocks collectively posted gains, as
corporate earnings were generally better than expected. Nevertheless, we reduced
our holdings in this sector because we were concerned about lackluster business
spending for technology upgrades. A tech stock that we eliminated from the
portfolio was ERESEARCH TECHNOLOGY, which was one of the main detractors from
performance. The company, which provides technology for medical companies,
reported a sharp drop revenue for the first half of 2005, compared to the same
period for the previous year, and lowered its earnings estimates for the
remainder of this year.
Relative to the Russell 2000 Growth Index, materials was the
poorest-performing sector for the Fund, as weak stock selection detracted from
returns.
IN CLOSING
We are pleased to have provided solid returns for our investors for the
reporting period. We believe our strategy of focusing our investments in
companies that show sustainable, above-average earnings growth while avoiding
high risk stocks will provide shareholders with consistent risk-adjusted return
over a long-term investment horizon. As such, we believe that that the Fund
continues to be an attractive option for investors looking for a small-cap
growth fund for their diversified long-term portfolio. We thank you for your
continued participation in AIM Small Company Growth 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.
- --------------------------------------------------------------------------------
[RUSHIN PHOTO]
JAY K. RUSHIN, Chartered Financial Analyst and portfolio manager, is lead
manager of AIM Small Company Growth Fund. He began his investmentcareer in 1994
when he joined AIM as a portfolio administrator. In 1996, he left AIM to work as
an associate equity analyst at another company. He returned to AIM as an equity
analyst on AIM's small-cap funds in 1998 and was promoted to senior analyst in
2000. He was promoted to portfolio manager in 2001. A native of Gaithersburg,
MD, Mr. Rushin holds a B.A. in English from Florida State University.
Assisted by the Aggressive Growth Team
Effective September 16, 2005, after the close of the reporting period Juliet S.
Ellis and Juan R. Hartsfield assumed management of AIM Small Company Growth
Fund.
- --------------------------------------------------------------------------------
[RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S LONG-TERM PERFORMANCE, PLEASE SEE PAGES 6 AND
7.
4
AIM SMALL COMPANY GROWTH FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, which may include sales charges (loads) on purchase payments contingent
deferred sales charges on redemptions; and redemption fees, if any; and (2)
ongoing costs, including management fees; distribution and/or service fees
(12b-1); and other Fund expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with ongoing costs of investing in other mutual funds. The
example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period February 1, 2005, through July 31, 2005.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return. The Fund's actual cumulative total returns at net asset value after
expenses for the six months ended July 31, 2005, appear in the table "Cumulative
Total Returns" on Page 7.
THE HYPOTHETICAL ACCOUNT VALUES AND EXPENSES MAY NOT BE USED TO ESTIMATE THE
ACTUAL ENDING ACCOUNT BALANCE OR EXPENSES YOU PAID FOR THE PERIOD. YOU MAY USE
THIS INFORMATION TO COMPARE THE ONGOING COSTS OF INVESTING IN THE FUND AND OTHER
FUNDS. TO DO SO, COMPARE THIS 5% HYPOTHETICAL EXAMPLE WITH THE 5% HYPOTHETICAL
EXAMPLES THAT APPEAR IN THE SHAREHOLDER REPORTS OF THE OTHER FUNDS.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) on purchase payments, contingent deferred sales charges on
redemptions, and redemption fees, if any. Therefore, the hypothetical
information is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these transactional costs were included, your costs would have been higher.
- --------------------------------------------------------------------------------
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
SHARE VALUE VALUE PAID DURING VALUE PAID DURING
CLASS (2/1/05) (7/31/05)/1/ PERIOD/2/,/3/ (7/31/05) PERIOD/2/,/4/
A $1,000.00 $1,101.60 $8.34 $1,016.86 $8.00
B 1,000.00 1,098.40 11.81 1,013.54 11.33
C 1,000.00 1,098.40 11.81 1,013.54 11.33
K 1,000.00 1,101.10 8.91 1,016.31 8.55
Investor 1,000.00 1,101.50 7.92 1,017.26 7.60
/1/The actual ending account value is based on the actual total return of the
Fund for the period February 1, 2005, through July 31, 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 July 31, 2005, appear in the table "Cumulative
Total Returns" on Page 7.
/2/Expenses are equal to the Fund's annualized expense ratio (1.60%, 2.27%,
2.27%, 1.71% and 1.52% for Class A, B, C, K and Investor Class shares,
respectively) multiplied by the average account value over the period,
multiplied by 181/365 (to reflect the one-half year period). Effective on July
1, 2005, the distributor contractually agreed to reduce rule 12B-1 plan fees for
Class A shares to 0.25%. The annualized expense ratio restated as if the
agreement had been in effect throughout the entire most recent fiscal half year
is 1.52% for Class A shares.
/3/The actual expenses paid restated as if the change discussed above had been
in effect throughout the most recent fiscal half year are $7.92 for Class A
shares.
/4/The hypothetical expenses paid restated as if the change discussed above had
been in effect throughout the most recent fiscal half year are $7.60 for Class A
shares.
- --------------------------------------------------------------------------------
[ARROW
BUTTON For More Information Visit
IMAGE] AIMINVESTMENTS.COM
5
AIM SMALL COMPANY GROWTH FUND
YOUR FUND'S LONG-TERM PERFORMANCE
- --------------------------------------------------------------------------------
RESULTS OF A $10,000 INVESTMENT
FUND DATA FROM 12/26/91 (INDEX DATA FROM 12/31/91)
- --------------------------------------------------------------------------------
The data shown in the chart include reinvested distributions, Fund expenses and
management fees. Index results include reinvested dividends, but they do not
reflect sales charges. Performance of an index of funds reflects fund expenses
and management fees; performance of a market index does not. Performance shown
in the chart and table(s) does not reflect deduction of taxes a shareholder
would pay on Fund distributions or sale of Fund shares. Performance of the
indexes does not reflect the effects of taxes.
This chart, which is a logarithmic chart, presents the fluctuations in the value
of the Fund and its indexes. We believe that a logarithmic chart is more
effective than other types of charts in illustrating changes in value during the
early years shown in the chart. The vertical axis, the one that indicates the
dollar value of an investment, is constructed with each segment representing a
percent change in the value of the investment. In this chart, each segment
represents a doubling, or 100% change, in the value of the investment. In other
words, the space between $5,000 and $10,000 and $10,000 and $20,000 is the same
size as the space between $20,000 and $40,000, the space between $20,000 and
$40,000 is the same as that between $40,000 and $80,000, and so on.
CONTINUED FROM INSIDE FRONT COVER
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800-959-4246 or on the AIM
Web site, AIMinvestments.com. On the home page, scroll down and click on AIM
Funds Proxy Policy. The information is also available on the SEC Web site,
sec.gov.
Information regarding how the Fund voted proxies related to its portfolio
securities during the 12 months ended June 30, 2005, 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.
[MOUNTAIN CHART]
DATE AIM SMALL COMPANY RUSSELL 2000 S&P 500 Lipper Small-Cap
GROWTH FUND- GROWTH FUND INDEX GROWTH FUND
INVESTOR CLASS INDEX
SHARES
-------- ------------------------------------ ----------------
12/26/91 $10000
12/91 10413 $10000 $10000 $10000
1/92 11253 10786 9814 10398
2/92 11280 10901 9941 10555
3/92 10813 10274 9748 10049
4/92 10080 9677 10034 9584
5/92 10067 9656 10083 9522
6/92 9653 9040 9933 9101
7/92 10174 9324 10338 9344
8/92 10187 8965 10127 9080
9/92 10667 9215 10246 9303
10/92 11427 9594 10281 9732
11/92 12734 10489 10630 10535
12/92 13095 10777 10761 10790
1/93 13054 10911 10851 11006
2/93 12187 10318 10999 10588
3/93 12854 10584 11230 11012
4/93 12481 10248 10959 10641
5/93 13188 10862 11251 11245
6/93 13574 10889 11284 11350
7/93 13840 10998 11239 11411
8/93 14988 11524 11664 12026
9/93 15867 11905 11575 12513
10/93 16467 12249 11814 12674
11/93 15641 11754 11702 12132
12/93 16157 12218 11843 12718
1/94 16304 12544 12245 13033
2/94 16344 12489 11913 12973
3/94 15437 11720 11395 12259
4/94 15383 11738 11541 12224
5/94 15209 11476 11729 12002
6/94 15196 10982 11442 11444
7/94 15463 11139 11818 11698
8/94 15890 11957 12301 12478
9/94 15784 12008 12001 12548
10/94 15624 12137 12270 12773
11/94 15171 11646 11824 12257
12/94 15553 11922 11999 12502
1/95 15248 11679 12310 12368
2/95 15723 12218 12789 12887
3/95 16130 12575 13166 13248
4/95 16146 12765 13553 13415
5/95 15968 12932 14094 13580
6/95 17077 13823 14421 14584
7/95 18491 14900 14899 15764
8/95 18916 15084 14936 16050
9/95 18661 15395 15566 16642
10/95 18013 14637 15510 16063
11/95 19171 15284 16190 16652
12/95 20222 15622 16502 17066
1/96 19443 15493 17063 16993
2/96 20845 16199 17222 17818
3/96 21433 16520 17388 18396
4/96 23698 17788 17644 20264
5/96 24874 18700 18098 21185
6/96 23299 17485 18167 20000
7/96 20860 15350 17365 17803
8/96 22210 16487 17732 19063
9/96 24459 17336 18729 20280
10/96 22955 16588 19245 19418
11/96 22937 17049 20699 19725
12/96 22572 17382 20289 19976
1/97 23762 17816 21555 20439
2/97 21761 16740 21725 18963
3/97 20229 15559 20834 17595
4/97 20320 15379 22076 17333
5/97 23114 17690 23426 19738
6/97 24267 18290 24467 20793
7/97 26087 19227 26414 22045
8/97 26395 19804 24935 22395
9/97 28523 21384 26300 24280
10/97 27333 20100 25423 23039
11/97 26521 19621 26598 22518
12/97 26707 19632 27055 22218
1/98 26421 19370 27354 21888
2/98 28852 21080 29326 23658
3/98 30329 21964 30826 24728
4/98 30235 22099 31142 24908
5/98 28352 20493 30607 23145
6/98 29256 20703 31850 23823
7/98 27255 18974 31513 22031
8/98 21799 14594 26960 17219
9/98 24301 16074 28689 18140
10/98 25110 16912 31019 18855
11/98 27541 18224 32898 20388
12/98 30686 19873 34792 22432
1/99 31030 20767 36247 22975
2/99 28194 18867 35120 20764
3/99 30314 19539 36525 21703
4/99 31878 21265 37940 22550
5/99 32012 21299 37045 22673
6/99 35431 22421 39095 24795
7/99 36065 21727 37880 24707
8/99 35401 20915 37692 24361
9/99 37996 21318 36660 25244
10/99 39904 21864 38979 26716
11/99 45849 24176 39771 30087
12/99 55730 28437 42110 36153
1/00 53244 28172 39995 35777
2/00 66534 34727 39239 46259
3/00 62915 31077 43075 42628
4/00 53100 27939 41779 37359
5/00 48608 25493 40923 34304
6/00 59890 28786 41931 40346
7/00 55368 26319 41276 37721
8/00 63208 29087 43838 41777
9/00 60212 27642 41524 39709
10/00 56172 25398 41348 36729
11/00 45263 20787 38091 30474
12/00 48930 22059 38278 33170
1/01 49375 23844 39635 34181
2/01 42107 20576 36023 29805
3/01 37260 18705 33742 26910
4/01 42298 20995 36362 29815
5/01 43000 21481 36606 30623
6/01 43542 22067 35716 31395
7/01 40672 20185 35364 29645
8/01 37423 18924 33152 27890
9/01 31046 15871 30475 23537
10/01 33849 17397 31057 25262
11/01 36557 18850 33439 27220
12/01 38692 20023 33732 28868
1/02 37001 19311 33240 27996
2/02 33623 18061 32599 26301
3/02 35856 19631 33825 28452
4/02 35153 19206 31775 27701
5/02 33814 18083 31542 26590
6/02 31264 16550 29296 24614
7/02 26803 14006 27013 21123
8/02 26771 14000 27189 21093
9/02 25274 12988 24237 19813
10/02 26773 13645 26368 20659
11/02 28334 14998 27919 22389
12/02 26549 13964 26280 20893
1/03 25816 13584 25592 20342
2/03 25338 13222 25208 19708
3/03 25528 13422 25452 20114
4/03 27057 14693 27547 21777
5/03 29577 16348 28997 23997
6/03 29928 16663 29368 24810
7/03 31841 17923 29886 26261
8/03 33468 18886 30468 27654
9/03 32354 18408 30145 26974
10/03 34871 19998 31849 29422
11/03 36018 20650 32129 30205
12/03 35445 20742 33813 30248
1/04 37200 21832 34434 31663
2/04 37136 21798 34912 31544
3/04 36754 21900 34386 31326
4/04 34905 20801 33846 29796
5/04 35575 21214 34310 30417
6/04 36628 21920 34977 31284
7/04 33442 19953 33819 28524
8/04 32519 19523 33955 27600
9/04 34304 20603 34323 29177
10/04 35515 21103 34847 29995
11/04 37841 22887 36257 32096
12/04 40074 23710 37490 33512
1/05 38319 22642 36576 32244
2/05 38732 22952 37346 32881
3/05 37648 22091 36685 31776
4/05 35607 20685 35990 30001
5/05 37616 22144 37134 31989
6/05 39688 22860 37187 33107
7/05 42210 24458 38569 35127
SOURCE: LIPPER, INC.
6
AIM SMALL COMPANY GROWTH FUND
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
As of 7/31/05, including applicable sales charges
CLASS A SHARES
Inception (3/28/02) 3.22%
1 Year 19.19
CLASS B SHARES
Inception (3/28/02) 3.48%
1 Year 20.36
CLASS C SHARES
Inception (2/14/00) -7.89%
5 Years -6.39
1 Year 24.41
CLASS K SHARES
Inception (12/14/01) 3.19%
1 Year 26.00
INVESTOR CLASS SHARES
Inception (12/26/91) 11.17%
10 Years 8.61
5 Years -5.28
1 Year 26.22
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
As of 6/30/05, most recent calendar quarter- end,
including applicable sales charges
CLASS A SHARES
Inception (3/28/02) 1.35%
1 Year 2.22
CLASS B SHARES
Inception (3/28/02) 1.59%
1 Year 2.60
CLASS C SHARES
Inception (2/14/00) -9.05%
5 Years -9.06
1 Year 6.57
CLASS K SHARES
Inception (12/14/01) 1.48%
1 Year 8.12
INVESTOR CLASS SHARES
Inception (12/26/91) 10.74%
10 Years 8.80
5 Years -7.90
1 Year 8.35
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURNS
6 months ended 7/31/05, excluding applicable
sales charges
Class A Shares 10.16%
Class B Shares 9.84
Class C Shares 9.84
Class K Shares 10.11
Investor Class Shares 10.15
- --------------------------------------------------------------------------------
THE PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE AND CANNOT GUARANTEE
COMPARABLE FUTURE RESULTS; CURRENT PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE
VISIT AIMINVESTMENTS.COM FOR THE MOST RECENT MONTH-END PERFORMANCE. PERFORMANCE
FIGURES REFLECT REINVESTED DISTRIBUTIONS, CHANGES IN NET ASSET VALUE AND THE
EFFECT OF THE MAXIMUM SALES CHARGE UNLESS OTHERWISE STATED. INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU MAY HAVE A GAIN OR LOSS WHEN YOU
SELL SHARES.
CLASS A SHARE PERFORMANCE REFLECTS THE MAXIMUM 5.50% SALES CHARGE, AND CLASS
B AND CLASS C SHARE PERFORMANCE REFLECTS THE APPLICABLE CONTINGENT DEFERRED
SALES CHARGE (CDSC) FOR THE PERIOD INVOLVED. THE CDSC ON CLASS B SHARES DECLINES
FROM 5% BEGINNING AT THE TIME OF PURCHASE TO 0% AT THE BEGINNING OF THE SEVENTH
YEAR. THE CDSC ON CLASS C SHARES IS 1% FOR THE FIRST YEAR AFTER PURCHASE.
CLASS K SHARES DO NOT HAVE A FRONT-END SALES CHARGE; RETURNS SHOWN ARE AT NET
ASSET VALUE AND DO NOT REFLECT A 0.70% CDSC THAT MAY BE IMPOSED ON A TOTAL
REDEMPTION OF RETIREMENT PLAN ASSETS WITHIN THE FIRST YEAR. INVESTOR CLASS
SHARES DO NOT HAVE A FRONT-END SALES CHARGE OR CDSC; THEREFORE, PERFORMANCE IS
AT NET ASSET VALUE. THE PERFORMANCE OF THE FUND'S SHARE CLASSES WILL DIFFER DUE
TO DIFFERENT SALES CHARGE STRUCTURES AND CLASS EXPENSES.
HAD THE ADVISOR NOT WAIVED FEES AND/OR REIMBURSED EXPENSES FOR THE FUND'S CLASS
A, B, C AND K SHARES IN THE PAST, PERFORMANCE WOULD HAVE BEEN LOWER.
7
AIM SMALL COMPANY GROWTH FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND SUMMARY OF INDEPENDENT WRITTEN FEE
EVALUATION
The Board of Trustees of AIM Stock Funds (the "Board") oversees the management
of AIM Small Company Growth Fund (the "Fund") and, as required by law,
determines annually whether to approve the continuance of each Fund's advisory
agreement with A I M Advisors, Inc. ("AIM"). Based upon the recommendation of
the Investments Committee of the Board, which is comprised solely of independent
trustees, at a meeting held on June 30, 2005, the Board, including all of the
independent trustees, approved the continuance of the advisory agreement (the
"Advisory Agreement") between the Fund and AIM for another year, effective July
1, 2005.
The Board considered the factors discussed below in evaluating the fairness
and reasonableness of the Advisory Agreement at the meeting on June 30, 2005 and
as part of the Board's ongoing oversight of the Fund. In their deliberations,
the Board and the independent trustees did not identify any particular factor
that was controlling, and each trustee attributed different weights to the
various factors.
One of the responsibilities of the Senior Officer of the Fund, who is
independent of AIM and AIM's affiliates, is to manage the process by which the
Fund's proposed management fees are negotiated to ensure that they are
negotiated in a manner which is at arm's length and reasonable. To that end, the
Senior Officer must either supervise a competitive bidding process or prepare an
independent written evaluation. The Senior Officer has recommended an
independent written evaluation in lieu of a competitive bidding process and,
upon the direction of the Board, has prepared such an independent written
evaluation. Such written evaluation also considered certain of the factors
discussed below. In addition, as discussed below, the Senior Officer made
certain recommendations to the Board in connection with such written evaluation.
The discussion below serves as a summary of the Senior Officer's independent
written evaluation and recommendations to the Board in connection therewith, as
well as a discussion of the material factors and the conclusions with respect
thereto that formed the basis for the Board's approval of the Advisory
Agreement. After consideration of all of the factors below and based on its
informed business judgment, the Board determined that the Advisory Agreement is
in the best interests of the Fund and its shareholders and that the compensation
to AIM under the Advisory Agreement is fair and reasonable and would have been
obtained through arm's length negotiations.
- - The nature and extent of the advisory services to be provided by AIM. The
Board reviewed the services to be provided by AIM under the Advisory Agreement.
Based on such review, the Board concluded that the range of services to be
provided by AIM under the Advisory Agreement was appropriate and that AIM
currently is providing services in accordance with the terms of the Advisory
Agreement.
- - The quality of services to be provided by AIM. The Board reviewed the
credentials and experience of the officers and employees of AIM who will provide
investment advisory services to the Fund. In reviewing the qualifications of AIM
to provide investment advisory services, the Board reviewed the qualifications
of AIM's investment personnel and considered such issues as AIM's portfolio and
product review process, various back office support functions provided by AIM
and AIM's equity and fixed income trading operations. Based on the review of
these and other factors, the Board concluded that the quality of services to be
provided by AIM was appropriate and that AIM currently is providing satisfactory
services in accordance with the terms of the Advisory Agreement.
- - The performance of the Fund relative to comparable funds. The Board reviewed
the performance of the Fund during the past one, three and five calendar years
against the performance of funds advised by other advisors with investment
strategies comparable to those of the Fund. The Board noted that the Fund's
performance was above the median performance of such comparable funds for the
one year period and below such median performance for the three and five year
periods. The Board also noted that AIM began serving as investment advisor to
the Fund in November 2003. The Board noted that AIM has recently made changes to
the Fund's portfolio management team, which appear to be producing encouraging
early results but need more time to be evaluated before a conclusion can be made
that the changes have addressed the Fund's under-performance. Based on this
review, the Board concluded that no changes should be made to the Fund and that
it was not necessary to change the Fund's portfolio management team at this
time.
- - The performance of the Fund relative to indices. The Board reviewed the
performance of the Fund during the past one, three and five calendar years
against the performance of the Lipper Small-Cap Growth Index. The Board noted
that the Fund's performance was above the performance of such Index for the one
year period and below such Index for the three and five year periods. The Board
also noted that AIM began serving as investment advisor to the Fund in November
2003. The Board noted that AIM has recently made changes to the Fund's portfolio
management team, which appear to be producing encouraging early results but need
more time to be evaluated before a conclusion can be made that the changes have
addressed the Fund's under-performance. Based on this review, the Board
concluded that no changes should be made to the Fund and that it was not
necessary to change the Fund's portfolio management team at this time.
- - Meeting with the Fund's portfolio managers and investment personnel. With
respect to the Fund, the Board is meeting periodically with such Fund's
portfolio managers and/or other investment personnel and believes that such
individuals are competent and able to continue to carry out their
responsibilities under the Advisory Agreement.
- - Overall performance of AIM. The Board considered the overall performance of
AIM in providing investment advisory and portfolio administrative services to
the Fund and concluded that such performance was satisfactory.
- - Fees relative to those of clients of AIM with comparable investment
strategies. The Board reviewed the advisory fee rate for the Fund under the
Advisory Agreement. The Board noted that this rate (i) was the same as the
advisory fee rates for a variable insurance fund advised by AIM and offered to
insurance company separate accounts with investment strategies comparable to
those of the Fund, although there were no breakpoints in the advisory fee
schedule applicable to the variable insurance fund; and (ii) was lower than the
advisory fee rates for an offshore fund for which an AIM affiliate serves as
advisor with investment strategies comparable to those of the Fund. The Board
noted that AIM has agreed to waive advisory fees of the Fund and to limit the
Fund's total operating expenses, as discussed below. Based on this review, the
Board concluded that the advisory fee rate for the Fund under the Advisory
Agreement was fair and reasonable.
- - Fees relative to those of comparable funds with other advisors. The Board
reviewed the advisory fee rate for the Fund under the Advisory Agreement. The
Board compared effective contractual advisory fee rates at a common asset level
and noted that the Fund's rate was below the median rate of the funds advised by
other advisors with investment strategies comparable to those of the Fund that
the Board reviewed. The Board noted that AIM has agreed to waive advisory fees
of the Fund and to limit the Fund's total operating expenses, as discussed
below. Based on this review, the Board concluded that the advisory fee rate for
the Fund under the Advisory Agreement was fair and reasonable.
- - Expense limitations and fee waivers. The Board noted that AIM has
contractually agreed to waive advisory fees of the Fund through June 30, 2006 to
the extent necessary so that the advisory fees payable by the Fund do not exceed
a specified maximum advisory fee rate, which maximum rate includes breakpoints
and is based on net asset levels. The Board considered the contractual nature of
this fee waiver and noted that it remains in effect until June 30, 2006. The
Board noted that AIM has contractually agreed to waive fees and/or limit
expenses of the Fund through July 31, 2005 in an amount necessary to limit total
annual operating expenses to a specified percentage of average daily net assets
for each class of the Fund. The Board also noted that AIM has voluntarily agreed
to waive fees and/or limit expenses of the Fund in an amount necessary to limit
total annual operating expenses to a specified percentage of average daily net
assets for each class of the Fund that is lower than the contractual agreement.
The Board considered the contractual and voluntary nature of these fee
waivers/expense limitations and noted that the contractual agreement remains in
effect through July 31, 2005 and the voluntary agreement can be terminated at
any time by AIM without further notice to investors. The Board considered the
effect
8
AIM SMALL COMPANY GROWTH FUND
these fee waivers/expense limitations would have on the Fund's estimated
expenses and concluded that the levels of fee waivers/expense limitations for
the Fund were fair and reasonable.
- - Breakpoints and economies of scale. The Board reviewed the structure of the
Fund's advisory fee under the Advisory Agreement, noting that it includes six
breakpoints. The Board reviewed the level of the Fund's advisory fees, and noted
that such fees, as a percentage of the Fund's net assets, have decreased as net
assets increased because the Advisory Agreement includes breakpoints. The Board
noted that, due to the Fund's current asset levels and the way in which the
advisory fee breakpoints have been structured, the Fund has yet to fully benefit
from the breakpoints. The Board noted that AIM has contractually agreed to waive
advisory fees of the Fund through June 30, 2006 to the extent necessary so that
the advisory fees payable by the Fund do not exceed a specified maximum advisory
fee rate, which maximum rate includes breakpoints and is based on net asset
levels. The Board concluded that the Fund's fee levels under the Advisory
Agreement therefore reflect economies of scale and that it was not necessary to
change the advisory fee breakpoints in the Fund's advisory fee schedule.
- - Investments in affiliated money market funds. The Board also took into
account the fact that uninvested cash and cash collateral from securities
lending arrangements (collectively, "cash balances") of the Fund may be invested
in money market funds advised by AIM pursuant to the terms of an SEC exemptive
order. The Board found that the Fund may realize certain benefits upon investing
cash balances in AIM advised money market funds, including a higher net return,
increased liquidity, increased diversification or decreased transaction costs.
The Board also found that the Fund will not receive reduced services if it
invests its cash balances in such money market funds. The Board noted that, to
the extent the Fund invests in affiliated money market funds, AIM has
voluntarily agreed to waive a portion of the advisory fees it receives from the
Fund attributable to such investment. The Board further determined that the
proposed securities lending program and related procedures with respect to the
lending Fund is in the best interests of the lending Fund and its respective
shareholders. The Board therefore concluded that the investment of cash
collateral received in connection with the securities lending program in the
money market funds according to the procedures is in the best interests of the
lending Fund and its respective shareholders.
- - Independent written evaluation and recommendations of the Fund's Senior
Officer. The Board noted that, upon their direction, the Senior Officer of the
Fund had prepared an independent written evaluation in order to assist the Board
in determining the reasonableness of the proposed management fees of the AIM
Funds, including the Fund. The Board noted that the Senior Officer's written
evaluation had been relied upon by the Board in this regard in lieu of a
competitive bidding process. In determining whether to continue the Advisory
Agreement for the Fund, the Board considered the Senior Officer's written
evaluation and the recommendation made by the Senior Officer to the Board that
the Board consider implementing a process to assist them in more closely
monitoring the performance of the AIM Funds. The Board concluded that it would
be advisable to implement such a process as soon as reasonably practicable.
- - Profitability of AIM and its affiliates. The Board reviewed information
concerning the profitability of AIM's (and its affiliates') investment advisory
and other activities and its financial condition. The Board considered the
overall profitability of AIM, as well as the profitability of AIM in connection
with managing the Fund. The Board noted that AIM's operations remain profitable,
although increased expenses in recent years have reduced AIM's profitability.
Based on the review of the profitability of AIM's and its affiliates' investment
advisory and other activities and its financial condition, the Board concluded
that the compensation to be paid by the Fund to AIM under its Advisory Agreement
was not excessive.
- - Benefits of soft dollars to AIM. The Board considered the benefits realized by
AIM as a result of brokerage transactions executed through "soft dollar"
arrangements. Under these arrangements, brokerage commissions paid by the Fund
and/or other funds advised by AIM are used to pay for research and execution
services. This research is used by AIM in making investment decisions for the
Fund. The Board concluded that such arrangements were appropriate.
- - AIM's financial soundness in light of the Fund's needs. The Board considered
whether AIM is financially sound and has the resources necessary to perform its
obligations under the Advisory Agreement, and concluded that AIM has the
financial resources necessary to fulfill its obligations under the Advisory
Agreement.
- - Historical relationship between the Fund and AIM. In determining whether to
continue the Advisory Agreement for the Fund, the Board also considered the
prior relationship between AIM and the Fund, as well as the Board's knowledge of
AIM's operations, and concluded that it was beneficial to maintain the current
relationship, in part, because of such knowledge. The Board also reviewed the
general nature of the non-investment advisory services currently performed by
AIM and its affiliates, such as administrative, transfer agency and distribution
services, and the fees received by AIM and its affiliates for performing such
services. In addition to reviewing such services, the trustees also considered
the organizational structure employed by AIM and its affiliates to provide those
services. Based on the review of these and other factors, the Board concluded
that AIM and its affiliates were qualified to continue to provide non-investment
advisory services to the Fund, including administrative, transfer agency and
distribution services, and that AIM and its affiliates currently are providing
satisfactory non-investment advisory services.
- - Other factors and current trends. In determining whether to continue the
Advisory Agreement for the Fund, the Board considered the fact that AIM, along
with others in the mutual fund industry, is subject to regulatory inquiries and
litigation related to a wide range of issues. The Board also considered the
governance and compliance reforms being undertaken by AIM and its affiliates,
including maintaining an internal controls committee and retaining an
independent compliance consultant, and the fact that AIM has undertaken to cause
the Fund to operate in accordance with certain governance policies and
practices. The Board concluded that these actions indicated a good faith effort
on the part of AIM to adhere to the highest ethical standards, and determined
that the current regulatory and litigation environment to which AIM is subject
should not prevent the Board from continuing the Advisory Agreement for the
Fund.
9
SUPPLEMENT TO ANNUAL REPORT DATED 7/31/05
AIM SMALL COMPANY GROWTH FUND
INSTITUTIONAL CLASS SHARES
The following information has been prepared to provide Institutional Class
shareholders with a performance overview specific to their holdings.
Institutional Class shares are offered exclusively to institutional investors,
including defined contribution plans that meet certain criteria.
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN
For periods ended 7/31/05
Inception (7/13/05) 2.23%*
*Return has not been annualized
- --------------------------------------------------------------------------------
INSTITUTIONAL CLASS SHARES HAVE NO SALES CHARGE; THEREFORE, PERFORMANCE IS AT
NAV. PERFORMANCE OF INSTITUTIONAL CLASS SHARES WILL DIFFER FROM PERFORMANCE OF
OTHER SHARE CLASSES DUE TO DIFFERING SALES CHARGES AND CLASS EXPENSES
HAD THE ADVISOR NOT WAIVED FEES AND/OR REIMBURSED EXPENSES, PERFORMANCE WOULD
HAVE BEEN LOWER.
PLEASE NOTE THAT PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. MORE
RECENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. ALL RETURNS ASSUME
REINVESTMENT OF DISTRIBUTIONS AT NET ASSET VALUE. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO YOUR SHARES, WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN THEIR ORIGINAL COST. SEE FULL REPORT FOR INFORMATION ON COMPARATIVE
BENCHMARKS. PLEASE CONSULT YOUR FUND PROSPECTUS FOR MORE INFORMATION. FOR THE
MOST CURRENT MONTH-END PERFORMANCE, PLEASE CALL 800-451-4246 OR VISIT
AIMINVESTMENTS.COM.
- --------------------------------------------------------------------------------
NASDAQ Symbol IIEGX
- --------------------------------------------------------------------------------
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.]
- REGISTERED TRADEMARK -
[AIM INVESTMENTS LOGO]
AIMINVESTMENTS.COM I-SCG-INS-1-E
- REGISTERED TRADEMARK -
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
--------------------------------------------------------------
F-1
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
----------------------------------------------------------
F-2
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
------------------------------------------------------------
F-3
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.
F-4
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.
F-5
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.
F-6
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.
F-7
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.
F-8
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%
----------------------------------------------------
F-9
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.
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 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.
F-11
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)
- ------------------------------------------------------------------------------------------------
F-12
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.
F-13
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.
F-14
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.
F-15
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.
F-16
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.
F-17
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.
F-18
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.
F-19
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
F-20
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.
F-21
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
F-22
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of July 31, 2005
The address of each trustee and officer of AIM Stock Funds (the "Trust"), 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.
NAME, YEAR OF BIRTH AND
POSITIONS(S) HELD WITH THE TRUSTEE AND/ PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST OR OFFICER SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ---------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham/1 /-- 1946 2003 Director and Chairman, A I M Management None
Trustee, Vice Chair 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 1998 Director, President and Chief Executive None
Trustee and Executive Vice President Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc.; Director, A I M Capital
Management, Inc. and A I M
Distributors, Inc.; Director and
Chairman, AIM Investment Services,
Inc., Fund Management Company 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
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett/3 /-- 1944 2003 Chairman, Crockett Technology ACE Limited (insurance
Trustee and Chair Associates (technology consulting company); and Captaris, Inc.
company) (unified messaging provider)
- ---------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 1983 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2003 Retired Badgley Funds, Inc. (registered
Trustee investment company
Formerly: Partner, law firm of Baker & (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
Trustee Century Group, Inc. (government affairs Global Education Fund (non-
company) (owner) Dos Angelos Ranch, L.P. profit)
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, YWCA None
Trustee of the USA
- ---------------------------------------------------------------------------------------------------------------------------------
/(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.
/(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 effective October 4, 2004.
TRUSTEES AND OFFICERS (CONTINUED)
As of July 31, 2005
The address of each trustee and officer of AIM Stock Funds (the "Trust"), 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.
NAME, YEAR OF BIRTH AND
POSITION(S) HELD WITH THE TRUSTEE AND/ PRINCIPAL OCCUPATION(S) DURING PAST 5 OTHER DIRECTORSHIP(S)
TRUST OR OFFICER SINCE YEARS HELD BY TRUSTEE
- ----------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 2003 Partner, law firm of Pennock & Cooper None
Trustee
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2003 Retired None
Trustee
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 1997 Retired None
Trustee
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ----------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley/4 /-- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Chief Group Inc.; Senior Vice President and
Compliance Officer Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and
Chief Compliance Officer, A I M Capital
Management, Inc. and Vice President, A
I M 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/5 /-- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President Assistant General Counsel, ICON
(Senior Officer) Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- ----------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and Secretary and General Counsel, A I M
Chief Legal Officer Management Group Inc. 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.; Vice President and
General Counsel, Fund Management
Company; and Senior Vice President, A I
M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC.; and Vice President,
A I M Distributors, Inc.; and Director,
Fund Management Company
- ----------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 2003 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc. and Vice
President, A I M Advisors, Inc.
- ----------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I N/A
Vice President and Treasurer M Advisors, Inc.
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ----------------------------------------------------------------------------------------------------------------------
J. Phillip Ferguson/6 /-- 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, 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.
- ----------------------------------------------------------------------------------------------------------------------
/(4)/ Ms. Brinkley was elected Senior Vice President and Chief Compliance
Officer of the Trust effective September 20, 2004.
/(5)/ Mr. Burk was elected Senior Vice President of the Trust effective
February 15, 2005.
/(6)/ Mr. Ferguson was elected Vice President of the Trust effective February
24, 2005.
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.
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza. A I M Advisors, Inc. A I M Distributors, Inc. PricewaterhouseCoopers LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77046-1173 Houston, Texas 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment Services, Inc. State Street Bank and Trust
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis & P.O. Box 4739 Company
1735 Market Street Frankel LLP Houston, TX 77210-4739 225 Franklin Street
Philadelphia, PA 19103-7599 1177 Avenue of the Americas Boston, MA 02110-2801
New York, NY 10036-2714
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
July 31, 2005, 0% is eligible for the dividends received deduction for
corporations.
For its tax year ended July 31, 2005, the Fund designates 0% or the maximum
amount allowable of its dividend distributions as qualified dividend income.
Your actual amount of qualified dividend income for the calendar year will be
reported on form 1099-DIV. You should consult your tax advisor regarding
treatment of the amounts.
U.S. ESTATE TAX FOR NON-RESIDENT ALIEN SHAREHOLDERS (UNAUDITED)
The percentage of qualifying assets not subject to the U.S. estate tax for the
fiscal quarters ended January 31, 2005, April 30, 2005 and July 31, 2005 are
4.14%, 3.75%, and 9.92%, respectively.
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
AIM High Income Municipal Fund/8/
International/Global Equity AIM Municipal Bond Fund
AIM Tax-Exempt Cash Fund
AIM Asia Pacific Growth Fund AIM Tax-Free Intermediate Fund
AIM Developing Markets Fund Premier Tax-Exempt Portfolio
AIM European Growth Fund
AIM European Small Company Fund/5/
AIM Global Aggressive Growth Fund AIM Allocation Solutions
AIM Global Equity Fund AIM Conservative Allocation Fund
AIM Global Growth Fund AIM Growth Allocation Fund/9/
AIM Global Value Fund AIM Moderate Allocation Fund
AIM International Core Equity Fund/1/ AIM Moderate Growth Allocation Fund
AIM International Growth Fund AIM Moderately Conservative Allocation Fund
AIM International Small Company
Fund/6/
AIM Trimark Fund
/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 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/As of end of business August 5, 2005,
AIM High Income Municipal 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. /9/Effective April 29, 2005, AIM
Aggressive Allocation Fund was renamed AIM Growth Allocation Fund.
If used after Oct. 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 $129 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $373 billion in assets under management. Data as of June 30,
2005.
- --------------------------------------------------------------------------------
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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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Appendix III
PRO FORMA COMBINING SCHEDULE OF INVESTMENTS *
OF AIM SMALL COMPANY GROWTH FUND
INTO AIM SMALL CAP GROWTH FUND
JUNE 30, 2005
(Unaudited)
<Table>
<Caption>
SHARES MARKET VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
AIM AIM
SMALL CAP SMALL CAP
AIM AIM GROWTH AIM AIM GROWTH
SMALL COMPANY SMALL CAP FUND SMALL COMPANY SMALL CAP FUND
GROWTH GROWTH PRO FORMA GROWTH GROWTH PRO FORMA
FUND FUND COMBINING FUND FUND COMBINING
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS & OTHER
EQUITY INTERESTS-
97.14%
AEROSPACE & DEFENSE-
1.83%
175,000 -- 175,000 Ceradyne, Inc. (a) $ 4,212,250 $ -- $ 4,212,250
- ------------------------------------------------------------------------------------------------------------------------------------
53,700 -- 53,700 Engineered Support
Systems, Inc. 1,924,071 -- 1,924,071
- ------------------------------------------------------------------------------------------------------------------------------------
122,000 -- 122,000 Essex Corp. (a) 2,791,360 -- 2,791,360
- ------------------------------------------------------------------------------------------------------------------------------------
-- 484,800 484,800 Mercury Computer
Systems, Inc. (a) -- 13,268,976 13,268,976
- ------------------------------------------------------------------------------------------------------------------------------------
-- 426,200 426,200 United Industrial Corp. -- 15,232,388 15,232,388
====================================================================================================================================
8,927,681 28,501,364 37,429,045
====================================================================================================================================
AGRICULTURAL PRODUCTS-
0.15%
125,000 -- 125,000 Corn Products
International, Inc. 2,970,000 -- 2,970,000
====================================================================================================================================
AIR FREIGHT &
LOGISTICS- 1.20%
-- 446,400 446,400 Forward Air Corp. -- 12,619,728 12,619,728
- ------------------------------------------------------------------------------------------------------------------------------------
-- 170,000 170,000 UTi Worldwide, Inc. (b) -- 11,835,400 11,835,400
====================================================================================================================================
-- 24,455,128 24,455,128
====================================================================================================================================
ALTERNATIVE CARRIERS- 0.14%
444,100 -- 444,100 Cogent Communications
Group, Inc. (a) 2,948,824 -- 2,948,824
====================================================================================================================================
APPAREL RETAIL- 3.78%
76,800 501,100 577,900 Aeropostale, Inc. (a)(b) 2,580,480 16,836,960 19,417,440
- ------------------------------------------------------------------------------------------------------------------------------------
-- 393,262 393,262 bebe stores, Inc. (b) -- 10,409,645 10,409,645
- ------------------------------------------------------------------------------------------------------------------------------------
-- 298,400 298,400 Children's Place Retail
Stores, Inc. (The) (a)(b) -- 13,926,328 13,926,328
- ------------------------------------------------------------------------------------------------------------------------------------
19,900 -- 19,900 DSW Inc.-Class A (a) 496,505 -- 496,505
- ------------------------------------------------------------------------------------------------------------------------------------
120,000 -- 120,000 Gymboree Corp. (The) (a)(b) 1,639,200 -- 1,639,200
- ------------------------------------------------------------------------------------------------------------------------------------
140,000 -- 140,000 Hot Topic, Inc. (a) 2,676,800 -- 2,676,800
- ------------------------------------------------------------------------------------------------------------------------------------
-- 480,174 480,174 Jos. A. Bank Clothiers, Inc. (a) -- 20,791,534 20,791,534
- ------------------------------------------------------------------------------------------------------------------------------------
-- 317,000 317,000 Pacific Sunwear of
California, Inc. (a)(b) -- 7,287,830 7,287,830
- ------------------------------------------------------------------------------------------------------------------------------------
23,900 -- 23,900 Volcom, Inc. (a) 639,803 -- 639,803
====================================================================================================================================
8,032,788 69,252,297 77,285,085
====================================================================================================================================
APPAREL, ACCESSORIES &
LUXURY GOODS- 0.68%
-- 599,700 599,700 Warnaco Group, Inc. (The) (a)(b) -- 13,943,025 13,943,025
====================================================================================================================================
APPLICATION SOFTWARE- 3.75%
-- 123,300 123,300 ANSYS, Inc. (a) -- 4,378,383 4,378,383
- ------------------------------------------------------------------------------------------------------------------------------------
101,443 344,700 446,143 Catapult Communications Corp. (a) 1,730,617 5,880,582 7,611,199
- ------------------------------------------------------------------------------------------------------------------------------------
-- 887,700 887,700 Epicor Software Corp. (a) -- 11,717,640 11,717,640
- ------------------------------------------------------------------------------------------------------------------------------------
300,000 -- 300,000 Henry (Jack) & Associates, Inc. (a) 5,493,000 -- 5,493,000
- ------------------------------------------------------------------------------------------------------------------------------------
50,000 -- 50,000 Hyperion Solutions Corp. (a) 2,012,000 -- 2,012,000
- ------------------------------------------------------------------------------------------------------------------------------------
-- 587,200 587,200 Macromedia, Inc. (a) -- 22,442,784 22,442,784
- ------------------------------------------------------------------------------------------------------------------------------------
-- 241,800 241,800 MicroStrategy Inc.-Class A (a)(b) -- 12,825,072 12,825,072
- ------------------------------------------------------------------------------------------------------------------------------------
150,000 -- 150,000 Open Solutions Inc. (a) 3,046,500 -- 3,046,500
- ------------------------------------------------------------------------------------------------------------------------------------
125,000 -- 125,000 Sonic Solutions (a)(b) 2,325,000 -- 2,325,000
- ------------------------------------------------------------------------------------------------------------------------------------
224,900 -- 224,900 TIBCO Software Inc. (a) 1,470,846 -- 1,470,846
- ------------------------------------------------------------------------------------------------------------------------------------
325,000 -- 325,000 Ulticom, Inc. (a) 3,448,250 -- 3,448,250
====================================================================================================================================
19,526,213 57,244,461 76,770,674
====================================================================================================================================
ASSET MANAGEMENT & CUSTODY
BANKS- 1.41%
45,000 176,500 221,500 Affiliated Managers Group, Inc. (a)(b) 3,074,850 12,060,245 15,135,095
- ------------------------------------------------------------------------------------------------------------------------------------
175,000 -- 175,000 Investors Financial Services
Corp. 6,618,500 -- 6,618,500
- ------------------------------------------------------------------------------------------------------------------------------------
70,000 -- 70,000 National Financial Partners
Corp. 2,739,800 -- 2,739,800
- ------------------------------------------------------------------------------------------------------------------------------------
118,000 -- 118,000 Nuveen Investments-Class A 4,439,160 -- 4,439,160
====================================================================================================================================
16,872,310 12,060,245 28,932,555
====================================================================================================================================
</Table>
PRO FORMA COMBINING SCHEDULE OF INVESTMENTS *
OF AIM SMALL COMPANY GROWTH FUND
INTO AIM SMALL CAP GROWTH FUND
JUNE 30, 2005
(Unaudited)
<Table>
<Caption>
SHARES MARKET VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
AIM AIM
SMALL CAP SMALL CAP
AIM AIM GROWTH AIM AIM GROWTH
SMALL COMPANY SMALL CAP FUND SMALL COMPANY SMALL CAP FUND
GROWTH GROWTH PRO FORMA GROWTH GROWTH PRO FORMA
FUND FUND COMBINING FUND FUND COMBINING
- ------------------------------------------------------------------------------------------------------------------------------------
AUTO PARTS & EQUIPMENT- 0.25%
139,000 -- 139,000 Keystone Automotive
Industries, Inc. (a) 3,437,470 -- 3,437,470
- ------------------------------------------------------------------------------------------------------------------------------------
75,000 -- 75,000 Midas, Inc. (a) 1,725,000 -- 1,725,000
====================================================================================================================================
5,162,470 -- 5,162,470
====================================================================================================================================
BIOTECHNOLOGY- 3.20%
-- 242,400 242,400 Affymetrix, Inc. (a)(b) -- 13,072,632 13,072,632
- ------------------------------------------------------------------------------------------------------------------------------------
110,000 414,700 524,700 Amylin Pharmaceuticals, Inc. (a)(b) 2,302,300 8,679,671 10,981,971
- ------------------------------------------------------------------------------------------------------------------------------------
75,000 -- 75,000 CV Therapeutics, Inc. (a) 1,681,500 -- 1,681,500
- ------------------------------------------------------------------------------------------------------------------------------------
115,000 -- 115,000 Digene Corp. (a)(c) 3,183,200 -- 3,183,200
- ------------------------------------------------------------------------------------------------------------------------------------
200,000 -- 200,000 Incyte Corp. (a) 1,430,000 -- 1,430,000
- ------------------------------------------------------------------------------------------------------------------------------------
33,595 -- 33,595 Martek Biosciences Corp. (a) 1,274,930 -- 1,274,930
- ------------------------------------------------------------------------------------------------------------------------------------
-- 353,000 353,000 Myriad Genetics, Inc. (a)(b) -- 5,524,450 5,524,450
- ------------------------------------------------------------------------------------------------------------------------------------
50,000 -- 50,000 Neurocrine Biosciences, Inc. (a) 2,103,000 -- 2,103,000
- ------------------------------------------------------------------------------------------------------------------------------------
200,000 -- 200,000 Nuvelo, Inc. (a)(b) 1,546,000 -- 1,546,000
- ------------------------------------------------------------------------------------------------------------------------------------
-- 462,800 462,800 Protein Design Labs, Inc. (a) -- 9,353,188 9,353,188
- ------------------------------------------------------------------------------------------------------------------------------------
332,000 -- 332,000 QLT Inc. (Canada) (a) 3,459,440 -- 3,459,440
- ------------------------------------------------------------------------------------------------------------------------------------
100,000 -- 100,000 Rigel Pharmaceuticals, Inc. (a) 1,992,000 -- 1,992,000
- ------------------------------------------------------------------------------------------------------------------------------------
-- 205,500 205,500 United Therapeutics Corp. (a)(b) -- 9,905,100 9,905,100
====================================================================================================================================
18,972,370 46,535,041 65,507,411
====================================================================================================================================
BROADCASTING & CABLE TV-
0.73%
-- 273,800 273,800 Radio One, Inc.-Class A (a) -- 3,485,474 3,485,474
- ------------------------------------------------------------------------------------------------------------------------------------
225,000 480,100 705,100 Radio One, Inc.-Class D (a)(b) 2,873,250 6,130,877 9,004,127
- ------------------------------------------------------------------------------------------------------------------------------------
375,000 -- 375,000 New Frontier Media, Inc. (a) 2,493,750 -- 2,493,750
====================================================================================================================================
5,367,000 9,616,351 14,983,351
====================================================================================================================================
BUILDING PRODUCTS- 0.18%
129,000 -- 129,000 Quixote Corp. 2,529,690 -- 2,529,690
- ------------------------------------------------------------------------------------------------------------------------------------
30,000 -- 30,000 York International Corp. 1,140,000 -- 1,140,000
====================================================================================================================================
3,669,690 -- 3,669,690
====================================================================================================================================
CASINOS & GAMING- 0.55%
200,000 -- 200,000 Multimedia Games, Inc. (a)(b) 2,202,000 -- 2,202,000
- ------------------------------------------------------------------------------------------------------------------------------------
-- 250,000 250,000 Penn National Gaming, Inc. (a) -- 9,125,000 9,125,000
====================================================================================================================================
2,202,000 9,125,000 11,327,000
====================================================================================================================================
COMMUNICATIONS EQUIPMENT-
2.43%
-- 181,406 181,406 F5 Networks, Inc. (a)(b) -- 8,568,712 8,568,712
- ------------------------------------------------------------------------------------------------------------------------------------
-- 658,300 658,300 NETGEAR, Inc. (a) -- 12,244,380 12,244,380
- ------------------------------------------------------------------------------------------------------------------------------------
-- 241,500 241,500 Plantronics, Inc. (b) -- 8,780,940 8,780,940
- ------------------------------------------------------------------------------------------------------------------------------------
-- 660,300 660,300 Polycom, Inc. (a)(b) -- 9,845,073 9,845,073
- ------------------------------------------------------------------------------------------------------------------------------------
-- 302,000 302,000 SafeNet, Inc. (a)(b) -- 10,286,120 10,286,120
====================================================================================================================================
-- 49,725,225 49,725,225
====================================================================================================================================
COMPUTER & ELECTRONICS
RETAIL- 0.63%
-- 391,900 391,900 GameStop Corp.-Class A (a)(b) -- 12,819,049 12,819,049
====================================================================================================================================
COMPUTER HARDWARE- 0.55%
-- 212,200 212,200 Avid Technology, Inc. (a)(b) -- 11,306,016 11,306,016
====================================================================================================================================
COMPUTER STORAGE &
PERIPHERALS- 0.07%
350,000 -- 350,000 Brocade Communications
Systems, Inc. (a) 1,358,000 -- 1,358,000
====================================================================================================================================
CONSTRUCTION & ENGINEERING-
0.24%
120,000 -- 120,000 Infrasource Services Inc. (a) 1,250,400 -- 1,250,400
- ------------------------------------------------------------------------------------------------------------------------------------
225,000 -- 225,000 Perini Corp. (a)(b) 3,694,500 -- 3,694,500
====================================================================================================================================
4,944,900 -- 4,944,900
====================================================================================================================================
</Table>
PRO FORMA COMBINING SCHEDULE OF INVESTMENTS *
OF AIM SMALL COMPANY GROWTH FUND
INTO AIM SMALL CAP GROWTH FUND
JUNE 30, 2005
(Unaudited)
<Table>
<Caption>
SHARES MARKET VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
AIM AIM
SMALL CAP SMALL CAP
AIM AIM GROWTH AIM AIM GROWTH
SMALL COMPANY SMALL CAP FUND SMALL COMPANY SMALL CAP FUND
GROWTH GROWTH PRO FORMA GROWTH GROWTH PRO FORMA
FUND FUND COMBINING FUND FUND COMBINING
- ------------------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION & FARM
MACHINERY &
HEAVY TRUCKS- 0.79%
171,000 -- 171,000 Astec Industries, Inc. (a) 3,965,490 -- 3,965,490
- ------------------------------------------------------------------------------------------------------------------------------------
67,400 -- 67,400 Terex Corp. (a) 2,655,560 -- 2,655,560
- ------------------------------------------------------------------------------------------------------------------------------------
-- 249,000 249,000 Toro Co. (The) -- 9,613,890 9,613,890
====================================================================================================================================
6,621,050 9,613,890 16,234,940
====================================================================================================================================
CONSTRUCTION MATERIALS- 0.86%
-- 189,700 189,700 Eagle Materials Inc. (b) -- 17,564,323 17,564,323
====================================================================================================================================
CONSUMER FINANCE- 0.09%
75,000 -- 75,000 ACE Cash Express, Inc. (a) 1,917,000 -- 1,917,000
====================================================================================================================================
DATA PROCESSING & OUTSOURCED
SERVICES- 2.17%
200,000 -- 200,000 Alliance Data Systems Corp. (a) 8,112,000 -- 8,112,000
- ------------------------------------------------------------------------------------------------------------------------------------
-- 531,400 531,400 Euronet Worldwide, Inc. (a) -- 15,447,798 15,447,798
- ------------------------------------------------------------------------------------------------------------------------------------
-- 222,300 222,300 Global Payments Inc. (b) -- 15,071,940 15,071,940
- ------------------------------------------------------------------------------------------------------------------------------------
175,000 -- 175,000 Infocrossing, Inc. (a)(b) 2,182,250 -- 2,182,250
- ------------------------------------------------------------------------------------------------------------------------------------
100,000 -- 100,000 iPayment Holdings, Inc. (a) 3,652,000 -- 3,652,000
====================================================================================================================================
13,946,250 30,519,738 44,465,988
====================================================================================================================================
DISTRIBUTORS- 0.32%
160,000 -- 160,000 Design Within Reach Inc. (a) 2,896,000 -- 2,896,000
- ------------------------------------------------------------------------------------------------------------------------------------
300,000 -- 300,000 Source Interlink Cos., Inc. (a) 3,711,000 -- 3,711,000
====================================================================================================================================
6,607,000 -- 6,607,000
====================================================================================================================================
DIVERSIFIED CHEMICALS- 0.69%
-- 252,400 252,400 FMC Corp. (a)(b) -- 14,169,736 14,169,736
====================================================================================================================================
DIVERSIFIED COMMERCIAL &
PROFESSIONAL SERVICES- 2.77%
-- 208,000 208,000 Corporate Executive Board
Co. (The) -- 16,292,640 16,292,640
- ------------------------------------------------------------------------------------------------------------------------------------
100,000 379,000 479,000 CoStar Group Inc. (a)(b) 4,360,000 16,524,400 20,884,400
- ------------------------------------------------------------------------------------------------------------------------------------
-- 224,400 224,400 CRA International Inc. (a)(b) -- 12,083,940 12,083,940
- ------------------------------------------------------------------------------------------------------------------------------------
75,000 -- 75,000 G & K Services, Inc.-Class A 2,829,750 -- 2,829,750
- ------------------------------------------------------------------------------------------------------------------------------------
123,000 -- 123,000 Navigant Consulting, Inc. (a) 2,172,180 -- 2,172,180
- ------------------------------------------------------------------------------------------------------------------------------------
275,000 -- 275,000 Sirva Inc. (a)(b) 2,340,250 -- 2,340,250
====================================================================================================================================
11,702,180 44,900,980 56,603,160
====================================================================================================================================
ELECTRICAL COMPONENTS &
EQUIPMENT- 0.86%
215,400 -- 215,400 EnerSys (a) 2,935,902 -- 2,935,902
- ------------------------------------------------------------------------------------------------------------------------------------
-- 392,100 392,100 Thomas & Betts Corp. (a) -- 11,072,904 11,072,904
- ------------------------------------------------------------------------------------------------------------------------------------
217,900 -- 217,900 Ultralife Batteries, Inc. (a) 3,519,085 -- 3,519,085
====================================================================================================================================
6,454,987 11,072,904 17,527,891
====================================================================================================================================
ELECTRONIC EQUIPMENT
MANUFACTURERS- 2.24%
625,000 -- 625,000 Aeroflex Inc. (a) 5,250,000 -- 5,250,000
- ------------------------------------------------------------------------------------------------------------------------------------
120,000 -- 120,000 Cogent Inc. (a) 3,426,000 -- 3,426,000
- ------------------------------------------------------------------------------------------------------------------------------------
-- 31,600 31,600 Daktronics, Inc. (b) -- 632,316 632,316
- ------------------------------------------------------------------------------------------------------------------------------------
-- 500,500 500,500 FARO Technologies, Inc. (a) -- 13,643,630 13,643,630
- ------------------------------------------------------------------------------------------------------------------------------------
-- 536,600 536,600 FLIR Systems, Inc. (a)(b) -- 16,012,144 16,012,144
- ------------------------------------------------------------------------------------------------------------------------------------
120,000 -- 120,000 Lipman (Israel) 3,692,400 -- 3,692,400
- ------------------------------------------------------------------------------------------------------------------------------------
150,000 -- 150,000 Photon Dynamics, Inc. (a)(b) 3,091,500 -- 3,091,500
====================================================================================================================================
15,459,900 30,288,090 45,747,990
====================================================================================================================================
</Table>
PRO FORMA COMBINING SCHEDULE OF INVESTMENTS *
OF AIM SMALL COMPANY GROWTH FUND
INTO AIM SMALL CAP GROWTH FUND
JUNE 30, 2005
(Unaudited)
<Table>
<Caption>
SHARES MARKET VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
AIM AIM
SMALL CAP SMALL CAP
AIM AIM GROWTH AIM AIM GROWTH
SMALL COMPANY SMALL CAP FUND SMALL COMPANY SMALL CAP FUND
GROWTH GROWTH PRO FORMA GROWTH GROWTH PRO FORMA
FUND FUND COMBINING FUND FUND COMBINING
- ------------------------------------------------------------------------------------------------------------------------------------
ELECTRONIC MANUFACTURING
SERVICES- 0.79%
700,000 -- 700,000 Staktek Holdings Inc. (a) 2,100,000 -- 2,100,000
- ------------------------------------------------------------------------------------------------------------------------------------
-- 361,000 361,000 Trimble Navigation Ltd. (a)(b) -- 14,068,170 14,068,170
====================================================================================================================================
2,100,000 14,068,170 16,168,170
====================================================================================================================================
ENVIRONMENTAL & FACILITIES
SERVICES- 0.90%
225,000 -- 225,000 Standard Parking Corp. (a) 3,664,125 -- 3,664,125
- ------------------------------------------------------------------------------------------------------------------------------------
-- 291,600 291,600 Stericycle, Inc. (a)(b) -- 14,673,312 14,673,312
====================================================================================================================================
3,664,125 14,673,312 18,337,437
====================================================================================================================================
FERTILIZERS & AGRICULTURAL
CHEMICALS- 0.72%
-- 207,100 207,100 Scotts Miracle-Gro Co.
(The)-Class A (a)(b) -- 14,747,591 14,747,591
====================================================================================================================================
FOOD DISTRIBUTORS- 0.75%
-- 505,300 505,300 United Natural Foods, Inc. (a)(b) -- 15,345,961 15,345,961
====================================================================================================================================
FOOTWEAR- 0.51%
-- 435,600 435,600 Wolverine World Wide, Inc. -- 10,458,756 10,458,756
====================================================================================================================================
GENERAL MERCHANDISE STORES-
0.15%
100,000 -- 100,000 Tuesday Morning Corp. (a) 3,152,000 -- 3,152,000
====================================================================================================================================
HEALTH CARE EQUIPMENT- 6.41%
125,000 -- 125,000 Advanced Medical Optics, Inc. (a) 4,968,750 -- 4,968,750
- ------------------------------------------------------------------------------------------------------------------------------------
-- 724,600 724,600 American Medical Systems
Holdings, Inc. (a) -- 14,962,990 14,962,990
- ------------------------------------------------------------------------------------------------------------------------------------
120,000 -- 120,000 Cantel Medical Corp. (a)(b) 1,963,200 -- 1,963,200
- ------------------------------------------------------------------------------------------------------------------------------------
250,000 -- 250,000 Cytyc Corp. (a) 5,515,000 -- 5,515,000
- ------------------------------------------------------------------------------------------------------------------------------------
-- 400,300 400,300 Integra LifeSciences Holdings (a) -- 11,688,760 11,688,760
- ------------------------------------------------------------------------------------------------------------------------------------
85,000 -- 85,000 IntraLase Corp. (a) 1,667,700 -- 1,667,700
- ------------------------------------------------------------------------------------------------------------------------------------
-- 257,900 257,900 Intuitive Surgical, Inc. (a)(b) -- 12,028,456 12,028,456
- ------------------------------------------------------------------------------------------------------------------------------------
125,000 -- 125,000 Kyphon Inc. (a) 4,348,750 -- 4,348,750
- ------------------------------------------------------------------------------------------------------------------------------------
-- 437,200 437,200 Mentor Corp. (b) -- 18,135,056 18,135,056
- ------------------------------------------------------------------------------------------------------------------------------------
-- 687,500 687,500 NuVasive, Inc. (a) -- 11,426,250 11,426,250
- ------------------------------------------------------------------------------------------------------------------------------------
87,500 -- 87,500 PerkinElmer, Inc. 1,653,750 -- 1,653,750
- ------------------------------------------------------------------------------------------------------------------------------------
-- 191,100 191,100 ResMed Inc. (a)(b) -- 12,610,689 12,610,689
- ------------------------------------------------------------------------------------------------------------------------------------
-- 305,200 305,200 Varian Inc. (a)(b) -- 11,533,508 11,533,508
- ------------------------------------------------------------------------------------------------------------------------------------
193,210 -- 193,210 Vnus Medical Technologies (a)(b) 2,324,316 -- 2,324,316
- ------------------------------------------------------------------------------------------------------------------------------------
98,000 511,500 609,500 Wright Medical Group, Inc. (a)(b) 2,616,600 13,657,050 16,273,650
====================================================================================================================================
25,058,066 106,042,759 131,100,825
====================================================================================================================================
HEALTH CARE FACILITIES- 2.38%
85,000 355,450 440,450 AmSurg Corp. (a)(b) 2,353,650 9,842,410 12,196,060
- ------------------------------------------------------------------------------------------------------------------------------------
255,000 -- 255,000 HealthSouth Corp. (a) 1,428,000 -- 1,428,000
- ------------------------------------------------------------------------------------------------------------------------------------
-- 398,500 398,500 LifePoint Hospitals, Inc. (a) -- 20,132,220 20,132,220
- ------------------------------------------------------------------------------------------------------------------------------------
-- 617,600 617,600 VCA Antech, Inc. (a)(b) -- 14,976,800 14,976,800
====================================================================================================================================
3,781,650 44,951,430 48,733,080
====================================================================================================================================
HEALTH CARE SERVICES- 2.67%
-- 200,000 200,000 Advisory Board Co. (The) (a) -- 9,748,000 9,748,000
- ------------------------------------------------------------------------------------------------------------------------------------
-- 305,600 305,600 Cerner Corp. (a)(b) -- 20,771,632 20,771,632
- ------------------------------------------------------------------------------------------------------------------------------------
50,000 -- 50,000 DaVita, Inc. (a) 2,274,000 -- 2,274,000
- ------------------------------------------------------------------------------------------------------------------------------------
95,000 -- 95,000 Eclipsys Corp. (a) 1,336,650 -- 1,336,650
- ------------------------------------------------------------------------------------------------------------------------------------
140,000 -- 140,000 Gentiva Health Services, Inc. (a) 2,500,400 -- 2,500,400
- ------------------------------------------------------------------------------------------------------------------------------------
175,000 -- 175,000 HealthExtras, Inc. (a) 3,512,250 -- 3,512,250
- ------------------------------------------------------------------------------------------------------------------------------------
-- 194,600 194,600 Pediatrix Medical Group, Inc. (a) -- 14,310,884 14,310,884
- ------------------------------------------------------------------------------------------------------------------------------------
-- 8,186 8,186 Per-Se Technologies, Inc. (a) -- 172,070 172,070
====================================================================================================================================
9,623,300 45,002,586 54,625,886
====================================================================================================================================
</Table>
Pro Forma Combining Schedule of Investments *
of AIM Small Company Growth Fund
into AIM Small Cap Growth Fund
June 30, 2005
(Unaudited)
<Table>
<Caption>
Shares Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
AIM AIM
Small Cap Small Cap
AIM AIM Growth AIM AIM Growth
Small Company Small Cap Fund Small Company Small Cap Fund
Growth Growth Pro Forma Growth Growth Pro Forma
Fund Fund Combining Fund Fund Combining
- ------------------------------------------------------------------------------------------------------------------------------------
Health Care Supplies- 1.88%
235,000 -- 235,000 Align Technology, Inc. (a)(b) 1,731,950 -- 1,731,950
- ------------------------------------------------------------------------------------------------------------------------------------
80,500 337,000 417,500 Gen-Probe Inc. (a)(b) 2,916,515 12,209,510 15,126,025
- ------------------------------------------------------------------------------------------------------------------------------------
-- 380,244 380,244 Immucor, Inc. (a) -- 11,008,064 11,008,064
- ------------------------------------------------------------------------------------------------------------------------------------
-- 186,900 186,900 Millipore Corp. (a)(b) -- 10,602,837 10,602,837
====================================================================================================================================
4,648,465 33,820,411 38,468,876
====================================================================================================================================
Homebuilding- 0.72%
-- 257,600 257,600 Beazer Homes USA, Inc. (b) -- 14,721,840 14,721,840
====================================================================================================================================
Home Furnishings- 0.73%
-- 671,600 671,600 Tempur-Pedic International Inc. (a) -- 14,896,088 14,896,088
====================================================================================================================================
Homefurnishing Retail- 0.26%
100,000 -- 100,000 Cost Plus, Inc. (a) 2,494,000 -- 2,494,000
- ------------------------------------------------------------------------------------------------------------------------------------
120,600 -- 120,600 Linens 'n Things, Inc. (a) 2,853,396 -- 2,853,396
====================================================================================================================================
5,347,396 -- 5,347,396
====================================================================================================================================
Hotels, Resorts & Cruise
Lines- 1.27%
-- 238,400 238,400 Choice Hotels International,
Inc. -- 15,662,880 15,662,880
- ------------------------------------------------------------------------------------------------------------------------------------
-- 179,400 179,400 Kerzner International Ltd.
(Bahamas) (a) -- 10,216,830 10,216,830
====================================================================================================================================
-- 25,879,710 25,879,710
====================================================================================================================================
Household Appliances- 0.21%
250,000 -- 250,000 Blount International, Inc. (a) 4,172,500 -- 4,172,500
====================================================================================================================================
Household Products- 0.59%
-- 335,900 335,900 Church & Dwight Co., Inc. (b) -- 12,159,580 12,159,580
====================================================================================================================================
Human Resources & Employment
Services- 0.08%
100,000 -- 100,000 Hudson Highland Group, Inc. (a) 1,559,000 -- 1,559,000
====================================================================================================================================
Hypermarkets & Super
Centers- 0.66%
-- 415,000 415,000 BJ's Wholesale Club, Inc. (a)(b) -- 13,483,350 13,483,350
====================================================================================================================================
Industrial Gases- 0.11%
94,300 -- 94,300 Airgas, Inc. 2,326,381 -- 2,326,381
====================================================================================================================================
Industrial Machinery- 2.61%
-- 219,100 219,100 Actuant Corp.-Class A (a) -- 10,503,654 10,503,654
- ------------------------------------------------------------------------------------------------------------------------------------
-- 267,600 267,600 Graco Inc. -- 9,117,132 9,117,132
- ------------------------------------------------------------------------------------------------------------------------------------
-- 263,500 263,500 IDEX Corp. -- 10,173,735 10,173,735
- ------------------------------------------------------------------------------------------------------------------------------------
-- 721,200 721,200 JLG Industries, Inc. (b) -- 19,818,576 19,818,576
- ------------------------------------------------------------------------------------------------------------------------------------
175,000 -- 175,000 Kadant Inc. (a) 3,837,750 -- 3,837,750
====================================================================================================================================
3,837,750 49,613,097 53,450,847
====================================================================================================================================
Integrated Telecommunication
Services- 0.30%
150,000 -- 150,000 Iowa Telecommunications
Services Inc. (b) 2,812,500 -- 2,812,500
- ------------------------------------------------------------------------------------------------------------------------------------
24,400 109,200 133,600 NeuStar, Inc.-Class A (a) 624,640 2,795,520 3,420,160
====================================================================================================================================
3,437,140 2,795,520 6,232,660
====================================================================================================================================
Internet Retail- 0.22%
70,000 -- 70,000 Blue Nile, Inc. (a)(b) 2,288,300 -- 2,288,300
- ------------------------------------------------------------------------------------------------------------------------------------
199,300 -- 199,300 FTD Group, Inc. (a) 2,262,055 -- 2,262,055
====================================================================================================================================
4,550,355 -- 4,550,355
====================================================================================================================================
</Table>
Pro Forma Combining Schedule of Investments *
of AIM Small Company Growth Fund
into AIM Small Cap Growth Fund
June 30, 2005
(Unaudited)
<Table>
<Caption>
Shares Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
AIM AIM
Small Cap Small Cap
AIM AIM Growth AIM AIM Growth
Small Company Small Cap Fund Small Company Small Cap Fund
Growth Growth Pro Forma Growth Growth Pro Forma
Fund Fund Combining Fund Fund Combining
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Software &
Services- 1.46%
-- 165,800 165,800 Blue Coat Systems, Inc. (a) -- 4,954,104 4,954,104
- ------------------------------------------------------------------------------------------------------------------------------------
250,000 -- 250,000 CyberSource Corp. (a) 1,827,500 -- 1,827,500
- ------------------------------------------------------------------------------------------------------------------------------------
498,156 -- 498,156 Kintera Inc. (a)(b) 1,698,711 -- 1,698,711
- ------------------------------------------------------------------------------------------------------------------------------------
-- 1,026,900 1,026,900 ValueClick, Inc. (a) -- 12,661,677 12,661,677
- ------------------------------------------------------------------------------------------------------------------------------------
-- 182,300 182,300 Websense, Inc. (a)(b) -- 8,759,515 8,759,515
====================================================================================================================================
3,526,211 26,375,296 29,901,507
====================================================================================================================================
Investment Banking &
Brokerage- 0.45%
-- 241,500 241,500 Jefferies Group, Inc. (b) -- 9,150,435 9,150,435
====================================================================================================================================
Investment Companies-Exchange
Traded Funds- 0.41%
iShares Nasdaq Biotechnology
-- 123,900 123,900 Index Fund (b) -- 8,412,810 8,412,810
====================================================================================================================================
IT Consulting & Other
Services- 1.34%
-- 974,900 974,900 MPS Group, Inc. (a) -- 9,183,558 9,183,558
- ------------------------------------------------------------------------------------------------------------------------------------
164,000 -- 164,000 Perot Systems Corp.-Class A (a) 2,332,080 -- 2,332,080
- ------------------------------------------------------------------------------------------------------------------------------------
-- 1,574,000 1,574,000 Sapient Corp. (a) -- 12,481,820 12,481,820
- ------------------------------------------------------------------------------------------------------------------------------------
150,000 -- 150,000 TNS Inc. (a) 3,505,500 -- 3,505,500
====================================================================================================================================
5,837,580 21,665,378 27,502,958
====================================================================================================================================
Leisure Facilities- 0.16%
90,000 -- 90,000 Speedway Motorsports, Inc. 3,290,400 -- 3,290,400
====================================================================================================================================
Leisure Products- 2.17%
200,000 -- 200,000 K2 Inc. (a)(b) 2,536,000 -- 2,536,000
- ------------------------------------------------------------------------------------------------------------------------------------
-- 681,500 681,500 Marvel Enterprises, Inc. (a) -- 13,439,180 13,439,180
- ------------------------------------------------------------------------------------------------------------------------------------
-- 615,500 615,500 Nautilus, Inc. (b) -- 17,541,750 17,541,750
- ------------------------------------------------------------------------------------------------------------------------------------
-- 288,300 288,300 RC2 Corp. (a) -- 10,831,431 10,831,431
====================================================================================================================================
2,536,000 41,812,361 44,348,361
====================================================================================================================================
Managed Health Care- 0.44%
-- 268,400 268,400 Centene Corp. (a)(b) -- 9,012,872 9,012,872
====================================================================================================================================
Marine- 0.38%
-- 172,200 172,200 Kirby Corp. (a) -- 7,766,220 7,766,220
====================================================================================================================================
Metal & Glass
Containers- 0.08%
108,000 -- 108,000 Crown Holdings, Inc. (a) 1,536,840 -- 1,536,840
====================================================================================================================================
Movies & Entertainment- 1.50%
-- 1,017,100 1,017,100 Imax Corp. (Canada) (a)(b) -- 10,109,974 10,109,974
- ------------------------------------------------------------------------------------------------------------------------------------
-- 1,414,900 1,414,900 Lions Gate Entertainment
Corp. (Canada) (a)(b) -- 14,516,874 14,516,874
- ------------------------------------------------------------------------------------------------------------------------------------
Regal Entertainment
325,000 -- 325,000 Group-Class A (a)(b) 6,136,000 -- 6,136,000
====================================================================================================================================
6,136,000 24,626,848 30,762,848
====================================================================================================================================
Multi-Line Insurance- 0.52%
-- 280,400 280,400 HCC Insurance Holdings, Inc. -- 10,618,748 10,618,748
====================================================================================================================================
Office Services &
Supplies- 0.18%
78,000 -- 78,000 Mine Safety Appliances Co. 3,603,600 -- 3,603,600
====================================================================================================================================
Oil & Gas Drilling- 1.47%
55,400 -- 55,400 Atwood Oceanics, Inc. (a)(c) 3,410,424 -- 3,410,424
- ------------------------------------------------------------------------------------------------------------------------------------
165,000 -- 165,000 Rowan Cos., Inc. 4,902,150 -- 4,902,150
- ------------------------------------------------------------------------------------------------------------------------------------
101,200 -- 101,200 Todco-Class A (a)(c) 2,597,804 -- 2,597,804
- ------------------------------------------------------------------------------------------------------------------------------------
80,000 355,100 435,100 Unit Corp. (a)(b) 3,520,800 15,627,951 19,148,751
====================================================================================================================================
14,431,178 15,627,951 30,059,129
====================================================================================================================================
</Table>
Pro Forma Combining Schedule of Investments *
of AIM Small Company Growth Fund
into AIM Small Cap Growth Fund
June 30, 2005
(Unaudited)
<Table>
<Caption>
Shares Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
AIM AIM
Small Cap Small Cap
AIM AIM Growth AIM AIM Growth
Small Company Small Cap Fund Small Company Small Cap Fund
Growth Growth Pro Forma Growth Growth Pro Forma
Fund Fund Combining Fund Fund Combining
- ------------------------------------------------------------------------------------------------------------------------------------
Oil & Gas Equipment &
Services- 2.41%
-- 340,800 340,800 Cal Dive International, Inc. (a)(b) -- 17,847,696 17,847,696
- ------------------------------------------------------------------------------------------------------------------------------------
Core Laboratories N.V.
-- 432,700 432,700 (Netherlands) (a) -- 11,605,014 11,605,014
- ------------------------------------------------------------------------------------------------------------------------------------
-- 402,500 402,500 FMC Technologies, Inc. (a)(b) -- 12,867,925 12,867,925
- ------------------------------------------------------------------------------------------------------------------------------------
525,000 -- 525,000 Input/Output, Inc. (a)(b) 3,297,000 -- 3,297,000
- ------------------------------------------------------------------------------------------------------------------------------------
226,200 -- 226,200 Key Energy Services, Inc. (a) 2,737,020 -- 2,737,020
- ------------------------------------------------------------------------------------------------------------------------------------
28,300 -- 28,300 Maverick Tube Corp. (a) 843,340 -- 843,340
====================================================================================================================================
6,877,360 42,320,635 49,197,995
====================================================================================================================================
Oil & Gas Exploration &
Production- 1.84%
150,000 -- 150,000 Barrett (Bill) Corp. (a) 4,437,000 -- 4,437,000
- ------------------------------------------------------------------------------------------------------------------------------------
-- 354,200 354,200 Encore Acquisition Co. (a) -- 14,522,200 14,522,200
- ------------------------------------------------------------------------------------------------------------------------------------
-- 578,800 578,800 Range Resources Corp. -- 15,569,720 15,569,720
- ------------------------------------------------------------------------------------------------------------------------------------
85,000 -- 85,000 Spinnaker Exploration Co. (a)(c) 3,016,650 -- 3,016,650
====================================================================================================================================
7,453,650 30,091,920 37,545,570
====================================================================================================================================
Packaged Foods & Meats- 0.38%
269,500 -- 269,500 Premium Standard Farms, Inc. (b) 3,611,300 -- 3,611,300
- ------------------------------------------------------------------------------------------------------------------------------------
60,000 -- 60,000 Sanderson Farms, Inc. (b) 2,726,400 -- 2,726,400
- ------------------------------------------------------------------------------------------------------------------------------------
50,000 -- 50,000 TreeHouse Foods, Inc. (a) 1,425,500 -- 1,425,500
====================================================================================================================================
7,763,200 -- 7,763,200
====================================================================================================================================
Pharmaceuticals- 1.79%
First Horizon Pharmaceutical
-- 563,800 563,800 Corp. (a) -- 10,734,752 10,734,752
- ------------------------------------------------------------------------------------------------------------------------------------
Medicis Pharmaceutical
143,100 -- 143,100 Corp.-Class A (b) 4,540,563 -- 4,540,563
- ------------------------------------------------------------------------------------------------------------------------------------
195,000 463,700 658,700 MGI Pharma, Inc. (a)(b) 4,243,200 10,090,112 14,333,312
- ------------------------------------------------------------------------------------------------------------------------------------
67,500 -- 67,500 Par Pharmaceutical Cos. Inc. (a) 2,147,175 -- 2,147,175
- ------------------------------------------------------------------------------------------------------------------------------------
120,000 -- 120,000 Salix Pharmaceuticals, Ltd. (a)(b) 2,119,200 -- 2,119,200
- ------------------------------------------------------------------------------------------------------------------------------------
150,000 -- 150,000 Valeant Pharmaceuticals
International 2,644,500 -- 2,644,500
====================================================================================================================================
15,694,638 20,824,864 36,519,502
====================================================================================================================================
Property & Casualty
Insurance- 0.50%
-- 245,800 245,800 ProAssurance Corp. (a)(b) -- 10,264,608 10,264,608
====================================================================================================================================
Real Estate- 0.96%
-- 221,500 221,500 BioMed Realty Trust, Inc. 5,282,775 -- 5,282,775
- ------------------------------------------------------------------------------------------------------------------------------------
Pan Pacific Retail
-- 214,700 214,700 Properties, Inc. -- 14,251,786 14,251,786
====================================================================================================================================
-- 19,534,561 19,534,561
====================================================================================================================================
Regional Banks- 3.97%
200,000 564,800 764,800 Amegy Bancorp., Inc. (b) 4,476,000 12,640,224 17,116,224
- ------------------------------------------------------------------------------------------------------------------------------------
110,000 380,100 490,100 East West Bancorp, Inc. (b) 3,694,900 12,767,559 16,462,459
- ------------------------------------------------------------------------------------------------------------------------------------
165,600 -- 165,600 Nara Bancorp, Inc. 2,431,008 -- 2,431,008
- ------------------------------------------------------------------------------------------------------------------------------------
-- 244,000 244,000 PrivateBancorp, Inc. (b) -- 8,632,720 8,632,720
- ------------------------------------------------------------------------------------------------------------------------------------
South Financial Group,
108,900 -- 108,900 Inc. (The) 3,094,938 -- 3,094,938
- ------------------------------------------------------------------------------------------------------------------------------------
-- 329,100 329,100 SVB Financial Group (a)(b) -- 15,763,890 15,763,890
- ------------------------------------------------------------------------------------------------------------------------------------
-- 363,500 363,500 Texas Capital
Bancshares, Inc. (a) -- 7,175,490 7,175,490
- ------------------------------------------------------------------------------------------------------------------------------------
Texas Regional Bancshares,
-- 276,200 276,200 Inc.-Class A -- 8,418,576 8,418,576
- ------------------------------------------------------------------------------------------------------------------------------------
125,000 -- 125,000 UCBH Holdings, Inc. 2,030,000 -- 2,030,000
====================================================================================================================================
15,726,846 65,398,459 81,125,305
====================================================================================================================================
Restaurants- 3.58%
-- 387,900 387,900 Jack in the Box Inc. (a)(b) -- 14,709,168 14,709,168
- ------------------------------------------------------------------------------------------------------------------------------------
P.F. Chang's China
-- 294,900 294,900 Bistro, Inc. (a)(b) -- 17,393,202 17,393,202
- ------------------------------------------------------------------------------------------------------------------------------------
-- 133,400 133,400 Panera Bread Co.-Class A (a)(b) -- 8,282,139 8,282,139
- ------------------------------------------------------------------------------------------------------------------------------------
RARE Hospitality
-- 470,400 470,400 International, Inc. (a)(b) -- 14,333,088 14,333,088
- ------------------------------------------------------------------------------------------------------------------------------------
100,000 -- 100,000 Ruby Tuesday, Inc. 2,590,000 -- 2,590,000
- ------------------------------------------------------------------------------------------------------------------------------------
-- 519,800 519,800 Sonic Corp. (a) -- 15,869,494 15,869,494
====================================================================================================================================
2,590,000 70,587,091 73,177,091
====================================================================================================================================
</Table>
Pro Forma Combining Schedule of Investments *
of AIM Small Company Growth Fund
into AIM Small Cap Growth Fund
June 30, 2005
(Unaudited)
<Table>
<Caption>
Shares Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
AIM AIM
Small Cap Small Cap
AIM AIM Growth AIM AIM Growth
Small Company Small Cap Fund Small Company Small Cap Fund
Growth Growth Pro Forma Growth Growth Pro Forma
Fund Fund Combining Fund Fund Combining
- ------------------------------------------------------------------------------------------------------------------------------------
Semiconductor
Equipment- 2.25%
75,000 -- 75,000 Cascade Microtech, Inc. (a) 1,095,000 -- 1,095,000
- ------------------------------------------------------------------------------------------------------------------------------------
-- 511,000 511,000 FormFactor Inc. (a) -- 13,500,620 13,500,620
- ------------------------------------------------------------------------------------------------------------------------------------
450,000 -- 450,000 Mattson Technology, Inc. (a) 3,222,000 -- 3,222,000
- ------------------------------------------------------------------------------------------------------------------------------------
150,000 -- 150,000 Rudolph Technologies, Inc. (a) 2,149,500 -- 2,149,500
- ------------------------------------------------------------------------------------------------------------------------------------
-- 405,000 405,000 Tessera Technologies Inc. (a)(b) -- 13,531,050 13,531,050
- ------------------------------------------------------------------------------------------------------------------------------------
Varian Semiconductor
-- 339,300 339,300 Equipment Associates, Inc. (a)(b) -- 12,554,100 12,554,100
====================================================================================================================================
6,466,500 39,585,770 46,052,270
====================================================================================================================================
Semiconductors- 2.03%
ARM Holdings PLC-ADR
-- 2,247,845 2,247,845 (United Kingdom) (b) -- 13,801,768 13,801,768
- ------------------------------------------------------------------------------------------------------------------------------------
Integrated Device
147,500 -- 147,500 Technology, Inc. (a) 1,585,625 -- 1,585,625
- ------------------------------------------------------------------------------------------------------------------------------------
-- 871,752 871,752 Microsemi Corp. (a) -- 16,388,938 16,388,938
- ------------------------------------------------------------------------------------------------------------------------------------
125,000 114,600 239,600 Semtech Corp. (a)(b) 2,081,250 1,908,090 3,989,340
- ------------------------------------------------------------------------------------------------------------------------------------
-- 334,900 334,900 Sigmatel Inc. (a)(b) -- 5,746,884 5,746,884
====================================================================================================================================
3,666,875 37,845,680 41,512,555
====================================================================================================================================
Specialized Consumer
Services- 0.23%
Jackson Hewitt Tax
200,000 -- 200,000 Service Inc. 4,728,000 -- 4,728,000
====================================================================================================================================
Specialized Finance- 0.26%
120,000 -- 120,000 Marlin Business Services Inc. (a) 2,412,000 -- 2,412,000
- ------------------------------------------------------------------------------------------------------------------------------------
Primus Guaranty, Ltd.
200,000 -- 200,000 (Bermuda) (a)(b) 2,896,000 -- 2,896,000
====================================================================================================================================
5,308,000 -- 5,308,000
====================================================================================================================================
Specialty Chemicals- 0.08%
81,600 -- 81,600 Nalco Holding Co. (a) 1,601,808 -- 1,601,808
====================================================================================================================================
Specialty Stores- 1.98%
125,000 -- 125,000 Gander Mountain Co. (a)(b) 1,425,000 -- 1,425,000
- ------------------------------------------------------------------------------------------------------------------------------------
-- 210,600 210,600 Guitar Center, Inc. (a)(b) -- 12,292,722 12,292,722
- ------------------------------------------------------------------------------------------------------------------------------------
125,000 -- 125,000 PETCO Animal Supplies, Inc. (a) 3,665,000 -- 3,665,000
- ------------------------------------------------------------------------------------------------------------------------------------
-- 303,600 303,600 Regis Corp. -- 11,864,688 11,864,688
- ------------------------------------------------------------------------------------------------------------------------------------
Steiner Leisure
-- 303,200 303,200 Ltd. (Bahamas) (a)(b) -- 11,239,624 11,239,624
====================================================================================================================================
5,090,000 35,397,034 40,487,034
====================================================================================================================================
Steel- 0.59%
-- 231,700 231,700 Carpenter Technology Corp. -- 12,002,060 12,002,060
====================================================================================================================================
Systems Software- 1.22%
Internet Security
-- 647,050 647,050 Systems, Inc. (a)(b) -- 13,128,645 13,128,645
- ------------------------------------------------------------------------------------------------------------------------------------
-- 522,500 522,500 Macrovision Corp. (a)(b) -- 11,777,150 11,777,150
====================================================================================================================================
-- 24,905,795 24,905,795
====================================================================================================================================
Technology
Distributors- 0.12%
405,600 -- 405,600 PC Connection, Inc. (a) 2,522,832 -- 2,522,832
====================================================================================================================================
Thrifts & Mortgage
Finance- 0.50%
BankUnited Financial
113,300 -- 113,300 Corp.-Class A 3,063,632 -- 3,063,632
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial Capital
175,000 -- 175,000 Bancorp, Inc. 2,924,250 -- 2,924,250
- ------------------------------------------------------------------------------------------------------------------------------------
225,000 -- 225,000 Franklin Bank Corp. (a) 4,221,001 -- 4,221,001
====================================================================================================================================
10,208,883 -- 10,208,883
====================================================================================================================================
</Table>
Pro Forma Combining Schedule of Investments *
of AIM Small Company Growth Fund
into AIM Small Cap Growth Fund
June 30, 2005
(Unaudited)
<Table>
<Caption>
Shares Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
AIM AIM
Small Cap Small Cap
AIM AIM Growth AIM AIM Growth
Small Company Small Cap Fund Small Company Small Cap Fund
Growth Growth Pro Forma Growth Growth Pro Forma
Fund Fund Combining Fund Fund Combining
- ------------------------------------------------------------------------------------------------------------------------------------
Trading Companies &
Distributors- 1.59%
-- 411,900 411,900 Hughes Supply, Inc. (b) -- 11,574,390 11,574,390
- ------------------------------------------------------------------------------------------------------------------------------------
MSC Industrial Direct Co.,
-- 454,800 454,800 Inc.-Class A -- 15,349,500 15,349,500
- ------------------------------------------------------------------------------------------------------------------------------------
60,000 -- 60,000 Watsco, Inc. 2,556,000 -- 2,556,000
- ------------------------------------------------------------------------------------------------------------------------------------
97,000 -- 97,000 WESCO International, Inc. (a)(b) 3,043,861 -- 3,043,861
====================================================================================================================================
5,599,861 26,923,890 32,523,751
====================================================================================================================================
Trucking- 1.97%
-- 458,400 458,400 Heartland Express, Inc. (b) -- 8,906,712 8,906,712
- ------------------------------------------------------------------------------------------------------------------------------------
-- 377,200 377,200 Knight Transportation, Inc. (b) -- 9,177,276 9,177,276
- ------------------------------------------------------------------------------------------------------------------------------------
Old Dominion Freight
-- 302,800 302,800 Line, Inc. (a) -- 8,124,124 8,124,124
- ------------------------------------------------------------------------------------------------------------------------------------
-- 604,300 604,300 Swift Transportation Co., Inc. (a) -- 14,074,147 14,074,147
====================================================================================================================================
-- 40,282,259 40,282,259
====================================================================================================================================
Wireless Telecommunication
Services- 0.85%
-- 1,244,000 1,244,000 Alamosa Holdings, Inc. (a)(b) -- 17,291,600 17,291,600
====================================================================================================================================
Total Common Stocks & Other
Equity Interests
(Cost $1,604,013,634) 383,117,003 1,603,698,169 1,986,815,172
====================================================================================================================================
Money Market Funds- 1.18%
Liquid Assets
-- 1,604,407 1,604,407 Portfolio-Institutional Class (d) -- 1,604,407 1,604,407
- ------------------------------------------------------------------------------------------------------------------------------------
STIC Prime
-- 1,604,407 1,604,407 Portfolio-Institutional Class (d) -- 1,604,407 1,604,407
- ------------------------------------------------------------------------------------------------------------------------------------
Premier
20,936,348 -- 20,936,348 Portfolio-Institutional Class (d) 20,936,348 -- 20,936,348
====================================================================================================================================
Total Money Market
Funds (Cost $24,145,162) 20,936,348 3,208,814 24,145,162
====================================================================================================================================
TOTAL INVESTMENTS (excluding
investments purchased with
cash collateral from
securities loaned)
(Cost $1,628,158,796) - 98.32% 404,053,351 1,606,906,983 2,010,960,334
====================================================================================================================================
Investments Purchased with
Cash Collateral from
Securities Loaned
Money Market Funds- 26.78%
Liquid Assets
-- 259,866,765 259,866,765 Portfolio-Institutional Class (d)(e) -- 259,866,765 259,866,765
- ------------------------------------------------------------------------------------------------------------------------------------
STIC Prime
-- 259,866,765 259,866,765 Portfolio-Institutional Class (d)(e) -- 259,866,765 259,866,765
- ------------------------------------------------------------------------------------------------------------------------------------
Premier
27,971,101 -- 27,971,101 Portfolio-Institutional Class (d)(e) 27,971,101 -- 27,971,101
====================================================================================================================================
Total Money Market Funds
(Cost $547,704,631) 27,971,101 519,733,530 547,704,631
====================================================================================================================================
TOTAL INVESTMENTS -
(Cost $2,175,863,427)
- 125.10% 432,024,452 2,126,640,513 2,558,664,965
====================================================================================================================================
OTHER ASSETS LESS
LIABILITIES--(25.10)% (20,965,174) (492,264,937) (513,343,111)
====================================================================================================================================
NET ASSETS- 100.00% $411,059,278 $1,634,375,576 $2,045,321,854
====================================================================================================================================
</Table>
Investment Abbreviations:
ADR - American Depository Receipt
Notes to Schedule of Investments:
* As of June 30, 2005, all of the securities held by AIM Small Company Growth
Fund would comply with the compliance guidelines and/or investment
restrictions of AIM Small Cap Growth Fund.
(a) Non-income producing security.
(b) All or a portion of this security has been pledged as collateral for
security lending transactions at June 30, 2005.
(c) A portion of this security is subject to call options written.
(d) Liquid Assets Portfolio, STIC Prime Portfolio and Premier Portfolio are
affiliated with AIM Small Company Growth Fund and AIM Small Cap Growth Fund
by having the same investment advisor.
(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 Accompanying Notes to Pro Forma Combining Financial Statements which are an
integral part of the financial statements.
PRO FORMA COMBINING STATEMENT OF ASSETS & LIABILITIES
OF AIM SMALL COMPANY GROWTH FUND
INTO AIM SMALL CAP GROWTH FUND
JUNE 30, 2005
(Unaudited)
<Table>
<Caption>
AIM AIM AIM
SMALL COMPANY SMALL CAP SMALL CAP GROWTH
GROWTH GROWTH PRO FORMA
FUND FUND ADJUSTMENTS COMBINING
----------------------------------------------------------------------
ASSETS:
Investments, at market value * $ 383,117,003 $ 1,603,698,169 $ -- $ 1,986,815,172
(cost $370,050,706 - AIM Small Company Growth Fund)
(cost $1,233,962,928 - AIM Small Cap Growth Fund)
(cost $1,604,013,634 - Pro Forma combining)
- --------------------------------------------------------------------------------------------------------------------------------
Investments in affiliated money market funds, at
market value 48,907,449 522,942,344 -- 571,849,793
(cost $48,907,449 - AIM Small Company Growth Fund)
(cost $522,942,344 - AIM Small Cap Growth Fund)
(cost $571,849,793 - Pro Forma combining)
- --------------------------------------------------------------------------------------------------------------------------------
Total Investments 432,024,452 2,126,640,513 -- 2,558,664,965
(cost $418,958,155 - AIM Small Company Growth Fund)
(cost $1,756,905,272 - AIM Small Cap Growth Fund)
(cost $2,175,863,427 - Pro Forma combining)
================================================================================================================================
Cash 4,445 -- -- 4,445
- --------------------------------------------------------------------------------------------------------------------------------
Receivables for:
Investments sold 9,386,806 58,281,850 -- 67,668,656
- --------------------------------------------------------------------------------------------------------------------------------
Investments sold to affiliates -- 1,051,240 -- 1,051,240
- --------------------------------------------------------------------------------------------------------------------------------
Fund shares sold 115,533 1,735,931 -- 1,851,464
- --------------------------------------------------------------------------------------------------------------------------------
Dividends 188,833 351,873 -- 540,706
- --------------------------------------------------------------------------------------------------------------------------------
Investment for trustee deferred compensation and
retirement plans 77,605 43,762 -- 121,367
- --------------------------------------------------------------------------------------------------------------------------------
Other assets -- 65,029 -- 65,029
================================================================================================================================
Total assets 441,797,674 2,188,170,198 -- 2,629,967,872
________________________________________________________________________________________________________________________________
================================================================================================================================
LIABILITIES:
Payables for:
Investments purchased 666,416 9,141,152 -- 9,807,568
- --------------------------------------------------------------------------------------------------------------------------------
Investments purchased from affiliates 1,230,000 -- -- 1,230,000
- --------------------------------------------------------------------------------------------------------------------------------
Fund shares reacquired 182,290 23,351,789 -- 23,534,079
- --------------------------------------------------------------------------------------------------------------------------------
Options written, at market value
(premiums received $274,246) 184,350 -- -- 184,350
- --------------------------------------------------------------------------------------------------------------------------------
Trustee deferred compensation and retirement plans 109,089 100,842 -- 209,931
- --------------------------------------------------------------------------------------------------------------------------------
Collateral upon return of securities loaned 27,971,101 519,733,530 -- 547,704,631
- --------------------------------------------------------------------------------------------------------------------------------
Accrued distribution fees 94,854 592,167 -- 687,021
- --------------------------------------------------------------------------------------------------------------------------------
Accrued trustees' and officer's fees and benefits 1,487 293 -- 1,780
- --------------------------------------------------------------------------------------------------------------------------------
Accrued transfer agent fees 200,051 727,152 -- 927,203
- --------------------------------------------------------------------------------------------------------------------------------
Accrued operating expenses 98,758 147,697 113,000 359,455
================================================================================================================================
Total liabilities 30,738,396 553,794,622 113,000 584,646,018
================================================================================================================================
Net assets applicable to shares outstanding $ 411,059,278 $ 1,634,375,576 $ (113,000) $ 2,045,321,854
________________________________________________________________________________________________________________________________
================================================================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest 827,086,402 1,257,987,670 -- 2,085,074,072
- --------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (5,392,964) (8,988,017) (113,000) (14,493,981)
- --------------------------------------------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities, futures contracts and option contracts (423,790,353) 15,640,682 -- (408,149,671)
- --------------------------------------------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities, futures
contracts and options contracts 13,156,193 369,735,241 -- 382,891,434
================================================================================================================================
$ 411,059,278 $ 1,634,375,576 $ (113,000) $ 2,045,321,854
________________________________________________________________________________________________________________________________
================================================================================================================================
NET ASSETS:
Class A $ 11,943,162 $ 1,317,363,266 $ 3,915,454 $ 1,333,221,882
________________________________________________________________________________________________________________________________
================================================================================================================================
Class B $ 5,041,065 $ 128,149,741 $ (1,386) $ 133,189,420
________________________________________________________________________________________________________________________________
================================================================================================================================
Class C $ 2,698,928 $ 33,702,255 $ (742) $ 36,400,441
________________________________________________________________________________________________________________________________
================================================================================================================================
Class K $ 3,919,814 $ -- $ (3,919,814) $ --
________________________________________________________________________________________________________________________________
================================================================================================================================
Class R $ -- $ 19,118,672 $ -- $ 19,118,672
________________________________________________________________________________________________________________________________
================================================================================================================================
Investor Class $ 387,456,309 $ -- $ (106,512) $ 387,349,797
________________________________________________________________________________________________________________________________
================================================================================================================================
Institutional Class $ -- $ 136,041,642 $ -- $ 136,041,642
________________________________________________________________________________________________________________________________
================================================================================================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE
(AIM SMALL COMPANY GROWTH FUND):
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE
(AIM SMALL CAP GROWTH FUND):
Class A 960,752 47,105,407 566,950 47,672,357
________________________________________________________________________________________________________________________________
================================================================================================================================
Class B 413,945 4,932,949 194,013 5,126,962
________________________________________________________________________________________________________________________________
================================================================================================================================
Class C 231,708 1,297,954 103,914 1,401,868
________________________________________________________________________________________________________________________________
================================================================================================================================
Class K 316,277 -- -- --
________________________________________________________________________________________________________________________________
================================================================================================================================
Class R -- 689,075 -- 689,075
________________________________________________________________________________________________________________________________
================================================================================================================================
Investor Class 31,132,036 -- 31,123,481 31,123,481
________________________________________________________________________________________________________________________________
================================================================================================================================
Institutional Class -- 4,785,421 -- 4,785,421
________________________________________________________________________________________________________________________________
================================================================================================================================
Class A:
Net asset value per share $ 12.43 $ 27.97 $ 27.97
- --------------------------------------------------------------------------------------------------------------------------------
Offering price per share:
(Net asset value of $12.43 / 94.50% -
AIM Small Company Growth Fund)
(Net asset value of $27.97/ 94.50% -
AIM Small Cap Growth Fund)
$ 13.15 $ 29.60 $ 29.60
________________________________________________________________________________________________________________________________
================================================================================================================================
Class B:
Net asset value and offering price per share $ 12.18 $ 25.98 $ 25.98
________________________________________________________________________________________________________________________________
================================================================================================================================
Class C:
Net asset value and offering price per share $ 11.65 $ 25.97 $ 25.97
________________________________________________________________________________________________________________________________
================================================================================================================================
Class K:
Net asset value and offering price per share $ 12.39 $ -- $ --
________________________________________________________________________________________________________________________________
================================================================================================================================
Class R:
Net asset value and offering price per share $ -- $ 27.75 $ 27.75
________________________________________________________________________________________________________________________________
================================================================================================================================
Investor Class:
Net asset value and offering price per share $ 12.45 $ -- $ 12.45
________________________________________________________________________________________________________________________________
================================================================================================================================
Institutional Class:
Net asset value and offering price per share $ -- $ 28.43 $ 28.43
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
* At June 30, 2005, securities with an aggregate market value of $27,285,417
and $501,481,933 were on loan to brokers for AIM Small Company Growth Fund
and AIM Small Cap Growth Fund, respectively.
SEE ACCOMPANYING NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS.
PRO FORMA COMBINING STATEMENT OF OPERATIONS
OF AIM SMALL COMPANY GROWTH FUND
INTO AIM SMALL CAP GROWTH FUND
FOR THE YEAR ENDED JUNE 30, 2005
(Unaudited)
<Table>
<Caption>
AIM
AIM AIM SMALL CAP
SMALL COMPANY SMALL CAP GROWTH FUND
GROWTH GROWTH PRO FORMA
FUND FUND ADJUSTMENTS COMBINING
-------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 1,415,108 $ 3,391,618 $ -- $ 4,806,726
(net of foreign withholding tax of $1,386 -
AIM Small Company Growth Fund)
(net of foreign withholding tax of $5,181 -
AIM Small Cap Growth Fund)
(net of foreign withholding tax of $6,567 -
Pro Forma Combining)
- -----------------------------------------------------------------------------------------------------------------------
Dividends from affiliated money market funds 676,176 3,234,110 -- 3,910,286
(including security lending income of $117,892 -
AIM Small Company Growth Fund)
(including security lending income of $2,321,040 -
AIM Small Cap Growth Fund)
(including security lending income of $2,438,932 -
AIM Pro Forma Combining)
- -----------------------------------------------------------------------------------------------------------------------
Interest -- 19,074 -- 19,074
- -----------------------------------------------------------------------------------------------------------------------
Total investment income 2,091,284 6,644,802 -- 8,736,086
=======================================================================================================================
EXPENSES:
Advisory fees 3,835,903 11,994,048 (350,000) 15,479,951
- -----------------------------------------------------------------------------------------------------------------------
Administrative services fees 163,347 414,881 (73,629) 504,599
- -----------------------------------------------------------------------------------------------------------------------
Custodian fees 60,926 188,334 -- 249,260
- -----------------------------------------------------------------------------------------------------------------------
Distribution fees:
Class A 40,383 4,964,692 -- 5,005,075
- -----------------------------------------------------------------------------------------------------------------------
Class B 44,162 1,409,572 -- 1,453,734
- -----------------------------------------------------------------------------------------------------------------------
Class C 25,540 381,988 -- 407,528
- -----------------------------------------------------------------------------------------------------------------------
Class K 342,210 -- -- 342,210
- -----------------------------------------------------------------------------------------------------------------------
Class R -- 86,995 -- 86,995
- -----------------------------------------------------------------------------------------------------------------------
Investor Class 1,104,345 -- -- 1,104,345
- -----------------------------------------------------------------------------------------------------------------------
Transfer agent fees-- A, B, C, K, R and Investor 2,233,100 8,347,306 (1,298) 10,579,108
- -----------------------------------------------------------------------------------------------------------------------
Transfer agent fees-- Institutional -- 114,815 -- 114,815
- -----------------------------------------------------------------------------------------------------------------------
Trustees' and officer's fees and benefits 34,244 70,892 (13,484) 91,652
- -----------------------------------------------------------------------------------------------------------------------
Other 342,945 633,838 (67,669) 909,114
=======================================================================================================================
Total expenses 8,227,105 28,607,361 (506,080) 36,328,386
=======================================================================================================================
Less: Fees waived, expenses reimbursed and expense
offset arrangements (94,162) (1,591,196) (11,538) (1,696,896)
=======================================================================================================================
Net expenses 8,132,943 27,016,165 (517,618) 34,631,490
=======================================================================================================================
Net investment income (loss) (6,041,659) (20,371,363) 517,618 (25,895,404)
=======================================================================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FUTURES CONTRACTS AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities* 100,696,396 215,019,935 -- 315,716,331
- -----------------------------------------------------------------------------------------------------------------------
Futures contracts (2,227,061) 2,393,963 -- 166,902
- -----------------------------------------------------------------------------------------------------------------------
Option contracts written 804,356 355,344 -- 1,159,700
=======================================================================================================================
99,273,691 217,769,242 -- 317,042,933
_______________________________________________________________________________________________________________________
=======================================================================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (66,992,047) (134,100,123) -- (201,092,170)
- -----------------------------------------------------------------------------------------------------------------------
Futures contracts -- (765,050) -- (765,050)
- -----------------------------------------------------------------------------------------------------------------------
Option contracts written 89,896 103,598 -- 193,494
=======================================================================================================================
(66,902,151) (134,761,575) -- (201,663,726)
_______________________________________________________________________________________________________________________
=======================================================================================================================
Net gain from investment securities, futures contracts
and option contracts 32,371,540 83,007,667 -- 115,379,207
=======================================================================================================================
Net increase in net assets resulting from operations $ 26,329,881 $ 62,636,304 $ 517,618 $ 89,483,803
_______________________________________________________________________________________________________________________
=======================================================================================================================
</Table>
* Includes gains from securities sold to affiliates of $4,428,748 and $455,546
for AIM Small Company Growth Fund and AIM Small Cap Growth Fund, respectively.
SEE ACCOMPANYING NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS.
NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS
OF AIM SMALL COMPANY GROWTH FUND INTO AIM SMALL CAP GROWTH FUND
JUNE 30, 2005
(UNAUDITED)
NOTE 1 - BASIS OF PRO FORMA PRESENTATION
The pro forma financial statements and the accompanying pro forma schedule of
investments give effect to the proposed Agreement and Plan of Reorganization
(the "Plan") between AIM Small Company Growth Fund and AIM Small Cap Growth Fund
and the consummation of the transactions contemplated therein to be accounted
for as a tax-free reorganization of investment companies. The Plan would be
accomplished by an exchange of shares of AIM Small Cap Growth Fund for the net
assets of AIM Small Company Growth Fund and the distribution of AIM Small Cap
Growth Fund shares to AIM Small Company Growth Fund shareholders. If the Plan
were to have taken place at June 30, 2005, AIM Small Company Growth Fund - Class
A shareholders would have received 426,963 shares of AIM Small Cap Growth Fund -
Class A shares, AIM Small Company Growth Fund - Class B shareholders would have
received 194,067 shares of AIM Small Cap Growth Fund - Class B shares, AIM Small
Company Growth Fund - Class C shareholders would have received 103,943 shares of
AIM Small Cap Growth Fund - Class C shares, AIM Small Company Growth Fund -
Class K shareholders would have received 140,143 shares of AIM Small Cap Growth
Fund - Class A shares and AIM Small Company Growth Fund - Investor Class
shareholders would have received 31,132,036 shares of AIM Small Cap Growth Fund
- - Investor Class shares.
The preparation of pro forma combined 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 pro forma combined
financial statements and the reported amounts of revenues and expenses during
the reporting period. Certain expenses have been adjusted to reflect the
expected expenses of the combined entity. The merger adjustments represent those
adjustments needed to present the results of operations of the pro forma
combined AIM Small Cap Growth Fund as if the proposed merger had taken effect on
June 30, 2005. Actual results could differ from those estimates.
The pro forma financial statements should be read in conjunction with
the historical financial statements of AIM Small Company Growth Fund and AIM
Small Cap Growth Fund.
NOTE 2 - PRO FORMA ADJUSTMENTS
(a) Under the terms of the investment advisory contract of AIM Small Cap Growth
Fund the advisory fees based on pro forma combined assets for the year ended
June 30, 2005 were $15,479,951. The advisory fees were adjusted to reflect the
advisory fee rates in effect for AIM Small Cap Growth Fund.
(b) Pursuant to the master administrative services agreement for AIM Small Cap
Growth Fund, fees paid on pro forma combined assets for the year ended June 30,
2005 were $504,599. The administrative services fees were adjusted to reflect
the fees in effect under the administrative services agreement for AIM Small Cap
Growth Fund.
(c) Transfer agency fees were restated to reflect the pro forma combined number
of open accounts under the terms of the transfer agency agreement of AIM Small
Cap Growth Fund. The effect of this restatement is to reduce transfer agency
fees on a pro forma basis by $1,298 for Class A, Class B, Class C, Class R and
Investor class shares.
(d) Trustees' and Officer's fees and benefits were reduced by $13,484 to
eliminate the effects of duplicative fixed costs of retainer and meeting
expenses.
(e) Other Expenses were reduced by $67,669 to eliminate the effects of
duplicative fixed costs of production of reports to shareholders and
professional services fees.
NOTE 3 -- REORGANIZATION COSTS
AIM Small Company Growth Fund is expected to incur an estimated $452,000 in
reorganization costs. These costs represent the estimated non recurring expense
of AIM Small Company Growth Fund carrying out their obligations under the Plans
and consist of management's estimate of professional services fees, printing
costs and mailing charges related to the proposed reorganizations. The
reorganization costs related to AIM Small Company Growth Fund are estimated to
be 452,000 and 25% of these costs will be paid by the shareholders of AIM Small
Company Growth Fund and the remaining 75% will be paid by AIM. Accrued operating
expenses and Undistributed net investment income on the Pro Forma Statement of
Assets & Liabilities have been adjusted accordingly.
PART C
OTHER INFORMATION
Item 15. Indemnification
Indemnification provisions for officers, trustees, and employees of the
Registrant are set forth in Article VIII of the Registrant's Amended and
Restated Agreement and Declaration of Trust and Article VIII of its
Amended and Restated Bylaws, and are hereby incorporated by reference. See
Item 16(1) and (2) above. Under the Amended and Restated Agreement and
Declaration of Trust, amended and restated effective as of September 14,
2005, (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 connection
with the successful defense of any action suit or proceeding) is asserted
by such trustee, officer or controlling person in connection with the
shares 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 and
be governed by final adjudication of such issue.
Item 16. Exhibits
1 - (a) Amended and Restated Agreement and Declaration of Trust of
Registrant, dated September 14, 2005 incorporated herein by reference
to Registrant's PEA No. 61 on Form N-1A, filed on October 28, 2005.
- (b) Amendment No. 1 to the Amended and Restated Agreement and
Declaration of Trust of Registrant, dated September 14, 2005
incorporated herein by reference to Registrant's PEA No. 62 on Form
N-1A, filed on November 1, 2005.
2 - Amended and Restated Bylaws of Registrant, adopted effective September
14, 2005 incorporated herein by reference to Registrant's PEA No. 61
on Form N-1A, filed on October 28, 2005.
3 - Voting Trust Agreements - None.
4 - Form of Agreement and Plan of Reorganization by and among the
Registrant on behalf of AIM Small Cap Growth Fund, AIM Stock Funds on
behalf of AIM Small Company Growth Fund and A I M Advisors, Inc., is
attached as Appendix I to the Combined Proxy Statement Prospectus
relating to AIM Small Company Growth Fund contained in this
Registration Statement.
5 - Articles II, VI, VII, VIII and IX of Registrant's Amended and Restated
Agreement and Declaration of Trust, as amended, 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 June 5, 2000, between
the Registrant and A I M Advisors, Inc. incorporated herein by
reference to Registrant's PEA No. 49 on Form N-1A, filed on April 24,
2001.
- (b) Amendment No. 1, dated September 11, 2000, to the Master
Investment Advisory Agreement, dated June 5, 2000, between the
Registrant and A I M Advisors, Inc. incorporated herein by reference
to Registrant's PEA No. 49 on Form N-1A, filed on April 24, 2001.
- (c) Amendment No. 2, dated September 1, 2001, to the Master Investment
Advisory Agreement, dated June 5, 2000, between the Registrant and A I
M Advisors, Inc. incorporated herein by reference to Registrant's PEA
No. 51 on Form N-1A, filed on April 26, 2002.
- (d) Amendment No. 3, dated July 1, 2002, to the Master Investment
Advisory
C-2
Agreement, dated June 5, 2000, between the Registrant and A I M
Advisors, Inc. incorporated herein by reference to Registrant's PEA
No. 53 on Form N-1A, filed on April 24, 2003.
- (e) Amendment No. 4, dated September 23, 2002, to the Master
Investment Advisory Agreement, dated June 5, 2000, between the
Registrant and A I M Advisors, Inc. incorporated herein by reference
to Registrant's PEA No. 53 on Form N-1A, filed on April 24, 2003.
- (f) Amendment No. 5, dated November 4, 2003, to the Master Investment
Advisory Agreement, dated June 5, 2000, between the Registrant and A I
M Advisors, Inc. incorporated herein by reference to Registrant's PEA
No. 55 on Form N-1A, filed on February 13, 2004.
- (g) Amendment No. 6, dated March 31, 2004, to the Master Investment
Advisory Agreement, dated June 5, 2000, between the Registrant and A I
M Advisors, Inc. incorporated herein by reference to Registrant's PEA
No. 56 on Form N-1A, filed on April 30, 2004.
- (h) Amendment No. 7, dated April 30, 2004, to the Master Investment
Advisory Agreement, dated June 5, 2000, between the Registrant and A I
M Advisors, Inc. incorporated herein by reference to Registrant's PEA
No. 56 on Form N-1A, filed on April 30, 2004.
- (i) Amendment No. 8, dated April 29, 2005, to the Master Investment
Advisory Agreement, dated June 5, 2000, between Registrant and A I M
Advisors, Inc. incorporated herein by reference to Registrant's PEA
No. 59 on Form N-1A, filed on August 11, 2005.
- (j) Amendment No. 9, dated October 31, 2005, to the Master Investment
Advisory Agreement, dated June 5, 2000, between Registrant and A I M
Advisors, Inc. incorporated herein by reference to Registrant's PEA
No. 62 on Form N-1A, filed on November 1, 2005.
7 (a) - (a) Amended and Restated Master Distribution Agreement, dated as of
August 18, 2003, between Registrant (all classes of shares except
Class B shares) and A I M Distributors, Inc. incorporated herein by
reference to Registrant's PEA No. 55 on Form N-1A, filed on February
13, 2004.
- (b) Amendment No. 1 to the Amended and Restated Master Distribution
Agreement, dated October 29, 2003, between Registrant (all classes of
shares except Class B shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 55 on Form
N-1A, filed on February 13, 2004.
- (c) Amendment No. 2 to the Amended and Restated Master Distribution
Agreement, dated November 4, 2003, between Registrant (all classes of
shares except Class B shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 55 on Form
N-1A, filed on February 13, 2004.
- (d) Amendment No. 3 to the Amended and Restated Master Distribution
Agreement, dated November 20, 2003, between Registrant (all classes of
shares except Class B shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 55 on Form
N-1A, filed on February 13, 2004.
- (e) Amendment No. 4 to the Amended and Restated Master Distribution
C-3
Agreement, dated November 24, 2003, between Registrant (all classes of
shares except Class B shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 55 on Form
N-1A, filed on February 13, 2004.
- (f) Amendment No. 5 to the Amended and Restated Master Distribution
Agreement, dated as of November 25, 2003, between Registrant (all
classes of shares except Class B shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 55 on Form
N-1A, filed on February 13, 2004.
- (g) Amendment No. 6 to the Amended and Restated Master Distribution
Agreement, dated as of January 6, 2004, between Registrant (all
classes of shares except Class B shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 56 on Form
N-1A, filed on April 30, 2004.
- (h) Amendment No. 7 to the Amended and Restated Master Distribution
Agreement dated as of March 31, 2004, between Registrant (all classes
of shares except Class B shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 56 on Form
N-1A, filed on April 30, 2004.
- (i) Amendment No. 8 to the Amended and Restated Master Distribution
Agreement dated as of April 30, 2004, between Registrant (all classes
of shares except Class B shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 56 on Form
N-1A, filed on April 30, 2004.
- (j) Amendment No. 9 to the Amended and Restated Master Distribution
Agreement dated as of September 14, 2004, between Registrant (all
classes of shares except Class B shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 57 on Form
N-1A, filed on February 11, 2005.
- (k) Amendment No. 10 to the Amended and Restated Master Distribution
Agreement dated as of September 15, 2004, between Registrant (all
classes of shares except Class B shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 57 on Form
N-1A, filed on February 11, 2005.
- (l) Amendment No. 11 to the Amended and Restated Master Distribution
Agreement dated as of October 15, 2004, between Registrant (all
classes of shares except Class B shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 57 on Form
N-1A, filed on February 11, 2005.
- (m) Amendment No. 12 to the Amended and Restated Master Distribution
Agreement dated as of November 30, 2004, between Registrant (all
classes of shares except Class B shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 57 on Form
N-1A, filed on February 11, 2005.
- (n) Amendment No. 13 to the Amended and Restated Master Distribution
Agreement dated as of December 30, 2004, between Registrant (all
classes of shares except Class B shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 57 on Form
N-1A, filed on February 11, 2005.
- (o) Amendment No. 14 to the Amended and Restated Master Distribution
Agreement dated as of February 25, 2005, between Registrant (all
classes of shares except Class B shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 58 on Form
N-1A, filed on April 26, 2005.
- (p) Amendment No. 15 to the Amended and Restated Master Distribution
C-4
Agreement dated as of March 15, 2005, between Registrant (all classes
of shares except Class B shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 58 on Form
N-1A, filed on April 26, 2005.
- (q) Amendment No. 16 to the Amended and Restated Master Distribution
Agreement dated as of April 29, 2005, between Registrant (all classes
of shares except Class B shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 59 on Form
N-1A, filed on August 11, 2005.
- (r) Amendment No. 17 to the Amended and Restated Master Distribution
Agreement dated July 13, 2005, between Registrant (all classes of
shares except Class B shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 61 on Form
N-1A, filed on October 28, 2005.
- (s) Amendment No. 18 to the Amended and Restated Master Distribution
Agreement dated July 18, 2005, between Registrant (all classes of
shares except Class B shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 61 on Form
N-1A, filed on October 28, 2005.
- (t) Amendment No. 19 to the Amended and Restated Master Distribution
Agreement dated October 22, 2005, between Registrant (all classes of
shares except Class B shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 61 on Form
N-1A, filed on October 28, 2005.
- (u) Amendment No. 20 to the Amended and Restated Master Distribution
Agreement dated October 25, 2005, between Registrant (all classes of
shares except Class B shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 61 on Form
N-1A, filed on October 28, 2005.
- (v) Amendment No. 21 to the Amended and Restated Master Distribution
Agreement dated October 31, 2005, between Registrant (all classes of
shares except Class B shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 62 on Form
N-1A, filed on November 1, 2005.
- (w) Form of Amendment No. 22 to the Amended and Restated Master
Distribution Agreement dated as of December 14, 2005, between
Registrant (all classes of shares except Class B shares) and A I M
Distributors, Inc. incorporated herein by reference to Registrant's
PEA No. 62 on Form N-1A, filed on November 1, 2005.
(b) - (a) Amended and Restated Master Distribution Agreement, dated as of
August 18, 2003, between Registrant (Class B shares) and A I M
Distributors, Inc. incorporated herein by reference to Registrant's
PEA No. 55 on Form N-1A, filed on February 13, 2004.
- (b) Amendment No. 1 to the Amended and Restated Master Distribution
Agreement, dated as of October 1, 2003, between Registrant (Class B
shares) and A I M Distributors, Inc. incorporated herein by reference
to Registrant's PEA No. 55 on Form N-1A, filed on February 13, 2004.
- (c) Amendment No. 2 to the Amended and Restated Master Distribution
Agreement, dated as of October 29, 2003, between Registrant (Class B
shares) and A I M Distributors, Inc. incorporated herein by reference
to Registrant's PEA No. 55 on Form N-1A, filed on February 13, 2004.
C-5
- (d) Amendment No. 3 to the Amended and Restated Master Distribution
Agreement, dated as of November 3, 2003, between Registrant (Class B
shares) and A I M Distributors, Inc. incorporated herein by reference
to Registrant's PEA No. 55 on Form N-1A, filed on February 13, 2004.
- (e) Amendment No. 4 to the Amended and Restated Master Distribution
Agreement, dated as of November 4, 2003, between Registrant (Class B
shares) and A I M Distributors, Inc. incorporated herein by reference
to Registrant's PEA No. 55 on Form N-1A, filed on February 13, 2004.
- (f) Amendment No. 5 to the Amended and Restated Master Distribution
Agreement, dated as of November 20, 2003, between Registrant (Class B
shares) and A I M Distributors, Inc. incorporated herein by reference
to Registrant's PEA No. 55 on Form N-1A, filed on February 13, 2004.
- (g) Amendment No. 6 to the Amended and Restated Master Distribution
Agreement, dated as of November 24, 2003, between Registrant (Class B
shares) and A I M Distributors, Inc. incorporated herein by reference
to Registrant's PEA No. 55 on Form N-1A, filed on February 13, 2004.
- (h) Amendment No. 7 to the Amended and Restated Master Distribution
Agreement, dated as of November 25, 2003, between Registrant (Class B
shares) and A I M Distributors, Inc. incorporated herein by reference
to Registrant's PEA No. 55 on Form N-1A, filed on February 13, 2004.
- (i) Amendment No. 8 to the Amended and Restated Master Distribution
Agreement, dated as of March 31, 2004, between Registrant (Class B
shares) and A I M Distributors, Inc. incorporated herein by reference
to Registrant's PEA No. 56 on Form N-1A, filed on April 30, 2004.
- (j) Amendment No. 9 to the Amended and Restated Master Distribution
Agreement, dated as of April 30, 2004, between Registrant (Class B
shares) and A I M Distributors, Inc. incorporated herein by reference
to Registrant's PEA No. 56 on Form N-1A, filed on April 30, 2004.
- (k) Amendment No. 10 to the Amended and Restated Master Distribution
Agreement, dated as of September 15, 2004, between Registrant (Class B
shares) and A I M Distributors, Inc. incorporated herein by reference
to Registrant's PEA No. 57 on Form N-1A, filed on February 11, 2005.
- (l) Amendment No. 11 to the Amended and Restated Master Distribution
Agreement, dated as of October 15, 2004, between Registrant (Class B
shares) and A I M Distributors, Inc. incorporated herein by reference
to Registrant's PEA No. 57 on Form N-1A, filed on February 11, 2005.
- (m) Amendment No. 12 to the Amended and Restated Master Distribution
Agreement, dated as of December 30, 2004, between Registrant (Class B
shares) and A I M Distributors, Inc. incorporated herein by reference
to Registrant's PEA No. 57 on Form N-1A, filed on February 11, 2005.
- (n) Amendment No. 13 to the Amended and restated Master Distribution
Agreement, dated as of March 15, 2005, between Registrant (Class B
shares) and A I M Distributors, Inc. incorporated herein by reference
to Registrant's PEA No. 58 on Form N-1A, filed on April 26, 2005.
C-6
- (o) Amendment No. 14 to the Amended and Restated Master Distribution
Agreement, dated as of April 29, 2005, between Registrant (Class B
shares) and A I M Distributors, Inc. incorporated herein by reference
to Registrant's PEA No. 59 on Form N-1A, filed on August 11, 2005.
- (p) Amendment No. 15, to the Amended and Restated Master Distribution
Agreement, dated July 18, 2005, between Registrant (Class B shares)
and A I M Distributors, Inc. incorporated herein by reference to
Registrant's PEA No. 59 on Form N-1A, filed on August 11, 2005.
- (q) Amendment No. 16 to the Amended and Restated Master Distribution
Agreement, dated October 31, 2005, between Registrant (Class B shares)
and A I M Distributors, Inc. incorporated herein by reference to
Registrant's PEA No. 62 on Form N-1A, filed on November 1, 2005.
(c) - Form of Selected Dealer Agreement for Investment Companies Managed by
A I M Advisors, Inc. incorporated herein by reference to Registrant's
PEA No. 49 on Form N-1A, filed on April 24, 2001.
(d) - Form of Bank Selling Group Agreement between A I M Distributors, Inc.
and banks incorporated herein by reference to Registrant's PEA No. 46
on Form N-1A, filed on February 12, 1999.
8 (a) - AIM Funds Retirement Plan for Eligible Directors/Trustees, as restated
October 1, 2001 incorporated herein by reference to Registrant's PEA
No. 50 on Form N-1A, filed on December 28, 2001.
(b) - Form of AIM Funds Director Deferred Compensation Agreement for
Registrant's Non-Affiliated Directors, as amended September 26, 2002
incorporated herein by reference to Registrant's PEA No. 53 on Form
N-1A, filed on April 24, 2003.
9 (a) - (a) Master Custodian Contract, dated May 1, 2000, between State Street
Bank and Trust Company and Registrant incorporated herein by reference
to Registrant's PEA No. 49 on Form N-1A, filed on April 24, 2001.
- (b) Amendment No. 1 dated May 1, 2000, to Master Custodian Contract,
dated May 1, 2000, between State Street Bank and Trust Company and
Registrant incorporated herein by reference to Registrant's PEA No. 49
on Form N-1A, filed on April 24, 2001.
- (c) Amendment, dated June 29, 2001, to Master Custodian Contract,
dated May 1, 2000, between State Street Bank and Trust Company and
Registrant incorporated herein by reference to Registrant's PEA No. 50
on Form N-1A, filed on December 28, 2001.
- (d) Amendment, dated April 2, 2002, to the Master Custodian Contract,
dated May 1, 2000, between State Street Bank and Trust Company and
Registrant incorporated herein by reference to Registrant's PEA No. 51
on Form N-1A, filed on April 26, 2002.
- (e) Amendment, dated September 8, 2004, to the Master Custodian
Contract, dated May 1, 2000, between State Street Bank and Trust
Company and Registrant incorporated herein by reference to
Registrant's PEA No. 57 on Form N-1A, filed on February 11, 2005.
C-7
(b) - (a) Subcustodian Agreement, dated September 9, 1994, among the
Registrant, Texas Commerce Bank National Association, State Street
Bank and Trust Company and A I M Fund Services, Inc. incorporated
herein by reference to Registrant's PEA No. 50 on Form N-1A, filed on
December 28, 2001.
- (b) Amendment No 1, dated October 2, 1998, to Subcustodian Agreement
among the Registrant, Texas Commerce Bank National Association now
known as Chase Bank of Texas, N.A., State Street Bank and Trust
Company and A I M Fund Services, Inc. incorporated herein by reference
to Registrant's PEA No. 50 on Form N-1A, filed on December 28, 2001.
- (c) Amendment No. 2, dated March 15, 2002, to Subcustodian Agreement
among the Registrant, JP Morgan Chase Bank (formerly Chase Bank of
Texas, N.A., and formerly Texas Commerce Bank National Association),
State Street Bank and Trust Company and A I M Fund Services, Inc.
incorporated herein by reference to Registrant's PEA No. 53 on Form
N-1A, filed on April 24, 2003.
(c) - Subcustodian Agreement, dated January 20, 1993, between State Street
Bank and Trust Company and The Bank of New York incorporated herein by
reference to Registrant's PEA No. 50 on Form N-1A, filed on December
28, 2001.
(d) - Foreign Assets Delegation Agreement, dated May 31, 2002, between
Registrant and A I M Advisors, Inc. incorporated herein by reference
to Registrant's PEA No. 50 on Form N-1A, filed on December 28, 2001.
10(a) - (a) Amended and Restated Master Distribution Plan dated as of August
18, 2003, between Registrant (Class A Shares) and A I M Distributors,
Inc. incorporated herein by reference to Registrant's PEA No. 55 on
Form N-1A, filed on February 13, 2004.
- (b) Amendment No. 1, dated October 29, 2003, to the Amended and
Restated Master Distribution Plan between Registrant (Class A Shares)
and A I M Distributors, Inc. incorporated herein by reference to
Registrant's PEA No. 55 on Form N-1A, filed on February 13, 2004.
- (c) Amendment No. 2, dated November 4, 2003, to the Amended and
Restated Master Distribution Plan between Registrant (Class A Shares)
and A I M Distributors, Inc. incorporated herein by reference to
Registrant's PEA No. 55 on Form N-1A, filed on February 13, 2004.
- (d) Amendment No. 3, dated November 20, 2003, to the Amended and
Restated Master Distribution Plan between Registrant (Class A Shares)
and A I M Distributors, Inc. incorporated herein by reference to
Registrant's PEA No. 55 on Form N-1A, filed on February 13, 2004.
- (e) Amendment No. 4, dated November 24, 2003, to the Amended and
Restated Master Distribution Plan between Registrant (Class A Shares)
and A I M Distributors, Inc. incorporated herein by reference to
Registrant's PEA No. 55 on Form N-1A, filed on February 13, 2004.
- (f) Amendment No. 5, dated November 25, 2003, to the Amended and
Restated Master Distribution Plan between Registrant (Class A Shares)
and A I M Distributors, Inc. incorporated herein by reference to
Registrant's PEA No. 55 on Form N-1A, filed on February 13, 2004.
C-8
- (g) Amendment No. 6, dated March 31, 2004, to the Amended and Restated
Master Distribution Plan between Registrant (Class A Shares) and A I M
Distributors, Inc. incorporated herein by reference to Registrant's
PEA No. 56 on Form N-1A, filed on April 30, 2004.
- (h) Amendment No. 7, dated April 30, 2004, to the Amended and Restated
Master Distribution Plan between Registrant (Class A Shares) and A I M
Distributors, Inc. incorporated herein by reference to Registrant's
PEA No. 56 on Form N-1A, filed on April 30, 2004.
- (i) Amendment No. 8, dated September 15, 2004, to the Amended and
Restated Master Distribution Plan between Registrant (Class A Shares)
and A I M Distributors, Inc. incorporated herein by reference to
Registrant's PEA No. 57 on Form N-1A, filed on February 11, 2005.
- (j) Amendment No. 9, dated October 15, 2004, to the Amended and
Restated Distribution Plan between Registrant (Class A Shares) and A I
M Distributors, Inc. incorporated herein by reference to Registrant's
PEA No. 57 on Form N-1A, filed on February 11, 2005.
- (k) Amendment No. 10, dated December 30, 2004, to the Amended and
Restated Distribution Plan between Registrant (Class A Shares) and A I
M Distributors, Inc. incorporated herein by reference to Registrant's
PEA No. 57 on Form N-1A, filed on February 11, 2005.
- (l) Amendment No. 11, dated January 1, 2005, to the Amended and
Restated Distribution Plan between Registrant (Class A Shares) and A I
M Distributors, Inc. incorporated herein by reference to Registrant's
PEA No. 57 on Form N-1A, filed on February 11, 2005.
- (m) Amendment No. 12, dated March 15, 2005, to the Amended and
Restated Master Distribution Plan between Registrant (Class A Shares)
and A I M Distributors, Inc. incorporated herein by reference to
Registrant's PEA No. 58 on Form N-1A, filed on April 26, 2005.
- (n) Amendment No. 13, dated April 29, 2005, to the Amended and
Restated Distribution Plan between Registrant (Class A Shares) and A I
M Distributors, Inc. incorporated herein by reference to Registrant's
PEA No. 59 on Form N-1A, filed on August 11, 2005.
- (o) Amendment No. 14, dated July 1, 2005, to the Amended and Restated
Master Distribution Plan between Registrant (Class A Shares) and A I M
Distributors, Inc. incorporated herein by reference to Registrant's
PEA No. 59 on Form N-1A, filed on August 11, 2005.
- (p) Amendment No. 15, dated July 18, 2005, to the Amended and Restated
Master Distribution Plan between Registrant (Class A Shares) and A I M
Distributors, Inc. incorporated herein by reference to Registrant's
PEA No. 59 on Form N-1A, filed on August 11, 2005.
- (q) Amendment No. 16, dated October 31, 2005, to the Amended and
Restated Master Distribution Plan between Registrant (Class A Shares)
and A I M Distributors, Inc. incorporated herein by reference to
Registrant's PEA No. 61 on Form N-1A, filed on October 28, 2005.
C-9
(b) - (a) Amended and Restated Master Distribution Plan dated as of August
18, 2003, between Registrant (Class B Shares) and A I M Distributors,
Inc. incorporated herein by reference to Registrant's PEA No. 55 on
Form N-1A, filed on February 13, 2004.
- (b) Amendment No. 1, dated October 29, 2003, to the Amended and
Restated Master Distribution Plan between Registrant (Class B Shares)
and A I M Distributors, Inc. incorporated herein by reference to
Registrant's PEA No. 55 on Form N-1A, filed on February 13, 2004.
- (c) Amendment No. 2, dated November 4, 2003, to the Amended and
Restated Master Distribution Plan between Registrant (Class B Shares)
and A I M Distributors, Inc. incorporated herein by reference to
Registrant's PEA No. 55 on Form N-1A, filed on February 13, 2004.
- (d) Amendment No. 3, dated November 20, 2003, to the Amended and
Restated Master Distribution Plan between Registrant (Class B Shares)
and A I M Distributors, Inc. incorporated herein by reference to
Registrant's PEA No. 55 on Form N-1A, filed on February 13, 2004.
- (e) Amendment No. 4, dated November 24, 2003, to the Amended and
Restated Master Distribution Plan between Registrant (Class B Shares)
and A I M Distributors, Inc. incorporated herein by reference to
Registrant's PEA No. 55 on Form N-1A, filed on February 13, 2004.
- (f) Amendment No. 5, dated November 25, 2003, to the Amended and
Restated Master Distribution Plan between Registrant (Class B Shares)
and A I M Distributors, Inc. incorporated herein by reference to
Registrant's PEA No. 55 on Form N-1A, filed on February 13, 2004.
- (g) Amendment No. 6, dated March 31, 2004, to the Amended and Restated
Master Distribution Plan between Registrant (Class B Shares) and A I M
Distributors, Inc. incorporated herein by reference to Registrant's
PEA No. 56 on Form N-1A, filed on April 30, 2004.
- (h) Amendment No. 7, dated April 30, 2004, to the Amended and Restated
Master Distribution Plan (Class B Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 56 on Form
N-1A, filed on April 30, 2004.
- (i) Amendment No. 8, dated September 15, 2004, to the Amended and
Restated Master Distribution Plan (Class B Shares) and A I M
Distributors, Inc. incorporated herein by reference to Registrant's
PEA No. 57 on Form N-1A, filed on February 11, 2005.
- (j) Amendment No. 9, dated October 15, 2004, to the Amended and
Restated Master Distribution Plan (Class B Shares) and A I M
Distributors, Inc. incorporated herein by reference to Registrant's
PEA No. 57 on Form N-1A, filed on February 11, 2005.
- (k) Amendment No. 10, dated December 30, 2004, to the Amended and
Restated Master Distribution Plan (Class B Shares) and A I M
Distributors, Inc. incorporated herein by reference to Registrant's
PEA No. 57 on Form N-1A, filed on February 11, 2005.
C-10
- (l) Amendment No. 11, dated March 15, 2005, to the Amended and
Restated Master Distribution Plan (Class B Shares) and A I M
Distributors, Inc. incorporated herein by reference to Registrant's
PEA No. 58 on Form N-1A, filed on April 26, 2005.
- (m) Amendment No. 12, dated April 29, 2005, to the Amended and
Restated Master Distribution Plan (Class B Shares) and A I M
Distributors, Inc. incorporated herein by reference to Registrant's
PEA No. 59 on Form N-1A, filed on August 11, 2005.
- (n) Amendment No. 13, dated July 18, 2005, to the Amended and Restated
Master Distribution Plan (Class B Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 59 on Form
N-1A, filed on August 11, 2005.
- (o) Amendment No. 14, dated October 31, 2005, to the Amended and
Restated Master Distribution Plan (Class B Shares) and A I M
Distributors, Inc. incorporated herein by reference to Registrant's
PEA No. 61 on Form N-1A, filed on October 28, 2005.
(c) - (a) Amended and Restated Master Distribution Plan dated as of August
18, 2003, between Registrant (Class C Shares) and A I M Distributors,
Inc. incorporated herein by reference to Registrant's PEA No. 55 on
Form N-1A, filed on February 13, 2004.
- (b) Amendment No. 1, dated October 29, 2003, to the Amended and
Restated Master Distribution Plan between Registrant (Class C Shares)
and A I M Distributors, Inc. incorporated herein by reference to
Registrant's PEA No. 55 on Form N-1A, filed on February 13, 2004.
- (c) Amendment No. 2, dated November 4, 2003, to the Amended and
Restated Master Distribution Plan between Registrant (Class C Shares)
and A I M Distributors, Inc. incorporated herein by reference to
Registrant's PEA No. 55 on Form N-1A, filed on February 13, 2004.
- (d) Amendment No. 3, dated November 20, 2003, to the Amended and
Restated Master Distribution Plan between Registrant (Class C Shares)
and A I M Distributors, Inc. incorporated herein by reference to
Registrant's PEA No. 55 on Form N-1A, filed on February 13, 2004.
- (e) Amendment No. 4, dated November 24, 2003, to the Amended and
Restated Master Distribution Plan between Registrant (Class C Shares)
and A I M Distributors, Inc. incorporated herein by reference to
Registrant's PEA No. 55 on Form N-1A, filed on February 13, 2004.
- (f) Amendment No. 5, dated November 25, 2003, to the Amended and
Restated Master Distribution Plan between Registrant (Class C Shares)
and A I M Distributors, Inc. incorporated herein by reference to
Registrant's PEA No. 55 on Form N-1A, filed on February 13, 2004.
- (g) Amendment No. 6, dated March 31, 2004, to the Amended and Restated
Master Distribution Plan between Registrant (Class C Shares) and A I M
Distributors, Inc. incorporated herein by reference to Registrant's
PEA No. 56 on Form N-1A, filed on April 30, 2004.
C-11
- (h) Amendment No. 7, dated April 30, 2004, to the Amended and Restated
Master Distribution Plan between Registrant (Class C Shares) and A I M
Distributors, Inc. incorporated herein by reference to Registrant's
PEA No. 56 on Form N-1A, filed on April 30, 2004.
- (i) Amendment No. 8, dated September 15, 2004, to the Amended and
Restated Master Distribution Plan between Registrant (Class C Shares)
and A I M Distributors, Inc. incorporated herein by reference to
Registrant's PEA No. 57 on Form N-1A, filed on February 11, 2005.
- (j) Amendment No. 9, dated October 15, 2004, to the Amended and
Restated Master Distribution Plan between Registrant (Class C Shares)
and A I M Distributors, Inc. incorporated herein by reference to
Registrant's PEA No. 57 on Form N-1A, filed on February 11, 2005.
- (k) Amendment No. 10, dated December 30, 2004, to the Amended and
Restated Master Distribution Plan between Registrant (Class C Shares)
and A I M Distributors, Inc. incorporated herein by reference to
Registrant's PEA No. 57 on Form N-1A, filed on February 11, 2005.
- (l) Amendment No. 11, dated March 15, 2005, to the Amended and
Restated Master Distribution Plan between Registrant (Class C Shares)
and A I M Distributors, Inc. incorporated herein by reference to
Registrant's PEA No. 58 on Form N-1A, filed on April 26, 2005.
- (m) Amendment No. 12, dated April 29, 2005, to the Amended and
Restated Master Distribution Plan between Registrant (Class C Shares)
and A I M Distributors, Inc. incorporated herein by reference to
Registrant's PEA No. 59 on Form N-1A, filed on August 11, 2005.
- (n) Amendment No. 13, dated July 18, 2005, to the Amended and Restated
Master Distribution Plan (Class C Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 59 on Form
N-1A, filed on August 11, 2005.
- (o) Amendment No. 14, dated October 31, 2005, to the Amended and
Restated Master Distribution Plan (Class C Shares) and A I M
Distributors, Inc. incorporated herein by reference to Registrant's
PEA No. 61 on Form N-1A, filed on October 28, 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. 55 on
Form N-1A, filed on February 13, 2004.
- (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. 55 on Form N-1A, filed on February 13, 2004.
- (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. 55 on Form N-1A, filed on February 13, 2004.
C-12
- (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. 55 on Form N-1A, filed on February 13, 2004.
- (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. 56 on Form N-1A, filed on April 30, 2004.
- (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. 57 on Form N-1A, filed on February 11, 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. 57 on Form N-1A, filed on February 11, 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. 59 on Form
N-1A, filed on August 11, 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. 59 on Form
N-1A, filed on August 11, 2005.
- (j) 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. 61 on Form N-1A, filed on October 28, 2005.
- (k) Amendment No. 10, dated October 31, 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. 61 on Form N-1A, filed on October 28, 2005.
(e) - (a) Amended and Restated Master Distribution Plan (Reimbursement)
between Registrant (Investor Class Shares) and A I M Distributors,
Inc., effective July 1, 2004 incorporated herein by reference to
Registrant's PEA No. 62 on Form N-1A, filed on November 1, 2005.
- (b) Amendment No. 1, dated October 15, 2004, to the Amended and
Restated Master Distribution Plan (Reimbursement) between Registrant
(Investor Class Shares) and A I M Distributors, Inc., effective July
1, 2004 incorporated herein by reference to Registrant's PEA No. 62 on
Form N-1A, filed on November 1, 2005.
- (c) Amendment No. 2, dated April 29, 2005, to the Amended and Restated
Master Distribution Plan (Reimbursement) between Registrant (Investor
Class Shares) and A I M Distributors, Inc., effective July 1, 2004
incorporated herein by reference to Registrant's PEA No. 62 on Form
N-1A, filed on November 1, 2005.
C-13
- (d) Amendment No. 3, dated July 18, 2005, to the Amended and Restated
Master Distribution Plan (Reimbursement) between Registrant (Investor
Class Shares) and A I M Distributors, Inc., effective July 1, 2004
incorporated herein by reference to Registrant's PEA No. 62 on Form
N-1A, filed on November 1, 2005.
- (e) Form of Amendment No 4, dated December 14, 2005, to the Amended
and Restated Master Distribution Plan (Reimbursement) between
Registrant (Investor Class Shares) and A I M Distributors, Inc.,
effective December 14, 2005 incorporated herein by reference to
Registrant's PEA No. 62 on Form N-1A, filed on November 1, 2005.
(f) - Form of Master Related Agreement to Amended and Restated Master
Distribution Plan (Class A Shares) incorporated herein by reference to
Registrant's PEA No. 59 on Form N-1A, filed on August 11, 2005.
(g) - Form of Master Related Agreement to Amended and Restated Master
Distribution Plan (Class C Shares) incorporated herein by reference to
Registrant's PEA No. 54 on Form N-1A, filed on August 23, 2003.
(h) - Form of Master Related Agreement to Amended and Restated Master
Distribution Plan (Class R Shares) incorporated herein by reference to
Registrant's PEA No. 54 on Form N-1A, filed on August 23, 2003.
(i) - 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. 62 on Form N-1A, filed on
November 1, 2005.
(j) - Eighth Amended and Restated Multiple Class Plan of The AIM Family of
Funds(R), effective December 12, 2001, as amended and restated March
4, 2002, as amended and restated October 31, 2002, as further amended
and restated effective July 21, 2003, as further amended and restated
effective August 18, 2003, as further amended and restated effective
May 12, 2004, as further amended and restated effective February 25,
2005, as further amended and restated effective June 30, 2005 and as
further amended and restated effective August 4, 2005 incorporated
herein by reference to Registrant's PEA No. 59 on Form N-1A, filed on
August 11, 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 between Registrant and AIM
Investment Services, Inc., dated July 1, 2004 incorporated herein by
reference to Registrant's PEA No. 57 on Form N-1A, filed on February
11, 2005.
(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. 57 on Form
N-1A, filed on February 11, 2005.
- (b) Amendment No. 1, dated December 2, 2004, to the 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. 57
C-14
on Form N-1A, filed on February 11, 2005.
- (c) Amendment No. 2, dated April 29, 2005, to the 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. 59 on Form N-1A, filed on August 11, 2005.
- (d) Amendment No. 3 to the Master Administrative Services Agreement,
dated October 31, 2005, between Registrant and A I M Advisors, Inc.
incorporated herein by reference to Registrant's PEA No. 62 on Form
N-1A, filed on November 1, 2005.
(c) - (a) Memorandum of Agreement, dated October 29, 2003, between
Registrant and A I M Advisors, Inc. regarding securities lending with
respect to all Funds incorporated herein by reference to Registrant's
PEA No. 57 on Form N-1A, filed on February 11, 2005.
- (b) Memorandum of Agreement, dated May 5, 2005, between Registrant and
A I M Advisors, Inc. with respect to AIM Basic Value Fund, AIM Global
Equity Fund, AIM Mid Cap Core Equity Fund and AIM Small Cap Growth
Fund incorporated herein by reference to Registrant's PEA No. 59 on
Form N-1A, filed on August 11, 2005.
- (c) Memorandum of Agreement, dated October 31, 2005, between
Registrant and A I M Advisors, Inc. with respect to AIM Aggressive
Allocation Fund, AIM Conservative Allocation Fund, AIM Global Equity
Fund, AIM Income Allocation Fund, AIM International Allocation Fund,
AIM Moderate Allocation Fund, AIM Moderate Growth Allocation Fund and
AIM Moderately Conservative Allocation Fund incorporated herein by
reference to Registrant's PEA No. 62 on Form N-1A, filed on November
1, 2005.
(d) - (a) Interfund Loan Agreement, dated September 18, 2001, between
Registrant and A I M Advisors, Inc. incorporated herein by reference
to Registrant's PEA No. 50 on Form N-1A, filed on December 28, 2001.
- (b) 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. 57 on Form N-1A, filed on
February 11, 2005.
(e) - Expense Reimbursement Agreement, dated June 30, 2003, between
Registrant and A I M Fund Services, Inc. (now known as AIM Investment
Services, Inc.) incorporated herein by reference to Registrant's PEA
No. 56 on Form N-1A, filed on April 30, 2004.
14 - 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. 61 on Form N-1A, filed on October 28, 2005.
17 - Form of Proxy relating to the Special Meeting of Shareholders of AIM
Small Company Growth Fund is filed herewith.
C-15
Item 17. Undertakings
(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-16
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 GROWTH SERIES
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.
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>
/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
* Robert H. Graham, pursuant to powers of attorney filed in Registrant's
Post-Effective Amendment No. 61 on October 28, 2005.
INDEX
Exhibit Number Description
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11 Opinion of Counsel and Consent of Ballard Spahr Andrews &
Ingersoll, LLP as to the legality of the securities being registered
14 Consent of PricewaterhouseCoopers LLP
17 Form of Proxy