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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file
number 811-01540
--------------------------------------------------------------------------
AIM Funds Group
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
11 Greenway Plaza, Suite 100 Houston, Texas 77046
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Robert H. Graham 11 Greenway Plaza, Suite 100 Houston, Texas 77046
- --------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (713) 626-1919
---------------------------
Date of fiscal year end: 12/31
--------------
Date of reporting period: 12/31/05
--------------
Item 1. Reports to Stockholders.
AIM BASIC BALANCED FUND
Annual Report to Shareholders o December 31,2005
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
AIM BASIC BALANCED FUND SEEKS TO ACHIEVE LONG-TERM GROWTH OF CAPITAL AND CURRENT
INCOME.
o Unless otherwise stated, information presented in this report is as of
December 31, 2005, and is based on total net assets.
ABOUT SHARE CLASSES
o Class B shares are not available as an ABOUT INDEXES USED IN THIS REPORT OTHER INFORMATION
investment for retirement plans
maintained pursuant to Section 401 of o The unmanaged Standard & Poor's o The returns shown in management's
the Internal Revenue Code, including Composite Index of 500 Stocks (the S&P discussion of Fund performance are based
401(k) plans, money purchase pension 500--Registered Trademark-- INDEX) is on net asset values calculated for
plans and profit sharing plans. Plans an index of common stocks frequently shareholder transactions. Generally
that had existing accounts invested in used as a general measure of U.S. stock accepted accounting principles require
Class B shares prior to September 30, market performance. adjustments to be made to the net assets
2003, will continue to be allowed to of the Fund at period end for financial
make additional purchases. o The unmanaged LIPPER BALANCED FUND reporting purposes, and as such, the net
INDEX represents an average of the 30 asset values for shareholder
o Class R shares are available only to largest balanced funds tracked by transactions and the returns based on
certain retirement plans. Please see the Lipper, Inc., an independent mutual fund those net asset values may differ from
prospectus for more information. performance monitor. It is calculated the net asset values and returns
daily, with adjustments for reported in the Financial Highlights.
o Investor Class shares are closed to distributions as of the ex-dividend
most investors. For more information on dates.
who may continue to invest in the o Industry classifications used in this
Investor Class shares, please see the o The blended index used in this report report are generally according to the
prospectus. is composed of 60% RUSSELL 1000 Global Industry Classification Standard,
--Registered Trademark-- VALUE INDEX which was developed by and is the
PRINCIPAL RISKS OF INVESTING IN THE FUND and 40% LEHMAN BROTHERS U.S. AGGREGATE exclusive property and a service mark of
BOND INDEX. The unmanaged Russell 1000 Morgan Stanley Capital International
o U.S. Treasury securities such as --Registered Trademark-- Index Inc. and Standard & Poor's.
bills, notes and bonds offer a high represents the performance of the stocks
degree of safety, and they guarantee the of large-capitalization companies; the o Commonality measures the similarity of
payment of principal and any applicable Value segment measures the performance holdings between two portfolios using
interest if held to maturity. Fund of Russell 1000 companies with lower the lowest common percentage method.
shares are not insured, and their value price/book ratios and lower forecasted This method compares each security's
and yield will vary with market growth values. The unmanaged Lehman percentage of total net assets in both
conditions. Brothers U.S. Aggregate Bond Index, portfolios and adds the lower
which represents the U.S. percentages of the two portfolios to
o The Fund may invest up to 25% of its investment-grade fixed-rate bond market determine commonality.
assets in the securities of non-U.S. (including government and corporate
issuers. International investing securities, mortgage pass-through o The Conference Board is a
presents certain risks not associated securities and asset-backed securities), not-for-profit organization that
with investing solely in the United is compiled by Lehman Brothers, a global conducts research and publishes
States. These include risks relating to investment bank. information and analysis to help
fluctuations in the value of the U.S. businesses strengthen their performance.
dollar relative to the values of other o The unmanaged MSCI WORLD INDEX is a
currencies, the custody arrangements group of global securities tracked by
made for the Fund's foreign holdings, Morgan Stanley Capital International. The Fund provides a complete list of its
differences in accounting, political holdings four times in each fiscal year,
risks and the lesser degree of public o The Fund is not managed to track the at the quarter-ends. For the second and
information required to be provided by performance of any particular index, fourth quarters, the lists appear in the
non-U.S. companies. including the indexes defined here, and Fund's semiannual and annual reports to
consequently, the performance of the shareholders. For the first and third
Fund may deviate significantly from the quarters, the Fund files the lists with
performance of the indexes. the Securities and Exchange Commission
(SEC) on Form N-Q. The most recent list
o A direct investment cannot be made in of portfolio holdings is available at
an index. Unless otherwise indicated, AIMinvestments.com. From our home page,
index results include reinvested click on Products & Performance, then
dividends, and they do not reflect sales Mutual Funds, then Fund Overview. Select
charges. Performance of an index of your Fund from the drop-down menu and
funds reflects fund expenses; click on Complete Quarterly Holdings.
performance of a market index does not. Shareholders can also look up the Fund's
Forms N-Q on the SEC's Web site at
sec.gov. Copies of the Fund's Forms N-Q
may be reviewed and copied at the SEC's
Public
Continued on Page 7
===================================================================================== =========================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND FUND NASDAQ SYMBOLS
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES Class A shares BBLAX
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING. Class B shares BBLBX
===================================================================================== Class C shares BBLCX
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE Class R shares BBLRX
AIMinvestments.com Investor Class Shares BBLTX
=========================================
AIM BASIC BALANCED FUND
DEAR FELLOW AIM FUNDS SHAREHOLDERS:
Although many concerns weighed on investors' minds during
the year covered by this report, stocks posted gains for the
[GRAHAM period. Domestically, the broad-based S&P 500 Index returned
PHOTO] 4.91%. Internationally, Morgan Stanley's MSCI World Index
rose 9.49%. Concern about the inflationary potential of
rising energy costs was frequently cited as a major cause of
market restraint.
Within the indexes, there was considerable variability
in the performance of different sectors and markets.
Domestically, energy sector performance far outpaced all
ROBERT H. GRAHAM other sectors in the S&P 500 Index, reflecting rising oil
and gas prices. Overseas, emerging markets produced more
attractive results than developed markets, partially because
emerging markets tend to be more closely tied to the
performance of natural resources and commodities.
One could make a strong argument for global
diversification of a stock portfolio using the performance
data for the year ended December 31, 2005. Of course, your
financial advisor is the person most qualified to help you
decide whether such diversification is appropriate for you.
[WILLIAMSON A number of key developments affected markets and the
PHOTO] economy in 2005:
o Hurricane Katrina, which devastated New Orleans in
August, had numerous economic repercussions and
dealt a short-term setback to consumer confidence.
However, consumer confidence rebounded toward the
end of the year, with the Conference Board
crediting the resiliency of the economy, falling
gas prices and job growth for this trend.
MARK H. WILLIAMSON o The nation's gross domestic product (GDP), the
broadest measure of economic activity, increased at
a healthy rate throughout much of the year. The
Bureau of Economic Analysis of the U.S. Department
of Commerce reported that the nation's GDP grew at
annualized rates of 3.8%, 3.3% and 4.1% for the
first, second and third quarters of the year,
respectively.
o For the second straight year, the economy created
2 million new jobs, although job growth was uneven
and sometimes did not meet analysts' expectations
on a monthly basis.
o The Federal Reserve Board (the Fed) continued its
tightening policy, raising the key federal funds
target rate to 4.25% by the end of the year. Many
analysts believed that the central bank was near the
end of its tightening policy as Ben Bernanke
succeeded the retiring Alan Greenspan as Fed
chairman early in 2006.
o Gasoline prices, which soared to a nationwide
average of slightly more than $3.08 per gallon on
September 5 following Hurricane Katrina, had dropped
by more than 80 cents by mid-December, according to
the U.S. Energy Information Administration.
For a discussion of the specific market conditions that
affected your Fund and how your Fund was managed during the
year, please turn to Page 3.
YOUR FUND
Further information about the markets, your Fund, and
investing in general is always available on our
comprehensive 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 pleased to be of help.
Sincerely,
/s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
Robert H. Graham Mark H. Williamson
President & Vice Chair, President,
AIM Funds A I M Advisors, Inc.
February 9, 2006
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. A I M
Distributors, Inc. is the distributor for the retail funds
represented by AIM Investments.
1
AIM BASIC BALANCED FUND
DEAR FELLOW AIM FUND SHAREHOLDERS:
Having completed a year of transition and change at AIM
Funds--as well as my first full year as your board's
independent chair--I can assure you that shareholder
[CROCKETT interests are at the forefront of every decision your board
PHOTO] makes. While regulators and fund companies debate the value
of an independent board chair, this structure is working
for you. An independent chair can help lead to unbiased
decisions and eliminate potential conflicts.
Some highlights of 2005 board activity:
BRUCE L. CROCKETT
o Board approval of voluntary fee reductions, which are
saving shareholders more than $20 million annually,
based on asset levels of March 31, 2005.
o Board approval for the merger of 14 funds into other
AIM funds with similar investment objectives. Eight
of these mergers were approved by shareholders of the
target funds during 2005. The remaining six are being
voted on by shareholders in early 2006. In each case,
the goal is for the resulting merged fund to benefit
from strengthened management and greater efficiency.
o Board approval for portfolio management changes at 11
funds, consistent with the goal of organizing
management teams around common processes and shared
investment views. Again, we hope that these changes
will improve fund performance and efficiency.
In 2006, your board will continue to focus on reducing
costs and shareholder fees and improving portfolio
performance, which is not yet as strong as we expect to see
it. Eight in-person board meetings and several additional
telephone and committee meetings are scheduled to take
place this year. I'll inform you of our progress in my next
semiannual letter to shareholders.
The AIM Funds board is pleased to welcome our newest
independent member, Raymond Stickel, Jr., a former partner
with the international auditing firm of Deloitte & Touche.
We also send our thanks and best wishes to Gerald J. Lewis,
who retired from your board in December 2005, and to Edward
K. Dunn, Jr., who is retiring this year.
Your board welcomes your views. Please mail them to me
at AIM Investments, AIM Investments Tower, 11 Greenway
Plaza, Suite 100, Houston TX 77046.
Sincerely,
/S/ BRUCE L. CROCKETT
Bruce L. Crockett
Independent Chair
On Behalf of the Board of Trustees
AIM Funds
February 9, 2006
2
AIM BASIC BALANCED FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE earnings prospects led to significant
====================================================================================== stock price increases in our oil service
PERFORMANCE SUMMARY investments HALLIBURTON, TRANSOCEAN and
========================================= SCHLUMBERGER. Halliburton provided a
For the year ended December 31,2005, FUND VS. INDEXES total return of more than 59% during the
Class A shares of AIM Basic Balanced year and was the Fund's single largest
Fund at net asset value performed Total returns, 12/31/04-12/31/05, contributor to performance.
essentially in line with the S&P 500 excluding applicable sales charges. If
Index and our peers. During the period, sales charges were included, returns Health care holdings MCKESSON,
the Fund's Class A shares modestly would be lower. CARDINAL HEALTH, and WELLPOINT were also
underperformed the Russell blended among the biggest contributors to Fund
index. Long-term Fund performance Class A Shares 4.85% performance. The stocks of both McKesson
information appears on Pages 6 and 7. Class B Shares 4.04 and Cardinal rallied in 2005 in response
Class C Shares 4.04 to the progress made in the industry's
Fund returns for the year were Class R Shares 4.47 ongoing transition to a fee-for-service
largely driven by significant Investor Class Shares* 4.85 pricing model, a move that will
above-market returns from selected S&P 500 Index (Broad Market Index) 4.91 substantially reduce their exposure to
investments in the energy and health the level and volatility of drug price
care sectors. Primary detractors from 60% Russell 1000 Value Index/ inflation.
performance were selected investments in 40% Lehman Brothers U.S. Aggregate
financials, consumer discretionary and Bond Index (Style-specific Index) 5.26
industrial sector holdings. While our investment in energy
Lipper Balanced Fund Index stocks was the single largest driver of
The Fund's slight underperformance (Peer Group Index) 5.20 performance during 2005, the Fund's
relative to the style-specific benchmark underweight position versus the Russell
was mainly due to our overweight fixed *Share class incepted during the 1000 Value Index's energy sector hurt
income reporting period. See Page 7 for a our relative performance. However, the
detailed explanation of Fund Fund's strong stock selection in energy
performance. more than offset our underweight
position. We view the index's weight in
SOURCE: LIPPER, INC. both energy and utilities as excessive
========================================= considering the stocks' valuations.
position during a period in which The Fund's largest equity detractors
equities outperformed bonds. from performance during 2005 were
mortgage giant FANNIE MAE and
====================================================================================== manufacturing conglomerate TYCO
INTERNATIONAL. Fannie Mae continues the
CURRENT PERIOD ANALYSIS were standout performers while consumer arduous process of restating its
discretionary and telecommunications historical results caused by a change in
Soaring energy prices were the focus of declined. Against this diverse backdrop, the interpretation of accounting
much investor attention during 2005. both equity and fixed-income markets standards. We continue to believe that
While higher gasoline prices, rising delivered single digit gains during Fannie Mae's estimated intrinsic value
short term interest rates and the 2005. will be driven by future regulatory
ongoing fear of a housing bubble capital requirements and not the
dominated the popular press, the U.S. Our energy and health care sector non-economic
economy continued its expansion and stocks were among the largest
inflation remained low. Energy and contributors to Fund performance. Higher (continued)
utility stocks energy prices and improved
======================================== ========================================= =========================================
PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By security type 1. U.S. Mortgage-Backed Securities 13.8% 1. Cardinal Health, Inc. 3.2%
Stocks & Other Equity Interests 68.3% 2. Other Diversified Financial 7.9 2. Tyco International Ltd. 2.9
Services
Bonds & Notes 22.6 3. Halliburton Co. 2.5
3. Pharmaceuticals 5.3
U.S. Mortgage-Backed Securities 13.8 4. First Data Corp. 2.4
4. Industrial Conglomerates 4.9
Asset-Backed Securities 3.1 5. JPMorgan Chase & Co. 2.3
5. Health Care Distributors 4.4
U.S. Government Agency Securities 1.0 6. WellPoint,Inc 2.2
U.S. Treasury Securities 0.9 TOTAL NET ASSETS $ 1.9 BILLION 7. Sanofi-Aventis (France) 2.0
Money Market Funds Plus TOTAL NUMBER OF HOLDINGS* 531 8. Wyeth 1.9
Other Assets Less Liabilities -9.7
9. Citigroup Inc. 1.9
10. Computer Associates
International, Inc. 1.9
The Fund's holdings are subject to change, and there is no assurance that the
Fund will continue to hold any particular security.
*Excluding money market fund holdings.
======================================== ========================================= =========================================
3
AIM BASIC BALANCED FUND
impact of accounting restatements. And the period as interest rates were strategies involving credit analysis and
based on a variety of existing capital generally higher by year end, and the selection of specific securities. By
standards, we believe Fannie Mae yield curve did in fact flatten further combining perspectives from both the
continues to be an attractive long-term as evidenced by a narrowing of the yield portfolio and the security level, we
investment opportunity. differential between short- and seek to consistently add value over time
long-term securities. As the year while minimizing portfolio risk.
Tyco was one of your Fund's best progressed, we also increased the Fund's
performing stocks in both 2003 and 2004, allocation to both BBB-rated securities PORTFOLIO ASSESSMENT
and the stock has risen more than and mortgage-backed securities, both of
fourfold from the lows reached over which we believed offered good value We believe the single most important
three years ago. During 2005, the stock relative to U.S. Treasury securities. indicator of the way AIM Basic Balanced
fell 19% as the pace of both sales and Fund is positioned for potential success
operating improvement began to moderate. INVESTMENT PROCESS AND EVALUATION is not our historical investment results
While we were disappointed with recent or popular statistical measures, but
results, the ongoing turnaround of this We seek to create wealth by maintaining rather the portfolio's estimated
company remains intact and we believe a long-term investment horizon and intrinsic value. Since we can estimate
the stock represented one of the more investing in companies that are selling the intrinsic value of each holding in
compelling opportunities in the at a significant discount to their the portfolio, we can also estimate the
portfolio. estimated intrinsic value--a value that intrinsic value of the entire Fund. The
is based on the future cash flows difference between market price and
generated by the business. The Fund's estimated intrinsic value is about
HIGHER ENERGY PRICES philosophy is based on two elements that average for your Fund for the past
AND IMPROVED EARNINGS we believe have extensive empirical several years. However, we believe the
PROSPECTS LED TO evidence: estimated intrinsic value content of our
SIGNIFICANT STOCK PRICE equity portfolio is significantly
INCREASES IN OUR OIL o Companies have a measurable estimated greater than what is available in the
SERVICE INVESTMENTS intrinsic value. Importantly, this fair broad market. While there is no
HALLIBURTON, TRANSOCEAN value is independent of the company's assurance that market value will ever
AND SCHLUMBERGER. stock price. reflect our estimate of portfolio
intrinsic value, as managers and
o Market prices are more volatile than shareholders we believe this provides
We have made a few changes to the business values, partly because the best indication that your Fund is
portfolio's equity holdings since the investors regularly overreact to positioned to potentially achieve its
Fund's semi-annual report. We sold our negative news. objective of long-term growth of
remaining shares in WATERS, MOTOROLA and capital.
PRIDE INTERNATIONAL based primarily on Since our application of this
valuation and other portfolio strategy is highly disciplined and We seek to create
considerations. We initiated new relatively unique, it is important to wealth by maintaining
positions in CEMEX and MOLSON COORS understand the benefits and limitations a long-term investment
BREWING. of our process. First, the investment horizon and investing
strategy is intended to preserve your in companies that
CEMEX proved to be a significant capital while growing it at above-market are selling at a
positive contributor to Fund performance rates over the long term. Second, we significant discount
during 2005. The company is a global have little portfolio commonality with to their estimated
leader in the production of cement, popular benchmarks and most of our intrinsic value.
aggregates and ready-mix concrete. The peers. Third, short-term relative
cement industry continues to benefit performance will differ from the
from global growth trends as well as the benchmarks and have little information IN CLOSING
structural advantages related to the value simply because we don't own the
cement business. exact same stocks (low commonality). Excluding sales charges, our 2005
results were essentially in line with
Fixed-income holdings were managed Our fixed-income portfolio our peers. As managers, we know a
with the expectation of higher interest investment process is accomplished long-term investment horizon and
rates during the period. Additionally, through the use of top-down strategies attractive portfolio estimated intrinsic
we positioned the Fund to benefit from involving duration management, value content are critical to creating
our expectation of a further flattening yield-curve position and sector wealth. But we understand maintaining a
of the yield curve. Both actions proved allocation. (Duration is the measure of long-term
beneficial to performance in a debt security's sensitivity to
interest rate changes, expressed in
terms of years. Longer durations usually
are more sensitive to interest rate
movements. The yield curve traces the
yields on debt securities of the same
quality but different maturities from
the shortest to the longest available.)
In addition, we use bottom-up
4
AIM BASIC BALANCED FUND
investment horizon is a challenge. BRET W. STANLEY, MATTHEW W. SEINSHEIMER,
Empirical evidence reveals short-term [STANLEY Chartered Financial [SEINSHEIMER Chartered Financial
behavior by both portfolio managers and PHOTO] Analyst, senior PHOTO] Analyst, senior
fund shareholders dilutes investors' portfolio manager, is portfolio manager, is
actual returns. One recent study lead portfolio manager manager of AIM Basic
estimated the combined effects of short- of AIM Basic Balanced Fund and the head Balanced Fund. He began his investment
term activity and expenses have caused of AIM's Value Investment Management career in 1992 as a fixed-income trader.
investors to underperform the market by Unit. Prior to joining AIM in 1998, Mr. He later served as a portfolio manager
5% per year over a 20-year period. Stanley served as a vice president and on both fixed income and equity
During this period, the average holding portfolio manager and managed growth and portfolios. Mr. Seinsheimer joined AIM
period for a typical stock has declined income, equity income and value as a senior analyst in 1998 and assumed
from over three years to less than 12 portfolios. Mr. Stanley received a his current responsibilities in 2000. He
months. Considering this market B.B.A. in finance from The University of received a B.B.A. from Southern
backdrop, your Fund is doing something Texas at Austin and an M.S. in finance Methodist University and an M.B.A. from
different and old fashioned--investing from the University of Houston. The University of Texas at Austin.
for the long term. Our strategy of
buying undervalued stocks and avoiding R. CANON COLEMAN II, MICHAEL J. SIMON,
the rest is based on common sense. [COLEMAN II Chartered Financial [SIMON Chartered Financial
PHOTO] Analyst, portfolio PHOTO] Analyst, senior
We remain optimistic about AIM Basic manager, is manager of portfolio manager, is
Balanced Fund's portfolio. As always, we AIM Basic Balanced Fund. manager of AIM Basic
are continually searching for He joined AMVESCAP in 1999 in its Balanced Fund. He joined AIM in 2001.
opportunities to increase the corporate associate rotation program, Prior to joining AIM, Mr. Simon worked
portfolio's estimated intrinsic value. working with fund managers throughout as a vice president, equity analyst and
In the meantime, we thank you for your AMVESCAP before joining AIM in 2000. Mr. portfolio manager. Mr. Simon, who began
investment and for sharing our long- Coleman earned a B.S. and an M.S. in his investment career in 1989, received
term investment perspective. accounting from the University of a B.B.A. in finance from Texas Christian
Florida. He also has an M.B.A. from The University and an M.B.A. from the
The views and opinions expressed in Wharton School at the University of University of Chicago. Mr. Simon has
management's discussion of Fund Pennsylvania. served as Occasional Faculty in the
performance are those of A I M Advisors, Finance and Decision Sciences Department
Inc. These views and opinions are JAN H. FRIEDLI, senior of Texas Christian University's M.J.
subject to change at any time based on [FRIEDLI portfolio manager, is Neeley School of Business.
factors such as market and economic PHOTO] manager of AIM Basic
conditions. These views and opinions may Balanced Fund. He joined Assisted by the Basic Value and
not be relied upon as investment advice AIM in 1999. Prior to Investment Grade Bond Teams
or recommendations, or as an offer for a coming to AIM, he worked as a
particular security. The information is fixed-income portfolio manager,
not a complete analysis of every aspect international bond and currency trader.
of any market, country, industry, Mr. Friedli graduated cum laude from
security or the Fund. Statements of fact Villanova University with a B.S. in
are from sources considered reliable, computer science and earned an M.B.A.
but A I M Advisors, Inc. makes no with honors from the University of
representation or warranty as to their Chicago.
completeness or accuracy. Although
historical performance is no guarantee SCOT W. JOHNSON,
of future results, these insights may [JOHNSON Chartered Financial
help you understand our investment PHOTO] Analyst, senior
management philosophy. portfolio manager, is
manager of AIM Basic
See important Fund and index Balanced Fund. He joined AIM in 1994 as
disclosures inside front cover. a junior portfolio analyst for
government securities and was promoted
to assistant portfolio manager for AIM's
money market funds later that year. Mr.
Johnson received both his bachelor's
degree in economics and an M.B.A. in
finance from Vanderbilt University.
[ARROW [RIGHT ARROW GRAPHIC]
BUTTON For More Information Visit
IMAGE] AIMINVESTMENTS.COM FOR A PRESENTATION OF YOUR FUND'S
LONG-TERM PERFORMANCE, PLEASE SEE
PAGES 6 AND 7.
5
AIM BASIC BALANCED FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
Fund data from 9/28/01,index data from 9/30/01
====================================================================================================================================
[MOUNTAIN CHART]
DATE AIM BASIC AIM BASIC AIM BASIC S&P 500 60% RUSSELL 1000 LIPPER BALANCED
BALANCED BALANCED BALANCED INDEX VALUE INDEX/ FUND INDEX
FUND-CLASS A FUND-CLASS B FUND-CLASS C 40% LEHMAN
SHARES SHARES SHARES BROTHERS
U.S. AGGREGATE
BOND INDEX
9/28/01 $9450 $10000 $10000
9/01 9450 10000 10000 $10000 $10000 $10000
10/01 9620 10180 10180 10191 10032 10167
11/01 10055 10630 10630 10972 10326 10572
12/01 10200 10776 10776 11068 10446 10648
1/02 10133 10706 10706 10907 10432 10555
2/02 10057 10616 10616 10697 10482 10483
3/02 10420 10992 10992 11099 10710 10713
4/02 10268 10822 10822 10426 10573 10455
5/02 10249 10802 10812 10350 10640 10451
6/02 9694 10219 10221 9613 10311 10005
7/02 9084 9566 9568 8864 9785 9492
8/02 9217 9697 9708 8922 9896 9589
9/02 8567 9008 9008 7953 9300 9017
10/02 8921 9380 9381 8652 9696 9393
11/02 9390 9862 9863 9161 10062 9774
12/02 9080 9531 9531 8623 9883 9510
1/03 8916 9359 9360 8398 9743 9368
2/03 8743 9168 9178 8272 9641 9298
3/03 8671 9088 9097 8352 9647 9335
4/03 9190 9632 9642 9039 10189 9841
5/03 9855 10318 10328 9515 10659 10276
6/03 9931 10392 10402 9637 10731 10354
7/03 9980 10443 10443 9807 10683 10378
8/03 10231 10696 10696 9997 10811 10553
9/03 10189 10645 10645 9892 10862 10566
10/03 10459 10927 10938 10451 11220 10915
11/03 10642 11109 11120 10543 11323 11012
12/03 11107 11593 11593 11095 11787 11406
1/04 11251 11735 11745 11299 11949 11577
2/04 11434 11916 11927 11456 12154 11734
3/04 11432 11916 11916 11283 12127 11678
4/04 11229 11684 11695 11106 11823 11433
5/04 11219 11674 11684 11258 11877 11483
6/04 11444 11908 11909 11477 12072 11663
7/04 11008 11444 11455 11097 12017 11443
8/04 11028 11464 11465 11142 12212 11513
9/04 11096 11517 11528 11262 12338 11684
10/04 11174 11598 11609 11435 12503 11810
11/04 11553 11982 11992 11897 12842 12129
12/04 11872 12303 12313 12302 13148 12431
1/05 11761 12178 12189 12002 13040 12271
2/05 11872 12293 12304 12254 13269 12445
3/05 11747 12153 12163 12038 13133 12273
4/05 11667 12059 12070 11809 13062 12126
5/05 11838 12237 12247 12185 13308 12404
6/05 11932 12326 12337 12202 13424 12493
7/05 12114 12503 12514 12656 13608 12771
8/05 12043 12420 12430 12540 13643 12808
9/05 12071 12436 12447 12642 13701 12858
10/05 11919 12279 12290 12431 13449 12657
11/05 12242 12603 12613 12901 13738 12964
12/05 12549 12598 12809 12905 13840 13077
====================================================================================================================================
SOURCE: LIPPER, INC.
Past performance cannot guarantee
comparable future results.
The data shown in the chart include
reinvested distributions, applicable
sales charges, Fund expenses and
management fees. Results for Class B
shares are calculated as if a
hypothetical shareholder had liquidated
his entire investment in the Fund at the
close of the reporting period and paid
the applicable contingent deferred sales
charges. 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.
6
AIM BASIC BALANCED FUND
======================================== ========================================
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
As of 12/31/05,including applicable 6 months ended 12/31/05,excluding
sales charges applicable sales charges
CLASS A SHARES Class A Shares 4.32%
Inception (9/28/01) 5.48% Class B Shares 3.86
1 Year -0.12 Class C Shares 3.85
Class R Shares 4.11
CLASS B SHARES ========================================
Inception (9/28/01) 5.58%
1 Year -0.96 ========================================
CUMULATIVE TOTAL RETURNS
CLASS C SHARES 7/15/05-12/31/05
Inception (9/28/01) 5.99%
1 Year 3.04 Investor Class Shares 3.28%
========================================
CLASS R SHARES
Inception 6.49%
1 Year 4.47
INVESTOR CLASS SHARES
Inception 6.69%
1 Year 4.85
========================================
CLASS R SHARES' INCEPTION DATE IS APRIL HIGHER RULE 12B-1 FEES APPLICABLE TO CONTINGENT DEFERRED SALES CHARGE (CDSC)
30, 2004. RETURNS SINCE THAT DATE ARE CLASS A SHARES. CLASS A SHARES' FOR THE PERIOD INVOLVED. THE CDSC ON
HISTORICAL RETURNS. ALL OTHER RETURNS INCEPTION DATE IS SEPTEMBER 28, 2001. CLASS B SHARES DECLINES FROM 5%
ARE BLENDED RETURNS OF HISTORICAL CLASS BEGINNING AT THE TIME OF PURCHASE TO 0%
R SHARE PERFORMANCE AND RESTATED CLASS A THE PERFORMANCE DATA QUOTED AT THE BEGINNING OF THE SEVENTH YEAR.
SHARE PERFORMANCE (FOR PERIODS PRIOR TO REPRESENT PAST PERFORMANCE AND CANNOT THE CDSC ON CLASS C SHARES IS 1% FOR THE
THE INCEPTION DATE OF CLASS R SHARES) AT GUARANTEE COMPARABLE FUTURE RESULTS; FIRST YEAR AFTER PURCHASE. CLASS R
NET ASSET VALUE, ADJUSTED TO REFLECT THE CURRENT PERFORMANCE MAY BE LOWER OR SHARES DO NOT HAVE A FRONT-END SALES
HIGHER RULE 12B-1 FEES APPLICABLE TO HIGHER. PLEASE VISIT AIMINVESTMENTS.COM CHARGE; RETURNS SHOWN ARE AT NET ASSET
CLASS R SHARES. CLASS A SHARES' FOR THE MOST RECENT MONTH-END VALUE AND DO NOT REFLECT A 0.75% CDSC
INCEPTION DATE IS SEPTEMBER 28, 2001. PERFORMANCE. PERFORMANCE FIGURES REFLECT THAT MAY BE IMPOSED ON A TOTAL
REINVESTED DISTRIBUTIONS, CHANGES IN NET REDEMPTION OF RETIREMENT PLAN ASSETS
INVESTOR CLASS SHARES' INCEPTION ASSET VALUE AND THE EFFECT OF THE WITHIN THE FIRST YEAR. INVESTOR CLASS
DATE IS JULY 15, 2005. RETURNS SINCE MAXIMUM SALES CHARGE UNLESS OTHER- WISE SHARES DO NOT HAVE A FRONT-END SALES
THAT DATE ARE HISTORICAL RETURNS. ALL STATED. INVESTMENT RETURN AND PRINCIPAL CHARGE OR A CDSC; THEREFORE, PERFORMANCE
OTHER RETURNS ARE BLENDED RETURNS OF VALUE WILL FLUCTUATE SO THAT YOU MAY IS NOT AT NET ASSET VALUE.
HISTORICAL INVESTOR CLASS SHARE HAVE A GAIN OR LOSS WHEN YOU SELL
PERFORMANCE AND RESTATED CLASS A SHARE SHARES. THE PERFORMANCE OF THE FUND'S SHARE
PERFORMANCE (FOR PERIODS PRIOR TO THE CLASSES WILL DIFFER DUE TO DIFFERENT
INCEPTION DATE OF INVESTOR CLASS SHARES) CLASS A SHARE PERFORMANCE REFLECTS SALES CHARGE STRUCTURES AND CLASS
AT NET ASSET VALUE, ADJUSTED TO REFLECT THE MAXIMUM 5.50% SALES CHARGE, AND EXPENSES.
THE CLASS B AND CLASS C SHARE PERFORMANCE
REFLECTS THE APPLICABLE
Continued from inside front cover
Reference Room at 450 Fifth Street, A description of the policies and Information regarding how the Fund voted
N.W., Washington, D.C. 20549-0102. You procedures that the Fund uses to proxies related to its portfolio
can obtain information on the operation determine how to vote proxies relating securities during the 12 months ended
of the Public Reference Room, including to portfolio securities is available June 30,2005,is available at our Web
information about duplicating fee without charge, upon request, from our site. Go to AIMinvestments.com, access
charges, by calling 202-942-8090 or Client Services department at the About Us tab, click on Required
800-732-0330,or by electronic request at 800-959-4246 or on the AIM Web site, Notices and then click on Proxy Voting
the following e-mail address: AIMinvestments.com. On the home page, Activity. Next, select the Fund from the
publicinfo@sec.gov. The SEC file numbers scroll down and click on AIM Funds Proxy drop-down menu. The information is also
for the Fund are 811-01540 and 2-27334. Policy. The information is also available on the SEC's Web site,
available on the SEC's Web site, sec.gov.
sec.gov.
7
AIM BASIC BALANCED FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE You may use the information in this cumulative total returns at net asset
table, together with the amount you value after expenses for the period
As a shareholder of the Fund, you incur invested, to estimate the expenses that ended December 31, 2005, appear in the
two types of costs: (1) transaction you paid over the period. Simply divide table "Cumulative Total Returns" on page
costs, which may include sales charges your account value by $1,000 (for 7.
(loads) on purchase payments; contingent example, an $8,600 account value divided
deferred sales charges on redemptions; by $1,000 = 8.6), then multiply the The hypothetical account values and
and redemption fees, if any; and (2) result by the number in the table under expenses may not be used to estimate the
ongoing costs, including management the heading entitled "Actual Expenses actual ending account balance or
fees; distribution and/or service fees Paid During Period" to estimate the expenses you paid for the period. You
(12b-1); and other Fund expenses. This expenses you paid on your account during may use this information to compare the
example is intended to help you this period (July 15, 2005, through ongoing costs of investing in the Fund
understand your ongoing costs (in December 31, 2005 for the Investor Class and other funds. To do so, compare this
dollars) of investing in the Fund and to shares). Because the actual ending 5% hypothetical example with the 5%
compare these costs with ongoing costs account value and expense information in hypothetical examples that appear in the
of investing in other mutual funds. With the example is not based upon a six shareholder reports of the other funds.
the exception of the actual ending month period for the Investor Class
account value and expenses of the shares, the ending account value and Please note that the expenses shown
Investor Class shares, the example is expense information may not provide a in the table are meant to highlight your
based on an investment of $1,000 meaningful comparison to mutual funds ongoing costs only and do not reflect
invested at the beginning of the period that provide such information for a full any transactional costs, such as sales
and held for the entire period July 1, six month period. charges (loads) on purchase payments,
2005, through December 31, 2005. The contingent deferred sales charges on
actual ending account value and expenses redemptions, and redemption fees, if
of the Investor Class shares in the HYPOTHETICAL EXAMPLE FOR any. Therefore, the hypothetical
below example are based on an investment COMPARISON PURPOSES information is useful in comparing
of $1,000 invested on July 15, 2005 (the ongoing costs only, and will not help
date the share class commenced sales) The table below also provides you determine the relative total costs
and held through December 31, 2005. information about hypothetical account of owning different funds. In addition,
values and hypothetical expenses based if these transactional costs were
on the Fund's actual expense ratio and included, your costs would have been
ACTUAL EXPENSES an assumed rate of return of 5% per year higher.
before expenses, which is not the Fund's
The table below provides information actual return. The Fund's actual
about actual account values and actual
expenses.
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (5/01/05) (12/31/05)(1) PERIOD(2) (12/31/05) PERIOD(2,3) RATIO
Class A $1,000.00 $1,043.20 $ 5.72 $1,019.61 $ 5.65 1.11%
Class B 1,000.00 1,038.60 9.56 1,015.83 9.45 1.86
Class C 1,000.00 1,038.50 9.56 1,015.83 9.45 1.86
Class R 1,000.00 1,041.10 7.00 1,018.35 6.92 1.36
Investor Class 1,000.00 1,032.80 5.18 1,019.66 5.60 1.10
(1) The actual ending account value is based on the actual total return of the Fund for the period July 1, 2005, through December
31, 2005 (July 15, 2005 through December 31, 2005 for the Investor Class shares), 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 period ended December 31, 2005,
appear in the table "Cumulative Total Returns" on page 7.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half-year. For the Investor Class shares actual expenses are
equal to the annualized expense ratio indicated above multiplied by the average account value over the period, multiplied by
169 (July 15, 2005, through December 31, 2005)/365. Because the Investor share class has not been in existence for a full six
month period, the actual ending account value and expense information shown may not provide a meaningful comparison to fund
expense information of classes that show such data for a full six month period and, because the actual ending account value and
expense information in the expense example covers a short time period, return and expense data may not be indicative of return
and expense data for longer time periods.
(3) Hypothetical expenses are equal to the annualized expense ratio indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect a one-half year period. The hypothetical ending account value and expenses may be used
to compare ongoing costs of investing in the Investor Class shares of the Fund and other funds because such data is based on a
full six month period.
====================================================================================================================================
8
AIM BASIC BALANCED FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION
The Board of Trustees of AIM Funds Group o The quality of services to be provided o Overall performance of AIM. The Board
(the "Board") oversees the management of by AIM. The Board reviewed the considered the overall performance of
AIM Basic Balanced Fund (the "Fund") credentials and experience of the AIM in providing investment advisory and
and, as required by law, determines officers and employees of AIM who will portfolio administrative services to the
annually whether to approve the provide investment advisory services to Fund and concluded that such performance
continuance of the Fund's advisory the Fund. In reviewing the was satisfactory.
agreement with A I M Advisors, Inc. qualifications of AIM to provide
("AIM"). Based upon the recommendation investment advisory services, the Board o Fees relative to those of clients of
of the Investments Committee of the reviewed the qualifications of AIM's AIM with comparable investment
Board, which is comprised solely of investment personnel and considered such strategies. The Board noted that AIM
independent trustees, at a meeting held issues as AIM's portfolio and product does not serve as an advisor to other
on June 30, 2005, the Board, including review process, various back office mutual funds or other clients with
all of the independent trustees, support functions provided by AIM and investment strategies comparable to
approved the continuance of the advisory AIM's equity and fixed income trading those of the Fund.
agreement (the "Advisory Agreement") operations. Based on the review of these
between the Fund and AIM for another and other factors, the Board concluded o Fees relative to those of comparable
year, effective July 1, 2005. that the quality of services to be funds with other advisors. The Board
provided by AIM was appropriate and that reviewed the advisory fee rate for the
The Board considered the factors AIM currently is providing satisfactory Fund under the Advisory Agreement. The
discussed below in evaluating the services in accordance with the terms of Board compared effective contractual
fairness and reasonableness of the the Advisory Agreement. advisory fee rates at a common asset
Advisory Agreement at the meeting on level and noted that the Fund's rate was
June 30, 2005 and as part of the Board's o The performance of the Fund relative below the median rate of the funds
ongoing oversight of the Fund. In their to comparable funds. The Board reviewed advised by other advisors with
deliberations, the Board and the the performance of the Fund during the investment strategies comparable to
independent trustees did not identify past one and three calendar years those of the Fund that the Board
any particular factor that was against the performance of funds advised reviewed. The Board noted that AIM has
controlling, and each trustee attributed by other advisors with investment agreed to waive advisory fees of the
different weights to the various strategies comparable to those of the Fund and to limit the Fund's total
factors. Fund. The Board noted that the Fund's operating expenses, as discussed below.
performance in such periods was below Based on this review, the Board
One of the responsibilities of the the median performance of such concluded that the advisory fee rate for
Senior Officer of the Fund, who is comparable funds. Based on this review the Fund under the Advisory Agreement
independent of AIM and AIM's affiliates, and after taking account of all of the was fair and reasonable.
is to manage the process by which the other factors that the Board considered
Fund's proposed management fees are in determining whether to continue the o Expense limitations and fee waivers.
negotiated to ensure that they are Advisory Agreement for the Fund, the The Board noted that AIM has
negotiated in a manner which is at arm's Board concluded that no changes should contractually agreed to waive advisory
length and reasonable. To that end, the be made to the Fund and that it was not fees of the Fund through December 31,
Senior Officer must either supervise a necessary to change the Fund's portfolio 2009 to the extent necessary so that the
competitive bidding process or prepare management team at this time. However, advisory fees payable by the Fund do not
an independent written evaluation. The due to the Fund's under-performance, the exceed a specified maximum advisory fee
Senior Officer has recommended an Board also concluded that it would be rate, which maximum rate includes
independent written evaluation in lieu appropriate for management and the Board breakpoints and is based on net asset
of a competitive bidding process and, to continue to closely monitor the levels. The Board considered the
upon the direction of the Board, has performance of the Fund. contractual nature of this fee waiver
prepared such an independent written and noted that it remains in effect
evaluation. Such written evaluation also o The performance of the Fund relative until December 31, 2009. The Board also
considered certain of the factors to indices. The Board reviewed the noted that AIM has voluntarily agreed to
discussed below. In addition, as performance of the Fund during the past waive fees and/or limit expenses of the
discussed below, the Senior Officer made one and three calendar years against the Fund in an amount necessary to limit
certain recommendations to the Board in performance of the Lipper Balanced Fund total annual operating expenses to a
connection with such written evaluation. Index. The Board noted that the Fund's specified percentage of average daily
performance was below the performance of net assets for each class of the Fund.
The discussion below serves as a such Index for the one year period and The Board considered the voluntary
summary of the Senior Officer's comparable to the Index performance for nature of this fee waiver/expense
independent written evaluation and the three year period. Based on this limitation and noted that it can be
recommendations to the Board in review and after taking account of all terminated at any time by AIM without
connection therewith, as well as a of the other factors that the Board further notice to investors. The Board
discussion of the material factors and considered in determining whether to considered the effect these fee
the conclusions with respect thereto continue the Advisory Agreement for the waivers/expense limitations would have
that formed the basis for the Board's Fund, the Board concluded that no on the Fund's estimated expenses and
approval of the Advisory Agreement. changes should be made to the Fund and concluded that the levels of fee
After consideration of all of the that it was not necessary to change the waivers/expense limitations for the Fund
factors below and based on its informed Fund's portfolio management team at this were fair and reasonable.
business judgment, the Board determined time. However, due to the Fund's
that the Advisory Agreement is in the under-performance, the Board also o Breakpoints and economies of scale.
best interests of the Fund and its concluded that it would be appropriate The Board reviewed the structure of the
shareholders and that the compensation for management and the Board to continue Fund's advisory fee under the Advisory
to AIM under the Advisory Agreement is to closely monitor the performance of Agreement, noting that it includes two
fair and reasonable and would have been the Fund. breakpoints. The Board reviewed the
obtained through arm's length level of the Fund's advisory fees, and
negotiations. o Meeting with the Fund's portfolio noted that such fees, as a percentage of
managers and investment personnel. With the Fund's net assets, would decrease as
o The nature and extent of the advisory respect to the Fund, the Board is meeting net assets increase because the Advisory
services to be provided by AIM. The periodically with such Fund's portfolio Agreement includes breakpoints. The
Board reviewed the services to be managers and/or other investment Board noted that, due to the Fund's
provided by AIM under the Advisory personnel and believes that such current asset levels and the way in
Agreement. Based on such review, the individuals are competent and able to which the advisory fee breakpoints have
Board concluded that the range of continue to carry out their been structured, the Fund has yet to
services to be provided by AIM under the responsibilities under the Advisory benefit from the breakpoints. The Board
Advisory Agreement was appropriate and Agreement. noted that AIM has contractually agreed
that AIM currently is providing services to waive advisory fees of the Fund
in accordance with the terms of the through December 31, 2009 to the extent
Advisory Agreement. necessary so that the advisory fees
(continued)
9
AIM BASIC BALANCED FUND
payable by the Fund do not exceed a o Profitability of AIM and its o Other factors and current trends. In
specified maximum advisory fee rate, affiliates. The Board reviewed determining whether to continue the
which maximum rate includes breakpoints information concerning the profitability Advisory Agreement for the Fund, the
and is based on net asset levels. The of AIM's (and its affiliates') Board considered the fact that AIM,
Board concluded that the Fund's fee investment advisory and other activities along with others in the mutual fund
levels under the Advisory Agreement and its financial condition. The Board industry, is subject to regulatory
therefore would reflect economies of considered the overall profitability of inquiries and litigation related to a
scale at higher asset levels and that it AIM, as well as the profitability of AIM wide range of issues. The Board also
was not necessary to change the advisory in connection with managing the Fund. considered the governance and compliance
fee breakpoints in the Fund's advisory The Board noted that AIM's operations reforms being undertaken by AIM and its
fee schedule. remain profitable, although increased affiliates, including maintaining an
expenses in recent years have reduced internal controls committee and
o Investments in affiliated money market AIM's profitability. Based on the review retaining an independent compliance
funds. The Board also took into account of the profitability of AIM's and its consultant, and the fact that AIM has
the fact that uninvested cash and cash affiliates' investment advisory and undertaken to cause the Fund to operate
collateral from securities lending other activities and its financial in accordance with certain governance
arrangements (collectively, "cash condition, the Board concluded that the policies and practices. The Board
balances") of the Fund may be invested compensation to be paid by the Fund to concluded that these actions indicated a
in money market funds advised by AIM AIM under its Advisory Agreement was not good faith effort on the part of AIM to
pursuant to the terms of an SEC excessive. adhere to the highest ethical standards,
exemptive order. The Board found that and determined that the current
the Fund may realize certain benefits o Benefits of soft dollars to AIM. The regulatory and litigation environment to
upon investing cash balances in AIM Board considered the benefits realized which AIM is subject should not prevent
advised money market funds, including a by AIM as a result of brokerage the Board from continuing the Advisory
higher net return, increased liquidity, transactions executed through "soft Agreement for the Fund.
increased diversification or decreased dollar" arrangements. Under these
transaction costs. The Board also found arrangements, brokerage commissions paid
that the Fund will not receive reduced by the Fund and/or other funds advised
services if it invests its cash balances by AIM are used to pay for research and
in such money market funds. The Board execution services. This research is
noted that, to the extent the Fund used by AIM in making investment
invests in affiliated money market decisions for the Fund. The Board
funds, AIM has voluntarily agreed to concluded that such arrangements were
waive a portion of the advisory fees it appropriate.
receives from the Fund attributable to
such investment. The Board further o AIM's financial soundness in light of
determined that the proposed securities the Fund's needs. The Board considered
lending program and related procedures whether AIM is financially sound and has
with respect to the lending Fund is in the resources necessary to perform its
the best interests of the lending Fund obligations under the Advisory
and its respective shareholders. The Agreement, and concluded that AIM has
Board therefore concluded that the the financial resources necessary to
investment of cash collateral received fulfill its obligations under the
in connection with the securities Advisory Agreement.
lending program in the money market
funds according to the procedures is in o Historical relationship between the
the best interests of the lending Fund Fund and AIM. In determining whether to
and its respective shareholders. continue the Advisory Agreement for the
Fund, the Board also considered the prior
o Independent written evaluation and relationship between AIM and the Fund, as
recommendations of the Fund's Senior well as the Board's knowledge of AIM's
Officer. The Board noted that, upon operations, and concluded that it was
their direction, the Senior Officer of beneficial to maintain the current
the Fund, who is independent of AIM and relationship, in part, because of such
AIM's affiliates, had prepared an knowledge. The Board also reviewed the
independent written evaluation in order general nature of the non-investment
to assist the Board in determining the advisory services currently performed by
reasonableness of the proposed AIM and its affiliates, such as
management fees of the AIM Funds, administrative, transfer agency and
including the Fund. The Board noted that distribution services, and the fees
the Senior Officer's written evaluation received by AIM and its affiliates for
had been relied upon by the Board in performing such services. In addition to
this regard in lieu of a competitive reviewing such services, the trustees
bidding process. In determining whether also considered the organizational
to continue the Advisory Agreement for structure employed by AIM and its
the Fund, the Board considered the affiliates to provide those services.
Senior Officer's written evaluation and Based on the review of these and other
the recommendation made by the Senior factors, the Board concluded that AIM and
Officer to the Board that the Board its affiliates were qualified to continue
consider implementing a process to to provide non-investment advisory
assist them in more closely monitoring services to the Fund, including
the performance of the AIM Funds. The administrative, transfer agency and
Board concluded that it would be distribution services, and that AIM and
advisable to implement such a process as its affiliates currently are providing
soon as reasonably practicable. satisfactory non-investment advisory
services.
10
SUPPLEMENT TO ANNUAL REPORT DATED 12/31/05
AIM BASIC BALANCED FUND
===========================================
INSTITUTIONAL CLASS SHARES AVERAGE ANNUAL TOTAL RETURNS PLEASE NOTE THAT PAST PERFORMANCE IS NOT
For periods ended 12/31/05 INDICATIVE OF FUTURE RESULTS. MORE RECENT
The following information has been RETURNS MAY BE MORE OR LESS THAN THOSE
prepared to provide Institutional Class Inception 6.90% SHOWN. ALL RETURNS ASSUME REINVESTMENT OF
shareholders with a performance overview 1 Year 5.28 DISTRIBUTIONS AT NAV. INVESTMENT RETURN
specific to their holdings. Institutional 6 Months* 4.47 AND PRINCIPAL VALUE WILL FLUCTUATE SO
Class shares are offered exclusively to YOUR SHARES, WHEN REDEEMED, MAY BE WORTH
institutional investors, including * Cumulative total return that has not MORE OR LESS THAN THEIR ORIGINAL COST.
defined contribution plans that meet been annualized SEE FULL REPORT FOR INFORMATION ON
certain criteria. =========================================== COMPARATIVE BENCHMARKS. PLEASE CONSULT
YOUR FUND PROSPECTUS FOR MORE
INSTITUTIONAL CLASS SHARES' INCEPTION INFORMATION. FOR THE MOST CURRENT
DATE IS APRIL 30, 2004. RETURNS SINCE MONTH-END PERFORMANCE, PLEASE CALL
THAT DATE ARE HISTORICAL RETURNS. ALL 800-451-4246 OR VISIT AIMinvestments.com.
OTHER RETURNS ARE BLENDED RETURNS OF
HISTORICAL INSTITUTIONAL CLASS SHARE
PERFORMANCE AND RESTATED CLASS A SHARE
PERFORMANCE (FOR PERIODS PRIOR TO THE
INCEPTION DATE OF INSTITUTIONAL CLASS
SHARES) AT NET ASSET VALUE AND REFLECT
THE HIGHER RULE 12b-1 FEES APPLICABLE TO
CLASS A SHARES. CLASS A SHARES' INCEPTION
DATE IS SEPTEMBER 28, 2001.
INSTITUTIONAL CLASS SHARES HAVE NO SALES
CHARGE; THEREFORE, PERFORMANCE IS AT NET
ASSET VALUE (NAV). PERFORMANCE OF
INSTITUTIONAL CLASS SHARES WILL DIFFER
FROM PERFORMANCE OF OTHER SHARE CLASSES
DUE TO DIFFERING SALES CHARGES AND CLASS
EXPENSES.
===========================================
NASDAQ SYMBOL BBLIX
===========================================
Over for information on your Fund's expenses.
================================================================================
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.
================================================================================
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.
[OUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
</Table>
AIMinvestments.com BBA-INS-1 A I M Distributors, Inc.
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE example, an $8,600 account value divided The hypothetical account values and
by $1,000 = 8.6), then multiply the expenses may not be used to estimate the
As a shareholder of the Fund, you incur result by the number in the table under actual ending account balance or expenses
ongoing costs, including management fees the heading entitled "Actual Expenses you paid for the period. You may use this
and other Fund expenses. This example is Paid During Period" to estimate the information to compare the ongoing costs
intended to help you understand your expenses you paid on your account during of investing in the Fund and other funds.
ongoing costs (in dollars) of investing this period. To do so, compare this 5% hypothetical
in the Fund and to compare these costs example with the 5% hypothetical examples
with ongoing costs of investing in other HYPOTHETICAL EXAMPLE FOR COMPARISON that appear in the shareholder reports of
mutual funds. The example is based on an PURPOSES the other funds.
investment of $1,000 invested at the
beginning of the period and held for the The table below also provides information Please note that the expenses shown in
entire period July 1, 2005, through about hypothetical account values and the table are meant to highlight your
December 31, 2005. hypothetical expenses based on the Fund's ongoing costs only. Therefore, the
actual expense ratio and an assumed rate hypothetical information is useful in
ACTUAL EXPENSES of return of 5% per year before expenses, comparing ongoing costs only, and will
which is not the Fund's actual return. not help you determine the relative total
The table below provides information The Fund's actual cumulative total return costs of owning different funds.
about actual account values and actual after expenses for the six months ended
expenses. You may use the information in December 31, 2005, appears in the table
this table, together with the amount you on the front of this supplement.
invested, to estimate the expenses that
you paid over the period. Simply divide
your account value by $1,000 (for
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/05) (12/31/05)(1) PERIOD(2) (12/31/05) PERIOD(2) RATIO
Institutional $1,000.00 $1,044.70 $3.30 $1,021.98 $3.26 0.64%
(1) The actual ending account value is based on the actual total return of the Fund for the period July 1, 2005, through December
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 return after expenses for the
six months ended December 31, 2005, appears in the table on the front of this supplement.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the one-half year period.
====================================================================================================================================
</Table>
AIMinvestments.com BBA-INS-1 A I M Distributors, Inc.
SCHEDULE OF INVESTMENTS
December 31, 2005
<Table>
<Caption>
SHARES VALUE
- ---------------------------------------------------------------------------------
STOCKS & OTHER EQUITY INTERESTS-68.29%
ADVERTISING-2.60%
Interpublic Group of Cos., Inc. (The)(a) 1,844,000 $ 17,794,600
- ---------------------------------------------------------------------------------
Omnicom Group Inc. 366,000 31,157,580
=================================================================================
48,952,180
=================================================================================
AEROSPACE & DEFENSE-0.94%
Honeywell International Inc. 472,640 17,605,840
=================================================================================
ALUMINUM-0.89%
Alcoa Inc. 562,770 16,641,109
=================================================================================
APPAREL RETAIL-1.04%
Gap, Inc. (The) 1,110,100 19,582,164
=================================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.31%
Bank of New York Co., Inc. (The) 773,140 24,624,509
=================================================================================
BREWERS-1.22%
Molson Coors Brewing Co.-Class B 341,115 22,851,294
=================================================================================
BUILDING PRODUCTS-1.70%
American Standard Cos. Inc. 304,600 12,168,770
- ---------------------------------------------------------------------------------
Masco Corp. 656,900 19,831,811
=================================================================================
32,000,581
=================================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.21%
Deere & Co. 57,350 3,906,108
=================================================================================
CONSTRUCTION MATERIALS-1.49%
CEMEX S.A. De C.V.-ADR (Mexico) 472,500 28,033,425
=================================================================================
CONSUMER ELECTRONICS-2.18%
Koninklijke (Royal) Philips Electronics
N.V.-New York Shares (Netherlands) 609,000 18,939,900
- ---------------------------------------------------------------------------------
Sony Corp.-ADR (Japan) 541,000 22,072,800
=================================================================================
41,012,700
=================================================================================
DATA PROCESSING & OUTSOURCED SERVICES-3.62%
Ceridian Corp.(a) 887,400 22,051,890
- ---------------------------------------------------------------------------------
First Data Corp. 1,068,060 45,937,261
=================================================================================
67,989,151
=================================================================================
DIVERSIFIED BANKS-0.02%
HSBC Capital Funding L.P. (United Kingdom),
4.61% Pfd. (Acquired 11/05/03; Cost
$419,634)(b)(c) 450,000 425,727
=================================================================================
</Table>
<Table>
- ---------------------------------------------------------------------------------
<Caption>
SHARES VALUE
DIVERSIFIED CAPITAL MARKETS-0.07%
UBS Preferred Funding Trust I, 8.62% Pfd.(c) 1,185,000 $ 1,368,248
=================================================================================
DIVERSIFIED CHEMICALS-0.27%
Dow Chemical Co. (The) 114,800 5,030,536
=================================================================================
DIVERSIFIED COMMERCIAL & PROFESSIONAL
SERVICES-1.46%
Cendant Corp. 1,589,530 27,419,393
=================================================================================
ENVIRONMENTAL & FACILITIES SERVICES-1.77%
Waste Management, Inc. 1,096,700 33,284,845
=================================================================================
FOOD RETAIL-2.15%
Kroger Co. (The)(a) 1,173,400 22,153,792
- ---------------------------------------------------------------------------------
Safeway Inc. 774,500 18,324,670
=================================================================================
40,478,462
=================================================================================
GENERAL MERCHANDISE STORES-1.13%
Target Corp. 385,560 21,194,233
=================================================================================
HEALTH CARE DISTRIBUTORS-4.29%
Cardinal Health, Inc. 863,500 59,365,625
- ---------------------------------------------------------------------------------
McKesson Corp. 411,260 21,216,903
=================================================================================
80,582,528
=================================================================================
HEALTH CARE EQUIPMENT-0.95%
Baxter International Inc. 475,700 17,910,105
=================================================================================
HEALTH CARE FACILITIES-1.27%
HCA Inc. 472,100 23,841,050
=================================================================================
INDUSTRIAL CONGLOMERATES-4.48%
General Electric Co. 875,310 30,679,616
- ---------------------------------------------------------------------------------
Tyco International Ltd. 1,857,200 53,598,792
=================================================================================
84,278,408
=================================================================================
INDUSTRIAL MACHINERY-1.36%
Illinois Tool Works Inc. 289,650 25,486,304
=================================================================================
INVESTMENT BANKING & BROKERAGE-2.71%
Merrill Lynch & Co., Inc. 364,090 24,659,816
- ---------------------------------------------------------------------------------
Morgan Stanley 463,950 26,324,523
=================================================================================
50,984,339
=================================================================================
LIFE & HEALTH INSURANCE-0.11%
Aegon N.V. (Netherlands), 6.38% Pfd 79,800 2,015,748
=================================================================================
MANAGED HEALTH CARE-2.22%
WellPoint, Inc.(a) 521,800 41,634,422
=================================================================================
</Table>
F-1
<Table>
<Caption>
SHARES VALUE
- ---------------------------------------------------------------------------------
MOVIES & ENTERTAINMENT-1.28%
Walt Disney Co. (The) 1,002,700 $ 24,034,719
=================================================================================
MULTI-LINE INSURANCE-1.54%
Hartford Financial Services Group, Inc. (The) 336,100 28,867,629
=================================================================================
OIL & GAS DRILLING-1.86%
Transocean Inc.(a) 500,390 34,872,179
=================================================================================
OIL & GAS EQUIPMENT & SERVICES-4.05%
Halliburton Co. 770,500 47,740,180
- ---------------------------------------------------------------------------------
Schlumberger Ltd. 291,180 28,288,137
=================================================================================
76,028,317
=================================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-5.27%
ABN AMRO XVII Custodial Receipts- Series
MM17, 3.80% Floating Rate Pfd. (Acquired
05/11/05; Cost $5,935,029)(b)(c)(d) 59 5,900,000
- ---------------------------------------------------------------------------------
Auction Pass-Through Trust-Series 2001-1,
Class A, 5.30% Floating Rate Pfd. (Acquired
10/03/05; Cost $5,500,000)(b)(e)(f) 22 5,500,000
- ---------------------------------------------------------------------------------
Citigroup Inc. 737,283 35,780,344
- ---------------------------------------------------------------------------------
JPMorgan Chase & Co. 1,101,918 43,735,125
- ---------------------------------------------------------------------------------
Zurich RegCaPS Funding Trust III, 4.80%
Floating Rate Pfd. (Acquired 06/03/04-
09/28/04; Cost $3,364,358)(b)(c)(e) 3,450 3,436,410
- ---------------------------------------------------------------------------------
Zurich RegCaPS Funding Trust IV, 4.87%
Floating Rate Pfd. (Acquired 01/19/05; Cost
$1,220,601)(b)(c)(e) 1,250 1,222,696
- ---------------------------------------------------------------------------------
Zurich RegCaPS Funding Trust VI, 5.05%
Floating Rate Pfd. (Acquired 01/19/05; Cost
$3,545,855)(b)(c)(e) 3,650 3,559,721
=================================================================================
99,134,296
=================================================================================
PACKAGED FOODS & MEATS-1.83%
Kraft Foods Inc.-Class A 502,000 14,126,280
- ---------------------------------------------------------------------------------
Unilever N.V. (Netherlands)(g) 296,350 20,294,688
=================================================================================
34,420,968
=================================================================================
PHARMACEUTICALS-5.26%
Pfizer Inc. 1,052,490 24,544,067
- ---------------------------------------------------------------------------------
Sanofi-Aventis (France)(g) 436,252 38,221,482
- ---------------------------------------------------------------------------------
Wyeth 785,318 36,179,600
=================================================================================
98,945,149
=================================================================================
PROPERTY & CASUALTY INSURANCE-1.67%
ACE Ltd. 585,800 31,305,152
=================================================================================
SYSTEMS SOFTWARE-1.87%
Computer Associates International, Inc. 1,248,742 35,202,037
=================================================================================
</Table>
<Table>
- ---------------------------------------------------------------------------------
<Caption>
SHARES VALUE
THRIFTS & MORTGAGE FINANCE-2.20%
Fannie Mae 535,439 $ 26,134,778
- ---------------------------------------------------------------------------------
Fannie Mae-Series J, 4.72% Floating Rate
Pfd.(h) 56,850 2,837,952
- ---------------------------------------------------------------------------------
Fannie Mae-Series K, 5.40% Floating Rate
Pfd.(h) 59,850 2,968,560
- ---------------------------------------------------------------------------------
Freddie Mac 145,000 9,475,750
=================================================================================
41,417,040
=================================================================================
Total Stocks & Other Equity Interests
(Cost $1,054,840,128) 1,283,360,895
=================================================================================
<Caption>
PRINCIPAL
AMOUNT
BONDS & NOTES-22.61%
AEROSPACE & DEFENSE-0.18%
Systems 2001 Asset Trust LLC (Cayman
Islands)-Series 2001, Class G, Pass Through
Ctfs., (INS-MBIA Insurance Corp.) 6.66%,
09/15/13 (Acquired 02/09/05-10/27/05; Cost
$3,436,891)(b)(c)(i) $ 3,120,508 3,357,167
=================================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.07%
Nuveen Investments, Inc.,
Sr. Unsec. Sub. Notes,
5.50%, 09/15/15(c) 1,400,000 1,378,650
=================================================================================
AUTOMOBILE MANUFACTURERS-0.46%
DaimlerChrysler North America Holding Corp.,
Gtd. Global Notes, 6.40%, 05/15/06(c) 1,170,000 1,175,663
- ---------------------------------------------------------------------------------
Series D, Gtd. Floating Rate Medium Term
Notes,
4.99%, 05/24/06(c)(e) 5,625,000 5,629,335
- ---------------------------------------------------------------------------------
Unsec. Gtd. Unsub. Global Notes, 7.25%,
01/18/06(c) 1,765,000 1,766,412
=================================================================================
8,571,410
=================================================================================
BROADCASTING & CABLE TV-1.86%
British Sky Broadcasting Group PLC
(United Kingdom), Unsec. Gtd. Global Notes,
7.30%, 10/15/06(c) 1,675,000 1,703,927
- ---------------------------------------------------------------------------------
Comcast Corp.,
Sr. Unsec. Sub. Notes, 10.50%, 06/15/06(c) 7,050,000 7,254,027
- ---------------------------------------------------------------------------------
Unsec. Gtd. Global Notes, 9.46%,
11/15/22(c) 3,030,000 3,976,784
- ---------------------------------------------------------------------------------
Cox Communications, Inc.,
Unsec. Notes, 7.75%, 08/15/06(c) 8,110,000 8,233,272
- ---------------------------------------------------------------------------------
Cox Enterprises, Inc., Notes, 8.00%, 02/15/07
(Acquired 10/03/05-11/14/05; Cost
$10,672,304)(b)(c)(f) 10,280,000 10,583,980
- ---------------------------------------------------------------------------------
Cox Radio, Inc., Sr. Unsec. Notes, 6.63%,
02/15/06(c) 825,000 826,708
- ---------------------------------------------------------------------------------
Time Warner Entertainment Co. L.P.,
Sr. Unsec. Deb.,
8.38%, 03/15/23(c) 2,050,000 2,363,998
=================================================================================
34,942,696
=================================================================================
</Table>
F-2
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------------------
COMMERCIAL PRINTING-0.09%
Deluxe Corp., Medium Term Notes,
2.75%, 09/15/06(c) $ 1,725,000 $ 1,699,039
=================================================================================
CONSUMER ELECTRONICS-0.06%
Koninklijke (Royal) Philips Electronics N.V.
(Netherlands), Yankee Notes, 8.38%,
09/15/06(c) 1,130,000 1,156,600
=================================================================================
CONSUMER FINANCE-2.13%
Capital One Capital I, Sub. Floating Rate
Trust Pfd. Bonds, 5.80%, 02/01/27 (Acquired
09/16/04; Cost $3,465,960)(b)(c)(e) 3,400,000 3,404,930
- ---------------------------------------------------------------------------------
Capital One Financial Corp.,
Sr. Unsec. Notes, 7.25%, 05/01/06(c) 4,505,000 4,540,815
- ---------------------------------------------------------------------------------
Unsec. Notes, 7.13%, 08/01/08(c) 545,000 570,980
- ---------------------------------------------------------------------------------
Ford Motor Credit Co.,
Notes, 6.50%, 02/15/06(c) 1,687,000 1,680,842
- ---------------------------------------------------------------------------------
Unsec. Global Notes, 6.88%, 02/01/06(c) 23,500,000(j) 23,443,600
- ---------------------------------------------------------------------------------
Unsec. Notes, 6.13%, 01/09/06(c) 990,000 989,960
- ---------------------------------------------------------------------------------
General Motors Acceptance Corp., Floating
Rate Medium Term Notes, 5.24%,
05/18/06(c)(e) 5,400,000 5,321,268
=================================================================================
39,952,395
=================================================================================
DIVERSIFIED BANKS-1.41%
AB Spintab (Sweden), Bonds, 7.50% (Acquired
02/12/04; Cost $3,928,390)(b)(c)(k) 3,520,000 3,580,403
- ---------------------------------------------------------------------------------
American Savings Bank, Notes, 6.63%, 02/15/06
(Acquired 03/05/03; Cost $582,251)(b)(c) 525,000 525,803
- ---------------------------------------------------------------------------------
Bangkok Bank PCL (Hong Kong),
Unsec. Sub. Notes,
9.03%, 03/15/29 (Acquired 04/22/05; Cost
$3,912,563)(b)(c) 3,125,000 3,912,500
- ---------------------------------------------------------------------------------
Centura Capital Trust I, Gtd. Trust Pfd.
Notes,
8.85%, 06/01/27 (Acquired 05/22/03; Cost
$1,847,528)(b)(c) 1,460,000 1,586,013
- ---------------------------------------------------------------------------------
Corporacion Andina de Fomento,
Unsec. Global Notes,
6.88%, 03/15/12(c) 1,050,000 1,144,521
- ---------------------------------------------------------------------------------
Credit Suisse First Boston, Inc., Sub. Medium
Term Notes, 7.75%, 05/15/06 (Acquired
04/06/05; Cost $296,260)(b)(c) 285,000 287,984
- ---------------------------------------------------------------------------------
Danske Bank A/S (Denmark), First Tier Bonds,
5.91% (Acquired 06/07/04; Cost
$1,345,000)(b)(c)(k) 1,345,000 1,394,281
- ---------------------------------------------------------------------------------
Lloyds Bank PLC (United Kingdom)-Series 1,
Unsec. Sub. Floating Rate Euro Notes,
4.94%(c)(k)(l) 4,010,000 3,533,760
- ---------------------------------------------------------------------------------
National Bank of Canada (Canada), Floating
Rate Euro Deb., 4.19%, 08/29/87(c)(l) 1,580,000 1,338,380
- ---------------------------------------------------------------------------------
National Westminster Bank PLC (United
Kingdom)-Series B, Unsec. Sub. Floating
Rate Euro Notes,
4.25%(c)(k)(l) 1,150,000 1,002,463
- ---------------------------------------------------------------------------------
</Table>
<Table>
- ---------------------------------------------------------------------------------
<Caption>
PRINCIPAL
AMOUNT VALUE
DIVERSIFIED BANKS-(CONTINUED)
NBD Bank N.A. Michigan, Unsec. Sub. Deb.,
8.25%, 11/01/24(c) $ 915,000 $ 1,187,350
- ---------------------------------------------------------------------------------
RBS Capital Trust III, Sub. Trust Pfd. Global
Notes, 5.51%(c)(k) 1,140,000 1,146,430
- ---------------------------------------------------------------------------------
VTB Capital S.A. (Russia),
Sr. Floating Rate Notes,
5.25%, 09/21/07
(Acquired 12/14/05; Cost
$2,850,000)(b)(c)(e) 2,850,000 2,855,700
- ---------------------------------------------------------------------------------
Wells Fargo & Co., Sr. Unsec. Global Notes,
3.75%, 10/15/07(c) 3,025,000 2,973,666
=================================================================================
26,469,254
=================================================================================
DIVERSIFIED COMMERCIAL & PROFESSIONAL
SERVICES-0.67%
Cendant Corp., Sr. Unsec. Global Notes,
6.88%, 08/15/06(c) 12,430,000 12,562,007
=================================================================================
ELECTRIC UTILITIES-1.27%
American Electric Power Co., Inc.-Series A,
Unsec. Unsub. Global Notes, 6.13%,
05/15/06(c) 2,090,000 2,100,346
- ---------------------------------------------------------------------------------
Consolidated Edison Co. of New York-Series A,
Unsec. Deb., 7.75%, 06/01/26(c) 955,000 983,612
- ---------------------------------------------------------------------------------
Duke Capital LLC, Sr. Unsec. Notes,
4.30%, 05/18/06(c) 1,910,000 1,907,078
- ---------------------------------------------------------------------------------
Korea Electric Power Corp. (South Korea),
Unsec. Gtd. Putable Disc. Yankee Deb.,
7.95%, 04/01/16(c)(m) 3,180,000 1,985,846
- ---------------------------------------------------------------------------------
Northeast Utilities-Series A, Notes,
8.58%, 12/01/06(c) 684,000 700,628
- ---------------------------------------------------------------------------------
Pepco Holdings, Inc., Unsec. Unsub. Notes,
3.75%, 02/15/06(c) 3,950,000 3,945,655
- ---------------------------------------------------------------------------------
Pinnacle West Capital Corp., Sr. Unsec.
Notes,
6.40%, 04/01/06(c) 6,510,000 6,531,418
- ---------------------------------------------------------------------------------
Progress Energy, Inc., Sr. Unsec. Notes,
6.75%, 03/01/06(c) 5,760,000 5,777,683
=================================================================================
23,932,266
=================================================================================
FOOD RETAIL-0.35%
ARAMARK Services Inc., Unsec. Gtd. Notes,
7.00%, 07/15/06(c) 1,880,000 1,900,304
- ---------------------------------------------------------------------------------
Kroger Co. (The), Sr. Unsec. Gtd. Notes,
7.63%, 09/15/06(c) 2,380,000 2,419,556
- ---------------------------------------------------------------------------------
Safeway Inc., Sr. Unsec. Notes,
6.15%, 03/01/06(c) 2,300,000 2,304,922
=================================================================================
6,624,782
=================================================================================
FOREST PRODUCTS-0.10%
Weyerhaeuser Co. (Canada), Unsec. Yankee
Notes,
6.75%, 02/15/06(c) 1,900,000 1,902,109
=================================================================================
</Table>
F-3
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------------------
HEALTH CARE DISTRIBUTORS-0.10%
Cardinal Health, Inc., Unsec. Notes,
6.00%, 01/15/06(c) $ 1,910,000 $ 1,910,649
=================================================================================
HEALTH CARE SERVICES-0.26%
Caremark Rx, Inc., Sr. Unsec. Notes,
7.38%, 10/01/06(c) 3,175,000 3,225,070
- ---------------------------------------------------------------------------------
Quest Diagnostics Inc., Sr. Unsec. Gtd.
Notes,
6.75%, 07/12/06(c) 1,635,000 1,649,780
=================================================================================
4,874,850
=================================================================================
HOMEBUILDING-0.41%
D.R. Horton, Inc., Sr. Unsec. Notes,
7.88%, 08/15/11(c) 1,000,000 1,086,200
- ---------------------------------------------------------------------------------
Ryland Group, Inc. (The),
Sr. Unsec. Unsub. Notes,
8.00%, 08/15/06(c) 6,470,000 6,567,373
=================================================================================
7,653,573
=================================================================================
HOUSEHOLD APPLIANCES-0.10%
Stanley Works Capital Trust I, Bonds, 5.90%,
12/01/45 (Acquired 11/15/05; Cost
$1,850,000)(b)(c) 1,850,000 1,846,496
=================================================================================
HOUSEWARES & SPECIALTIES-0.19%
American Greetings Corp., Unsec. Putable
Deb.,
6.10%, 08/01/08(c) 3,600,000 3,647,340
=================================================================================
INDEPENDENT POWER PRODUCERS & ENERGY
TRADERS-0.24%
PSEG Power LLC, Sr. Unsec. Gtd. Global Notes,
6.88%, 04/15/06(c) 3,231,000 3,248,609
- ---------------------------------------------------------------------------------
TXU Corp.-Series O,
Sr. Unsec. Global Notes,
4.80%, 11/15/09(c) 1,300,000 1,257,217
=================================================================================
4,505,826
=================================================================================
INDUSTRIAL CONGLOMERATES-0.43%
Tyco International Group S.A. (Luxembourg),
Sr. Unsec. Gtd. Unsub. Yankee Notes,
6.38%, 02/15/06(c) 1,600,000(j) 1,602,784
- ---------------------------------------------------------------------------------
Unsec. Gtd. Unsub. Yankee Notes,
5.80%, 08/01/06(c) 5,690,000 5,714,865
- ---------------------------------------------------------------------------------
URC Holdings Corp., Sr. Notes, 7.88%,
06/30/06 (Acquired 10/08/03; Cost
$905,816)(b)(c) 800,000 810,304
=================================================================================
8,127,953
=================================================================================
INTEGRATED OIL & GAS-0.46%
ConocoPhillips, Unsec. Deb.,
7.13%, 03/15/28(c) 1,100,000 1,155,737
- ---------------------------------------------------------------------------------
Husky Oil Ltd. (Canada), Yankee Bonds,
8.90%, 08/15/28(c) 6,944,000 7,577,640
=================================================================================
8,733,377
=================================================================================
</Table>
<Table>
- ---------------------------------------------------------------------------------
<Caption>
PRINCIPAL
AMOUNT VALUE
INTEGRATED TELECOMMUNICATION SERVICES-1.59%
France Telecom S.A. (France),
Sr. Unsec. Global Notes,
7.20%, 03/01/06(c) $ 1,800,000 $ 1,807,776
- ---------------------------------------------------------------------------------
8.50%, 03/01/31(c) 1,840,000 2,487,183
- ---------------------------------------------------------------------------------
Sprint Capital Corp.,
Sr. Unsec. Gtd. Global Notes,
7.13%, 01/30/06(c) 3,465,000 3,471,029
- ---------------------------------------------------------------------------------
Unsec. Gtd. Notes, 4.78%, 08/17/06(c) 9,550,000 9,543,028
- ---------------------------------------------------------------------------------
Sprint Nextel Corp., Deb.,
9.25%, 04/15/22(c) 2,900,000 3,791,895
- ---------------------------------------------------------------------------------
TELUS Corp. (Canada), Yankee Notes,
7.50%, 06/01/07(c) 885,000 915,515
- ---------------------------------------------------------------------------------
Verizon California Inc.-Series F, Unsec.
Deb.,
6.75%, 05/15/27(c) 1,100,000 1,117,116
- ---------------------------------------------------------------------------------
Verizon Communications Inc., Unsec. Deb.,
6.36%, 04/15/06(c) 443,000(j) 444,670
- ---------------------------------------------------------------------------------
8.75%, 11/01/21(c) 1,435,000 1,814,371
- ---------------------------------------------------------------------------------
Verizon Maryland Inc.-Series A,
Unsec. Global Notes,
6.13%, 03/01/12(c) 1,215,000 1,243,577
- ---------------------------------------------------------------------------------
Verizon New York Inc., Unsec. Deb.,
7.00%, 12/01/33(c) 2,070,000 2,158,265
- ---------------------------------------------------------------------------------
Verizon Virginia Inc.-Series A,
Unsec. Global Deb.,
4.63%, 03/15/13(c) 1,260,000 1,169,381
=================================================================================
29,963,806
=================================================================================
INVESTMENT BANKING & BROKERAGE-0.06%
Lehman Brothers Inc., Sr. Unsec. Sub. Notes,
7.63%, 06/01/06(c) 1,050,000 1,062,001
=================================================================================
LEISURE PRODUCTS-0.28%
Brunswick Corp., Unsec. Unsub. Notes,
6.75%, 12/15/06(c) 5,130,000 5,202,487
=================================================================================
LIFE & HEALTH INSURANCE-0.30%
Prudential Holdings, LLC-Series B, Bonds,
(INS-Financial Security Assurance Inc.)
7.25%, 12/18/23 (Acquired
01/22/04-01/29/04; Cost
$5,041,881)(b)(c)(i) 4,275,000 5,037,788
- ---------------------------------------------------------------------------------
ReliaStar Financial Corp., Unsec. Notes,
8.00%, 10/30/06(c) 625,000 641,694
=================================================================================
5,679,482
=================================================================================
MANAGED HEALTH CARE-0.34%
CIGNA Corp., Notes,
6.38%, 01/15/06(c) 3,030,000 3,031,363
- ---------------------------------------------------------------------------------
Humana Inc., Sr. Unsec. Notes,
7.25%, 08/01/06(c) 3,250,000 3,292,607
=================================================================================
6,323,970
=================================================================================
</Table>
F-4
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------------------
MOVIES & ENTERTAINMENT-0.80%
CBS Corp., Sr. Unsec. Gtd. Global Notes,
6.40%, 01/30/06(c) $ 2,140,000 $ 2,142,568
- ---------------------------------------------------------------------------------
Time Warner Cos., Inc.,
Notes,
8.11%, 08/15/06(c) 505,000 513,146
- ---------------------------------------------------------------------------------
8.18%, 08/15/07(c) 2,775,000 2,896,101
- ---------------------------------------------------------------------------------
Unsec. Deb.,
9.15%, 02/01/23(c) 5,990,000 7,401,723
- ---------------------------------------------------------------------------------
Time Warner Inc., Sr. Unsec. Gtd. Unsub.
Global Notes,
6.13%, 04/15/06(c) 2,000,000 2,006,760
=================================================================================
14,960,298
=================================================================================
MULTI-UTILITIES-0.11%
DTE Energy Co., Sr. Unsec. Unsub. Notes,
6.45%, 06/01/06(c) 2,000,000 2,013,060
=================================================================================
MUNICIPALITIES-1.43%
Brownsville (City of), Texas; Refunding &
Improvement Utilities System Series 2005 A
RB, (INS-Ambac Assurance Corp.) 5.00%,
09/01/31(c)(i) 610,000 632,875
- ---------------------------------------------------------------------------------
Chicago (City of), Illinois O'Hare
International Airport; Refunding Taxable
General Airport Third Lien Series 2004 E
RB, (INS-MBIA Insurance Corp.)
3.88%, 01/01/08(c)(i) 2,750,000 2,708,750
- ---------------------------------------------------------------------------------
Dallas (City of), Texas; Taxable Pension
Limited Tax Series 2005 A GO,
4.61%, 02/15/14(c) 975,000 950,625
- ---------------------------------------------------------------------------------
5.20%, 02/15/35(c) 1,600,000 1,585,440
- ---------------------------------------------------------------------------------
Detroit (City of), Michigan; Taxable Capital
Improvement Limited Tax Series 2005 A-1 GO,
(INS-Ambac Assurance Corp.) 4.96%,
04/01/20(c)(i) 1,550,000 1,497,687
- ---------------------------------------------------------------------------------
Detroit (City of), Michigan; Taxable Series
2005 COP, (INS-Financial Guaranty Insurance
Co.) 4.95%, 06/15/25(c)(i) 1,920,000 1,852,800
- ---------------------------------------------------------------------------------
Indianapolis (City of), Indiana Local Public
Improvement Bond Bank;
Taxable Series 2005 A RB,
4.87%, 07/15/16(c) 925,000 911,125
- ---------------------------------------------------------------------------------
5.22%, 07/15/20(c) 1,100,000 1,098,867
- ---------------------------------------------------------------------------------
5.28%, 01/15/22(c) 600,000 600,000
- ---------------------------------------------------------------------------------
Industry (City of), California Urban
Development Agency (Project 3); Taxable
Allocation Series 2003 RB, (INS-MBIA
Insurance Corp.) 6.10%, 05/01/24(c)(i) 2,060,000 2,139,825
- ---------------------------------------------------------------------------------
Michigan (State of) Municipal Bond Authority
(City of Detroit School District); Series
2005 RB, (INS-Financial Security Assurance
Inc.) 5.00%, 06/01/15(c)(i) 700,000 756,875
- ---------------------------------------------------------------------------------
New Hampshire (State of); Taxable Unlimited
Tax Series 2005 B GO, 4.65%, 05/15/15(c) 1,975,000 1,957,719
- ---------------------------------------------------------------------------------
</Table>
<Table>
- ---------------------------------------------------------------------------------
<Caption>
PRINCIPAL
AMOUNT VALUE
MUNICIPALITIES-(CONTINUED)
Oregon (State of) Community College
Districts; Taxable Pension Limited Tax
Series 2005 GO, (INS-Ambac Assurance Corp.)
4.64%, 06/30/20(c)(i) $ 1,200,000 $ 1,161,000
- ---------------------------------------------------------------------------------
4.83%, 06/30/28(c)(i) 2,210,000 2,106,439
- ---------------------------------------------------------------------------------
Phoenix (City of), Arizona Civic Improvement
Corp.; Taxable Rental Car Facility Series
2004 RB, (INS-Financial Guaranty Insurance
Co.)
3.69%, 07/01/07(c)(i) 1,080,000 1,064,329
- ---------------------------------------------------------------------------------
4.21%, 07/01/08(c)(i) 1,285,000 1,268,886
- ---------------------------------------------------------------------------------
Sacramento (County of), California; Taxable
Pension Funding CARS Series 2004 C-1 RB,
(INS-MBIA Insurance Corp.) 3.42%,
07/10/30(c)(i)(n) 4,800,000 4,683,456
=================================================================================
26,976,698
=================================================================================
OIL & GAS EQUIPMENT & SERVICES-0.12%
Halliburton Co., Medium Term Notes,
6.00%, 08/01/06(c) 2,185,000 2,200,055
=================================================================================
OIL & GAS EXPLORATION & PRODUCTION-0.67%
Devon Energy Corp., Sr. Unsec. Notes,
2.75%, 08/01/06(c) 6,596,000 6,518,365
- ---------------------------------------------------------------------------------
Pemex Project Funding Master Trust (Mexico),
Series 12, Unsec. Gtd. Unsub. Notes,
5.75%, 12/15/15 (Acquired 06/27/05; Cost
$2,874,648)(b)(c) 2,895,000 2,883,420
- ---------------------------------------------------------------------------------
Unsec. Gtd. Unsub. Global Notes, 8.63%,
02/01/22(c) 2,600,000 3,185,260
=================================================================================
12,587,045
=================================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.73%
General Electric Capital Corp.-Series A,
Medium Term Global Notes,
2.85%, 01/30/06(c) 325,000 324,656
- ---------------------------------------------------------------------------------
ING Capital Funding Trust III, Gtd. Trust
Pfd. Global Bonds,
8.44%(c)(k) 1,025,000 1,168,510
- ---------------------------------------------------------------------------------
Mizuho JGB Investment LLC-Series A,
Sub. Bonds,
9.87% (Acquired 06/16/04-07/28/05; Cost
$6,664,804)(b)(c)(k) 5,890,000 6,464,452
- ---------------------------------------------------------------------------------
Pemex Finance Ltd. (Mexico),
Series 1999-2, Class A1, Global Bonds,
9.69%, 08/15/09(c) 4,923,750 5,341,087
- ---------------------------------------------------------------------------------
Series 2000-1, Class A1, Global Notes,
9.03%, 02/15/11(c) 2,180,000 2,387,732
- ---------------------------------------------------------------------------------
Sr. Unsec. Global Notes, 8.02%, 05/15/07(c) 1,832,500 1,870,799
- ---------------------------------------------------------------------------------
Premium Asset Trust-Series 2004-04, Sr.
Notes,
4.13%, 03/12/09 (Acquired 03/04/04; Cost
$3,822,437)(b)(c) 3,825,000 3,648,056
- ---------------------------------------------------------------------------------
</Table>
F-5
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES-(CONTINUED)
Regional Diversified Funding (Cayman
Islands), Class A-1a, Sr. Floating Rate
Notes,
4.53%, 01/25/36 (Acquired 03/21/05; Cost
$800,000)(b)(c)(e)(f) $ 800,000 $ 793,375
- ---------------------------------------------------------------------------------
Sr. Notes, 9.25%, 03/15/30 (Acquired
09/22/04;
Cost $3,504,605)(b)(c) 2,962,222 3,487,009
- ---------------------------------------------------------------------------------
Toll Road Investors Partnership II, L.P.-
Series A, Bonds, (INS-MBIA Insurance Corp.)
5.56%, 02/15/45 (Acquired
03/11/05-05/03/05; Cost
$3,600,630)(b)(c)(i)(o) 30,600,000 3,737,086
- ---------------------------------------------------------------------------------
Twin Reefs Pass-Through Trust, Floating Rate
Pass Through Ctfs., 5.36% (Acquired
12/07/04;
Cost $2,100,000)(b)(c)(k)(p) 2,100,000 2,102,247
- ---------------------------------------------------------------------------------
UFJ Finance Aruba AEC (Aruba), Gtd. Sub.
Second Tier Euro Bonds, 8.75%(c)(k) 1,020,000 1,108,570
=================================================================================
32,433,579
=================================================================================
PACKAGED FOODS & MEATS-0.24%
ConAgra Foods, Inc., Notes,
6.00%, 09/15/06(c) 3,190,000 3,217,817
- ---------------------------------------------------------------------------------
General Mills, Inc., Notes,
6.45%, 10/15/06(c) 1,330,000 1,345,428
=================================================================================
4,563,245
=================================================================================
PROPERTY & CASUALTY INSURANCE-1.30%
ACE INA Holdings, Inc.,
Sr. Unsec. Gtd. Unsub. Notes,
8.30%, 08/15/06(c) 2,150,000(j) 2,192,506
- ---------------------------------------------------------------------------------
Executive Risk Capital Trust-Series B, Gtd.
Trust Pfd. Bonds, 8.68%, 02/01/27(c) 2,375,000 2,556,521
- ---------------------------------------------------------------------------------
First American Capital Trust I,
Gtd. Trust Pfd. Notes,
8.50%, 04/15/12(c) 5,720,000 6,233,027
- ---------------------------------------------------------------------------------
Oil Casualty Insurance Ltd. (Bermuda), Unsec.
Sub. Deb., 8.00%, 09/15/34 (Acquired
04/29/05-06/09/05; Cost $3,737,949)(b)(c) 3,495,000 3,551,095
- ---------------------------------------------------------------------------------
Oil Insurance Ltd. (Bermuda),
Sr. Unsec. Floating Rate Notes, 4.51%,
10/06/06 (Acquired 10/12/05-10/13/05;
Cost $2,386,963)(b)(c)(p) 2,405,000 2,384,865
- ---------------------------------------------------------------------------------
Unsec. Sub. Deb., 5.15%, 08/15/33 (Acquired
03/23/04-06/09/05; Cost $6,974,152)(b)(c) 6,860,000 6,774,799
- ---------------------------------------------------------------------------------
Travelers Property Casualty Corp.,
Sr. Unsec. Notes,
6.75%, 11/15/06(c) 700,000 710,367
=================================================================================
24,403,180
=================================================================================
RAILROADS-0.04%
Union Pacific Corp., Unsec. Notes,
6.40%, 02/01/06(c) 680,000 680,904
=================================================================================
</Table>
<Table>
- ---------------------------------------------------------------------------------
<Caption>
PRINCIPAL
AMOUNT VALUE
REAL ESTATE-0.68%
Health Care Property Investors, Inc.,
Notes, 5.63%, 05/01/17(c) $ 1,100,000 $ 1,084,435
- ---------------------------------------------------------------------------------
Sr. Unsec. Notes, 7.07%, 06/08/15(c) 2,405,000 2,639,800
- ---------------------------------------------------------------------------------
Health Care REIT, Inc., Sr. Notes,
5.88%, 05/15/15(c) 1,210,000 1,194,548
- ---------------------------------------------------------------------------------
ProLogis, Sr. Unsec. Notes,
7.05%, 07/15/06(c) 5,810,000(j) 5,876,699
- ---------------------------------------------------------------------------------
Summit Properties Partnership, L.P., Medium
Term Notes, 7.04%, 05/09/06(c) 2,000,000 2,011,340
=================================================================================
12,806,822
=================================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-0.04%
Southern Investments UK PLC (United Kingdom),
Sr. Unsec. Unsub. Yankee Notes, 6.80%,
12/01/06(c) 810,000 822,596
=================================================================================
REGIONAL BANKS-0.54%
Cullen/Frost Capital Trust I, Unsec. Sub.
Floating Rate Notes, 5.96%, 03/01/34(c)(e) 4,050,000 4,175,469
- ---------------------------------------------------------------------------------
Frost National Bank (The),
Unsec. Sub. Notes,
6.88%, 08/01/11(c) 1,650,000 1,778,090
- ---------------------------------------------------------------------------------
PNC Capital Trust C, Gtd. Floating Rate Trust
Pfd. Bonds, 4.98%, 06/01/28(c)(e) 1,175,000 1,150,548
- ---------------------------------------------------------------------------------
Popular North America, Inc., Gtd. Notes,
4.70%, 06/30/09(c) 1,550,000 1,525,340
- ---------------------------------------------------------------------------------
TCF Financial Corp., Sub. Notes,
5.00%, 06/15/14(c) 1,500,000 1,480,410
=================================================================================
10,109,857
=================================================================================
REINSURANCE-0.25%
Reinsurance Group of America, Inc.,
Jr. Unsec. Sub. Deb.,
6.75%, 12/15/65(c) 1,995,000 2,022,371
- ---------------------------------------------------------------------------------
Stingray Pass-Through Trust, Pass Through
Ctfs.,
5.90%, 01/12/15 (Acquired
01/07/05-11/03/05; Cost $2,747,640)(b)(c) 2,800,000 2,768,444
=================================================================================
4,790,815
=================================================================================
RESTAURANTS-0.05%
YUM! Brands, Inc., Sr. Unsec. Notes,
8.50%, 04/15/06(c) 940,000 949,099
=================================================================================
SOVEREIGN DEBT-0.24%
Russian Federation (Russia)-REGS, Unsec.
Unsub. Euro Bonds, 10.00%, 06/26/07
(Acquired 05/14/04-05/18/04; Cost
$2,050,181)(b)(c) 1,820,000 1,950,130
- ---------------------------------------------------------------------------------
United Mexican States (Mexico)-Series A,
Medium Term Global Notes,
6.63%, 03/03/15(c) 550,000 601,975
- ---------------------------------------------------------------------------------
</Table>
F-6
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------------------
SOVEREIGN DEBT-(CONTINUED)
7.50%, 04/08/33(c) $ 1,690,000 $ 2,000,284
=================================================================================
4,552,389
=================================================================================
SPECIALTY CHEMICALS-0.25%
ICI North America, Unsec. Gtd. Deb.,
8.88%, 11/15/06(c) 4,570,000 4,711,899
=================================================================================
THRIFTS & MORTGAGE FINANCE-0.06%
Greenpoint Capital Trust I,
Gtd. Sub. Trust Pfd. Notes,
9.10%, 06/01/27(c) 1,025,000 1,122,652
=================================================================================
TOBACCO-0.17%
Altria Group, Inc., Unsec. Notes,
6.38%, 02/01/06(c) 1,940,000 1,942,367
- ---------------------------------------------------------------------------------
7.20%, 02/01/07(c) 1,150,000 1,175,841
=================================================================================
3,118,208
=================================================================================
TRADING COMPANIES & DISTRIBUTORS-0.14%
Western Power Distribution Holdings Ltd.
(United Kingdom), Unsec. Unsub. Notes,
7.38%, 12/15/28 (Acquired
01/25/05-03/03/05; Cost $2,722,661)(b)(c) 2,400,000 2,665,656
=================================================================================
TRUCKING-0.16%
Roadway Corp., Sr. Sec. Gtd. Global Notes,
8.25%, 12/01/08(c) 2,805,000 2,988,138
=================================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.18%
Telephone & Data Systems, Inc., Unsec. Notes,
7.00%, 08/01/06(c) 3,425,000 3,452,229
=================================================================================
Total Bonds & Notes (Cost $429,425,999) 424,988,609
=================================================================================
U.S. MORTGAGE-BACKED SECURITIES-13.83%
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-4.91%
Pass Through Ctfs.,
5.50%, 05/01/13 to 12/01/33(c) 3,102,958 3,109,934
- ---------------------------------------------------------------------------------
7.00%, 06/01/15 to 06/01/32(c) 3,170,977 3,303,836
- ---------------------------------------------------------------------------------
6.50%, 01/01/16 to 01/01/35(c) 3,222,614 3,301,295
- ---------------------------------------------------------------------------------
6.00%, 03/01/17 to 01/01/34(c) 6,120,841 6,235,936
- ---------------------------------------------------------------------------------
4.50%, 10/01/18(c) 317,222 309,492
- ---------------------------------------------------------------------------------
8.00%, 01/01/27(c) 1,135,748 1,213,999
- ---------------------------------------------------------------------------------
7.50%, 11/01/30 to 03/01/32(c) 526,824 553,128
- ---------------------------------------------------------------------------------
5.00%, 10/01/33(c) 358,635 348,567
- ---------------------------------------------------------------------------------
Pass Through Ctfs., TBA,
5.00%, 01/01/21 to 01/01/36(c)(q) 23,444,000 22,769,873
- ---------------------------------------------------------------------------------
5.50%, 01/01/36(c)(q) 51,578,618 51,111,187
=================================================================================
92,257,247
=================================================================================
</Table>
<Table>
- ---------------------------------------------------------------------------------
<Caption>
PRINCIPAL
AMOUNT VALUE
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-7.74%
Floating Rate Pass Through Ctfs.,
4.56%, 11/01/33(c)(p) $ 2,788,597 $ 2,766,476
- ---------------------------------------------------------------------------------
Pass Through Ctfs.,
8.50%, 03/01/10 to 10/01/28(c) 1,709,676 1,852,915
- ---------------------------------------------------------------------------------
6.50%, 04/01/14 to 10/01/35(c) 12,049,008 12,413,920
- ---------------------------------------------------------------------------------
7.50%, 11/01/15 to 05/01/32(c) 1,090,426 1,144,313
- ---------------------------------------------------------------------------------
7.00%, 12/01/15 to 09/01/32(c) 3,643,122 3,795,814
- ---------------------------------------------------------------------------------
6.00%, 01/01/17 to 03/01/22(c) 932,085 949,615
- ---------------------------------------------------------------------------------
5.00%, 11/01/17 to 02/01/19(c) 6,827,738 6,763,676
- ---------------------------------------------------------------------------------
5.50%, 07/01/19 to 10/01/34(c) 11,875,679 11,837,836
- ---------------------------------------------------------------------------------
8.00%, 08/01/21 to 10/01/30(c) 761,349 813,383
- ---------------------------------------------------------------------------------
4.50%, 09/01/33(c) 2,559,755 2,420,574
- ---------------------------------------------------------------------------------
Pass Through Ctfs., TBA,
5.50%, 01/01/21 to 01/01/36(c)(q) 52,187,190 51,847,173
- ---------------------------------------------------------------------------------
5.00%, 01/01/21(c)(q) 18,957,160 18,755,740
- ---------------------------------------------------------------------------------
6.00%, 01/01/36(c)(q) 29,914,900 30,195,352
=================================================================================
145,556,787
=================================================================================
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-1.18%
Pass Through Ctfs.,
6.50%, 10/15/08 to 12/15/33(c) 2,657,571 2,776,995
- ---------------------------------------------------------------------------------
7.00%, 10/15/08 to 05/15/32(c) 1,419,108 1,489,364
- ---------------------------------------------------------------------------------
6.00%, 11/15/08 to 10/15/33(c) 8,417,393 8,631,983
- ---------------------------------------------------------------------------------
5.00%, 03/15/18(c) 2,093,573 2,090,164
- ---------------------------------------------------------------------------------
8.00%, 08/15/22 to 01/20/31(c) 555,106 594,393
- ---------------------------------------------------------------------------------
7.50%, 06/15/23 to 05/15/32(c) 1,398,751 1,477,855
- ---------------------------------------------------------------------------------
8.50%, 11/15/24 to 02/15/25(c) 121,727 132,865
- ---------------------------------------------------------------------------------
5.50%, 12/15/31 to 05/15/35(c) 4,849,637 4,889,613
=================================================================================
22,083,232
=================================================================================
Total U.S. Mortgage-Backed Securities
(Cost $258,871,841) 259,897,266
=================================================================================
ASSET-BACKED SECURITIES-3.10%
COLLATERALIZED MORTGAGE OBLIGATIONS-2.01%
Accredited Mortgage Loan Trust-Series 2003-3,
Class A3, Floating Rate Pass Through Ctfs.,
4.76%, 01/25/34(c)(p) 1,142,265 1,146,875
- ---------------------------------------------------------------------------------
Bank of America Mortgage Securities- Series
2003-D, Class 2AI, Floating Rate Pass
Through Ctfs.,
4.18%, 05/25/33(c)(p) 1,388,800 1,373,187
- ---------------------------------------------------------------------------------
Capital One Multi-Asset Execution Trust-
Series 2003-B4, Class B4, Floating Rate
Pass Through Ctfs., 5.17%, 07/15/11(c)(p) 2,230,000 2,263,262
- ---------------------------------------------------------------------------------
Countrywide Asset-Backed Ctfs.-Series 2004-6,
Class 2A5, Floating Rate Pass Through
Ctfs.,
4.77%, 11/25/34(c)(p) 1,412,267 1,416,056
- ---------------------------------------------------------------------------------
</Table>
F-7
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS-(CONTINUED)
Countrywide Home Loans,-Series 2004-HYB7,
Class 1A2, Floating Rate Pass Through
Ctfs.,
4.75%, 11/20/34(c)(p) $ 1,609,883 $ 1,597,170
- ---------------------------------------------------------------------------------
Credit Suisse First Boston Mortgage
Securities Corp.-Series 2004-AR3, Class
5A1, Floating Rate Pass Through Ctfs.,
4.76%, 04/25/34(c)(p) 1,556,908 1,551,226
- ---------------------------------------------------------------------------------
Credit Suisse First Boston Mortgage
Securities Corp.-Series 2004-AR7, Class
2A1, Floating Rate Pass Through Ctfs.,
4.75%, 11/25/34(c)(p) 1,772,185 1,755,453
- ---------------------------------------------------------------------------------
Credit Suisse First Boston Mortgage
Securities Corp.-Series 2004-C4, Class A6,
Pass Through Ctfs.,
4.69%, 10/15/39(c) 2,850,000 2,761,263
- ---------------------------------------------------------------------------------
Fannie Mae Whole Loan-Series 2003-W19, Class
1A3, Pass Through Ctfs., 4.78%, 11/25/33(c) 434,816 432,950
- ---------------------------------------------------------------------------------
Federal Home Loan Bank (FHLB)-Series TQ-
2015, Class A, Pass Through Ctfs., 5.07%,
10/20/15(c) 2,736,224 2,738,823
- ---------------------------------------------------------------------------------
GSR Mortgage Loan Trust-Series 2004-5, Class
2A1, Pass Through Ctfs., 4.55%, 05/25/34(c) 952,049 934,380
- ---------------------------------------------------------------------------------
Impac CMB Trust-Series 2003-12, Class A1,
Floating Rate Pass Through Ctfs., 4.76%,
12/25/33(c)(p) 332,059 332,393
- ---------------------------------------------------------------------------------
Impac CMB Trust-Series 2004-1, Class
A1,Floating Rate Pass Through Ctfs., 4.71%,
03/25/34(c)(p) 1,097,360 1,102,685
- ---------------------------------------------------------------------------------
Long Beach Mortgage Loan Trust-Series 2004-1,
Class A3, Floating Rate Pass Through Ctfs.,
4.68%, 02/25/34(c)(p) 573,095 573,920
- ---------------------------------------------------------------------------------
Master Asset Securitization Trust-Series
2003-8, Class 1A1, Pass Through Ctfs.,
5.50%, 09/25/33(c) 3,131,338 3,078,496
- ---------------------------------------------------------------------------------
MLCC Mortgage Investors, Inc.-Series 2003-G,
Class A1, Floating Rate Pass Through Ctfs.,
4.70%, 01/25/29(c)(p) 2,078,172 2,082,710
- ---------------------------------------------------------------------------------
Morgan Stanley Mortgage Loan Trust- Series
2004-6AR, Class 2A2, Floating Rate Pass
Through Ctfs.,
4.09%, 08/25/34(c)(p) 1,852,503 1,848,569
- ---------------------------------------------------------------------------------
Nomura Asset Acceptance Corp.-Series
2005-AR1, Class 2A1, Floating Rate Pass
Through Ctfs.,
4.66%, 02/25/35(c)(p) 821,207 823,482
- ---------------------------------------------------------------------------------
Residential Asset Mortgage Products, Inc.-
Series 2003-RS2, Class AII, Floating Rate
Pass Through Ctfs.,
4.72%, 03/25/33(c)(p) 807,241 809,481
- ---------------------------------------------------------------------------------
Specialty Underwriting & Residential Finance
Trust-Series 2003-BC3, Class A, Floating
Rate Pass Through Ctfs.,
4.73%, 08/25/34(c)(p) 341,267 341,659
- ---------------------------------------------------------------------------------
</Table>
<Table>
- ---------------------------------------------------------------------------------
<Caption>
PRINCIPAL
AMOUNT VALUE
COLLATERALIZED MORTGAGE OBLIGATIONS-(CONTINUED)
Structured Adjustable Rate Mortgage Loan
Trust-Series 2004-3AC, Class A1, Pass
Through Ctfs.,
4.94%, 03/25/34(c) $ 1,604,025 $ 1,594,975
- ---------------------------------------------------------------------------------
Structured Adjustable Rate Mortgage Loan
Trust- Series 2005-1, Class 1A1, Floating
Rate Pass Through Ctfs., 5.14%,
02/25/35(c)(p) 1,329,866 1,342,513
- ---------------------------------------------------------------------------------
Structured Asset Securities Corp.-Series
2003-37A, Class 7A, Floating Rate Pass
Through Ctfs.,
4.86%, 12/25/33(c)(p) 1,728,711 1,726,651
- ---------------------------------------------------------------------------------
Structured Asset Securities Corp.-Series
2004-2AC, Class A1, Floating Rate Pass
Through Ctfs.,
5.02%, 02/25/34(c)(p) 2,950,488 2,938,507
- ---------------------------------------------------------------------------------
Vanderbilt Mortgage and Finance, Inc.- Series
2002-B, Class A4, Pass Through Ctfs.,
5.84%, 02/07/26(c) 1,175,000 1,176,218
=================================================================================
37,742,904
=================================================================================
MULTI-SECTOR HOLDINGS-0.05%
Longport Funding Ltd.-Series 2005-2A, Class
A1J, Floating Rate Bonds, 4.76%, 02/03/40
(Acquired 03/31/05; Cost $900,000)(b)(e)(f) 900,000 900,000
=================================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-0.92%
Citicorp Lease Pass-Through Trust-Series
1999-1, Class A2, Pass Through Ctfs.,
8.04%, 12/15/19 (Acquired
06/01/00-07/27/05; Cost $6,002,141)(b)(c) 5,475,000 6,624,109
- ---------------------------------------------------------------------------------
LILACS Repackaging 2005-I-Series A, Sec.
Notes,
5.14%, 01/15/64 (Acquired 07/14/05; Cost
$4,500,000)(b)(f) 4,500,000 4,434,435
- ---------------------------------------------------------------------------------
Patrons' Legacy 2003-III-Series A, Ctfs.,
5.65%, 01/17/17 (Acquired 11/04/04; Cost
$2,563,525)(b)(f) 2,500,000 2,521,200
- ---------------------------------------------------------------------------------
Patrons' Legacy-2004-I-Series A, Ctfs.,
6.67%, 02/04/17 (Acquired
04/30/04-07/14/05; Cost $3,543,815)(b)(f) 3,500,000 3,557,995
- ---------------------------------------------------------------------------------
PLC Trust 2003-1, Sec. Notes, 2.71%, 03/31/06
(Acquired 03/23/04;
Cost $241,361)(b)(c) 238,108 237,247
=================================================================================
17,374,986
=================================================================================
PROPERTY & CASUALTY INSURANCE-0.12%
North Front Pass-Through Trust, Bonds, 5.81%,
12/15/24 (Acquired 12/08/04; Cost
$2,369,940)(b)(c) 2,350,000 2,319,474
=================================================================================
Total Asset-Backed Securities (Cost
$58,325,477) 58,337,364
=================================================================================
</Table>
F-8
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES-1.04%
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-1.04%
Unsec. Floating Rate Global Notes,
5.83%, 02/17/09(c)(p) $ 9,135,000 $ 8,904,798
- ---------------------------------------------------------------------------------
Unsec. Global Notes,
3.55%, 01/12/07(c) 3,625,000 3,583,131
- ---------------------------------------------------------------------------------
4.20%, 03/24/08(c) 7,100,000 7,018,847
=================================================================================
Total U.S. Government Agency Securities
(Cost $19,833,901) 19,506,776
=================================================================================
U.S. TREASURY SECURITIES-0.84%
U.S. TREASURY INFLATION -- INDEXED
BONDS-0.29%
2.00%, 07/15/14(c) 5,600,245(j)(r) 5,570,713
=================================================================================
U.S. TREASURY NOTES-0.18%
3.13%, 01/31/07(c) 1,400,000 1,380,750
- ---------------------------------------------------------------------------------
3.75%, 03/31/07(c) 2,000,000 1,983,440
=================================================================================
3,364,190
=================================================================================
U.S. TREASURY STRIPS-0.37%
3.03%, 02/15/07(c)(s) 1,375,000 1,309,468
- ---------------------------------------------------------------------------------
</Table>
<Table>
- ---------------------------------------------------------------------------------
<Caption>
PRINCIPAL
AMOUNT VALUE
U.S. TREASURY STRIPS-(CONTINUED)
4.63%, 11/15/24(c)(s) $ 3,560,000 $ 1,492,423
- ---------------------------------------------------------------------------------
4.54%, 05/15/25(c)(s) 2,025,000 823,912
- ---------------------------------------------------------------------------------
4.71%, 08/15/28(c)(s) 9,250,000 3,292,445
=================================================================================
6,918,248
=================================================================================
Total U.S. Treasury Securities (Cost
$15,915,586) 15,853,151
=================================================================================
<Caption>
SHARES
MONEY MARKET FUNDS-1.88%
Liquid Assets Portfolio-Institutional
Class(t) 17,648,250 17,648,250
- ---------------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(t) 17,648,250 17,648,250
=================================================================================
Total Money Market Funds (Cost
$35,296,500) 35,296,500
=================================================================================
TOTAL INVESTMENTS-111.59% (Cost
$1,872,509,432) 2,097,240,561
=================================================================================
OTHER ASSETS LESS LIABILITIES-(11.59%) (217,860,014)
=================================================================================
NET ASSETS-100.00% $1,879,380,547
_________________________________________________________________________________
=================================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
CARS - Convertible Auction Rate Security
COP - Certificates of Participation
Ctfs. - Certificates
Deb. - Debentures
Disc. - Discounted
GO - General Obligation Bonds
Gtd. - Guaranteed
INS - Insurer
Jr. - Junior
LILACS - Life Insurance and Life Annuities Backed Charitable Securities
Pfd. - Preferred
RB - Revenue Bonds
RegCaPS - Regulatory Capital Preferred Securities
REGS - Regulation S
REIT - Real Estate Investment Trust
Sec. - Secured
Sr. - Senior
STRIPS - Separately Traded Registered Interest and Principal Security
Sub. - Subordinated
TBA - To Be Announced
Unsec. - Unsecured
Unsub. - Unsubordinated
</Table>
F-9
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction). The security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate value of these securities at December 31, 2005 was
$117,404,608, which represented 6.25% of the Fund's Net Assets. Unless
otherwise indicated, these securities are not considered to be illiquid.
(c) In accordance with the procedures established by the Board of Trustees,
security fair valued based on an evaluated quote provided by an independent
pricing service. The aggregate value of these securities at December 31,
2005 was $783,082,338, which represented 41.67% of the Fund's Net Assets.
See Note 1A.
(d) Dividend rate is redetermined annually. Rate shown is the rate in effect on
December 31, 2005.
(e) Interest or dividend rate is redetermined quarterly. Rate shown is the rate
in effect on December 31, 2005.
(f) Security considered to be illiquid. The Fund is limited to investing 15% of
net assets in illiquid securities at the time of purchase. The aggregate
value of these securities considered illiquid at December 31, 2005 was
$28,290,985, which represented 1.51% of the Fund's Net Assets.
(g) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
aggregate value of these securities at December 31, 2005 was $58,516,170,
which represented 3.11% of the Fund's Net Assets. See Note 1A.
(h) Dividend rate is redetermined bi-annually. Rate shown is the rate in effect
on December 31, 2005.
(i) Principal and/or interest payments are secured by the bond insurance company
listed.
(j) A portion of the principal balance was pledged as collateral to cover margin
requirements for open futures contracts. See Note 1J and Note 8.
(k) Perpetual bond with no specified maturity date.
(l) Interest rate is redetermined semi-annually. Rate shown is the rate in
effect on December 31, 2005.
(m) Step coupon bond issued at a discount. The interest rate represents the
coupon rate at which the bond will accrue at a specified future date.
(n) Bond issued at a discount with a zero coupon. The rate shown represents the
yield at issue to the remarketing date of July 10, 2006. The Bond will be
remarketed or converted to a fixed coupon rate on that date.
(o) Zero coupon bond issued at a discount. The interest rate shown represents
the yield to maturity at the time of purchase by the Fund.
(p) Interest rate is redetermined monthly. Rate shown is the rate in effect on
December 31, 2005.
(q) Security purchased on forward commitment basis. This security is subject to
dollar roll transactions. See Note 1G.
(r) Principal amount of security and interest payments are adjusted for
inflation.
(s) Security traded on a discount basis. The interest rate shown represents the
discount rate at the time of purchase by the Fund.
(t) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-10
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2005
<Table>
ASSETS:
Investments, at value (cost $1,837,212,932) $2,061,944,061
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $35,296,500) 35,296,500
============================================================
Total investments (cost $1,872,509,432) 2,097,240,561
============================================================
Foreign currencies, at value (cost $827,816) 827,184
- ------------------------------------------------------------
Receivables for:
Investments sold 18,698,385
- ------------------------------------------------------------
Fund shares sold 863,149
- ------------------------------------------------------------
Dividends and interest 10,609,621
- ------------------------------------------------------------
Principal paydowns 272,594
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 446,949
- ------------------------------------------------------------
Other assets 134,387
============================================================
Total assets 2,129,092,830
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 173,629,743
- ------------------------------------------------------------
Fund shares reacquired 73,709,401
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 653,276
- ------------------------------------------------------------
Variation margin 69,862
- ------------------------------------------------------------
Accrued distribution fees 878,888
- ------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 2,951
- ------------------------------------------------------------
Accrued transfer agent fees 667,415
- ------------------------------------------------------------
Accrued operating expenses 100,747
============================================================
Total liabilities 249,712,283
============================================================
Net assets applicable to shares outstanding $1,879,380,547
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $2,345,861,959
- ------------------------------------------------------------
Undistributed net investment income (3,900,957)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies
and futures contracts (687,529,336)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies and futures
contracts 224,948,881
============================================================
$1,879,380,547
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 817,587,727
____________________________________________________________
============================================================
Class B $ 517,032,241
____________________________________________________________
============================================================
Class C $ 194,027,445
____________________________________________________________
============================================================
Class R $ 6,683,898
____________________________________________________________
============================================================
Investor Class $ 344,015,404
____________________________________________________________
============================================================
Institutional Class $ 33,832
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 66,747,972
____________________________________________________________
============================================================
Class B 42,310,397
____________________________________________________________
============================================================
Class C 15,865,437
____________________________________________________________
============================================================
Class R 546,059
____________________________________________________________
============================================================
Investor Class 28,091,499
____________________________________________________________
============================================================
Institutional Class 2,763
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 12.25
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $12.25 divided by
94.50%) $ 12.96
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 12.22
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 12.23
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 12.24
____________________________________________________________
============================================================
Investor Class:
Net asset value and offering price per
share $ 12.25
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 12.24
____________________________________________________________
============================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-11
STATEMENT OF OPERATIONS
For the year ended December 31, 2005
<Table>
INVESTMENT INCOME:
Interest $17,434,856
- -------------------------------------------------------------------------
Dividends (net of foreign withholding tax of $65,271) 10,460,222
- -------------------------------------------------------------------------
Dividends from affiliated money market funds 89,611
=========================================================================
Total investment income 27,984,689
=========================================================================
EXPENSES:
Advisory fees 5,363,006
- -------------------------------------------------------------------------
Administrative services fees 280,598
- -------------------------------------------------------------------------
Custodian fees 121,472
- -------------------------------------------------------------------------
Distribution fees:
Class A 1,166,814
- -------------------------------------------------------------------------
Class B 2,918,775
- -------------------------------------------------------------------------
Class C 1,054,623
- -------------------------------------------------------------------------
Class R 14,866
- -------------------------------------------------------------------------
Investor Class 431,604
- -------------------------------------------------------------------------
Transfer agent fees -- A, B, C, R and Investor 2,787,104
- -------------------------------------------------------------------------
Transfer agent fees -- Institutional 12
- -------------------------------------------------------------------------
Trustees' and officer's fees and benefits 52,128
- -------------------------------------------------------------------------
Other 386,391
=========================================================================
Total expenses 14,577,393
=========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangement (62,596)
=========================================================================
Net expenses 14,514,797
=========================================================================
Net investment income 13,469,892
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND FUTURES CONTRACTS:
Net realized gain (loss) from:
Investment securities (includes gains from securities sold
to affiliates of $1,643,686) 23,272,387
- -------------------------------------------------------------------------
Foreign currencies (22,689)
- -------------------------------------------------------------------------
Futures contracts (1,638,389)
=========================================================================
21,611,309
=========================================================================
Change in net unrealized appreciation of:
Investment securities 27,107,920
- -------------------------------------------------------------------------
Foreign currencies 287
- -------------------------------------------------------------------------
Futures contracts 168,587
=========================================================================
27,276,794
=========================================================================
Net gain from investment securities, foreign currencies and
futures contracts 48,888,103
=========================================================================
Net increase in net assets resulting from operations $62,357,995
_________________________________________________________________________
=========================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-12
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2005 and 2004
<Table>
<Caption>
2005 2004
- --------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 13,469,892 $ 543,271
- --------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies and futures contracts 21,611,309 8,264,463
- --------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities, foreign currencies and futures contracts 27,276,794 1,598,485
============================================================================================
Net increase in net assets resulting from operations 62,357,995 10,406,219
============================================================================================
Distributions to shareholders from net investment income:
Class A (8,595,883) (518,829)
- --------------------------------------------------------------------------------------------
Class B (3,119,462) (130,939)
- --------------------------------------------------------------------------------------------
Class C (1,137,561) (44,341)
- --------------------------------------------------------------------------------------------
Class R (51,437) (56)
- --------------------------------------------------------------------------------------------
Investor Class (3,351,057) --
- --------------------------------------------------------------------------------------------
Institutional Class (470) (108)
============================================================================================
Total distributions from net investment income (16,255,870) (694,273)
============================================================================================
Distributions to shareholders from net realized gains:
Class A -- (1,852,910)
- --------------------------------------------------------------------------------------------
Class B -- (2,168,137)
- --------------------------------------------------------------------------------------------
Class C -- (738,028)
- --------------------------------------------------------------------------------------------
Class R -- (292)
- --------------------------------------------------------------------------------------------
Institutional Class -- (285)
============================================================================================
Total distributions from net realized gains -- (4,759,652)
============================================================================================
Decrease in net assets resulting from distributions (16,255,870) (5,453,925)
============================================================================================
Share transactions-net:
Class A 726,493,380 13,392,670
- --------------------------------------------------------------------------------------------
Class B 425,784,791 1,380,840
- --------------------------------------------------------------------------------------------
Class C 162,166,535 2,153,156
- --------------------------------------------------------------------------------------------
Class R 6,518,889 18,638
- --------------------------------------------------------------------------------------------
Investor Class 335,615,063 --
- --------------------------------------------------------------------------------------------
Institutional Class 22,337 10,394
============================================================================================
Net increase in net assets resulting from share
transactions 1,656,600,995 16,955,698
============================================================================================
Net increase in net assets 1,702,703,120 21,907,992
============================================================================================
NET ASSETS:
Beginning of year 176,677,427 154,769,435
============================================================================================
End of year (including undistributed net investment income
of $(3,900,957) and $38,788, respectively) $1,879,380,547 $176,677,427
____________________________________________________________________________________________
============================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-13
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Basic Balanced Fund (the "Fund") is a series portfolio of AIM Funds Group
(the "Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of eight separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently consists of multiple classes of shares. Matters affecting
each portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is long-term growth of capital and current
income.
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. The risk of material loss as a result of such indemnification is
considered remote.
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 are 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 recorded at amortized cost which approximates value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs and domestic and foreign index futures.
F-14
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date. Bond premiums
and discounts are amortized and/or accreted for financial reporting
purposes.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be United States of America unless otherwise noted.
D. DISTRIBUTIONS -- Distributions from income are declared and paid quarterly
and are recorded on ex-dividend date. Distributions from net realized
capital gain, if any, are generally paid annually and recorded on
ex-dividend date. The Fund may elect to use a portion of the proceeds from
redemptions as distributions for federal income tax purposes.
E. 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.
F. 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.
G. DOLLAR ROLL TRANSACTIONS -- The Fund may engage in dollar roll transactions
with respect to mortgage-backed securities issued by GNMA, FNMA and FHLMC.
In a dollar roll transaction, the Fund sells a mortgage-backed security
held in the Fund to a financial institution such as a bank or
broker-dealer, and simultaneously agrees to purchase a substantially
similar security (same type, coupon and maturity) from the institution at
an agreed upon price and future date. The mortgage-backed securities to be
purchased will bear the same interest rate as those sold, but generally
will be collateralized by different pools of mortgages with different
prepayment histories. Based on the typical structure of dollar roll
transactions by the Fund, fee income is agreed upon amongst the parties at
the commencement of the dollar roll. This fee income is amortized to income
ratably over the term of the dollar roll. During the period between the
sale and purchase settlement dates, the Fund will not be entitled to
receive interest and principal payments on securities purchased and not yet
settled. Proceeds of the sale may be invested in short-term instruments,
and the income from these investments, together with any additional fee
income received on the sale, could generate income for the Fund exceeding
the yield on the security sold. Dollar roll transactions are considered
borrowings under the 1940 Act. At the time the Fund enters into the dollar
roll, it will segregate liquid assets having a dollar value equal to the
purchase price.
Dollar roll transactions involve the risk that the market value of the
securities retained by the Fund may decline below the price of the
securities that the Fund has sold but is obligated to purchase under the
agreement. In the event that the buyer of securities in a dollar roll
transaction files for bankruptcy or becomes insolvent, the Fund's use of
the proceeds from the sale of the securities may be restricted pending a
determination by the other party, or its trustee or receiver, whether to
enforce the Fund's obligation to purchase the securities. The return earned
by the Fund with the proceeds of the dollar roll transaction may not exceed
transaction costs.
H. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
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
F-15
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i) sales
of foreign currencies, (ii) currency gains or losses realized between the
trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
I. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
J. 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.
K. 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.
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
effective July 18, 2005, 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 $150 million 0.65%
- --------------------------------------------------------------------
Next $1.85 billion 0.50%
- --------------------------------------------------------------------
Next $2 billion 0.45%
- --------------------------------------------------------------------
Next $2 billion 0.40%
- --------------------------------------------------------------------
Next $2 billion 0.375%
- --------------------------------------------------------------------
Over $8 billion 0.35%
___________________________________________________________________
====================================================================
</Table>
Prior to July 18, 2005, the Fund paid 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 $1 billion 0.65%
- -------------------------------------------------------------------
Next $4 billion 0.60%
- -------------------------------------------------------------------
Over $5 billion 0.55%
__________________________________________________________________
===================================================================
</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 0.62%
- --------------------------------------------------------------------
Next $250 million 0.605%
- --------------------------------------------------------------------
Next $500 million 0.59%
- --------------------------------------------------------------------
Next $1.5 billion 0.575%
- --------------------------------------------------------------------
Next $2.5 billion 0.56%
- --------------------------------------------------------------------
Next $2.5 billion 0.545%
- --------------------------------------------------------------------
Next $2.5 billion 0.53%
- --------------------------------------------------------------------
Over $10 billion 0.515%
___________________________________________________________________
====================================================================
</Table>
F-16
AIM has voluntarily agreed to waive advisory fees and/or expenses to the
extent necessary to limit total annual operating expenses (excluding certain
items discussed below) of Class A, Class B, Class C, Class R, Investor Class and
Institutional Class shares to 1.25%, 2.00%, 2.00%, 1.50%, 1.25% and 1.00% 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 numbers reflected above: (i) interest; (ii) taxes; (iii) dividend
expense on short sales; (iv) extraordinary items; (v) expenses related to a
merger or reorganization, as approved by the Fund's Board of Trustees; and (vi)
expenses that the Fund has incurred but did not actually pay because of an
expense offset arrangement. Currently, in addition to the expense reimbursement
arrangement with AMVESCAP 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. 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. 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 December 31, 2005, AIM waived fees of $27,926.
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
December 31, 2005, AMVESCAP reimbursed expenses of the Fund in the amount of
$2,213.
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, 2005, AIM was paid $280,598.
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 December 31, 2005, the
Fund paid AISI $2,787,104 for Class A, Class B, Class C, Class R and Investor
Class share classes and $12 for 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, 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 R and
Investor Class shares (collectively the "Plans"). The Fund, pursuant to the
Class A, Class B, Class C and Class R 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 0.50% of the
average daily net assets of Class R 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 R 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 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, 2005, the Class
A, Class B, Class C, Class R and Investor Class shares paid $1,166,814,
$2,918,775, $1,054,623, $14,866 and $431,604, 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, 2005, ADI advised the Fund that it retained $77,055 in
front-end sales commissions from the sale of Class A shares and $980, $104,304,
$7,017 and $0 from Class A, Class B, Class C and Class R shares, respectively,
for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of AIM,
AISI and/or ADI.
F-17
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC") and approved procedures by the Board of Trustees, to
invest daily available cash balances in affiliated money market funds. The Fund
and the money market funds below have the same investment advisor and therefore,
are considered to be affiliated. The table below shows the transactions in and
earnings from investments in affiliated money market funds for the year ended
December 31, 2005.
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ -- $ 73,563,000 $ (55,914,750) $ -- $17,648,250 $44,661 $ --
- ----------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class -- 73,563,000 (55,914,750) -- 17,648,250 44,950 --
======================================================================================================================
Total $ -- $147,126,000 $(111,829,500) $ -- $35,296,500 $89,611 $ --
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures, each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended December 31, 2005, the Fund
engaged in securities purchases of $2,593,123 and sales of $7,903,567, which
resulted in net realized gains of $1,643,686.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer agent
for clearing shareholder transactions. For the year ended December 31, 2005, the
Fund received credits from this arrangement, which resulted in the reduction of
the Fund's total expenses of $32,457.
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 December 31, 2005, the Fund paid legal fees of $6,523
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, 2005, the Fund did not borrow or lend under
the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
F-18
NOTE 8--FUTURES CONTRACTS
On December 31, 2005, $16,993,000 principal amount of investment grade corporate
obligations and U.S. Treasury obligations were pledged as collateral to cover
margin requirements for open futures contracts.
<Table>
<Caption>
OPEN FUTURES CONTRACTS AT PERIOD END
- -------------------------------------------------------------------------------------------------------------------------
UNREALIZED
NO. OF MONTH/ VALUE APPRECIATION
CONTRACT CONTRACTS COMMITMENT 12/31/05 (DEPRECIATION)
- -------------------------------------------------------------------------------------------------------------------------
Eurodollar GLOBEX2 etrading 77 Sep-06/Long $ 18,318,300 $ (79,310)
- -------------------------------------------------------------------------------------------------------------------------
Eurodollar GLOBEX2 etrading 241 Dec-06/Long 57,361,013 (229,818)
- -------------------------------------------------------------------------------------------------------------------------
Eurodollar GLOBEX2 etrading 103 Mar-07/Long 24,526,875 (36,165)
- -------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 2 Year Notes 282 Mar-06/Long 57,862,876 18,949
- -------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 5 Year Notes 390 Mar-06/Short (41,474,823) (73,325)
- -------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 10 Year Notes 222 Mar-06/Long 24,288,187 362,828
- -------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 30 Year Notes 80 Mar-06/Long 9,135,000 255,225
=========================================================================================================================
$150,017,428 $ 218,384
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
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, 2005
and 2004 was as follows:
<Table>
<Caption>
2005 2004
- ---------------------------------------------------------------------------------------
Distributions paid from:
Long-term capital gain $ -- $4,759,652
- ---------------------------------------------------------------------------------------
Ordinary income 16,255,870 694,273
=======================================================================================
Total distributions $16,255,870 $5,453,925
_______________________________________________________________________________________
=======================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2005
- ----------------------------------------------------------------------------
Undistributed ordinary income $ 523,461
- ----------------------------------------------------------------------------
Unrealized appreciation -- investments 192,787,775
- ----------------------------------------------------------------------------
Temporary book/tax differences (459,798)
- ----------------------------------------------------------------------------
Capital loss carryforward (659,332,338)
- ----------------------------------------------------------------------------
Post-October currency loss deferral (512)
- ----------------------------------------------------------------------------
Shares of beneficial interest 2,345,861,959
============================================================================
Total net assets $1,879,380,547
____________________________________________________________________________
============================================================================
</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 deferral of losses on wash
sales, the tax recognition of unrealized gains and losses on certain future
contracts, treatment of bond premium amortization, partnerships and defaulted
bonds. The tax-basis unrealized appreciation on investments amount includes
appreciation (depreciation) on foreign currencies of $(632).
The temporary book/tax differences are a result of timing differences between
book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions. Under these limitation rules, the Fund is limited as of December
31, 2005 to utilizing $638,798,642 of capital loss carryforward in the fiscal
year ended December 31, 2006.
F-19
The Fund utilized $18,405,314 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, 2005 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
December 31, 2007 $ 41,067,392
- -----------------------------------------------------------------------------
December 31, 2008 84,372,104
- -----------------------------------------------------------------------------
December 31, 2009 533,892,842
=============================================================================
Total capital loss carryforward $659,332,338
_____________________________________________________________________________
=============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code. To
the extent that unrealized gains as of July 18, 2005, the date of the
reorganization of AIM Total Return Fund and AIM Balanced Fund into the Fund,
are realized on securities held in each fund at such date, the capital loss
carryforward may be further limited for up to five years from the date of the
reorganization.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2005 was $427,318,898 and $212,842,956, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $248,324,087
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (55,535,680)
==============================================================================
Net unrealized appreciation of investment securities $192,788,407
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $1,904,452,154.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, re-organizational expenses, treatment of partnerships and
treatment of Treasury inflation-protected Securities, on December 31, 2005,
undistributed net investment income was increased by $3,591,735, undistributed
net realized gain (loss) was decreased by $3,580,028 and shares of beneficial
interest decreased by $11,707. Further, as a result of capital loss carryforward
and tax deferrals acquired in the reorganization of AIM Balanced Fund into the
Fund on July 18, 2005, undistributed net investment income was decreased by
$1,049,373, undistributed net realized gain (loss) was decreased by $639,561,646
and shares of beneficial interest increased by $640,611,019. In addition, as a
result of tax deferrals acquired in the reorganization of AIM Total Return Fund
into the Fund on July 18, 2005, undistributed net investment income was
decreased by $240,197, undistributed net realized gain (loss) was decreased by
$65,527,195 and shares of beneficial interest increased by $65,767,392. These
reclassifications had no effect on the net assets of the Fund.
F-20
NOTE 12--SHARE INFORMATION
The Fund currently consists of six different classes of shares: Class A shares,
Class B shares, Class C shares, Class R 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 R shares,
Investor Class 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.
Investor Class shares of the Fund are offered only to certain grandfathered
investors.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- -------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
2005 (A) 2004
----------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 3,574,831 $ 41,159,315 1,841,128 $ 21,407,747
- -------------------------------------------------------------------------------------------------------------------------
Class B 1,555,755 19,622,389 2,136,603 24,825,439
- -------------------------------------------------------------------------------------------------------------------------
Class C 692,392 8,691,991 849,151 9,883,030
- -------------------------------------------------------------------------------------------------------------------------
Class R(b) 86,849 1,041,093 1,570 18,300
- -------------------------------------------------------------------------------------------------------------------------
Investor Class(c) 1,113,552 13,282,200 -- --
- -------------------------------------------------------------------------------------------------------------------------
Institutional Class(b) -- -- 861 10,000
=========================================================================================================================
Issued as reinvestment of dividends:
Class A 676,892 8,200,834 192,162 2,246,590
- -------------------------------------------------------------------------------------------------------------------------
Class B 239,524 2,896,797 184,791 2,174,085
- -------------------------------------------------------------------------------------------------------------------------
Class C 86,923 1,052,344 62,525 731,457
- -------------------------------------------------------------------------------------------------------------------------
Class R(b) 4,242 51,436 29 348
- -------------------------------------------------------------------------------------------------------------------------
Investor Class(c) 270,718 3,281,489 -- --
- -------------------------------------------------------------------------------------------------------------------------
Institutional Class(b) 39 441 34 394
=========================================================================================================================
Issued in connection with acquisitions:(d)
Class A 77,177,908 923,985,582 -- --
- -------------------------------------------------------------------------------------------------------------------------
Class B 43,315,411 517,172,720 -- --
- -------------------------------------------------------------------------------------------------------------------------
Class C 15,637,235 186,852,784 -- --
- -------------------------------------------------------------------------------------------------------------------------
Class R 540,014 6,459,635 -- --
- -------------------------------------------------------------------------------------------------------------------------
Investor Class 36,513,673 437,019,759 -- --
- -------------------------------------------------------------------------------------------------------------------------
Institutional Class 1,829 21,896 -- --
=========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 2,568,566 30,758,935 547,870 6,394,392
- -------------------------------------------------------------------------------------------------------------------------
Class B (2,575,119) (30,758,935) (548,916) (6,394,392)
=========================================================================================================================
Reacquired:
Class A (23,065,739) (277,611,286) (1,432,534) (16,656,059)
- -------------------------------------------------------------------------------------------------------------------------
Class B (6,979,708) (83,148,180) (1,661,318) (19,224,292)
- -------------------------------------------------------------------------------------------------------------------------
Class C (2,891,817) (34,430,584) (727,975) (8,461,331)
- -------------------------------------------------------------------------------------------------------------------------
Class R(b) (86,644) (1,033,275) (1) (10)
- -------------------------------------------------------------------------------------------------------------------------
Investor Class(c) (9,806,444) (117,968,385) -- --
=========================================================================================================================
138,650,882 $1,656,600,995 1,445,980 $ 16,955,698
_________________________________________________________________________________________________________________________
=========================================================================================================================
</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. ADI 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.
(b) Class R shares and Institutional Class shares commenced sales on April
30, 2004.
(c) Investor Class shares commenced sales on July 15, 2005.
(d) As of open of business on July 18, 2005, the Fund acquired all the net
assets of AIM Total Return Fund and AIM Balanced Fund pursuant to plans
of reorganization approved by the Trustees of the Fund on March 22, 2005
and by shareholders of AIM Total Return Fund and AIM Balanced Fund on
June 28, 2005. The acquisitions were accomplished by a tax-free exchange
of 173,186,070 shares of the Fund for 18,511,675 shares of AIM Total
Return Fund outstanding and 63,798,609 shares of AIM Balanced Fund
outstanding as of the close of business on July 15, 2005. AIM Total
Return Fund's net assets at that date of $446,220,459 including
$10,821,724 of unrealized appreciation and AIM Balanced Fund's net
assets at that date of $1,625,291,917 including $161,076,306 of
unrealized appreciation, were combined with those of the Fund. The
aggregate net assets of the Fund immediately before the acquisition were
$166,853,760.
F-21
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
------------------------------------------------------------------
SEPTEMBER 28, 2001
(DATE OPERATIONS
YEAR ENDED DECEMBER 31, COMMENCED) TO
-------------------------------------------- DECEMBER 31,
2005 2004 2003 2002 2001
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.86 $ 11.50 $ 9.46 $ 10.75 $ 10.00
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.16 0.08 0.05 0.11(a) 0.03(a)
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.41 0.71 2.05 (1.28) 0.76
================================================================================================================================
Total from investment operations 0.57 0.79 2.10 (1.17) 0.79
================================================================================================================================
Less distributions:
Dividends from net investment income (0.18) (0.10) (0.06) (0.12) (0.04)
================================================================================================================================
Distributions from net realized gains -- (0.33) -- -- --
================================================================================================================================
Total distributions (0.18) (0.43) (0.06) (0.12) (0.04)
================================================================================================================================
Net asset value, end of period $ 12.25 $ 11.86 $ 11.50 $ 9.46 $ 10.75
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(b) 4.85% 6.89% 22.35% (10.97)% 7.94%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $817,588 $68,951 $53,675 $32,414 $10,753
================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.14%(c) 1.47% 1.50% 1.48% 1.43%(d)
- --------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.14%(c) 1.49% 1.57% 1.67% 2.89%(d)
================================================================================================================================
Ratio of net investment income to average net assets 1.59%(c) 0.73% 0.46% 1.15% 1.16%(d)
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate(e) 90% 64% 51% 42% 7%
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $453,212,301.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-22
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS B
------------------------------------------------------------------
SEPTEMBER 28, 2001
(DATE OPERATIONS
YEAR ENDED DECEMBER 31, COMMENCED) TO
-------------------------------------------- DECEMBER 31,
2005 2004 2003 2002 2001
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.84 $ 11.49 $ 9.46 $ 10.75 $ 10.00
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.08 0.01 (0.02) 0.05(a) 0.01(a)
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.40 0.69 2.06 (1.29) 0.77
================================================================================================================================
Total from investment operations 0.48 0.70 2.04 (1.24) 0.78
================================================================================================================================
Less distributions:
Dividends from net investment income (0.10) (0.02) (0.01) (0.05) (0.03)
- --------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.33) -- -- --
================================================================================================================================
Total distributions (0.10) (0.35) (0.01) (0.05) (0.03)
================================================================================================================================
Net asset value, end of period $ 12.22 $ 11.84 $ 11.49 $ 9.46 $ 10.75
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(b) 4.04% 6.12% 21.64% (11.56)% 7.76%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $517,032 $79,968 $76,304 $47,597 $16,067
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.88%(c) 2.12% 2.15% 2.13% 2.08%(d)
- --------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.88%(c) 2.14% 2.22% 2.32% 3.54%(d)
================================================================================================================================
Ratio of net investment income (loss) to average net assets 0.85%(c) 0.08% (0.19)% 0.50% 0.52%(d)
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate(e) 90% 64% 51% 42% 7%
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are based on average net assets of $291,877,528.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-23
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS C
------------------------------------------------------------------
SEPTEMBER 28, 2001
(DATE OPERATIONS
YEAR ENDED DECEMBER 31, COMMENCED) TO
-------------------------------------------- DECEMBER 31,
2005 2004 2003 2002 2001
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.85 $ 11.49 $ 9.46 $ 10.75 $ 10.00
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.08 0.01 (0.02) 0.05(a) 0.01(a)
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.40 0.70 2.06 (1.29) 0.77
================================================================================================================================
Total from investment operations 0.48 0.71 2.04 (1.24) 0.78
================================================================================================================================
Less distributions:
Dividends from net investment income (0.10) (0.02) (0.01) (0.05) (0.03)
- --------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.33) -- -- --
================================================================================================================================
Total distributions (0.10) (0.35) (0.01) (0.05) (0.03)
================================================================================================================================
Net asset value, end of period $ 12.23 $ 11.85 $ 11.49 $ 9.46 $ 10.75
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(b) 4.04% 6.21% 21.64% (11.57)% 7.76%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $194,027 $27,729 $24,790 $15,727 $ 5,168
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.88%(c) 2.12% 2.15% 2.13% 2.08%(d)
- --------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.88%(c) 2.14% 2.22% 2.32% 3.54%(d)
================================================================================================================================
Ratio of net investment income (loss) to average net assets 0.85%(c) 0.08% (0.19)% 0.50% 0.52%(d)
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate(e) 90% 64% 51% 42% 7%
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are based on average net assets of $105,462,323.
(d) Annualized.
(e) Not annualized for periods less than one year.
<Table>
<Caption>
CLASS R
---------------------------------
APRIL 30, 2004
(DATE SALES
YEAR ENDED COMMENCED) TO
DECEMBER 31, DECEMBER 31,
2005 2004
- -----------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.87 $11.61
- -----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.13 0.05
- -----------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.40 0.60
===============================================================================================
Total from investment operations 0.53 0.65
===============================================================================================
Less distributions:
Dividends from net investment income (0.16) (0.06)
- -----------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.33)
===============================================================================================
Total distributions (0.16) (0.39)
===============================================================================================
Net asset value, end of period $12.24 $11.87
_______________________________________________________________________________________________
===============================================================================================
Total return(a) 4.47% 5.68%
_______________________________________________________________________________________________
===============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $6,684 $ 19
_______________________________________________________________________________________________
===============================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.38%(b) 1.62%(c)
- -----------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.38%(b) 1.64%(c)
===============================================================================================
Ratio of net investment income to average net assets 1.35%(b) 0.58%(c)
_______________________________________________________________________________________________
===============================================================================================
Portfolio turnover rate 90% 64%
_______________________________________________________________________________________________
===============================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the return based upon that
net asset value may differ from the net asset value and return for
shareholder transactions. Not annualized for periods less than one year.
(b) Ratios are based on average daily net assets of $2,973,192.
(c) Annualized.
F-24
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
INVESTOR CLASS
--------------
JULY 15, 2005
(DATE SALES
COMMENCED) TO
DECEMBER 31,
2005
- ------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.97
- ------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.09
- ------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.30
==============================================================================
Total from investment operations 0.39
==============================================================================
Less dividends from net investment income (0.11)
==============================================================================
Net asset value, end of period $ 12.25
______________________________________________________________________________
==============================================================================
Total return(a) 3.28%
______________________________________________________________________________
==============================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $344,015
==============================================================================
Ratio of expenses to average net assets 1.10%(b)
==============================================================================
Ratio of net investment income to average net assets 1.63%(b)
______________________________________________________________________________
==============================================================================
Portfolio turnover rate 90%
______________________________________________________________________________
==============================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the return based upon that
net asset value may differ from the net asset value and return for
shareholder transactions. Not annualized for periods less than one year.
(b) Ratios are annualized and based on average net assets of $370,671,285.
<Table>
<Caption>
INSTITUTIONAL CLASS
-----------------------------------
APRIL 30, 2004
(DATE SALES
YEAR ENDED COMMENCED) TO
DECEMBER 31, DECEMBER 31,
2005 2004
- -------------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.86 $11.61
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.22 0.10
- -------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.40 0.61
=================================================================================================
Total from investment operations 0.62 0.71
=================================================================================================
Less distributions:
Dividends from net investment income (0.24) (0.13)
- -------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.33)
=================================================================================================
Total distributions (0.24) (0.46)
=================================================================================================
Net asset value, end of period $12.24 $11.86
_________________________________________________________________________________________________
=================================================================================================
Total return(a) 5.28% 6.15%
_________________________________________________________________________________________________
=================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 34 $ 11
_________________________________________________________________________________________________
=================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.67%(b) 0.93%(c)
- -------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.67%(b) 0.95%(c)
=================================================================================================
Ratio of net investment income to average net assets 2.06%(b) 1.27%(c)
_________________________________________________________________________________________________
=================================================================================================
Portfolio turnover rate 90% 64%
_________________________________________________________________________________________________
=================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the return based upon that
net asset value may differ from the net asset value and return for
shareholder transactions. Not annualized for periods less than one year.
(b) Ratios are based on average net assets of $20,776.
(c) Annualized.
F-25
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
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. 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.
PENDING LITIGATION AND REGULATORY INQUIRIES
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 October 19, 2005, this lawsuit was transferred for pretrial purposes to the
MDL Court (as defined below). On July 7, 2005, the Supreme Court of West
Virginia ruled in an unrelated lawsuit that is similar to this action that the
WVAG does not have authority 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. Initial research
indicates that these damages could be limited or capped by statute. 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; and
- 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 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 (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits 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
F-26
NOTE 14--LEGAL PROCEEDINGS--(CONTINUED)
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.
On August 25, 2005, the MDL Court issued rulings on the common issues of law
presented in motions to dismiss shareholder class action and derivative
complaints that were filed in unrelated lawsuits. On November 3, 2005, the MDL
Court issued short opinions for the most part applying these rulings to the AIM
and IFG lawsuits. The MDL Court dismissed 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"). The Court dismissed all claims asserted in the class
action complaint but three: (i) the securities fraud claims under Section 10(b)
of the Securities Exchange Act of 1934, (ii) the excessive fee claim under
Section 36(b) of the 1940 Act (which survived only insofar as plaintiffs seek
recovery of fees associated with the assets involved in market timing); and
(iii) the MDL Court deferred ruling on the "control person liability" claim
under Section 48 of the 1940 Act. 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.
At the MDL Court's request, the parties submitted proposed orders implementing
these rulings in the AIM and IFG lawsuits. The MDL Court has not entered any
orders on the motions to dismiss in these lawsuits and it is possible the orders
may differ in some respects from the rulings described above. Based on the MDL
Court's opinion and both parties' proposed orders, however, all claims asserted
against the Funds that have been transferred to the MDL Court will be dismissed,
although certain Funds will remain nominal defendants in the derivative lawsuit.
On December 6, 2005, the MDL Court issued rulings on the common issues of law
presented in defendants' omnibus motion to dismiss the ERISA complaints. The
ruling was issued in unrelated lawsuits that are similar to the ERISA lawsuits
brought against AIM and IFG and related entities. The MDL Court: (i) denied the
motion to dismiss on the grounds that the plaintiffs lack standing or that the
defendants' investments in company stock are entitled to a presumption of
prudence; (ii) granted the motion to dismiss as to defendants not named in the
employee benefit plan documents as fiduciaries but gave plaintiffs leave to
replead facts sufficient to show that such defendants acted as de facto
fiduciaries; and (iii) confirmed plaintiffs' withdrawal of their prohibited
transactions and misrepresentations claims.
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, among others, 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. 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.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries 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-27
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Funds Group
and Shareholders of AIM Basic Balanced Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM Basic Balanced Fund (one of the
funds constituting AIM Funds Group hereafter referred to as the "Fund") at
December 31, 2005, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the five years in the period then ended, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2005 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
February 17, 2006
Houston, Texas
F-28
AIM BASIC BALANCED FUND
TRUSTEES AND OFFICERS
As of December 31, 2005
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1992 Director and Chairman, A I M Management None
Trustee, Vice Chair, Group Inc. (financial services holding
Principal Executive Officer company); Director and Vice Chairman,
and President AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- -------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.;
President Director 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
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,
AIM Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1987 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company (2 portfolios))
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and 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); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company); and Owner, Dos Angelos Ranch,
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company (3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
</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.
AIM BASIC BALANCED FUND
TRUSTEES AND OFFICERS--(CONTINUED)
As of December 31, 2005
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1992 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired None
Trustee
Formerly: Partner, Deloitte & Touche
- -------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc.; Senior Vice President and
Chief 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 -- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President and 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 General Counsel, A I M
Secretary and Chief Legal Management Group Inc. and A I M
Officer 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.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC; 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, Principal Advisors, Inc.
Financial Officer and
Treasurer Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc.
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, and Senior
Investment Officer, A I M Capital
Management, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1992 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street & Frankel LLP P.O. Box 4739 225 Franklin Street
Philadelphia, PA 19103-7599 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Americas
New York, NY 10036-2714
</Table>
TAX DISCLOSURES
REQUIRED FEDERAL INCOME TAX INFORMATION
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2005, 51.47% is eligible for the dividends received deduction for
corporations.
For its tax year ended December 31, 2005 the Fund designated 60.24%, 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 in Form 1099-DIV. You should consult your tax advisor regarding
treatment of these amounts.
REQUIRED STATE INCOME TAX INFORMATION
Of the ordinary dividends paid, 2.02% was derived from U.S. Treasury
Obligations.
TAX INFORMATION FOR NON-RESIDENT ALIEN SHAREHOLDERS
For its tax year ended December 31, 2005, the Fund designates 46.26%, or the
maximum amount allowable of its dividend distributions as qualified interest
income exempt from U.S. income tax for non-resident alien shareholders. Your
actual amount of qualified interest income for the calendar year will be
reported in your Form 1042-S mailing. You should consult your tax advisor
regarding treatment of the amounts.
The percentage of qualifying assets not subject to the U.S. estate tax for the
fiscal quarters ended March 31, 2005, June 30, 2005, September 30, 2005, and
December 31, 2005 are 44.39%, 43.62%, 44.26%, and 44.77%, respectively.
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE
AIM Basic Balanced Fund* AIM Developing Markets Fund
AIM Basic Value Fund AIM European Growth Fund AIM Floating Rate Fund
AIM Blue Chip Fund AIM European Small Company Fund(1) AIM High Yield Fund
AIM Capital Development Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Charter Fund AIM Global Equity Fund AIM Intermediate Government Fund
AIM Constellation Fund AIM Global Growth Fund AIM Limited Maturity Treasury Fund
AIM Diversified Dividend Fund AIM Global Value Fund AIM Money Market Fund
AIM Dynamics Fund AIM International Core Equity Fund AIM Short Term Bond Fund
AIM Large Cap Basic Value Fund AIM International Growth Fund AIM Total Return Bond Fund
AIM Large Cap Growth Fund AIM International Small Company Fund(1) Premier Portfolio
AIM Mid Cap Basic Value Fund AIM Trimark Fund Premier U.S. Government Money Portfolio
AIM Mid Cap Core Equity Fund(1)
AIM Mid Cap Growth Fund SECTOR EQUITY TAX-FREE
AIM Opportunities I Fund
AIM Opportunities II Fund AIM Advantage Health Sciences Fund AIM High Income Municipal Fund(1)
AIM Opportunities III Fund AIM Energy Fund AIM Municipal Bond Fund
AIM Premier Equity Fund AIM Financial Services Fund AIM Tax-Exempt Cash Fund
AIM S&P 500 Index Fund AIM Global Health Care Fund AIM Tax-Free Intermediate Fund
AIM Select Equity Fund AIM Global Real Estate Fund Premier Tax-Exempt Portfolio
AIM Small Cap Equity Fund AIM Gold & Precious Metals Fund
AIM Small Cap Growth Fund(1) AIM Leisure Fund AIM ALLOCATION SOLUTIONS
AIM Small Company Growth Fund AIM Multi-Sector Fund
AIM Summit Fund AIM Real Estate Fund(1) AIM Conservative Allocation Fund
AIM Trimark Endeavor Fund AIM Technology Fund AIM Growth Allocation Fund(2)
AIM Trimark Small Companies Fund AIM Utilities Fund AIM Moderate Allocation Fund
AIM Weingarten Fund AIM Moderate Growth Allocation Fund
AIM Moderately Conservative Allocation
* Domestic equity and income fund Fund
DIVERSIFIED PORTFOLIOS
AIM Income Allocation Fund
AIM International Allocation Fund
=======================================================================================
CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY. FOR THIS
AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR FINANCIAL ADVISOR
AND READ IT CAREFULLY BEFORE INVESTING.
=======================================================================================
(1) This Fund has limited public sales of its shares to certain investors. For
more information on who may continue to invest in the Fund, please see the
appropriate prospectus.
(2)Effective April 29, 2005, AIM Aggressive Allocation Fund was renamed AIM
Growth Allocation Fund.
If used after April 20, 2006, 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 $128 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $386 billion in assets under management. Data as of December 31,
2005.
AIMinvestments.com BBA-AR-1 A I M Distributors, Inc.
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AIM EUROPEAN SMALL COMPANY FUND
Annual Report to Shareholders o December 31, 2005
[COVER IMAGE]
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
AIM EUROPEAN SMALL COMPANY FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL.
<Table>
o Unless otherwise stated, information presented in this report is as of December 31, 2005, and is based on total net assets.
ABOUT SHARE CLASSES U.S. stock market performance. and the returns based on those net asset
values may differ from the net asset
o Class B shares are not available as an o The unmanaged MSCI WORLD INDEX is a values and returns reported in the
investment for retirement plans group of global securities tracked by Financial Highlights.
maintained pursuant to Section 401 of the Morgan Stanley Capital International.
Internal Revenue Code, including 401(k) o Industry classifications used in this
plans, money purchase pension plans and o The unmanaged MSCI Europe, Australasia report are generally according to the
profit sharing plans. Plans that had and the Far East Index (the MSCI Global Industry Classification Standard,
existing accounts invested in Class B EAFE--Registered Trademark-- INDEX) is a which was developed by and is the
shares prior to September 30, 2003, will group of foreign securities tracked by exclusive property and a service mark of
continue to be allowed to make additional Morgan Stanley Capital International. Morgan Stanley Capital International Inc.
purchases. and Standard & Poor's.
o The unmanaged LIPPER EUROPEAN FUND
PRINCIPAL RISKS OF INVESTING IN THE FUND INDEX represents an average of the The Fund provides a complete list of its
performance of the 30 largest European holdings four times in each fiscal
o International investing presents equity funds tracked by Lipper, Inc., an year, at the quarter-ends. For the second
certain risks not associated with independent mutual fund performance and fourth quarters, the lists appear in
investing solely in the United States. monitor. the Fund's semiannual and annual reports
These include risks relating to to shareholders. For the first and third
fluctuations in the value of the U.S. o The unmanaged MSCI EUROPE SMALL CAP quarters, the Fund files the lists with
dollar relative to the values of other INDEX is a group of European small-cap the Securities and Exchange Commission
currencies, the custody arrangements made securities tracked by Lipper, Inc., an (SEC) on Form N-Q. The most recent list
for the Fund's foreign holdings, independent mutual fund performance of portfolio holdings is available at
differences in accounting, political monitor. AIMinvestments.com. From our home page,
risks and the lesser degree of public click on Products & Performance, then
information required to be provided by o The Fund is not managed to track the Mutual Funds, then Fund Overview. Select
non-U.S. companies. performance of any particular index, your Fund from the drop-down menu and
including the indexes defined here, and click on Complete Quarterly Holdings.
o Investing in emerging markets consequently, the performance of the Fund Shareholders can also look up the Fund's
involves greater risk and potential may deviate significantly from the Forms N-Q on the SEC's Web site at
reward than investing in more performance of the indexes. sec.gov. Copies of the Fund's Forms N-Q
established markets. may be reviewed and copied at the SEC's
o A direct investment cannot be made in Public Reference Room at 450 Fifth
o Investing in a single-sector or an index. Unless otherwise indicated, Street, N.W., Washington, D.C.
single-region mutual fund involves index results include reinvested 20549-0102. You can obtain information on
greater risk and potential reward than dividends, and they do not reflect sales the operation of the Public Reference
investing in a more diversified fund. charges. Performance of an index of funds Room, including information about
reflects fund expenses; performance of a duplicating fee charges, by calling
o Investing in smaller companies involves market index does not. 202-942-8090 or 800-732-0330, or by
greater risk than investing in more electronic request at the following
established companies, such as business OTHER INFORMATION e-mail address: publicinfo@sec.gov.
risk, significant stock price The SEC file numbers for the Fund are
fluctuations and illiquidity. o The Conference Board is a 811-01540 and 33-19338.
not-for-profit organization that conducts
o The Fund may invest up to 35% of its research and publishes information and A description of the policies and
total assets in securities of companies analysis to help businesses strengthen procedures that the Fund uses to
located in developing countries and up their performance. determine how to vote proxies relating to
to 20% of its total assets in portfolio securities is available without
non-European companies. o The returns shown in management's charge, upon request, from our Client
discussion of Fund performance are based Services department at 800-959-4246 or on
o The Fund is nondiversified, which on net asset values calculated for the AIM Web site, AIMinvestments.com. On
increases risks as well as potential shareholder transactions. Generally the home page, scroll down and click on
rewards. accepted accounting principles require AIM Funds Proxy Policy. The information
adjustments to be made to the net assets is also available on the SEC's Web
ABOUT INDEXES USED IN THIS REPORT of the Fund at period end for financial site, sec.gov.
reporting purposes, and as such, the net
o The unmanaged Standard & Poor's asset values for shareholder transactions Information regarding how the Fund voted
Composite Index of 500 Stocks (the S&P proxies related to its portfolio
500--Registered Trademark-- INDEX) is an securities during the 12 months ended
index of common stocks frequently used as June 30, 2005, is available at our Web
a general measure of 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's Web site, sec.gov.
================================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND =========================================
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES FUND NASDAQ SYMBOLS
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
================================================================================ Class A Shares ESMAX
Class B Shares ESMBX
Class C Shares ESMCX
=========================================
=====================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
=====================================================
AIMinvestments.com
AIM EUROPEAN SMALL COMPANY FUND
DEAR FELLOW AIM FUNDS SHAREHOLDERS:
[GRAHAM Although many concerns weighed on investors' minds during
PHOTO] the year covered by this report, stocks posted gains for the
period. Domestically, the broad-based S&P 500 Index returned
4.91%. Internationally, Morgan Stanley's MSCI World Index
rose 9.49%. Concern about the inflationary potential of
rising energy costs was frequently cited as a major cause of
market restraint.
Within the indexes, there was considerable variability in
the performance of different sectors and markets.
Domestically, energy sector performance far outpaced all
other sectors in the S&P 500 Index, reflecting rising oil
ROBERT H. GRAHAM and gas prices. Overseas, emerging markets produced more
attractive results than developed markets, partially because
emerging markets tend to be more closely tied to the
performance of natural resources and commodities.
One could make a strong argument for global
diversification of a stock portfolio using the performance
data for the year ended December 31, 2005. Of course, your
[WILLIAMSON financial advisor is the person most qualified to help you
PHOTO] decide whether such diversification is appropriate for you.
A number of key developments affected markets and the
economy in 2005:
o Hurricane Katrina, which devastated New Orleans in
August, had numerous economic repercussions and dealt a
short-term MARK H. WILLIAMSON setback to consumer
confidence. However, consumer confidence rebounded
toward the end of the year, with the Conference Board
crediting the resiliency of the economy, falling gas
prices and job growth for this trend.
o The nation's gross domestic product (GDP), the
broadest measure of economic activity, increased at a
healthy rate throughout much of the year. The Bureau of
Economic Analysis of the U.S. Department of Commerce
reported that the nation's GDP grew at annualized rates
of 3.8%, 3.3% and 4.1% for the first, second and third
quarters of the year, respectively.
o For the second straight year, the economy created 2
million new jobs, although job growth was uneven and
sometimes did not meet analysts' expectations on a
monthly basis.
o The Federal Reserve Board (the Fed) continued its
tightening policy, raising the key federal funds target
rate to 4.25% by the end of the year. Many analysts
believed that the central bank was near the end of its
tightening policy as Ben Bernanke succeeded the
retiring Alan Greenspan as Fed chairman early in 2006.
o Gasoline prices, which soared to a nationwide average
of slightly more than $3.08 per gallon on September 5
following Hurricane Katrina, had dropped by more than
80 cents by mid-December, according to the U.S. Energy
Information Administration.
For a discussion of the specific market conditions that
affected your Fund and how your Fund was managed during the
year, please turn to Page 3.
YOUR FUND
Further information about the markets, your Fund, and
investing in general is always available on our
comprehensive 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 pleased to be of help.
Sincerely,
/S/ ROBERT H. GRAHAM /S/ MARK H. WILLIAMSON
Robert H. Graham Mark H. Williamson
President & Vice Chair, President,
AIM Funds A I M Advisors, Inc.
February 9, 2006
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. A I M
Distributors, Inc. is the distributor for the retail funds
represented by AIM Investments.
1
AIM EUROPEAN SMALL COMPANY FUND
DEAR FELLOW AIM FUND SHAREHOLDERS:
Having completed a year of transition and change at AIM
Funds--as well as my first full year as your board's
independent chair--I can assure you that shareholder
interests are at the forefront of every decision your board
[CROCKETT makes. While regulators and fund companies debate the value
PHOTO] of an independent board chair, this structure is working for
you. An independent chair can help lead to unbiased
BRUCE L. CROCKETT decisions and eliminate potential conflicts.
Some highlights of 2005 board activity:
o Board approval of voluntary fee reductions, which are
saving shareholders more than $20 million annually,
based on asset levels of March 31, 2005.
o Board approval for the merger of 14 funds into other
AIM funds with similar investment objectives. Eight of
these mergers were approved by shareholders of the
target funds during 2005. The remaining six are being
voted on by shareholders in early 2006. In each case,
the goal is for the resulting merged fund to benefit
from strengthened management and greater efficiency.
o Board approval for portfolio management changes at 11
funds, consistent with the goal of organizing
management teams around common processes and shared
investment views. Again, we hope that these changes
will improve fund performance and efficiency.
In 2006, your board will continue to focus on reducing
costs and shareholder fees and improving portfolio
performance, which is not yet as strong as we expect to see
it. Eight in-person board meetings and several additional
telephone and committee meetings are scheduled to take place
this year. I'll inform you of our progress in my next
semiannual letter to shareholders.
The AIM Funds board is pleased to welcome our newest
independent member, Raymond Stickel, Jr., a former partner
with the international auditing firm of Deloitte & Touche.
We also send our thanks and best wishes to Gerald J. Lewis,
who retired from your board in December 2005, and to Edward
K. Dunn, Jr., who is retiring this year.
Your board welcomes your views. Please mail them to me at
AIM Investments, AIM Investments Tower, 11 Greenway Plaza,
Suite 100, Houston TX 77046.
Sincerely,
/S/ BRUCE L. CROCKETT
Bruce L. Crockett
Independent Chair
On Behalf of the Board of Trustees
AIM Funds
February 9, 2006
2
AIM EUROPEAN SMALL COMPANY FUND
<Table>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE investing. We consider selling a security
for several reasons, including:
=========================================================================================
PERFORMANCE SUMMARY o a company's fundamentals deteriorate or
============================================ it posts disappointing earnings
Despite higher oil prices, most world FUND VS. INDEXES
equity markets posted positive returns o a stock appears to be overvalued
for the year. European markets rallied TOTAL RETURNS,12/31/04--12/31/05, EXCLUDING
amid a low interest rate environment in APPLICABLE SALES CHARGES. IF SALES CHARGE o a more attractive opportunity is
the euro zone and increased corporate WERE INCLUDED, RETURNS WOULD BE LOWER. identified
profits buoyed by restructuring and cost
cutting measures. MARKET CONDITIONS AND YOUR FUND
Class A Shares 36.48%
As indicated in the table, the Fund For the fourth consecutive year,
outperformed all comparative indexes for Class B Shares 35.51 international equities outpaced other
the fiscal year. We attribute this success world markets. Despite a currency
to the outperformance of European Class C Shares 35.49 headwind from a strengthening U.S.
small-cap stocks, strong stock selection dollar, international stocks outperformed
and our ability to identify attractive MSCI EAFE Index U.S. equities by more than a two-to-one
stocks that are often not followed by (Broad Market Index) 13.54 margin when calculated in U.S. dollars.
many analysts. Long term performance can In local currency terms, the differential
be found on Pages 6 and 7. MSCI Europe Small Cap Index was even greater.
(Style-specific Index) 18.93
European equities continued to
Lipper European Fund Index underscore the importance of
(Peer Group Index) 13.89 international diversification by once
again significantly outperforming U.S.
SOURCE: LIPPER,INC. equities. During the year, European
small-cap stocks outperformed their
============================================ large-cap counterparts. Norway, an oil
exporting country, was one of the best
========================================================================================= performing European markets driven by
higher energy prices. Despite an
HOW WE INVEST We use a systematic, stock-by stock indecisive election result, German
approach, focusing on strengths of markets posted positive returns as German
We believe that earnings drive stock individual companies, rather than sector companies have become more aggressive in
prices and that companies generating or country macroeconomic trends. Our goal their restructuring efforts and
substantial, repeatable, above average is a well-diversified, reasonably priced, negotiations with labor unions.
earnings growth should provide long-term quality portfolio.
growth of capital. During the year, Fund performance was
We adhere to our investment process broadly based with investments in all
Therefore, when selecting stocks for regardless of the macroeconomic countries producing positive returns.
your Fund we look for European small-cap environment. We seek to minimize While holdings in the U.K., the
companies with the following attributes: stock-specific risk by building a Netherlands and Germany contributed
portfolio that holds a variety of significantly to performance, Norway
o accelerating earnings and revenues companies. proved the top country contributor for
the Fund.
o strong cash flow generation We do not typically hedge currencies
because we believe currency exposure (continued)
o high return on invested capital increases the diversification benefit of
international
o reasonable prices with low valuations
========================================= =========================================== ===========================================
TOP 5 COUNTRIES* PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS*
1. Norway 16.4% By sector
2. Netherlands 15.3 1. Det Norske Oljeselskap A.S.A.
3. United Kingdom 15.0 [PIE CHART] (Norway) 3.3%
4. Greece 8.4 Industrials 37.5% 2. EVS Broadcast Equipment S.A.
5. France 8.1 Consumer Discretionary 22.5% (Belgium) 2.8
Energy 10.3% 3. Koninklijke BAM Groep N.V.
TOTAL NET ASSETS $397.9 MILLION Information Technology 9.9% (Netherlands) 2.6
Financials 7.5% 4. Bijou Brigitte Modische
TOTAL NUMBER OF HOLDINGS* 97 Materials 3.5% Accessories A.G. (Germany) 2.4
Consumer Staples 2.1% 5. Hexagon A.B.-Class B
The Fund's holdings are subject to Health Care 1.8% (Sweden) 2.0
change, and there is no assurance that Money Market Funds Plus Other 6. Homeserve PLC (United Kingdom) 1.9
the Fund will continue to hold any Assets Less Liabilities 4.9% 7. Prosafe A.S.A. (Norway) 1.8
particular security. 8. Veidekke A.S.A. (Norway) 1.8
9. Fourlis Group S.A. (Greece) 1.8
* Excluding money market fund holdings. 10. Amazys Holding A.G. (Switzerland) 1.7
========================================= =========================================== ===========================================
</Table>
3
AIM EUROPEAN SMALL COMPANY FUND
<Table>
DET NORSKE OLJESELSKAP (DNO), an The company purchased fewer debt JASON T. HOLZER,
international petroleum company based in portfolios throughout the year and [HOLZER Chartered Financial
Norway, was our top contributor during therefore experienced slower growth. We PHOTO] Analyst, senior portfolio
the year. The company is involved in reduced our position during the year but manager, is lead manager
several production and exploration assets still hold a small position. Near the end of AIM European Small Company Fund
in Norway, Yemen, Equatorial Guinea and of the fiscal year, the stock rallied as with respect to the Fund's small and
Mozambique. Late in 2005, the company the company re-accelerated purchases of mid-cap investments. Mr. Holzer joined
drilled its first well in Kurdish Iraq debt portfolios. AIM in 1996. He received a B.A. in
and found oil. Because of its small size, quantitative economics and an M.S. in
the company had little analyst coverage. Foreign exchange was another engineering-economic systems from
This provided us the opportunity to dig detractor. Both the euro and British Stanford University.
deeper developing a view of the company pound depreciated against the U.S. dollar
that was not yet appreciated by the during the year--good news for European BORGE ENDRESEN,
market. Our research indicated that the exporters but a detriment to U.S.-based [ENDRESEN Chartered Financial
company, with a history of rapid investors whose stock returns were PHOTO] Analyst, portfolio
production growth and healthy exploration reduced when converted back into U.S. manager, is manager of AIM
prospects, was decidedly undervalued. dollars. As we did not hedge European Small Company Fund. He joined
Since we purchased the stock, it has currencies--we buy stocks in their local AIM in 1999 and graduated summa cum
appreciated significantly. currency and then convert that value back laude from the University of Oregon
into dollars for the Fund--foreign with a B.S. in finance. He also earned
Although energy holdings produced good currency depreciation proved a drag on an M.B.A. from The University of Texas
results for our Fund, industrials proved Fund performance. at Austin.
the top contributing sector during the
year. We believe there are good IN CLOSING Assisted by Europe/Canada Team
opportunities in this sector as many
European companies are emerging from a European markets once again outperformed
multi-year period of cost-cutting, have U.S. markets. In our opinion, reasonable
strong balance sheets and pent-up demand stock valuations, low interest rates in
for capital investments. the euro zone, structured reform efforts
throughout Europe and increased private
Consumer discretionary continues to be equity takeovers continued to support
one of our largest sector weights as European markets and make Europe a
stocks in this group often have compelling investment arena. We are
attractive valuations, good growth pleased to provide shareholders with
prospects and high cash flow--exactly the positive Fund returns for the year and
type of attributes we look for when thank you for your continued support in
selecting stocks. A good example of this AIM European Small Company Fund.
is long-time Fund holding, BIJOU
BRIGITTE, a German costume jewelry THE VIEWS AND OPINIONS EXPRESSED IN
retailer. The company has strong MANAGEMENT'S DISCUSSION OF FUND
earnings growth and continues to open new PERFORMANCE ARE THOSE OF A I M ADVISORS,
stores around Western Europe. INC. THESE VIEWS AND OPINIONS ARE SUBJECT
TO CHANGE AT ANY TIME BASED ON FACTORS
We are pleased to report that the Fund SUCH AS MARKET AND ECONOMIC CONDITIONS.
outperformed our style-specific benchmark THESE VIEWS AND OPINIONS MAY NOT BE
in nearly all sectors during the year. RELIED UPON AS INVESTMENT ADVICE OR
However, in the materials sector, despite RECOMMENDATIONS, OR AS AN OFFER FOR A
a positive return, the Fund PARTICULAR SECURITY. THE INFORMATION IS
underperformed its style-specific NOT A COMPLETE ANALYSIS OF EVERY ASPECT
benchmark in the materials sector. We OF ANY MARKET, COUNTRY, INDUSTRY,
continue to underweight materials as we SECURITY OR THE FUND. STATEMENTS OF FACT
believe few companies in this sector have ARE FROM SOURCES CONSIDERED RELIABLE, BUT
historically earned their cost of capital A I M ADVISORS, INC. MAKES NO
and therefore don't fit our investment REPRESENTATION OR WARRANTY AS TO THEIR
strategy. Given the rise in commodity COMPLETENESS OR ACCURACY. ALTHOUGH
prices, however, many previously HISTORICAL PERFORMANCE IS NO GUARANTEE OF
unprofitable companies have performed FUTURE RESULTS, THESE INSIGHTS MAY HELP
well during the fiscal year. YOU UNDERSTAND OUR INVESTMENT MANAGEMENT
PHILOSOPHY.
Given strong performance during the [RIGHT ARROW GRAPHIC]
fiscal year, we have few holdings that See important Fund and index
detracted from performance. AKTIV disclosures inside front cover. FOR A PRESENTATION OF YOUR FUND'S
KAPITAL, a Norwegian collection company, LONG-TERM PERFORMANCE, PLEASE SEE PAGES 6
proved a drag on performance. AND 7.
</Table>
4
AIM EUROPEAN SMALL COMPANY FUND
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE together with the amount you invested, to THE HYPOTHETICAL ACCOUNT VALUES AND
estimate the expenses that you paid over EXPENSES MAY NOT BE USED TO ESTIMATE THE
As a shareholder of the Fund, you incur the period. Simply divide your account ACTUAL ENDING ACCOUNT BALANCE OR EXPENSES
two types of costs: (1) transaction value by $1,000 (for example, an $8,600 YOU PAID FOR THE PERIOD. YOU MAY USE THIS
costs, which may include sales charges account value divided by $1,000 = 8.6), INFORMATION TO COMPARE THE ONGOING COSTS
(loads) on purchase payments; contingent then multiply the result by the number in OF INVESTING IN THE FUND AND OTHER FUNDS.
deferred sales charges on redemptions; the table under the heading entitled TO DO SO, COMPARE THIS 5% HYPOTHETICAL
and redemption fees, if any; and (2) "Actual Expenses Paid During Period" to EXAMPLE WITH THE 5% HYPOTHETICAL EXAMPLES
ongoing costs, including management fees; estimate the expenses you paid on your THAT APPEAR IN THE SHAREHOLDER REPORTS OF
distribution and/or service fees (12b-1); account during this period. THE OTHER FUNDS.
and other Fund expenses. This example is
intended to help you understand your HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES Please note that the expenses shown in
ongoing costs (in dollars) of investing the table are meant to highlight your
in the Fund and to compare these costs The table below also provides information ongoing costs only and do not reflect any
with ongoing costs of investing in other about hypothetical account values and transactional costs, such as sales
mutual funds. The example is based on an hypothetical expenses based on the Fund's charges (loads) on purchase payments,
investment of $1,000 invested at the actual expense ratio and an assumed rate contingent deferred sales charges on
beginning of the period and held for the of return of 5% per year before expenses, redemptions, and redemption fees, if any.
entire period July 1, 2005, through which is not the Fund's actual return. Therefore, the hypothetical information
December 31, 2005. The Fund's actual cumulative total is useful in comparing ongoing costs
returns at net asset value after expenses only, and will not help you determine the
ACTUAL EXPENSES for the six months ended December 31, relative total costs of owning different
2005, appear in the table "Cumulative funds. In addition, if these
The table below provides information Total Returns" on Page 7. transactional costs were included, your
about actual account values and actual costs would have been higher.
expenses. You may use the information in
this table,
</Table>
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/05) (12/31/05)(1) PERIOD(2) (12/31/05) PERIOD(2) RATIO
A $ 1,000.00 $ 1,199.70 $ 9.04 $ 1,016.99 $ 8.29 1.63%
B 1,000.00 1,195.20 13.17 1,013.21 12.08 2.38
C 1,000.00 1,195.70 13.17 1,013.21 12.08 2.38
(1) The actual ending account value is based on the actual total return of the Fund for the period July 1, 2005, through December
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 December 31, 2005, appear in the table "Cumulative Total Returns" on Page 7.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year.
====================================================================================================================================
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
5
AIM EUROPEAN SMALL COMPANY FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
Fund and index data from 8/31/00
====================================================================================================================================
[MOUNTAIN CHART]
DATE AIM EUROPEAN AIM EUROPEAN AIM EUROPEAN MSCI EAFE MSCI EUROPE LIPPER EUROPEAN
SMALL COMPANY SMALL COMPANY SMALL COMPANY INDEX SMALL CAP FUND INDEX
FUND- FUND- FUND- INDEX
CLASS A SHARES CLASS B SHARES CLASS C SHARES
8/31/00 $9450 $10000 $10000 $10000 $10000 $10000
9/00 9223 9760 9760 9513 9718 9484
10/00 8722 9230 9220 9288 9233 9196
11/00 8118 8580 8570 8940 9020 8704
12/00 8710 9212 9202 9258 9529 9357
1/01 8890 9392 9392 9253 10031 9328
2/01 8149 8600 8600 8559 9635 8542
3/01 7048 7435 7435 7989 8738 7792
4/01 7332 7726 7726 8544 9228 8308
5/01 7209 7595 7595 8242 9154 7988
6/01 6877 7244 7244 7905 8704 7662
7/01 6753 7104 7104 7761 8551 7585
8/01 6839 7194 7194 7565 8612 7390
9/01 5851 6141 6141 6799 7153 6561
10/01 6336 6652 6652 6973 7597 6791
11/01 6611 6933 6933 7230 8210 7085
12/01 6830 7174 7164 7273 8342 7236
1/02 6820 7154 7154 6886 8188 6918
2/02 7001 7334 7324 6935 8214 6923
3/02 7323 7675 7666 7343 8739 7270
4/02 7675 8036 8037 7358 8973 7250
5/02 7855 8217 8217 7451 9007 7254
6/02 7903 8267 8268 7155 8676 7060
7/02 7257 7585 7576 6448 7733 6323
8/02 7276 7605 7595 6434 7605 6280
9/02 6573 6863 6852 5743 6764 5502
10/02 6782 7073 7073 6051 7033 5924
11/02 7019 7325 7314 6326 7335 6204
12/02 7000 7295 7294 6113 7145 5975
1/03 6820 7104 7104 5858 6914 5714
2/03 6687 6964 6963 5724 6635 5496
3/03 6858 7134 7133 5611 6592 5429
4/03 7466 7766 7765 6161 7484 6111
5/03 8206 8529 8518 6535 8280 6561
6/03 8349 8679 8669 6693 8438 6614
7/03 8738 9070 9060 6855 8799 6740
8/03 8947 9281 9281 7020 9101 6791
9/03 9659 10023 10013 7236 9510 6943
10/03 10380 10766 10755 7687 10287 7382
11/03 10808 11198 11196 7858 10671 7707
12/03 11477 11880 11878 8472 11231 8254
1/04 12286 12712 12710 8592 11916 8495
2/04 12858 13295 13292 8790 12449 8759
3/04 12544 12964 12961 8840 12101 8477
4/04 12411 12824 12822 8640 11794 8342
5/04 12582 12984 12982 8658 11760 8428
6/04 13030 13446 13434 8859 12144 8591
7/04 12639 13035 13032 8571 11616 8290
8/04 12858 13255 13252 8609 11578 8313
9/04 13506 13907 13904 8834 12120 8678
10/04 14211 14629 14626 9136 12607 8985
11/04 15535 15984 15980 9760 13873 9630
12/04 16489 16949 16955 10188 14574 10077
1/05 17025 17493 17499 10001 14786 9962
2/05 18447 18940 18946 10433 15590 10527
3/05 18174 18652 18649 10171 15211 10222
4/05 17834 18294 18291 9932 14626 9959
5/05 17814 18263 18260 9937 14658 9953
6/05 18758 19218 19215 10068 15018 10175
7/05 20062 20542 20548 10377 15859 10672
8/05 21144 21639 21635 10639 16386 11019
9/05 21738 22223 22230 11113 16778 11259
10/05 20405 20858 20856 10789 15789 10780
11/05 20893 21340 21338 11052 16143 10997
12/05 $22508 $22867 $22977 $11567 $16994 $11477
====================================================================================================================================
SOURCE: LIPPER,INC.
<Table>
Past performance cannot guarantee This chart, which is a logarithmic
comparable future results. chart, presents the fluctuations in the
value of the Fund and its indexes. We
The data shown in the chart include believe that a logarithmic chart is more
reinvested distributions, applicable effective than other types of charts in
sales charges, Fund expenses and illustrating changes in value during the
management fees. Results for Class B early years shown in the chart. The
shares are calculated as if a vertical axis, the one that indicates the
hypothetical shareholder had liquidated dollar value of an investment, is
his entire investment in the Fund at the constructed with each segment
close of the reporting period and paid representing a percent change in the
the applicable contingent deferred sales value of the investment. In this chart,
charges. Index results include reinvested each segment represents a doubling, or
dividends, but they do not reflect sales 100% change, in the value of the
charges. Performance of an index of funds investment. In other words, the space
reflects fund expenses and management between $5,000 and $10,000 is the same
fees; performance of a market index does size as the space between $10,000 and
not. Performance shown in the chart and $20,000 and is the same as that between
table(s) does not reflect deduction of $20,000 and $40,000.
taxes a shareholder would pay on Fund
distributions or sale of Fund shares.
Performance of the indexes does not
reflect the effects of taxes.
</Table>
6
AIM EUROPEAN SMALL COMPANY FUND
========================================= ============================================
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
As of 12/31/05, including applicable 6 months ended 12/31/05, excluding
sales charges applicable sales charges
CLASS A SHARES Class A Shares 19.97%
Inception (8/31/00) 16.43% Class B Shares 19.52
5 Years 19.56 Class C Shares 19.57
1 Year 28.94
============================================
CLASS B SHARES
Inception (8/31/00) 16.77%
5 Years 19.86
1 Year 30.51
CLASS C SHARES
Inception (8/31/00) 16.88%
5 Years 20.09
1 Year 34.49
=========================================
THE PERFORMANCE DATA QUOTED REPRESENT CLASS A SHARE PERFORMANCE REFLECTS THE A REDEMPTION FEE OF 2% WILL BE IMPOSED
PAST PERFORMANCE AND CANNOT GUARANTEE MAXIMUM 5.50% SALES CHARGE, AND CLASS B ON CERTAIN REDEMPTIONS OR EXCHANGES OUT
COMPARABLE FUTURE RESULTS; CURRENT AND CLASS C SHARE PERFORMANCE REFLECTS OF THE FUND WITHIN 30 DAYS OF PURCHASE.
PERFORMANCE MAY BE LOWER OR HIGHER. THE APPLICABLE CONTINGENT DEFERRED SALES EXCEPTIONS TO THE REDEMPTION FEE ARE
PLEASE VISIT AIMinvestments.com FOR THE CHARGE (CDSC) FOR THE PERIOD INVOLVED. LISTED IN THE FUND'S PROSPECTUS.
MOST RECENT MONTH-END PERFORMANCE. THE CDSC ON CLASS B SHARES DECLINES FROM
PERFORMANCE FIGURES REFLECT REINVESTED 5% BEGINNING AT THE TIME OF PURCHASE TO HAD THE ADVISOR NOT WAIVED FEES AND/OR
DISTRIBUTIONS, CHANGES IN NET ASSET VALUE 0% AT THE BEGINNING OF THE SEVENTH YEAR. REIMBURSED EXPENSES IN THE PAST,
AND THE EFFECT OF THE MAXIMUM SALES THE CDSC ON CLASS C SHARES IS 1% FOR THE PERFORMANCE WOULD HAVE BEEN LOWER.
CHARGE UNLESS OTHERWISE STATED. FIRST YEAR AFTER PURCHASE.
INVESTMENT RETURN AND PRINCIPAL VALUE
WILL FLUCTUATE SO THAT YOU MAY HAVE A THE PERFORMANCE OF THE FUND'S SHARE
GAIN OR LOSS WHEN YOU SELL SHARES. CLASSES WILL DIFFER DUE TO DIFFERENT
SALES CHARGE STRUCTURES AND CLASS
EXPENSES.
</Table>
7
AIM EUROPEAN SMALL COMPANY FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND SUMMARY OF INDEPENDENT WRITTEN FEE
EVALUATION
<Table>
The Board of Trustees of AIM Funds Group o The quality of services to be provided o Fees relative to those of comparable
(the "Board") oversees the management of by AIM. The Board reviewed the funds with other advisors. The Board
AIM European Small Company (the "Fund") credentials and experience of the reviewed the advisory fee rate for the
and, as required by law, determines officers and employees of AIM who will Fund under the Advisory Agreement. The
annually whether to approve the provide investment advisory services to Board compared effective contractual
continuance of the Fund's advisory the Fund. In reviewing the qualifications advisory fee rates at a common asset
agreement with A I M Advisors, Inc. of AIM to provide investment advisory level and noted that the Fund's rate was
("AIM"). Based upon the recommendation of services, the Board reviewed the comparable to the median rate of the
the Investments Committee of the Board, qualifications of AIM's investment funds advised by other advisors with
which is comprised solely of independent personnel and considered such issues as investment strategies comparable to those
trustees, at a meeting held on June 30, AIM's portfolio and product review of the Fund that the Board reviewed. The
2005, the Board, including all of the process, various back office support Board noted that AIM has agreed to waive
independent trustees, approved the functions provided by AIM and AIM's advisory fees of the Fund and to limit
continuance of the advisory agreement equity and fixed income trading the Fund's total operating expenses, as
(the "Advisory Agreement") between the operations. Based on the review of these discussed below. Based on this review,
Fund and AIM for another year, effective and other factors, the Board concluded the Board concluded that the advisory fee
July 1, 2005. that the quality of services to be rate for the Fund under the Advisory
provided by AIM was appropriate and that Agreement was fair and reasonable.
The Board considered the factors AIM currently is providing satisfactory
discussed below in evaluating the services in accordance with the terms of o Expense limitations and fee waivers.
fairness and reasonableness of the the Advisory Agreement. The Board noted that AIM has
Advisory Agreement at the meeting on June contractually agreed to waive advisory
30, 2005 and as part of the Board's o The performance of the Fund relative to fees of the Fund through June 30, 2006 to
ongoing oversight of the Fund. In their comparable funds. The Board reviewed the the extent necessary so that the advisory
deliberations, the Board and the performance of the Fund during the past fees payable by the Fund do not exceed a
independent trustees did not identify any one and three calendar years against the specified maximum advisory fee rate,
particular factor that was controlling, performance of funds advised by other which maximum rate includes breakpoints
and each trustee attributed different advisors with investment strategies and is based on net asset levels. The
weights to the various factors. comparable to those of the Fund. The Board considered the contractual nature
Board noted that the Fund's performance of this fee waiver and noted that it
One of the responsibilities of the in such periods was above the median remains in effect until June 30, 2006.
Senior Officer of the Fund, who is performance of such comparable funds. The Board noted that AIM has
independent of AIM and AIM's affiliates, Based on this review, the Board concluded contractually agreed to waive fees and/or
is to manage the process by which the that no changes should be made to the limit expenses of the Fund through
Fund's proposed management fees are Fund and that it was not necessary to December 31, 2005 in an amount necessary
negotiated to ensure that they are change the Fund's portfolio management to limit total annual operating expenses
negotiated in a manner which is at arm's team at this time. to a specified percentage of average
length and reasonable. To that end, the daily net assets for each class of the
Senior Officer must either supervise a o The performance of the Fund relative to Fund. The Board considered the
competitive bidding process or prepare an indices. The Board reviewed the contractual nature of this fee
independent written evaluation. The performance of the Fund during the past waiver/expense limitation and noted that
Senior Officer has recommended an one and three calendar years against the it remains in effect until December 31,
independent written evaluation in lieu of performance of the Lipper European Fund 2005. The Board considered the effect
a competitive bidding process and, upon Index. The Board noted that the Fund's these fee waivers/expense limitations
the direction of the Board, has prepared performance in such periods was above the would have on the Fund's estimated
such an independent written evaluation. performance of such Index. Based on this expenses and concluded that the levels of
Such written evaluation also considered review, the Board concluded that no fee waivers/expense limitations for the
certain of the factors discussed below. changes should be made to the Fund and Fund were fair and reasonable.
In addition, as discussed below, the that it was not necessary to change the
Senior Officer made certain Fund's portfolio management team at this o Breakpoints and economies of scale. The
recommendations to the Board in time. Board reviewed the structure of the
connection with such written evaluation. Fund's advisory fee under the Advisory
o Meeting with the Fund's portfolio Agreement, noting that it does not
The discussion below serves as a managers and investment personnel. With include any breakpoints. The Board
summary of the Senior Officer's respect to the Fund, the Board is meeting considered whether it would be
independent written evaluation and periodically with such Fund's portfolio appropriate to add advisory fee
recommendations to the Board in managers and/or other investment breakpoints for the Fund or whether, due
connection therewith, as well as a personnel and believes that such to the nature of the Fund and the
discussion of the material factors and individuals are competent and able to advisory fee structures of comparable
the conclusions with respect thereto that continue to carry out their funds, it was reasonable to structure the
formed the basis for the Board's approval responsibilities under the Advisory advisory fee without breakpoints. Based
of the Advisory Agreement. After Agreement. on this review, the Board concluded that
consideration of all of the factors below it was not necessary to add advisory fee
and based on its informed business o Overall performance of AIM. The Board breakpoints to the Fund's advisory fee
judgment, the Board determined that the considered the overall performance of AIM schedule. The Board reviewed the level of
Advisory Agreement is in the best in providing investment advisory and the Fund's advisory fees, and noted that
interests of the Fund and its portfolio administrative services to the such fees, as a percentage of the Fund's
shareholders and that the compensation to Fund and concluded that such performance net assets, would remain constant under
AIM under the Advisory Agreement is fair was satisfactory. the Advisory Agreement because the
and reasonable and would have been Advisory Agreement does not include any
obtained through arm's length o Fees relative to those of clients of breakpoints. The Board noted that AIM has
negotiations. AIM with comparable investment contractually agreed to waive advisory
strategies. The Board noted that AIM does fees of the Fund through June 30, 2006 to
o The nature and extent of the advisory not serve as an advisor to other mutual the extent necessary so that the advisory
services to be provided by AIM. The Board funds or other clients with investment fees payable by the Fund do not exceed a
reviewed the services to be provided by strategies comparable to those of the specified maximum advisory fee rate,
AIM under the Advisory Agreement. Based Fund. which maximum rate includes breakpoints
on such review, the Board concluded that and is based on net asset levels. The
the range of services to be provided by Board concluded that the Fund's fee
AIM under the Advisory Agreement was levels under the Advisory Agreement
appropriate and that AIM currently is therefore would not reflect economies of
providing services in accordance with the scale, although the advisory fee waiver
terms of the Advisory Agreement. reflects economies of scale.
(continued)
</Table>
8
AIM EUROPEAN SMALL COMPANY FUND
<Table>
o Investments in affiliated money market o Benefits of soft dollars to AIM. The
funds. The Board also took into account Board considered the benefits realized by
the fact that uninvested cash and cash AIM as a result of brokerage transactions
collateral from securities lending executed through "soft dollar"
arrangements (collectively, "cash arrangements. Under these arrangements,
balances") of the Fund may be invested in brokerage commissions paid by the Fund
money market funds advised by AIM and/or other funds advised by AIM are
pursuant to the terms of an SEC exemptive used to pay for research and execution
order. The Board found that the Fund may services. This research is used by AIM in
realize certain benefits upon investing making investment decisions for the Fund.
cash balances in AIM advised money market The Board concluded that such
funds, including a higher net return, arrangements were appropriate.
increased liquidity, increased
diversification or decreased transaction o AIM's financial soundness in light of
costs. The Board also found that the Fund the Fund's needs. The Board considered
will not receive reduced services if it whether AIM is financially sound and has
invests its cash balances in such money the resources necessary to perform its
market funds. The Board noted that, to obligations under the Advisory Agreement,
the extent the Fund invests in affiliated and concluded that AIM has the financial
money market funds, AIM has voluntarily resources necessary to fulfill its
agreed to waive a portion of the advisory obligations under the Advisory Agreement.
fees it receives from the Fund
attributable to such investment. The o Historical relationship between the
Board further determined that the Fund and AIM. In determining whether to
proposed securities lending program and continue the Advisory Agreement for the
related procedures with respect to the Fund, the Board also considered the prior
lending Fund is in the best interests of relationship between AIM and the Fund, as
the lending Fund and its respective well as the Board's knowledge of AIM's
shareholders. The Board therefore operations, and concluded that it was
concluded that the investment of cash beneficial to maintain the current
collateral received in connection with relationship, in part, because of such
the securities lending program in the knowledge. The Board also reviewed the
money market funds according to the general nature of the non-investment
procedures is in the best interests of advisory services currently performed by
the lending Fund and its respective AIM and its affiliates, such as
shareholders. administrative, transfer agency and
distribution services, and the fees
o Independent written evaluation and received by AIM and its affiliates for
recommendations of the Fund's Senior performing such services. In addition to
Officer. The Board noted that, upon their reviewing such services, the trustees
direction, the Senior Officer of the also considered the organizational
Fund, who is independent of AIM and AIM's structure employed by AIM and its
affiliates, had prepared an independent affiliates to provide those services.
written evaluation in order to assist the Based on the review of these and other
Board in determining the reasonableness factors, the Board concluded that AIM and
of the proposed management fees of the its affiliates were qualified to continue
AIM Funds, including the Fund. The Board to provide non-investment advisory
noted that the Senior Officer's written services to the Fund, including
evaluation had been relied upon by the administrative, transfer agency and
Board in this regard in lieu of a distribution services, and that AIM and
competitive bidding process. In its affiliates currently are providing
determining whether to continue the satisfactory non-investment advisory
Advisory Agreement for the Fund, the services.
Board considered the Senior Officer's
written evaluation and the recommendation o Other factors and current trends. In
made by the Senior Officer to the Board determining whether to continue the
that the Board consider implementing a Advisory Agreement for the Fund, the
process to assist them in more closely Board considered the fact that AIM, along
monitoring the performance of the AIM with others in the mutual fund industry,
Funds. The Board concluded that it would is subject to regulatory inquiries and
be advisable to implement such a process litigation related to a wide range of
as soon as reasonably practicable. issues. The Board also considered the
governance and compliance reforms being
o Profitability of AIM and its undertaken by AIM and its affiliates,
affiliates. The Board reviewed including maintaining an internal
information concerning the profitability controls committee and retaining an
of AIM's (and its affiliates') investment independent compliance consultant, and
advisory and other activities and its the fact that AIM has undertaken to cause
financial condition. The Board considered the Fund to operate in accordance with
the overall profitability of AIM, as well certain governance policies and
as the profitability of AIM in connection practices. The Board concluded that these
with managing the Fund. The Board noted actions indicated a good faith effort on
that AIM's operations remain profitable, the part of AIM to adhere to the highest
although increased expenses in recent ethical standards, and determined that
years have reduced AIM's profitability. the current regulatory and litigation
Based on the review of the profitability environment to which AIM is subject
of AIM's and its affiliates' investment should not prevent the Board from
advisory and other activities and its continuing the Advisory Agreement for the
financial condition, the Board concluded Fund.
that the compensation to be paid by the
Fund to AIM under its Advisory Agreement
was not excessive.
</Table>
9
AIM EUROPEAN SMALL COMPANY FUND
SCHEDULE OF INVESTMENTS
December 31, 2005
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-95.10%
AUSTRIA-1.61%
Andritz A.G. (Industrial Machinery) 58,360 $ 6,414,959
========================================================================
BELGIUM-3.97%
EVS Broadcast Equipment S.A. (Communications
Equipment)(a)(b) 325,300 11,058,006
- ------------------------------------------------------------------------
Van De Velde N.V. (Apparel, Accessories &
Luxury Goods) 26,000 4,733,979
========================================================================
15,791,985
========================================================================
DENMARK-2.12%
DSV A.S. (Trucking)(a) 35,000 4,320,487
- ------------------------------------------------------------------------
Sondagsavisen A.S. (Publishing)(a)(c) 333,000 4,102,753
========================================================================
8,423,240
========================================================================
FINLAND-0.28%
Marimekko Oyj (Apparel, Accessories & Luxury
Goods)(b) 58,500 1,124,705
========================================================================
FRANCE-8.13%
Alten (IT Consulting & Other Services)(c) 121,000 3,624,120
- ------------------------------------------------------------------------
April Group (Insurance Brokers) 82,700 3,416,863
- ------------------------------------------------------------------------
Elior (Restaurants)(a) 315,100 4,139,445
- ------------------------------------------------------------------------
Guerbet S.A. (Pharmaceuticals)(a) 22,006 2,959,837
- ------------------------------------------------------------------------
LaCie Group S.A. (Computer Storage &
Peripherals) 30,000 3,434,349
- ------------------------------------------------------------------------
Neopost S.A. (Office Electronics)(a) 26,300 2,637,847
- ------------------------------------------------------------------------
Pinguely-Haulotte (Construction, Farm
Machinery & Heavy Trucks)(a) 205,900 4,048,712
- ------------------------------------------------------------------------
Trigano S.A. (Leisure Products) 85,712 3,817,307
- ------------------------------------------------------------------------
Wavecom S.A. (Communications Equipment)(a)(c) 64,613 764,519
- ------------------------------------------------------------------------
Zodiac S.A. (Aerospace & Defense)(b) 54,900 3,525,890
========================================================================
32,368,889
========================================================================
GERMANY-7.92%
Bijou Brigitte Modische Accessoires A.G.
(Apparel, Accessories & Luxury Goods)(a) 34,870 9,470,186
- ------------------------------------------------------------------------
CTS Eventim A.G. (Movies &
Entertainment)(a)(c) 149,200 3,642,260
- ------------------------------------------------------------------------
Elexis A.G (Industrial Machinery)(c) 165,500 3,624,653
- ------------------------------------------------------------------------
Fuchs Petrolub A.G.-Pfd. (Commodity
Chemicals)(a)(b) 78,684 3,371,307
- ------------------------------------------------------------------------
Rheinmetall A.G. (Industrial Conglomerates) 37,660 2,374,533
- ------------------------------------------------------------------------
Techem A.G. (Diversified Commercial &
Professional Services)(c) 113,943 5,112,385
- ------------------------------------------------------------------------
Telegate A.G. (Diversified Commercial &
Professional Services)(c) 190,386 3,912,744
========================================================================
31,508,068
========================================================================
</Table>
<Table>
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
GREECE-8.36%
Fourlis Group S.A. (Household Appliances)(a) 524,100 $ 7,103,420
- ------------------------------------------------------------------------
Germanos S.A. (Computer & Electronics Retail) 160,300 2,713,727
- ------------------------------------------------------------------------
Gr. Sarantis S.A. (Personal Products)(a) 310,100 2,626,502
- ------------------------------------------------------------------------
Intralot S.A. (Casinos & Gaming)(a) 370,846 6,502,452
- ------------------------------------------------------------------------
Jumbo S.A. (Leisure Products)(a) 571,000 6,180,709
- ------------------------------------------------------------------------
Motor Oil (Hellas) Corinth Refineries S.A.
(Oil & Gas Refining & Marketing)(a) 134,000 3,148,064
- ------------------------------------------------------------------------
Titan Cement Co. S.A. (Construction
Materials)(a) 122,271 4,998,927
========================================================================
33,273,801
========================================================================
HUNGARY-1.09%
EGIS Rt. (Pharmaceuticals)(a) 41,000 4,318,846
========================================================================
IRELAND-1.20%
FBD Holdings PLC (Multi-Line Insurance) 109,900 4,769,653
========================================================================
ITALY-3.41%
Biesse S.p.A. (Industrial Machinery)(a) 385,000 3,117,401
- ------------------------------------------------------------------------
Cementir-Cementerie del Tirreno S.p.A.
(Construction Materials)(b) 690,900 3,983,280
- ------------------------------------------------------------------------
Davide Campari-Milano S.p.A. (Distillers &
Vintners) 492,700 3,645,518
- ------------------------------------------------------------------------
Valentino Fashion Group S.p.A. (Apparel,
Accessories & Luxury Goods)(a)(c) 114,100 2,808,212
========================================================================
13,554,411
========================================================================
NETHERLANDS-15.29%
Aalberts Industries N.V. (Industrial
Conglomerates)(a) 129,834 6,893,458
- ------------------------------------------------------------------------
Accell Group N.V. (Leisure Products)(a) 194,975 4,708,210
- ------------------------------------------------------------------------
Ballast Nedam N.V.-CVA (Construction &
Engineering)(c) 122,600 4,825,905
- ------------------------------------------------------------------------
Beter Bed Holding N.V. (Homefurnishings
Retail)(a) 153,250 5,732,709
- ------------------------------------------------------------------------
Eriks Group N.V. (Trading Companies &
Distributors)(a) 94,576 3,346,576
- ------------------------------------------------------------------------
Koninklijke BAM Groep N.V. (Construction &
Engineering) (Acquired 09/20/04-12/10/04;
Cost $2,007,860)(a)(d) 52,800 4,430,977
- ------------------------------------------------------------------------
Koninklijke BAM Groep N.V. (Construction &
Engineering)(a) 71,500 6,000,282
- ------------------------------------------------------------------------
Koninklijke Ten Cate N.V. (Textiles)(a) 31,005 3,156,533
- ------------------------------------------------------------------------
Roto Smeets de Boer N.V. (Commercial
Printing) 33,911 1,878,811
- ------------------------------------------------------------------------
Smit Internationale N.V. (Marine Ports &
Services)(a) 86,700 5,674,068
- ------------------------------------------------------------------------
Stork N.V. (Industrial Machinery)(a) 102,755 4,389,358
- ------------------------------------------------------------------------
</Table>
F-1
AIM EUROPEAN SMALL COMPANY FUND
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
NETHERLANDS-(CONTINUED)
Univar N.V. (Trading Companies &
Distributors) 173,310 $ 6,770,710
- ------------------------------------------------------------------------
USG People N.V. (Human Resource & Employment
Services)(a) 72,000 3,051,415
========================================================================
60,859,012
========================================================================
NORWAY-16.38%
Acta Holding A.S.A. (Diversified Capital
Markets) 1,650,500 4,377,335
- ------------------------------------------------------------------------
Aktiv Kapital A.S.A. (Specialized Finance)(a) 138,095 2,107,107
- ------------------------------------------------------------------------
Det Norske Oljeselskap A.S.A. (Oil & Gas
Exploration & Production)(b) 1,496,379 13,191,672
- ------------------------------------------------------------------------
Expert A.S.A. (Computer & Electronics
Retail)(a) 249,440 2,638,870
- ------------------------------------------------------------------------
Geo A.S.A. (Construction & Engineering)
(Acquired 06/21/05; Cost $897,913)(c)(d) 291,000 1,435,749
- ------------------------------------------------------------------------
Geo A.S.A. (Construction & Engineering)(b)(c) 200,000 986,769
- ------------------------------------------------------------------------
Kongsberg Automotive A.S.A. (Auto Parts &
Equipment) (Acquired 06/24/05; Cost
$1,897,909)(c)(d) 272,350 1,944,982
- ------------------------------------------------------------------------
Petroleum Geo-Services A.S.A. (Oil & Gas
Equipment & Services)(a)(c) 142,700 4,417,049
- ------------------------------------------------------------------------
Prosafe A.S.A. (Oil & Gas Equipment &
Services)(b) 172,600 7,326,671
- ------------------------------------------------------------------------
Revus Energy A.S.A. (Oil & Gas Exploration &
Production) (Acquired 06/27/05; Cost
$953,210)(a)(b)(c)(d) 149,200 1,109,400
- ------------------------------------------------------------------------
Revus Energy A.S.A. (Oil & Gas Exploration &
Production)(a)(b)(c) 85,200 633,519
- ------------------------------------------------------------------------
Schibsted A.S.A. (Publishing)(a) 52,792 1,570,099
- ------------------------------------------------------------------------
Sinvest A.S.A. (Oil & Gas Drilling)(b)(c) 187,800 2,386,003
- ------------------------------------------------------------------------
SuperOffice A.S.A. (Application Software)(a) 612,609 2,865,952
- ------------------------------------------------------------------------
TGS Nopec Geophysical Co. A.S.A. (Oil & Gas
Equipment & Services)(a)(c) 124,621 5,871,159
- ------------------------------------------------------------------------
Tomra Systems A.S.A. (Environmental &
Facilities Services)(a)(b) 721,900 5,170,615
- ------------------------------------------------------------------------
Veidekke A.S.A. (Construction &
Engineering)(a) 251,200 7,166,687
========================================================================
65,199,638
========================================================================
PORTUGAL-1.11%
Mota-Engil, SGPS, S.A. (Construction &
Engineering)(a) 1,147,500 4,415,184
========================================================================
SWEDEN-4.32%
Hexagon A.B.-Class B (Industrial
Machinery)(a) 262,370 7,829,023
- ------------------------------------------------------------------------
HiQ International A.B. (IT Consulting & Other
Services)(a) 581,000 3,152,307
- ------------------------------------------------------------------------
Indutrade A.B. (Trading Companies &
Distributors) (Acquired 10/05/05; Cost
$1,265,296)(c)(d) 152,000 1,702,813
- ------------------------------------------------------------------------
PA Resources A.B. (Oil & Gas Exploration &
Production) (Acquired 06/23/05; Cost
$2,692,494)(b)(c)(d) 600,000 2,924,748
- ------------------------------------------------------------------------
rnb Retail and Brands A.B. (Apparel
Retail)(a) 144,166 1,590,205
========================================================================
17,199,096
========================================================================
</Table>
<Table>
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
SWITZERLAND-4.87%
Amazys Holding A.G. (Diversified Commercial &
Professional Services) 118,116 $ 6,939,540
- ------------------------------------------------------------------------
Banque Cantonale Vaudoise (Regional Banks)(a) 8,700 2,502,570
- ------------------------------------------------------------------------
Daetwyler Holding A.G. (Industrial
Conglomerates)(a) 852 2,722,354
- ------------------------------------------------------------------------
Interroll Holding A.G. (Industrial
Machinery)(a) 12,200 2,747,901
- ------------------------------------------------------------------------
Mobilezone Holding A.G. (Computer &
Electronics Retail)(c) 454,100 1,883,444
- ------------------------------------------------------------------------
Saurer A.G. (Industrial Machinery)(a)(c) 38,600 2,572,953
========================================================================
19,368,762
========================================================================
UNITED KINGDOM-15.04%
Admiral Group PLC (Property & Casualty
Insurance) (Acquired 09/23/04; Cost
$493,389)(d) 100,100 783,610
- ------------------------------------------------------------------------
Admiral Group PLC (Property & Casualty
Insurance) 164,300 1,286,186
- ------------------------------------------------------------------------
Balfour Beatty PLC (Construction &
Engineering) 210,430 1,288,880
- ------------------------------------------------------------------------
Delta PLC (Specialty Chemicals) 750,000 1,409,735
- ------------------------------------------------------------------------
Findel PLC (Catalog Retail) 208,100 1,781,229
- ------------------------------------------------------------------------
Homeserve PLC (Diversified Commercial &
Professional Services) 360,500 7,511,109
- ------------------------------------------------------------------------
Inchcape PLC (Distributors)(a) 47,070 1,846,462
- ------------------------------------------------------------------------
Informa PLC (Publishing) 450,919 3,365,059
- ------------------------------------------------------------------------
Kensington Group PLC (Thrifts & Mortgage
Finance)(a) 298,090 4,747,245
- ------------------------------------------------------------------------
Kier Group PLC (Construction &
Engineering)(a) 193,671 3,968,938
- ------------------------------------------------------------------------
Mayborn Group PLC (Household Products) 284,600 2,156,927
- ------------------------------------------------------------------------
Morgan Sindall PLC (Construction &
Engineering) 228,000 3,646,187
- ------------------------------------------------------------------------
NDS Group PLC-ADR (Application Software)(c) 60,500 2,489,575
- ------------------------------------------------------------------------
NETeller PLC (Specialized Finance)(a)(c) 162,700 2,058,937
- ------------------------------------------------------------------------
Savills PLC (Other Diversified Financial
Services) 230,322 3,942,877
- ------------------------------------------------------------------------
SCi Entertainment Group PLC (Home
Entertainment Software)(c) 537,242 5,684,598
- ------------------------------------------------------------------------
Sportingbet PLC (Casinos & Gaming)(a) 472,943 2,797,592
- ------------------------------------------------------------------------
Torex Retail PLC (Application Software)(a) 2,000,000 3,682,054
- ------------------------------------------------------------------------
Ultra Electronics Holdings PLC (Aerospace &
Defense) 315,650 5,387,312
========================================================================
59,834,512
========================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $259,756,649) 378,424,761
========================================================================
MONEY MARKET FUNDS-4.63%
Liquid Assets Portfolio-Institutional
Class(e) 9,211,535 9,211,535
- ------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(e) 9,211,535 9,211,535
========================================================================
Total Money Market Funds (Cost
$18,423,070) 18,423,070
========================================================================
TOTAL INVESTMENTS-99.73% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $278,179,719) 396,847,831
========================================================================
</Table>
F-2
AIM EUROPEAN SMALL COMPANY FUND
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-6.85%
Liquid Assets Portfolio-Institutional
Class(e)(f) 27,254,135 $ 27,254,135
========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $27,254,135) 27,254,135
========================================================================
TOTAL INVESTMENTS-106.58% (Cost $305,433,854) 424,101,966
========================================================================
OTHER ASSETS LESS LIABILITIES-(6.58%) (26,181,943)
========================================================================
NET ASSETS-100.00% $397,920,023
========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
Pfd. - Preferred
</Table>
Notes to Schedule of Investments:
(a) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
aggregate value of these securities at December 31, 2005 was $218,887,660,
which represented 55.01% of the Fund's Net Assets. See Note 1A.
(b) All or a portion of this security has been pledged as collateral for
securities lending transactions at December 31, 2005.
(c) Non-income producing security.
(d) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction). The security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate value of these securities at December 31, 2005 was
$14,332,279, which represented 3.60% of the Fund's Net Assets. Unless
otherwise indicated, these securities are 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 to Financial Statements which are an integral part of the
financial statements.
F-3
AIM EUROPEAN SMALL COMPANY FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2005
<Table>
ASSETS:
Investments, at value (cost $259,756,649)* $378,424,761
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $45,677,205) 45,677,205
===========================================================
Total investments (cost $305,433,854) 424,101,966
===========================================================
Foreign currencies, at value (cost $226,922) 224,884
- -----------------------------------------------------------
Receivables for:
Investments sold 504,106
- -----------------------------------------------------------
Fund shares sold 607,598
- -----------------------------------------------------------
Dividends 625,238
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 22,306
- -----------------------------------------------------------
Other assets 30,771
===========================================================
Total assets 426,116,869
===========================================================
LIABILITIES:
Payables for:
Fund shares reacquired 605,802
- -----------------------------------------------------------
Trustee deferred compensation and
retirement plans 28,709
- -----------------------------------------------------------
Collateral upon return of securities loaned 27,254,135
- -----------------------------------------------------------
Accrued distribution fees 150,865
- -----------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 134
- -----------------------------------------------------------
Accrued transfer agent fees 66,588
- -----------------------------------------------------------
Accrued operating expenses 90,613
===========================================================
Total liabilities 28,196,846
===========================================================
Net assets applicable to shares outstanding $397,920,023
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $275,394,318
- -----------------------------------------------------------
Undistributed net investment income (309,165)
- -----------------------------------------------------------
Undistributed net realized gain from
investment securities and foreign
currencies 4,175,439
- -----------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies and foreign
currency contracts 118,659,431
===========================================================
$397,920,023
===========================================================
NET ASSETS:
Class A $286,882,100
===========================================================
Class B $ 51,108,408
===========================================================
Class C $ 59,929,515
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 13,233,546
===========================================================
Class B 2,431,139
===========================================================
Class C 2,850,204
===========================================================
Class A:
Net asset value per share $ 21.68
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $21.68 divided by
94.50%) $ 22.94
===========================================================
Class B:
Net asset value and offering price per
share $ 21.02
===========================================================
Class C:
Net asset value and offering price per
share $ 21.03
===========================================================
</Table>
* At December 31, 2005, securities with an aggregate value of $26,505,532 were
on loan to brokers.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-4
AIM EUROPEAN SMALL COMPANY FUND
STATEMENT OF OPERATIONS
For the year ended December 31, 2005
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $918,059) $ 7,661,509
- --------------------------------------------------------------------------
Dividends from affiliated money market funds (includes
securities lending income of $224,704, after compensation
to counterparties of $405,722) 752,712
- --------------------------------------------------------------------------
Interest 5,094
==========================================================================
Total investment income 8,419,315
==========================================================================
EXPENSES:
Advisory fees 3,641,450
- --------------------------------------------------------------------------
Administrative services fees 108,161
- --------------------------------------------------------------------------
Custodian fees 489,053
- --------------------------------------------------------------------------
Distribution fees:
Class A 845,393
- --------------------------------------------------------------------------
Class B 453,236
- --------------------------------------------------------------------------
Class C 549,167
- --------------------------------------------------------------------------
Interest 13,611
- --------------------------------------------------------------------------
Transfer agent fees 687,847
- --------------------------------------------------------------------------
Trustees' and officer's fees and benefits 25,223
- --------------------------------------------------------------------------
Other 321,001
==========================================================================
Total expenses 7,134,142
==========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangement (181,865)
==========================================================================
Net expenses 6,952,277
==========================================================================
Net investment income 1,467,038
==========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND FOREIGN CURRENCY
CONTRACTS:
Net realized gain (loss) from:
Investment securities 34,156,447
- --------------------------------------------------------------------------
Foreign currencies (749,989)
==========================================================================
33,406,458
==========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities 68,946,479
- --------------------------------------------------------------------------
Foreign currencies (20,006)
- --------------------------------------------------------------------------
Foreign currency contracts (71)
==========================================================================
68,926,402
==========================================================================
Net gain from investment securities, foreign currencies and
foreign currency contracts 102,332,860
==========================================================================
Net increase in net assets resulting from operations $103,799,898
==========================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-5
AIM EUROPEAN SMALL COMPANY FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2005 and 2004
<Table>
<Caption>
2005 2004
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ 1,467,038 $ (530,647)
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 33,406,458 8,913,396
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities, foreign currencies and foreign currency
contracts 68,926,402 32,247,598
==========================================================================================
Net increase in net assets resulting from operations 103,799,898 40,630,347
==========================================================================================
Distributions to shareholders from net investment income:
Class A (901,232) --
==========================================================================================
Distributions to shareholders from net realized gains:
Class A (16,797,743) (3,080,881)
- ------------------------------------------------------------------------------------------
Class B (3,063,883) (546,917)
- ------------------------------------------------------------------------------------------
Class C (3,585,745) (546,069)
==========================================================================================
Total distributions from net realized gains (23,447,371) (4,173,867)
==========================================================================================
Decrease in net assets resulting from distributions (24,348,603) (4,173,867)
==========================================================================================
Share transactions-net:
Class A 67,440,115 92,344,444
- ------------------------------------------------------------------------------------------
Class B 14,892,613 11,576,871
- ------------------------------------------------------------------------------------------
Class C 20,598,304 17,295,575
==========================================================================================
Net increase in net assets resulting from share
transactions 102,931,032 121,216,890
==========================================================================================
Net increase in net assets 182,382,327 157,673,370
==========================================================================================
NET ASSETS:
Beginning of year 215,537,696 57,864,326
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(309,165) and $(236,487), respectively) $397,920,023 $215,537,696
==========================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-6
AIM EUROPEAN SMALL COMPANY FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM European Small Company Fund (the "Fund") is a series portfolio of AIM Funds
Group (the "Trust"). The Trust is a Delaware statutory trust registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of eight separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is long-term growth of capital.
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. The risk of material loss as a result of such indemnification claims
is considered remote.
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 are 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 recorded at amortized cost which approximates value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs and domestic and foreign index futures.
F-7
AIM EUROPEAN SMALL COMPANY FUND
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. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be United States of America unless otherwise noted.
D. 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.
E. 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.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. REDEMPTION FEES -- The Fund has a 2% redemption fee that is to be retained
by the Fund to offset transaction costs and other expenses associated with
short-term redemptions and exchanges. The fee, subject to certain
exceptions, is imposed on certain redemptions, including exchanges of
shares held less than 30 days. The redemption fee is recorded as an
increase in shareholder capital and is allocated among the share classes
based on the relative net assets of each class.
H. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i) sales
of foreign currencies, (ii) currency gains or losses realized between the
trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
I. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.95% of the Fund's
average daily net assets.
F-8
AIM EUROPEAN SMALL COMPANY FUND
Through June 30, 2006, AIM has contractually agreed to waive advisory fees
to the extent necessary so that the advisory fees payable by the Fund based on
the Fund's average daily net assets do not exceed the annual rate of:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- --------------------------------------------------------------------
First $250 million 0.935%
- --------------------------------------------------------------------
Next $250 million 0.91%
- --------------------------------------------------------------------
Next $500 million 0.885%
- --------------------------------------------------------------------
Next $1.5 billion 0.86%
- --------------------------------------------------------------------
Next $2.5 billion 0.835%
- --------------------------------------------------------------------
Next $2.5 billion 0.81%
- --------------------------------------------------------------------
Next $2.5 billion 0.785%
- --------------------------------------------------------------------
Over $10 billion 0.76%
====================================================================
</Table>
AIM has also contractually agreed to waive advisory fees and/or reimburse
expenses to the extent necessary to limit total annual operating expenses
(excluding certain items discussed below) of Class A, Class B and Class C shares
to 1.90%, 2.65% and 2.65% of average daily net assets, respectively, through
December 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
numbers reflected above: (i) interest; (ii) taxes; (iii) dividend expense on
short sales; (iv) extraordinary items; (v) expenses related to a merger or
reorganization, as approved by the Fund's Board of Trustees; and (vi) expenses
that the Fund has incurred but did not actually pay because of an expense offset
arrangement. Currently, in addition to the expense reimbursement arrangement
with AMVESCAP 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.
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 December 31, 2005, AIM waived fees of $95,494.
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
December 31, 2005, AMVESCAP reimbursed expenses of the Fund in the amount of
$1,981.
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, 2005, AIM was paid $108,161.
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 December 31, 2005, the
Fund paid AISI $687,847.
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
and Class C shares of the Fund. The Trust has adopted plans pursuant to Rule
12b-1 under the 1940 Act with respect to the Fund's Class A, Class B and Class C
shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays ADI
compensation at the annual rate of 0.25% of the Fund's average daily net assets
of Class A shares and 1.00% of the average daily net assets of Class B and Class
C shares. Prior to July 1, 2005, the Fund paid ADI 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. National Association of Securities
Dealers ("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.
Through December 31, 2005, during the period 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 year ended December 31, 2005, the Class A, Class
B and Class C shares paid $773,147, $453,236 and $549,167, respectively, after
ADI waived Plan fees of $72,246 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, 2005, ADI advised the Fund that it retained $219,114 in
front-end sales commissions from the sale of Class A shares and $9,989, $101,456
and $131,049 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.
F-9
AIM EUROPEAN SMALL COMPANY FUND
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, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $11,751,393 $109,797,015 $(112,336,873) $ -- $ 9,211,535 $262,994 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 11,751,393 109,797,015 (112,336,873) -- 9,211,535 265,014 --
==================================================================================================================================
Subtotal $23,502,786 $219,594,030 $(224,673,746) $ -- $18,423,070 $528,008 $ --
==================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME* GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ -- $ 85,401,954 $ (58,147,819) $ -- $27,254,135 $103,364 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 6,708,522 90,523,358 (97,231,880) -- -- 121,340 --
==================================================================================================================================
Subtotal $ 6,708,522 $175,925,312 $(155,379,699) $ -- $27,254,135 $224,704 $ --
==================================================================================================================================
Total $30,211,308 $395,519,342 $(380,053,445) $ -- $45,677,205 $752,712 $ --
==================================================================================================================================
</Table>
* Net of compensation to counterparties.
NOTE 4--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer agent
for clearing shareholder transactions. For the year ended December 31, 2005, the
Fund received credits from this arrangement, which resulted in the reduction of
the Fund's total expenses of $12,144.
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 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 December 31, 2005, the Fund paid legal fees of $5,197
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. During the year ended
December 31, 2005, the average interfund borrowings for the 10 days the
borrowings were outstanding was $15,765,180 with a weighted average interest
rate of 3.15% and interest expense of $13,611.
F-10
AIM EUROPEAN SMALL COMPANY FUND
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, 2005, the
Fund did not borrow under the uncommitted unsecured revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
NOTE 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, 2005, securities with an aggregate value of $26,505,532 were
on loan to brokers. The loans were secured by cash collateral of $27,254,135
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended December 31, 2005, the Fund received dividends on cash
collateral of $224,704 for securities lending transactions, which are net of
compensation to counterparties.
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, 2005
and 2004 was as follows:
<Table>
<Caption>
2005 2004
- ---------------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $15,535,676 $ --
- ---------------------------------------------------------------------------------------
Long-term capital gain 8,812,927 4,173,867
=======================================================================================
Total distributions $24,348,603 $4,173,867
=======================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2005
- ----------------------------------------------------------------------------
Undistributed ordinary income $ 18,103
- ----------------------------------------------------------------------------
Undistributed long-term gain 4,248,829
- ----------------------------------------------------------------------------
Unrealized appreciation -- investments 118,586,041
- ----------------------------------------------------------------------------
Temporary book/tax differences (24,962)
- ----------------------------------------------------------------------------
Post-October currency deferral (302,306)
- ----------------------------------------------------------------------------
Shares of beneficial interest 275,394,318
============================================================================
Total net assets $397,920,023
============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales. The tax-basis unrealized appreciation (depreciation) on investments
amount includes appreciation (depreciation) on foreign currencies and foreign
currency contracts of $(8,681).
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses and the deferral of Post October currency losses.
The Fund had no capital loss carryforward as of December 31, 2005.
F-11
AIM EUROPEAN SMALL COMPANY FUND
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, 2005 was $339,624,551 and $256,786,399, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $119,365,778
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (771,056)
==============================================================================
Net unrealized appreciation of investment securities $118,594,722
==============================================================================
Cost of investments for tax purposes is $305,507,244.
</Table>
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions and Passive foreign investment company transactions, on December
31, 2005, undistributed net investment income was decreased by $638,484,
undistributed net realized gain was decreased by $6,111,516 and shares of
beneficial interest increased by $6,750,000. This reclassification had no effect
on the net assets of the Fund.
NOTE 11--SHARE INFORMATION
The Fund currently offers three different classes of shares: Class A shares,
Class B shares and Class C shares. Class A shares are sold with a front-end
sales charge. Class B shares and Class C shares are sold with CDSC. Under
certain circumstances, Class A shares are subject to CDSC. Generally, Class B
shares will automatically convert to Class A shares eight years after the end of
the calendar month of purchase.
As of March 28, 2005, the Fund's shares are offered on a limited basis.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
2005(A) 2004
---------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 14,488,684 $ 272,504,324 8,997,539 $131,434,386
- ------------------------------------------------------------------------------------------------------------------------
Class B 1,526,090 27,962,424 1,319,808 18,281,471
- ------------------------------------------------------------------------------------------------------------------------
Class C 2,629,303 48,187,651 1,884,423 26,702,122
========================================================================================================================
Issued as reinvestment of dividends:
Class A 693,170 14,681,245 155,210 2,553,215
- ------------------------------------------------------------------------------------------------------------------------
Class B 140,121 2,878,093 32,458 521,266
- ------------------------------------------------------------------------------------------------------------------------
Class C 159,160 3,270,748 30,938 496,866
========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 76,937 1,527,081 73,593 1,053,339
- ------------------------------------------------------------------------------------------------------------------------
Class B (79,144) (1,527,081) (75,184) (1,053,339)
========================================================================================================================
Reacquired:(b)
Class A (11,530,830) (221,272,535) (3,215,160) (42,696,496)
- ------------------------------------------------------------------------------------------------------------------------
Class B (762,028) (14,420,823) (466,157) (6,172,527)
- ------------------------------------------------------------------------------------------------------------------------
Class C (1,631,614) (30,860,095) (758,107) (9,903,413)
========================================================================================================================
5,709,849 $ 102,931,032 7,979,361 $121,216,890
========================================================================================================================
</Table>
(a) There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and owns 7% of the outstanding shares of the
Fund. The Fund and the Fund's principal underwriter or advisor, are parties
to participation agreements with this entity whereby this entity sells units
of interest in separate accounts funding variable products that are invested
in the Fund. 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, third party record keeping and
account servicing and administrative services. The Trust has no knowledge as
to whether all or any portion of the shares owned of record by this entity
is also owned beneficially.
(b) Amount is net of redemption fees of $69,663, $10,817 and $13,218 for Class
A, Class B and Class C shares, respectively, for the year ended December 31,
2005 and $21,001, $4,574 and $3,333 for Class A, Class B and Class C shares,
respectively, for the year ended December 31, 2004.
F-12
AIM EUROPEAN SMALL COMPANY FUND
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,
--------------------------------------------------------
2005 2004 2003 2002 2001
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 16.94 $ 12.05 $ 7.37 $ 7.19 $ 9.17
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.11(a) (0.05)(a) (0.03)(a) (0.04)(a) (0.05)(a)
- ----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 6.03 5.30 4.74 0.22 (1.93)
======================================================================================================================
Total from investment operations 6.14 5.25 4.71 0.18 (1.98)
======================================================================================================================
Less distributions:
Dividends from net investment income (0.07) -- (0.03) -- --
- ----------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (1.33) (0.36) -- -- --
======================================================================================================================
Total distributions (1.40) (0.36) (0.03) -- --
======================================================================================================================
Redemption fees added to shares of beneficial interest 0.00 0.00 -- -- --
======================================================================================================================
Net asset value, end of period $ 21.68 $ 16.94 $ 12.05 $ 7.37 $ 7.19
======================================================================================================================
Total return(b) 36.48% 43.67% 63.96% 2.50% (21.59)%
======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $286,882 $161,014 $42,103 $13,597 $ 6,969
======================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.63%(c) 2.00% 2.00% 2.01% 2.01%
- ----------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.68%(c) 2.03% 2.68% 3.05% 4.65%
======================================================================================================================
Ratio of net investment income (loss) to average net assets 0.57%(c) (0.38)% (0.28)% (0.51)% (0.61)%
======================================================================================================================
Portfolio turnover rate 72% 71% 130% 119% 152%
======================================================================================================================
</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 $283,070,216.
F-13
AIM EUROPEAN SMALL COMPANY FUND
NOTE 12--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS B
----------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------
2005 2004 2003 2002 2001
- ------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 16.52 $ 11.84 $ 7.27 $ 7.15 $ 9.17
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03)(a) (0.14)(a) (0.08)(a) (0.09)(a) (0.10)(a)
- ------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 5.86 5.18 4.65 0.21 (1.92)
==================================================================================================================
Total from investment operations 5.83 5.04 4.57 0.12 (2.02)
==================================================================================================================
Less distributions from net realized gains (1.33) (0.36) -- -- --
==================================================================================================================
Redemption fees added to shares of beneficial interest 0.00 0.00 -- -- --
==================================================================================================================
Net asset value, end of period $ 21.02 $ 16.52 $11.84 $ 7.27 $ 7.15
==================================================================================================================
Total return(b) 35.51% 42.67% 62.86% 1.68% (22.03)%
==================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $51,108 $26,540 $9,415 $5,689 $ 2,330
==================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.35%(c) 2.65% 2.65% 2.66% 2.71%
- ------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.38%(c) 2.68% 3.33% 3.70% 5.36%
==================================================================================================================
Ratio of net investment income (loss) to average net assets (0.15)%(c) (1.03)% (0.93)% (1.16)% (1.31)%
==================================================================================================================
Portfolio turnover rate 72% 71% 130% 119% 152%
==================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $45,323,599.
F-14
AIM EUROPEAN SMALL COMPANY FUND
NOTE 12--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS C
----------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------
2005 2004 2003 2002 2001
- ------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 16.53 $ 11.84 $ 7.27 $ 7.14 $ 9.17
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03)(a) (0.14)(a) (0.09)(a) (0.09)(a) (0.10)(a)
- ------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 5.86 5.19 4.66 0.22 (1.93)
==================================================================================================================
Total from investment operations 5.83 5.05 4.57 0.13 (2.03)
==================================================================================================================
Less distributions from net realized gains (1.33) (0.36) -- -- --
==================================================================================================================
Redemption fees added to shares of beneficial interest 0.00 0.00 -- -- --
==================================================================================================================
Net asset value, end of period $ 21.03 $ 16.53 $11.84 $ 7.27 $ 7.14
==================================================================================================================
Total return(b) 35.49% 42.75% 62.86% 1.82% (22.14)%
==================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $59,930 $27,983 $6,346 $2,057 $ 1,091
==================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.35%(c) 2.65% 2.65% 2.66% 2.71%
- ------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.38%(c) 2.68% 3.33% 3.70% 5.36%
==================================================================================================================
Ratio of net investment income (loss) to average net assets (0.15)%(c) (1.03)% (0.93)% (1.16)% (1.31)%
==================================================================================================================
Portfolio turnover rate 72% 71% 130% 119% 152%
==================================================================================================================
</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 $54,916,674.
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) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. 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.
PENDING LITIGATION AND REGULATORY INQUIRIES
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.
F-15
AIM EUROPEAN SMALL COMPANY FUND
NOTE 13--LEGAL PROCEEDINGS--(CONTINUED)
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 October 19, 2005, this lawsuit was transferred for pretrial purposes to the
MDL Court (as defined below). On July 7, 2005, the Supreme Court of West
Virginia ruled in an unrelated lawsuit that is similar to this action that the
WVAG does not have authority 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. Initial research
indicates that these damages could be limited or capped by statute. 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; and
- 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 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 (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits 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.
On August 25, 2005, the MDL Court issued rulings on the common issues of law
presented in motions to dismiss shareholder class action and derivative
complaints that were filed in unrelated lawsuits. On November 3, 2005, the MDL
Court issued short opinions for the most part applying these rulings to the AIM
and IFG lawsuits. The MDL Court dismissed 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"). The Court dismissed all claims asserted in the class
action complaint but three: (i) the securities fraud claims under Section 10(b)
of the Securities Exchange Act of 1934, (ii) the excessive fee claim under
Section 36(b) of the 1940 Act (which survived only insofar as plaintiffs seek
recovery of fees associated with the assets involved in market timing); and
(iii) the MDL Court deferred ruling on the "control person liability" claim
under Section 48 of the 1940 Act. 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.
At the MDL Court's request, the parties submitted proposed orders implementing
these rulings in the AIM and IFG lawsuits. The MDL Court has not entered any
orders on the motions to dismiss in these lawsuits and it is possible the orders
may differ in some respects from the rulings described above. Based on the MDL
Court's opinion and both parties' proposed orders, however, all claims asserted
against the Funds that have been transferred to the MDL Court will be dismissed,
although certain Funds will remain nominal defendants in the derivative lawsuit.
On December 6, 2005, the MDL Court issued rulings on the common issues of law
presented in defendants' omnibus motion to dismiss the ERISA complaints. The
ruling was issued in unrelated lawsuits that are similar to the ERISA lawsuits
brought against AIM and IFG and related entities. The MDL Court: (i) denied the
motion to dismiss on the grounds that the plaintiffs lack standing or that the
defendants' investments in company stock are entitled to a presumption of
prudence; (ii) granted the motion to dismiss as to defendants not named in the
employee benefit plan documents as fiduciaries but gave plaintiffs leave to
replead facts sufficient to show that such defendants acted as de facto
fiduciaries; and (iii) confirmed plaintiffs' withdrawal of their prohibited
transactions and misrepresentations claims.
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, among others, 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
F-16
AIM EUROPEAN SMALL COMPANY FUND
NOTE 13--LEGAL PROCEEDINGS--(CONTINUED)
to these inquiries. 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.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries described above may have on AIM, ADI or the Fund.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the AIM Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the AIM Funds.
F-17
AIM EUROPEAN SMALL COMPANY FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Funds Group
and Shareholders of AIM European Small Company Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM European Small Company Fund
(one of the funds constituting AIM Funds Group hereafter referred to as the
"Fund") at December 31, 2005, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the period
then ended, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 2005 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
February 17, 2006
Houston, Texas
F-18
AIM EUROPEAN SMALL COMPANY FUND
TRUSTEES AND OFFICERS
As of December 31, 2005
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1992 Director and Chairman, A I M Management None
Trustee, Vice Chair, Group Inc. (financial services holding
Principal Executive Officer company); Director and Vice Chairman,
and President AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- -------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.;
President Director 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
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,
AIM Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1987 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company (2 portfolios))
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and 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); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company); and Owner, Dos Angelos Ranch,
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company (3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
</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.
TRUSTEES AND OFFICERS--(CONTINUED)
As of December 31, 2005
AIM EUROPEAN SMALL COMPANY FUND
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1992 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired None
Trustee
Formerly: Partner, Deloitte & Touche
- -------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc.; Senior Vice President and
Chief 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 -- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President and 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 General Counsel, A I M
Secretary and Chief Legal Management Group Inc. and A I M
Officer 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.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC; 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, Principal Advisors, Inc.
Financial Officer and
Treasurer Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc.
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, and Senior
Investment Officer, A I M Capital
Management, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1992 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street & Frankel LLP P.O. Box 4739 225 Franklin Street
Philadelphia, PA 19103-7599 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Americas
New York, NY 10036-2714
</Table>
TAX DISCLOSURES
REQUIRED FEDERAL INCOME TAX INFORMATION
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2005, 0% is eligible for the dividends received deduction for
corporations. The Fund distributed long-term capital gains of $15,562,927 for
Fund's tax year ended December 31, 2005. For its tax year ended December 31,
2005 the Fund designated 56.34%, 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 in Form
1099-DIV. You should consult your tax advisor regarding treatment of these
amounts.
TAX INFORMATION FOR NON-RESIDENT ALIEN SHAREHOLDERS
For its tax year ended December 31, 2005, the Fund designates 1.11%, or the
maximum amount allowable of its dividend distributions as qualified interest
income exempt from U.S. income tax for non-resident alien shareholders. Your
actual amount of qualified interest income for the calendar year will be
reported in your Form 1042-S mailing. You should consult your tax advisor
regarding treatment of the amounts.
The Fund designates qualified short-term capital gain distributions exempt from
U.S. income tax for non-resident alien shareholders of $14,632,357 for the
fund's tax year ended December 31, 2005.
The percentage of qualifying assets not subject to the U.S. estate tax for the
fiscal quarters ended March 31, 2005, June 30, 2005, September 30, 2005 and
December 31, 2005 are 99.15%, 99.94%, 99.82% and 99.95%.
<Table>
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE
AIM Basic Balanced Fund* AIM Developing Markets Fund
AIM Basic Value Fund AIM European Growth Fund AIM Floating Rate Fund
AIM Blue Chip Fund AIM European Small Company Fund(1) AIM High Yield Fund
AIM Capital Development Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Charter Fund AIM Global Equity Fund AIM Intermediate Government Fund
AIM Constellation Fund AIM Global Growth Fund AIM Limited Maturity Treasury Fund
AIM Diversified Dividend Fund AIM Global Value Fund AIM Money Market Fund
AIM Dynamics Fund AIM International Core Equity Fund AIM Short Term Bond Fund
AIM Large Cap Basic Value Fund AIM International Growth Fund AIM Total Return Bond Fund
AIM Large Cap Growth Fund AIM International Small Company Fund(1) Premier Portfolio
AIM Mid Cap Basic Value Fund AIM Trimark Fund Premier U.S.Government Money Portfolio
AIM Mid Cap Core Equity Fund(1)
AIM Mid Cap Growth Fund SECTOR EQUITY
AIM Opportunities I Fund TAX-FREE
AIM Opportunities II Fund AIM Advantage Health Sciences Fund
AIM Opportunities III Fund AIM Energy Fund AIM Financial Services Fund AIM High Income Municipal Fund(1)
AIM Premier Equity Fund AIM Global Health Care Fund AIM Municipal Bond Fund
AIM S&P 500 Index Fund AIM Global Real Estate Fund AIM Tax-Exempt Cash Fund
AIM Select Equity Fund AIM Gold & Precious Metals Fund AIM Tax-Free Intermediate Fund
AIM Small Cap Equity Fund AIM Leisure Fund Premier Tax-Exempt Portfolio
AIM Small Cap Growth Fund(1) AIM Multi-Sector Fund
AIM Small Company Growth Fund AIM Real Estate Fund(1)
AIM Summit Fund AIM Technology Fund AIM ALLOCATION SOLUTIONS
AIM Trimark Endeavor Fund AIM Utilities Fund
AIM Trimark Small Companies Fund AIM Conservative Allocation Fund
AIM Weingarten Fund AIM Growth Allocation Fund(2)
AIM Moderate Allocation Fund
*Domestic equity and income fund AIM Moderate Growth Allocation Fund
AIM Moderately Conservative Allocation
Fund
DIVERSIFIED PORTFOLIOS
AIM Income Allocation Fund
AIM International Allocation Fund
================================================================================
CONSIDER THE INVESTMENT OBJECTIVES,RISKS,AND CHARGES AND EXPENSES CAREFULLY. FOR
THIS AND OTHER INFORMATION ABOUT AIM FUNDS,OBTAIN A PROSPECTUS FROM YOUR
FINANCIAL ADVISOR AND READ IT CAREFULLY BEFORE INVESTING.
================================================================================
</Table>
(1) This Fund has limited public sales of its shares to certain investors. For
more information on who may continue to invest in the Fund, please see the
appropriate prospectus.
(2) Effective April 29, 2005, AIM Aggressive Allocation Fund was renamed AIM
Growth Allocation Fund.
If used after April 20, 2006, 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 $128 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $386 billion in assets under management. Data as of December 31,
2005.
AIMinvestments.com ESC-AR-1 A I M Distributors,Inc.
<Table>
<Caption>
[YOUR GOALS. OUR SOLUTIONS.] -- Registered Trademark --
====================================================================================
Mutual Retirement Annuities College Separately Offshore Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Management -- Registered Trademark --
Plans Accounts
====================================================================================
AIM GLOBAL VALUE FUND
Annual Report to Shareholders o December 31, 2005
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
AIM GLOBAL VALUE FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL.
o Unless otherwise stated, information presented in this report is as of December 31, 2005, and is based on total net assets.
ABOUT SHARE CLASSES taking into account the local market Classification Standard, which was
restrictions on share ownership by developed by and is the exclusive
o Class B shares are not available as an foreign investors. property and a service mark of Morgan
investment for retirement plans Stanley Capital International Inc. and
maintained pursuant to Section 401 of o The unmanaged LIPPER GLOBAL MULTI-CAP Standard & Poor's.
the Internal Revenue Code, including VALUE FUND INDEX represents an average
401(k) plans, money purchase pension of the performance of the 30 largest o The Conference Board is a
plans and profit sharing plans. Plans global multi-capitalization value funds not-for-profit organization that
that had existing accounts invested in tracked by Lipper, Inc., an independent conducts research and publishes
Class B shares prior to September 30, mutual fund performance monitor. information and analysis to help
2003, will continue to be allowed to businesses strengthen their performance.
make additional purchases. o The unmanaged LIPPER GLOBAL FUND INDEX
represents an average of the performance The Fund provides a complete list of its
PRINCIPAL RISKS OF INVESTING IN THE FUND of global funds tracked by Lipper, Inc., holdings four times in each fiscal year,
an independent mutual fund performance at the quarter-ends. For the second and
o International investing presents monitor. fourth quarters, the lists appear in the
certain risks not associated with Fund's semiannual and annual reports to
investing solely in the United States. o The unmanaged Standard & Poor's shareholders. For the first and third
These include risks relating to Composite Index of 500 Stocks (the S&P quarters, the Fund files the lists with
fluctuations in the value of the U.S. 500--Registered Trademark-- INDEX) is the Securities and Exchange Commission
dollar relative to the values of other an index of common stocks frequently (SEC) on Form N-Q. The most recent list
currencies, the custody arrangements used as a general measure of U.S. stock of portfolio holdings is available at
made for the Fund's foreign holdings, market performance. AIMinvestments.com. From our home page,
differences in accounting, political click on Products & Performance, then
risks and the lesser degree of public o The Fund is not managed to track the Mutual Funds, then Fund Overview. Select
information required to be provided by performance of any particular index, your Fund from the drop-down menu and
non-U.S. companies. including the indexes defined here, and click on Complete Quarterly Holdings.
consequently, the performance of the Shareholders can also look up the Fund's
o Investing in emerging markets involves Fund may deviate significantly from the Forms N-Q on the SEC's Web site at
greater risk and potential reward than performance of the indexes. sec.gov. Copies of the Fund's Forms N-Q
investing in more established markets. may be reviewed and copied at the SEC's
o A direct investment cannot be made in Public Reference Room at 450 Fifth
o Investing in small and mid-size an index. Unless otherwise indicated, Street, N.W., Washington, D.C.
companies involves greater risk than index results include reinvested 20549-0102. You can obtain information
investing in more established companies, dividends, and they do not reflect sales on the operation of the Public Reference
such as business risk, significant stock charges. Performance of an index of Room, including information about
price fluctuations and illiquidity. funds reflects fund expenses; duplicating fee charges, by calling
performance of a market index does not. 202-942-8090 or 800-732-0330, or by
o The Fund may not reach its objective electronic request at the following
if the manager chooses to maintain a OTHER INFORMATION e-mail address: publicinfo@sec.gov. The
significant amount of cash in a rising SEC file numbers for the Fund are
market. o The returns shown in management's 811-01540 and 2-27334.
discussion of Fund performance are based
ABOUT INDEXES USED IN THIS REPORT on net asset values calculated for A description of the policies and
shareholder transactions. Generally procedures that the Fund uses to
o The unmanaged MSCI WORLD INDEX is a accepted accounting principles require determine how to vote proxies relating
group of global securities tracked by adjustments to be made to the net assets to portfolio securities is available
Morgan Stanley Capital International. of the Fund at period end for financial without charge, upon request, from our
reporting purposes, and as such, the net Client Services department at
o The unmanaged MSCI WORLD VALUE FREE asset values for shareholder 800-959-4246 or on the AIM Web site,
INDEX is a subset of the MSCI WORLD transactions and the returns based on AIMinvestments.com. On the home page,
INDEX, a group of global securities those net asset values may differ from scroll down and click on AIM Funds Proxy
tracked by Morgan Stanley Capital the net asset values and returns Policy. The information is also
International; the Value subset measures reported in the Financial Highlights. available on the SEC's Web site,
performance of companies with lower sec.gov.
price/earnings ratios and lower o Industry classifications used in this
forecasted growth values. The index report are generally according to the Information regarding how the Fund voted
represents investable opportunities for Global Industry proxies related to its portfolio
global investors, 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 Securities and Exchange
Commission's Web site, sec.gov.
======================================================================================= ==========================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND PROSPECTUS, FUND NASDAQ SYMBOLS
WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES AND EXPENSES.
INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING. Class A Shares AWSAX
Class B Shares AWSBX
====================================================================================== Class C Shares AWSCX
==========================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIMinvestments.com
AIM GLOBAL VALUE FUND
DEAR FELLOW AIM FUNDS SHAREHOLDERS:
Although many concerns weighed on investors' minds during
the year covered by this report, stocks posted gains for
the period. Domestically, the broad-based S&P 500 Index
[GRAHAM returned 4.91%. Internationally, Morgan Stanley's MSCI
PHOTO] World Index rose 9.49%. Concern about the inflationary
potential of rising energy costs was frequently cited as a
major cause of market restraint.
Within the indexes, there was considerable variability
in the performance of different sectors and markets.
Domestically, energy sector performance far outpaced all
ROBERT H. GRAHAM other sectors in the S&P 500 Index, reflecting rising oil
and gas prices. Overseas, emerging markets produced more
attractive results than developed markets, partially
because emerging markets tend to be more closely tied to
the performance of natural resources and commodities.
One could make a strong argument for global
diversification of a stock portfolio using the performance
data for the year ended December 31, 2005. Of course, your
financial advisor is the person most qualified to help you
decide whether such diversification is appropriate for
[WILLIAMSON you.
PHOTO]
A number of key developments affected markets and the
economy in 2005:
o Hurricane Katrina, which devastated New Orleans in
August, had numerous economic repercussions and
dealt a short-term setback to consumer confidence.
MARK H. WILLIAMSON However, consumer confidence rebounded toward the
end of the year, with the Conference Board crediting
the resiliency of the economy, falling gas prices
and job growth for this trend.
o The nation's gross domestic product (GDP), the
broadest measure of economic activity, increased at
a healthy rate throughout much of the year. The
Bureau of Economic Analysis of the U.S. Department
of Commerce reported that the nation's GDP grew at
annualized rates of 3.8%, 3.3% and 4.1% for the
first, second and third quarters of the year,
respectively.
o For the second straight year, the economy created 2
million new jobs, although job growth was uneven and
sometimes did not meet analysts' expectations on a
monthly basis.
o The Federal Reserve Board (the Fed) continued its
tightening policy, raising the key federal funds
target rate to 4.25% by the end of the year. Many
analysts believed that the central bank was near the
end of its tightening policy as Ben Bernanke
succeeded the retiring Alan Greenspan as Fed
chairman early in 2006.
o Gasoline prices, which soared to a nationwide
average of slightly more than $3.08 per gallon on
September 5 following Hurricane Katrina, had dropped
by more than 80 cents by mid-December, according to
the U.S. Energy Information Administration.
For a discussion of the specific market conditions that
affected your Fund and how your Fund was managed during
the year, please turn to Page 3.
YOUR FUND
Further information about the markets, your Fund, and
investing in general is always available on our
comprehensive 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 pleased to be of help.
Sincerely,
/s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
Robert H. Graham Mark H. Williamson
President & Vice Chair, President,
AIM Funds A I M Advisors, Inc.
February 9, 2006
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.
A I M Distributors, Inc. is the distributor for the retail
funds represented by AIM Investments.
1
AIM GLOBAL VALUE FUND
DEAR FELLOW AIM FUND SHAREHOLDERS:
Having completed a year of transition and change at AIM
Funds--as well as my first full year as your board's
[CROCKETT independent chair--I can assure you that shareholder
PHOTO] interests are at the forefront of every decision your
board makes. While regulators and fund companies debate
the value of an independent board chair, this structure is
working for you. An independent chair can help lead to
unbiased decisions and eliminate potential conflicts.
BRUCE L. CROCKETT Some highlights of 2005 board activity:
o Board approval of voluntary fee reductions, which are
saving shareholders more than $20 million annually,
based on asset levels of March 31, 2005.
o Board approval for the merger of 14 funds into other
AIM funds with similar investment objectives. Eight
of these mergers were approved by shareholders of the
target funds during 2005. The remaining six are being
voted on by shareholders in early 2006. In each case,
the goal is for the resulting merged fund to benefit
from strengthened management and greater efficiency.
o Board approval for portfolio management changes at
11 funds, consistent with the goal of organizing
management teams around common processes and shared
investment views. Again, we hope that these changes
will improve fund performance and efficiency.
In 2006, your board will continue to focus on reducing
costs and shareholder fees and improving portfolio
performance, which is not yet as strong as we expect to
see it. Eight in-person board meetings and several
additional telephone and committee meetings are scheduled
to take place this year. I'll inform you of our progress
in my next semiannual letter to shareholders.
The AIM Funds board is pleased to welcome our newest
independent member, Raymond Stickel, Jr., a former partner
with the international auditing firm of Deloitte & Touche.
We also send our thanks and best wishes to Gerald J.
Lewis, who retired from your board in December 2005, and
to Edward K. Dunn, Jr., who is retiring this year.
Your board welcomes your views. Please mail them to me
at AIM Investments, AIM Investments Tower, 11 Greenway
Plaza, Suite 100, Houston TX 77046.
Sincerely,
/s/ BRUCE L. CROCKETT
Bruce L. Crockett
Independent Chair
On Behalf of the Board of Trustees
AIM Funds
February 9, 2006
2
AIM GLOBAL VALUE FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE Once comfortable with the downside
risk of an investment, we look for
===================================================================================== catalysts that can generate positive
PERFORMANCE SUMMARY returns: events that may unlock the
======================================== additional 30 to 40 cents we
Despite higher oil prices, most world discounted earlier (e.g., corporate
equity markets posted positive returns FUND VS. INDEXES restructuring, management change,
for the year. Given this environment, we share buybacks, etc.)
are pleased to once again reward TOTAL RETURNS, 12/31/04-12/31/05,
shareholders with positive Fund EXCLUDING APPLICABLE SALES CHARGES. IF Finally, we consider selling a
performance. As the table illustrates, SALES CHARGES WERE INCLUDED, RETURNS stock if:
your Fund modestly outperformed its WOULD BE LOWER.
broad market and style-specific o the catalyst that caused the
benchmarks. We attribute our comparative Class A Shares 11.42% security's value to rise has been
success to strong stock selection, realized,
particularly in materials and energy. Class B Shares 10.67
o unforeseen negative developments
For long-term performance, please Class C Shares 10.66 that lead to a lower appraisal of what
turn to Pages 6 and 7. we feel a company is worth or we feel
MSCI World Index the company will not realize its full
(Broad Market Index) 9.49 market value, or,
MSCI World Value Free Index o the stock's value exceeds our
(Style-specific Index) 9.55 estimate of intrinsic worth.
Lipper Global Multi-Cap Value MARKET CONDITIONS AND YOUR FUND
Fund Index (Peer Group Index) 14.12
Despite higher oil prices and rising
Lipper Global Fund Index interest rates in some countries, most
(Former Peer Group Index) 11.89 world equity markets posted gains for
the year. Despite a currency headwind
SOURCE: LIPPER, INC. from a strengthening U.S. dollar,
international stocks outperformed U.S.
======================================== equities by more than a two-to-one
==================================================================================== margin when calculated in U.S.
HOW WE INVEST Our first concern when looking at a dollars. In local currency terms, the
potential investment is capital differential was even greater.
When selecting stocks for your Fund, preservation. We have to be
we look for undervalued companies with comfortable with the downside risk of In Europe, markets rallied amid a
strong defensive qualities such as: an investment. We begin with an low interest rate environment and
estimate of the business's true value, corporate profits buoyed by
o Solid management teams then look to pay a fraction of that restructuring and cost cutting
price, approximately 60 to 70 cents on measures. Japanese stocks climbed to
o Good balance sheets--zero or very the dollar. This discount creates two levels not witnessed in several years
little debt benefits: as Japan's economy finally regained
momentum. In the United States, equity
o Flexibility to implement o It identifies the potential upside. markets also posted positive returns
shareholder-friendly strategies like as economic activity expanded,
paying dividends, buying back stock, o It provides potential downside inflation remained contained and
or a combination of both. protection. If our assessment of the corporate profits generally rose.
company's future is incorrect and the
We also look for businesses that stock retreats in price, the impact
are easy to understand. With our should be tempered since we originally
global mandate, we can look for the acquired the stock at less than
best opportunities worldwide, with no estimated true value.
regional restrictions. (continued)
======================================== ========================================= ==========================================
PORTFOLIO COMPOSITION TOP 5 COUNTRIES* TOP 10 EQUITY HOLDINGS*
By sector
1. United States 37.4% 1. Washington Mutual, Inc. 3.8%
[PIE CHART] 2. Japan 18.5 2. Microsoft Corp. 3.8
Financials 17.5% 3. Canada 14.3 3. Liberty Media Corp.-Class A 3.6
Consumer Discretionary 16.1% 4. Netherlands 5.2 4. Meitec Corp. (Japan) 2.8
Information Technology 13.8% 5. United Kingdom 4.7 5. Ethan Allen Interiors Inc. 2.7
Consumer Staples 12.4% 6. Brookline Bancorp, Inc. 2.6
Health Care 7.7% TOTAL NET ASSETS $170.0 MILLION 7. Nintendo Co., Ltd. (Japan) 2.6
Telecommunication Services 5.8% 8. Olympus Corp. (Japan) 2.3
Materials 4.2% TOTAL NUMBER OF HOLDINGS* 63 9. NewAlliance Bancshares, Inc. 2.3
Industrials 4.2% 10. E-L Financial Corp. Ltd. (Canada) 2.3
Energy 4.0%
Utilities 2.4%
Money Market Funds Plus Other
Assets Less Liabilities 11.9%
The Fund's holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular
security.
* Excluding money market fund holdings.
======================================== ========================================= ==========================================
3
AIM GLOBAL VALUE FUND
Although Fund performance was an important aspect of our investment GLEN HILTON, portfolio
broadly based across both regions and strategy. During the year, we decided manager, is lead
countries, the key determinant or to "lock in" currency gains made over [Hilton manager of AIM Global
driver of performance was stock the last year. We did this to protect PHOTO] Value Fund. He began
selection. Collectively, holdings in the portfolio against possible his career in
Australia, Canada and Japan declines in the value of foreign investments in 1995. He joined AIM in
contributed the most to Fund currencies. Given the importance we 2002. Mr. Hilton holds a B.A. in
performance. Given high oil and place on capital preservation, if we economics from Loyola University.
commodity prices, materials and energy believe a foreign currency is
holdings produced the highest sector overvalued i.e. has considerable down
returns, while information technology side risk, we consider hedging the
holdings detracted the most from currency. Given the strength of the
performance. U.S. dollar, this strategy helped
limit losses from weak foreign
It is important to note that currencies.
investment decisions are made on a
micro or stock specific level, rather IN CLOSING
than a macroeconomic level. As
mentioned earlier, select stocks which Our focus remains on protecting
we believe have limited downside risk shareholder capital. We take a
but also have upside potential. The conservative approach to investing by
examples below helps illustrate this first analyzing the downside risk of a
concept. stock before considering its upside
potential. We believe this defensive
One of the Fund's top contributors approach helps protect our portfolio
was OLYMPUS CORP. Although best known by maintaining the gains it has earned
for its cameras, this Japanese company and increasing our absolute Fund
is a world leader in endoscopes returns. We are once again pleased to
(medical imaging equipment). We first provide shareholders with positive
bought the stock earlier this year returns for the reporting period and
when disappointing news on the we thank you for your continued
company's digital camera line led to a investment in AIM Global Value Fund.
weakening in the stock price. We took
advantage of this weakness and added THE VIEWS AND OPINIONS EXPRESSED IN
to our exposure because we believed MANAGEMENT'S DISCUSSION OF FUND
the medical imaging portion of the PERFORMANCE ARE THOSE OF A I M
business alone was worth more than the ADVISORS, INC. THESE VIEWS AND
total share price of the company. OPINIONS ARE SUBJECT TO CHANGE AT ANY
Aided by an overall rally in the TIME BASED ON FACTORS SUCH AS MARKET
Japanese market and a turnaround in AND ECONOMIC CONDITIONS. THESE VIEWS
the company's camera and life sciences AND OPINIONS MAY NOT BE RELIED UPON AS
businesses, the stock appreciated INVESTMENT ADVICE OR RECOMMENDATIONS,
significantly late in the year. OR AS AN OFFER FOR A PARTICULAR
SECURITY. THE INFORMATION IS NOT A
Although the Fund recorded gains in COMPLETE ANALYSIS OF EVERY ASPECT OF
most sectors, there were a few ANY MARKET, COUNTRY, INDUSTRY,
detractors, including select SECURITY OR THE FUND. STATEMENTS OF
information technology stocks. For FACT ARE FROM SOURCES CONSIDERED
example, LEXMARK INTERNATIONAL, the RELIABLE, BUT A I M ADVISORS, INC.
leading maker of computer printers and MAKES NO REPRESENTATION OR WARRANTY AS
related products, proved a drag on TO THEIR COMPLETENESS OR ACCURACY.
performance. We purchased Lexmark as ALTHOUGH HISTORICAL PERFORMANCE IS NO
we believe it is a well-managed, GUARANTEE OF FUTURE RESULTS, THESE
debt-free company with a recognizable INSIGHTS MAY HELP YOU UNDERSTAND OUR
brand name and a recurring revenue INVESTMENT MANAGEMENT PHILOSOPHY.
stream. Soon after we bought the
stock, management announced See important Fund and index
significantly reduced earnings disclosures inside front cover.
expectations which sent the stock
plunging. Although disappointed in the
stock's recent performance, we
continued to maintain our position as
the reasons for its purchase remain
intact. We also believe that a lot of
the pessimism present in the market is
now largely reflected in the company's [RIGHT ARROW GRAPHIC]
stock price.
FOR A PRESENTATION OF YOUR FUND'S
As mentioned earlier, capital LONG-TERM PERFORMANCE, PLEASE SEE
preservation is PAGES 6 AND 7.
4
AIM GLOBAL VALUE FUND
<Table>
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE estimate the expenses that you paid over The hypothetical account values and
the period. Simply divide your account expenses may not be used to estimate the
As a shareholder of the Fund, you incur value by $1,000 (for example, an $8,600 actual ending account balance or expenses
two types of costs: (1) transaction costs, account value divided by $1,000 = 8.6), you paid for the period. You may use this
which may include sales charges (loads) on then multiply the result by the number in information to compare the ongoing costs
purchase payments; contingent deferred the table under the heading entitled of investing in the Fund and other funds.
sales charges on redemptions; and "Actual Expenses Paid During Period" to To do so, compare this 5% hypothetical
redemption fees, if any; and (2) ongoing estimate the expenses you paid on your example with the 5% hypothetical examples
costs, including management fees; account during this period. that appear in the shareholder reports of
distribution and/or service fees (12b-1); the other funds.
and other Fund expenses. This example is HYPOTHETICAL EXAMPLE FOR
intended to help you understand your COMPARISON PURPOSES Please note that the expenses shown in
ongoing costs (in dollars) of investing in the table are meant to highlight your
the Fund and to compare these costs with The table below also provides information ongoing costs only and do not reflect any
ongoing costs of investing in other mutual about hypothetical account values and transactional costs, such as sales charges
funds. The example is based on an hypothetical expenses based on the Fund's (loads) on purchase payments, contingent
investment of $1,000 invested at the actual expense ratio and an assumed rate deferred sales charges on redemptions, and
beginning of the period and held for the of return of 5% per year before expenses, redemption fees, if any. Therefore, the
entire period July 1, 2005, through which is not the Fund's actual return. The hypothetical information is useful in
December 31, 2005. Fund's actual cumulative total returns at comparing ongoing costs only, and will not
net asset value after expenses for the six help you determine the relative total
ACTUAL EXPENSES months ended December 31, 2005, appear in costs of owning different funds. In
the table "Cumulative Total Returns" on addition, if these transactional costs
The table below provides information about Page 7. were included, your costs would have been
actual account values and actual expenses. higher.
You may use the information in this table,
together with the amount you invested, to
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/05) (12/31/05)(1) PERIOD(2) (12/31/05) PERIOD(2) RATIO
A $1,000.00 $1,074.60 $ 8.21 $1,017.29 $ 7.98 1.57%
B 1,000.00 1,070.50 12.11 1,013.51 11.77 2.32
C 1,000.00 1,070.40 12.11 1,013.51 11.77 2.32
(1) The actual ending account value is based on the actual total return of the Fund for the period July 1, 2005, through December
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 December 31, 2005, appear in the table "Cumulative Total Returns" on Page 7.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year.
====================================================================================================================================
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
</Table>
5
AIM GLOBAL VALUE FUND
<Table>
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
FUND DATA FROM 12/29/00, INDEX DATA FROM 12/31/00
====================================================================================================================================
[MOUNTAIN CHART]
AIM GLOBAL VALUE AIM GLOBAL VALUE AIM GLOBAL VALUE MSCI MSCI WORLD LIPPER GLOBAL LIPPER GLOBAL
FUND- FUND- FUND- WORLD VALUE FREE FUND MULTI-CAP VALUE
DATE CLASS A SHARES CLASS B SHARES CLASS C SHARES INDEX INDEX INDEX FUND INDEX
12/29/00 $ 9450 $10000 $10000
12/00 9450 10000 10000 $10000 $10000 $10000 $10000
1/01 10026 10600 10610 10193 10100 10166 10121
2/01 8873 9380 9390 9330 9604 9421 9811
3/01 8184 8640 8650 8716 9112 8766 9313
4/01 9204 9720 9730 9358 9726 9367 9778
5/01 9223 9740 9751 9236 9664 9310 9780
6/01 8930 9420 9431 8946 9392 9048 9565
7/01 8740 9220 9231 8826 9279 8824 9398
8/01 8466 8930 8931 8401 8949 8474 9171
9/01 8116 8560 8561 7660 8117 7682 8305
10/01 8655 9120 9121 7806 8098 7873 8415
11/01 9241 9730 9731 8266 8445 8303 8735
12/01 9308 9791 9793 8318 8507 8424 8892
1/02 9062 9531 9532 8065 8267 8168 8677
2/02 8987 9451 9452 7994 8104 8120 8663
3/02 9478 9961 9963 8362 8629 8505 9117
4/02 9383 9851 9863 8062 8393 8298 9077
5/02 9355 9822 9822 8076 8462 8317 9174
6/02 9034 9472 9473 7584 7922 7834 8655
7/02 8316 8722 8723 6944 7147 7141 7845
8/02 8279 8682 8682 6956 7174 7174 7913
9/02 7891 8262 8262 6190 6306 6461 7154
10/02 8619 9022 9022 6647 6745 6830 7423
11/02 8884 9292 9302 7004 7228 7165 7802
12/02 8557 8941 8942 6664 6810 6852 7630
1/03 8472 8851 8852 6460 6639 6633 7453
2/03 8377 8741 8752 6347 6481 6469 7266
3/03 8330 8691 8691 6326 6386 6398 7128
4/03 8689 9062 9071 6887 7059 6947 7786
5/03 9218 9602 9611 7279 7567 7375 8306
6/03 9351 9752 9751 7404 7720 7517 8439
7/03 9294 9681 9681 7554 7882 7676 8676
8/03 9672 10062 10071 7716 8063 7879 8992
9/03 9823 10222 10221 7762 8115 7922 9044
10/03 10504 10922 10921 8222 8593 8372 9568
11/03 10608 11022 11022 8347 8732 8528 9776
12/03 11307 11737 11747 8870 9406 9042 10334
1/04 11625 12071 12071 9012 9517 9232 10592
2/04 11807 12253 12253 9163 9719 9429 10837
3/04 11701 12132 12142 9102 9687 9389 10762
4/04 11316 11727 11725 8916 9484 9146 10533
5/04 11344 11747 11756 8990 9558 9177 10550
6/04 11479 11878 11888 9182 9825 9331 10802
7/04 11325 11716 11725 8882 9651 8983 10495
8/04 11528 11918 11928 8921 9762 8988 10531
9/04 12251 12659 12668 9090 9935 9228 10776
10/04 12453 12851 12861 9312 10179 9449 11026
11/04 13157 13571 13581 9801 10733 9976 11676
12/04 13286 13702 13713 10175 11148 10342 12128
1/05 13135 13545 13555 9946 10946 10145 11972
2/05 13896 14323 14335 10261 11359 10469 12391
3/05 13765 14176 14187 10063 11137 10251 12160
4/05 13355 13745 13756 9843 10895 10022 11850
5/05 13535 13924 13934 10018 11001 10192 12079
6/05 13775 14166 14177 10104 11141 10301 12276
7/05 14115 14503 14503 10457 11457 10708 12743
8/05 14186 14567 14577 10536 11528 10840 12867
9/05 14416 14798 14809 10810 11872 11129 13234
10/05 14065 14430 14430 10548 11549 10877 12933
11/05 14535 14893 14903 10899 11944 11223 13396
12/05 14806 15065 15175 11141 12213 11572 13840
====================================================================================================================================
SOURCE: LIPPER, INC.
Past performance cannot guarantee This chart, which is a logarithmic During the fiscal year, the Fund has
comparable future results. chart, presents the fluctuations in the elected to use the Lipper Global Multi-Cap
value of the Fund and its indexes. We Value Fund Index as its peer group index
The data shown in the chart include believe that a logarithmic chart is more rather than the Lipper Global Funds Index
reinvested distributions, applicable effective than other types of charts in because Lipper recently modified its
sales charges, Fund expenses and illustrating changes in value during the global and international classifications
management fees. Results for Class B early years shown in the chart. The to include more narrow categories.
shares are calculated as if a hypothetical vertical axis, the one that indicates the
shareholder had liquidated his entire dollar value of an investment, is
investment in the Fund at the close of the constructed with each segment representing
reporting period and paid the applicable a percent change in the value of the
contingent deferred sales charges. Index investment. In this chart, each segment
results include reinvested dividends, but represents a doubling, or 100% change, in
they do not reflect sales charges. the value of the investment. In other
Performance of an index of funds reflects words, the space between $5,000 and
fund expenses and management fees; $10,000 is the same size as the space
performance of a market index does not. between $10,000 and $20,000.
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.
</Table>
6
AIM GLOBAL VALUE FUND
========================================== ==========================================
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
As of 12/31/05, including applicable sales 6 months ended 12/31/05, excluding
charges applicable sales charges
CLASS A SHARES Class A Shares 7.46%
Inception (12/29/00) 8.16% Class B Shares 7.05
5 Years 8.17 Class C Shares 7.04
1 Year 5.32
==========================================
CLASS B SHARES
Inception (12/29/00) 8.53%
5 Years 8.40
1 Year 5.67
CLASS C SHARES
Inception (12/29/00) 8.69%
5 Years 8.70
1 Year 9.66
==========================================
THE PERFORMANCE DATA QUOTED REPRESENT SHARES DECLINES FROM 5% BEGINNING AT THE
PAST PERFORMANCE AND CANNOT GUARANTEE TIME OF PURCHASE TO 0% AT THE BEGINNING OF
COMPARABLE FUTURE RESULTS; CURRENT THE SEVENTH YEAR. THE CDSC ON CLASS C
PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE SHARES IS 1% FOR THE FIRST YEAR AFTER
VISIT AIMINVESTMENTS.COM FOR THE MOST PURCHASE.
RECENT MONTH-END PERFORMANCE. PERFORMANCE
FIGURES REFLECT REINVESTED DISTRIBUTIONS, THE PERFORMANCE OF THE FUND'S SHARE
CHANGES IN NET ASSET VALUE AND THE EFFECT CLASSES WILL DIFFER DUE TO DIFFERENT SALES
OF THE MAXIMUM SALES CHARGE UNLESS CHARGE STRUCTURES AND CLASS EXPENSES.
OTHERWISE STATED. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU A REDEMPTION FEE OF 2% WILL BE IMPOSED
MAY HAVE A GAIN OR LOSS WHEN YOU SELL ON CERTAIN REDEMPTIONS OR EXCHANGES OUT OF
SHARES. THE FUND WITHIN 30 DAYS OF PURCHASE.
EXCEPTIONS TO THE REDEMPTION FEE ARE
CLASS A SHARE PERFORMANCE REFLECTS THE LISTED IN THE FUND'S PROSPECTUS.
MAXIMUM 5.50% SALES CHARGE, AND CLASS B
AND CLASS C SHARE PERFORMANCE REFLECTS THE HAD THE ADVISOR NOT WAIVED FEES AND/OR
APPLICABLE CONTINGENT DEFERRED SALES REIMBURSED EXPENSES IN THE PAST,
CHARGE (CDSC) FOR THE PERIOD INVOLVED. THE PERFORMANCE WOULD HAVE BEEN LOWER.
CDSC ON CLASS B
</Table>
7
AIM GLOBAL VALUE FUND
<Table>
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND
SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION
The Board of Trustees of AIM Funds Group o The quality of services to be provided o Fees relative to those of comparable
(the "Board") oversees the management of by AIM. The Board reviewed the credentials funds with other advisors. The Board
AIM Global Value Fund (the "Fund") and, as and experience of the officers and reviewed the advisory fee rate for the
required by law, determines annually employees of AIM who will provide Fund under the Advisory Agreement. The
whether to approve the continuance of the investment advisory services to the Fund. Board compared effective contractual
Fund's advisory agreement with A I M In reviewing the qualifications of AIM to advisory fee rates at a common asset level
Advisors, Inc. ("AIM"). Based upon the provide investment advisory services, the and noted that the Fund's rate was below
recommendation of the Investments Board reviewed the qualifications of AIM's the median rate of the funds advised by
Committee of the Board, which is comprised investment personnel and considered such other advisors with investment strategies
solely of independent trustees, at a issues as AIM's portfolio and product comparable to those of the Fund that the
meeting held on June 30, 2005, the Board, review process, various back office Board reviewed. The Board noted that AIM
including all of the independent trustees, support functions provided by AIM and has agreed to waive advisory fees of the
approved the continuance of the advisory AIM's equity and fixed income trading Fund and to limit the Fund's total
agreement (the "Advisory Agreement") operations. Based on the review of these operating expenses, as discussed below.
between the Fund and AIM for another year, and other factors, the Board concluded Based on this review, the Board concluded
effective July 1, 2005. that the quality of services to be that the advisory fee rate for the Fund
provided by AIM was appropriate and that under the Advisory Agreement was fair and
The Board considered the factors AIM currently is providing satisfactory reasonable.
discussed below in evaluating the fairness services in accordance with the terms of
and reasonableness of the Advisory the Advisory Agreement. o Expense limitations and fee waivers. The
Agreement at the meeting on June 30, 2005 Board noted that AIM has contractually
and as part of the Board's ongoing o The performance of the Fund relative to agreed to waive advisory fees of the Fund
oversight of the Fund. In their comparable funds. The Board reviewed the through June 30, 2006 to the extent
deliberations, the Board and the performance of the Fund during the past necessary so that the advisory fees
independent trustees did not identify any one and three calendar years against the payable by the Fund do not exceed a
particular factor that was controlling, performance of funds advised by other specified maximum advisory fee rate, which
and each trustee attributed different advisors with investment strategies maximum rate includes breakpoints and is
weights to the various factors. comparable to those of the Fund. The Board based on net asset levels. The Board
noted that the Fund's performance for the considered the contractual nature of this
One of the responsibilities of the three year period was above the median fee waiver and noted that it remains in
Senior Officer of the Fund, who is performance of such comparable funds and effect until June 30, 2006. The Board
independent of AIM and AIM's affiliates, below such median performance for the one noted that AIM has contractually agreed to
is to manage the process by which the year period. Based on this review, the waive fees and/or limit expenses of the
Fund's proposed management fees are Board concluded that no changes should be Fund through December 31, 2005 in an
negotiated to ensure that they are made to the Fund and that it was not amount necessary to limit total annual
negotiated in a manner which is at arm's necessary to change the Fund's portfolio operating expenses to a specified percent-
length and reasonable. To that end, the management team at this time. age of average daily net assets for each
Senior Officer must either supervise a class of the Fund. The Board considered
competitive bidding process or prepare an o The performance of the Fund relative to the contractual nature of this fee
independent written evaluation. The Senior indices. The Board reviewed the waiver/expense limitation and noted that
Officer has recommended an independent performance of the Fund during the past it remains in effect until December 31,
written evaluation in lieu of a one and three calendar years against the 2005. The Board considered the effect
competitive bidding process and, upon the performance of the Lipper Global Multi-Cap these fee waivers/expense limitations
direction of the Board, has prepared such Value Index. The Board noted that the would have on the Fund's estimated
an independent written evaluation. Such Fund's performance for the three-year expenses and concluded that the levels of
written evaluation also considered certain period was above the performance of such fee waivers/expense limitations for the
of the factors discussed below. In Index and comparable to the Index Fund were fair and reasonable.
addition, as discussed below, the Senior performance for the one year period. Based
Officer made certain recommendations to on this review, the Board concluded that o Breakpoints and economies of scale. The
the Board in connection with such written no changes should be made to the Fund and Board reviewed the structure of the Fund's
evaluation. that it was not necessary to change the advisory fee under the Advisory Agreement,
Fund's portfolio management team at this noting that it includes one breakpoint.
The discussion below serves as a time. The Board reviewed the level of the Fund's
summary of the Senior Officer's advisory fees, and noted that such fees,
independent written evaluation and o Meeting with the Fund's portfolio as a percentage of the Fund's net assets,
recommendations to the Board in connection managers and investment personnel. With would decrease as net assets increase
therewith, as well as a discussion of respect to the Fund, the Board is meeting because the Advisory Agreement includes a
the material factors and the conclusions periodically with such Fund's portfolio breakpoint. The Board noted that, due to
with respect thereto that formed the basis managers and/or other investment personnel the Fund's current asset levels and the
for the Board's approval of the Advisory and believes that such individuals are way in which the advisory fee breakpoints
Agreement. After consideration of all of competent and able to continue to carry have been structured, the Fund has yet to
the factors below and based on its out their responsibilities under the benefit from the breakpoint. The Board
informed business judgment, the Board Advisory Agreement. noted that AIM has contractually agreed to
determined that the Advisory Agreement is waive advisory fees of the Fund through
in the best interests of the Fund and its o Overall performance of AIM. The Board June 30, 2006 to the extent necessary so
shareholders and that the compensation to considered the overall performance of AIM that the advisory fees payable by the Fund
AIM under the Advisory Agreement is fair in providing investment advisory and do not exceed a specified maximum advisory
and reasonable and would have been portfolio administrative services to the fee rate, which maximum rate includes
obtained through arm's length Fund and concluded that such performance breakpoints and is based on net asset
negotiations. was satisfactory. levels. The Board concluded that the
Fund's fee levels under the Advisory
o The nature and extent of the advisory o Fees relative to those of clients of AIM Agreement therefore would reflect
services to be provided by AIM. The Board with comparable investment strategies. The economies of scale at higher asset levels
reviewed the services to be provided by Board noted that AIM does not serve as an and that it was not necessary to change
AIM under the Advisory Agreement. Based on advisor to other mutual funds or other the advisory fee breakpoints in the
such review, the Board concluded that the clients with investment strategies Fund's advisory fee schedule.
range of services to be provided by AIM comparable to those of the Fund.
under the Advisory Agreement was
appropriate and that AIM currently is
providing services in accordance with the
terms of the Advisory Agreement. (continued)
</Table>
8
AIM GLOBAL VALUE FUND
<Table>
o Investments in affiliated money market o Benefits of soft dollars to AIM. The
funds. The Board also took into account Board considered the benefits realized by
the fact that uninvested cash and cash AIM as a result of brokerage
collateral from securities lending transactions executed through "soft
arrangements (collectively, "cash dollar" arrangements. Under these
balances") of the Fund may be invested in arrangements, brokerage commissions paid
money market funds advised by AIM pursuant by the Fund and/or other funds advised by
to the terms of an SEC exemptive order. AIM are used to pay for research and
The Board found that the Fund may realize execution services. This research is used
certain benefits upon investing cash by AIM in making investment decisions for
balances in AIM advised money market the Fund. The Board concluded that such
funds, including a higher net return, arrangements were appropriate.
increased liquidity, increased
diversification or decreased transaction o AIM's financial soundness in light of
costs. The Board also found that the Fund the Fund's needs. The Board considered
will not receive reduced services if it whether AIM is financially sound and has
invests its cash balances in such money the resources necessary to perform its
market funds. The Board noted that, to the obligations under the Advisory Agreement,
extent the Fund invests in affiliated and concluded that AIM has the financial
money market funds, AIM has voluntarily resources necessary to fulfill its
agreed to waive a portion of the advisory obligations under the Advisory Agreement.
fees it receives from the Fund
attributable to such investment. The Board o Historical relationship between the Fund
further determined that the proposed and AIM. In determining whether to
securities lending program and related continue the Advisory Agreement for the
procedures with respect to the lending Fund, the Board also considered the prior
Fund is in the best interests of the relationship between AIM and the Fund, as
lending Fund and its respective well as the Board's knowledge of AIM's
shareholders. The Board therefore operations, and concluded that it was
concluded that the investment of cash beneficial to maintain the current
collateral received in connection with the relationship, in part, because of such
securities lending program in the money knowledge. The Board also reviewed the
market funds according to the procedures general nature of the non-investment
is in the best interests of the lending advisory services currently performed by
Fund and its respective shareholders. AIM and its affiliates, such as
administrative, transfer agency and
o Independent written evaluation and distribution services, and the fees
recommendations of the Fund's Senior received by AIM and its affiliates for
Officer. The Board noted that, upon their performing such services. In addition to
direction, the Senior Officer of the Fund, reviewing such services, the trustees also
who is independent of AIM and AIM's considered the organizational structure
affiliates, had prepared an independent employed by AIM and its affiliates to
written evaluation in order to assist the provide those services. Based on the
Board in determining the reasonableness of review of these and other factors, the
the proposed management fees of the AIM Board concluded that AIM and its
Funds, including the Fund. The Board noted affiliates were qualified to continue to
that the Senior Officer's written provide non-investment advisory services
evaluation had been relied upon by the to the Fund, including administrative,
Board in this regard in lieu of a transfer agency and distribution services,
competitive bidding process. In and that AIM and its affiliates currently
determining whether to continue the are providing satisfactory non-investment
Advisory Agreement for the Fund, the Board advisory services.
considered the Senior Officer's written
evaluation and the recommendation made by o Other factors and current trends. In
the Senior Officer to the Board that the determining whether to continue the
Board consider implementing a process to Advisory Agreement for the Fund, the Board
assist them in more closely monitoring the considered the fact that AIM, along with
performance of the AIM Funds. The Board others in the mutual fund industry, is
concluded that it would be advisable to subject to regulatory inquiries and
implement such a process as soon as litigation related to a wide range of
reasonably practicable. issues. The Board also considered the
governance and compliance reforms being
o Profitability of AIM and its affiliates. undertaken by AIM and its affiliates,
The Board reviewed information concerning including maintaining an internal controls
the profitability of AIM's (and its committee and retaining an independent
affiliates') investment advisory and other compliance consultant, and the fact that
activities and its financial condition. AIM has undertaken to cause the Fund to
The Board considered the overall operate in accordance with certain
profitability of AIM, as well as the governance policies and practices. The
profitability of AIM in connection with Board concluded that these actions
managing the Fund. The Board noted that indicated a good faith effort on the part
AIM's operations remain profitable, of AIM to adhere to the highest ethical
although increased expenses in recent standards, and determined that the current
years have reduced AIM's profitability. regulatory and litigation environment to
Based on the review of the profitability which AIM is subject should not prevent
of AIM's and its affiliates' investment the Board from continuing the Advisory
advisory and other activities and its Agreement for the Fund.
financial condition, the Board concluded
that the compensation to be paid by the
Fund to AIM under its Advisory Agreement
was not excessive.
</Table>
9
SUPPLEMENT TO ANNUAL REPORT DATED 12/31/05
AIM GLOBAL VALUE FUND
====================================== ======================================
INSTITUTIONAL CLASS SHARES AVERAGE ANNUAL TOTAL RETURNS
For periods ended 12/31/05 CUMULATIVE TOTAL RETURNS
The following information has been For periods ended 12/31/05
prepared to provide Institutional Class Inception 9.40%
shareholders with a performance overview 5 Years 9.41 (10/25/05--12/31/05) 6.55%
specific to their holdings. Institutional 1 Year 11.53
Class shares are offered exclusively to ======================================
institutional investors, including ======================================
defined contribution plans that meet PLEASE NOTE THAT PAST PERFORMANCE IS NOT
certain criteria. INSTITUTIONAL CLASS SHARES' INCEPTION INDICATIVE OF FUTURE RESULTS. MORE RECENT
DATE IS OCTOBER 25, 2005. RETURNS SINCE RETURNS MAY BE MORE OR LESS THAN THOSE
THAT DATE ARE HISTORICAL RETURNS. ALL SHOWN. ALL RETURNS ASSUME REINVESTMENT OF
OTHER RETURNS ARE BLENDED RETURNS OF DISTRIBUTIONS AT NAV. INVESTMENT RETURN
HISTORICAL INSTITUTIONAL CLASS SHARE AND PRINCIPAL VALUE WILL FLUCTUATE SO
PERFORMANCE AND RESTATED CLASS A SHARE YOUR SHARES, WHEN REDEEMED, MAY BE WORTH
PERFORMANCE (FOR PERIODS PRIOR TO THE MORE OR LESS THAN THEIR ORIGINAL COST.
INCEPTION DATE OF INSTITUTIONAL CLASS SEE FULL REPORT FOR INFORMATION ON
SHARES) AT NET ASSET VALUE AND REFLECT COMPARATIVE BENCHMARKS. PLEASE CONSULT
THE HIGHER RULE 12b-1 FEES APPLICABLE TO YOUR FUND PROSPECTUS FOR MORE
CLASS A SHARES. CLASS A SHARES' INCEPTION INFORMATION. FOR THE MOST CURRENT
DATE IS DECEMBER 29, 2000. MONTH-END PERFORMANCE, PLEASE CALL
800-451-4246 OR VISIT AIMinvestments.com.
INSTITUTIONAL CLASS SHARES HAVE NO
SALES CHARGE; THEREFORE, PERFORMANCE IS
AT NET ASSET VALUE (NAV). PERFORMANCE OF
INSTITUTIONAL CLASS SHARES WILL DIFFER
FROM PERFORMANCE OF OTHER SHARE CLASSES
DUE TO DIFFERING SALES CHARGES AND CLASS
EXPENSES.
====================================
NASDAQ SYMBOL AWSIX
====================================
Over for information on your Fund's expenses.
================================================================================
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.
================================================================================
FOR INSTITUTIONAL INVESTOR USE ONLY
This material is for institutional investor use only and may not be quoted, reproduced or shown to the public, nor used in written
form as sales literature for public use.
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
</Table>
AIMinvestments.com GLV-INS-1 A I M Distributors, Inc.
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE may use the information in this table, about hypothetical account values and
together with the amount you invested, to hypothetical expenses based on the Fund's
As a shareholder of the Fund, you incur estimate the expenses that you paid over actual expense ratio and an assumed rate
ongoing costs, including management fees the period. Simply divide your account of return of 5% per year before expenses,
and other Fund expenses. This example is value by $1,000 (for example, an $8,600 which is not the Fund's actual return.
intended to help you understand your account value divided by $1,000 = 8.6),
ongoing costs (in dollars) of investing then multiply the result by the number in The hypothetical account values and
in the Fund and to compare these costs the table under the heading entitled expenses may not be used to estimate the
with ongoing costs of investing in other "Actual Expenses Paid During Period" to actual ending account balance or expenses
mutual funds. The actual ending account estimate the expenses you paid on your you paid for the period. You may use this
value and expenses in the below example account during the period, October 25, information to compare the ongoing costs
are based on an investment of $1,000 2005, through December 31, 2005. Because of investing in the Fund and other funds.
invested on October 25, 2005 (the date the actual ending account value and To do so, compare this 5% hypothetical
the share class commenced operations) and expense information in the example is not example with the 5% hypothetical examples
held through December 31, 2005. The based upon a six month period, the ending that appear in the shareholder reports of
hypothetical ending account value and account value and expense information may the other funds.
expenses in the below example are based not provide a meaningful comparison to
on an investment of $1,000 invested at mutual funds that provide such Please note that the expenses shown in
the beginning of the period and held for information for a full six month period. the table are meant to highlight your
the entire six month period July 1, 2005, ongoing costs only. Therefore, the
through October 31, 2005. HYPOTHETICAL EXAMPLE FOR COMPARISON hypothetical information is useful in
PURPOSES comparing ongoing costs only, and will
ACTUAL EXPENSES not help you determine the relative total
The table below also provides information costs of owning different funds.
The table below provides information
about actual account values and actual
expenses. You
====================================================================================================================================
HYPOTHETICAL
ACTUAL (5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (10/25/05) (12/31/05)(1) PERIOD(2) (12/31/05) PERIOD(3) RATIO
Institutional $1,000.00 $1,065.50 $2.10 $1,019.71 $5.55 1.09%
(1) The actual ending account value is based on the actual total return of the Fund for the period October 25, 2005, through
December 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 over the six month period July 1, 2005, through October 31,
2005.
(2) Actual expenses are equal to the annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 68 (October 25, 2005, through December 31, 2005)/365. Because the share class has not been in existence
for a full six month period, the actual ending account value and expense information shown may not provide a meaningful
comparison to fund expense information of classes that show such data for a full six month period and, because the actual ending
account value and expense information in the expense example covers a short time period, return and expense data may not be
indicative of return and expense data for longer time periods.
(3) Hypothetical expenses are equal to the annualized as indicated above multiplied by the average account value over the period,
multiplied by 184/365 to reflect a one-half year period. The hypothetical ending account value and expenses may be used to
compare ongoing costs of investing the Institutional Class shares of the Fund and other funds because such data is based on a
full six month period.
====================================================================================================================================
</Table>
AIMinvestments.com GLV-INS-1 A I M Distributors, Inc.
SCHEDULE OF INVESTMENTS
December 31, 2005
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-50.74%
AUSTRALIA-0.16%
Flight Centre Ltd. (Hotels, Resorts & Cruise
Lines)(a) 37,134 $ 275,051
========================================================================
CANADA-14.33%
Barrick Gold Corp. (Gold) 41,000 1,142,670
- ------------------------------------------------------------------------
BMTC Group, Inc.-Class A (Homefurnishing
Retail) 131,900 1,815,242
- ------------------------------------------------------------------------
Cameco Corp. (Coal & Consumable Fuels) 14,100 894,924
- ------------------------------------------------------------------------
E-L Financial Corp. Ltd. (Multi-Line
Insurance) 8,912 3,886,525
- ------------------------------------------------------------------------
Energy Savings Income Fund (Gas Utilities) 166,600 2,721,258
- ------------------------------------------------------------------------
Kinross Gold Corp. (Gold)(b) 200,000 1,847,583
- ------------------------------------------------------------------------
Open Text Corp. (Internet Software &
Services)(b) 219,700 3,108,606
- ------------------------------------------------------------------------
Open Text Corp. (Internet Software &
Services)(b) 39,570 558,333
- ------------------------------------------------------------------------
Pan-Ocean Energy Corp. Ltd. (Oil & Gas
Exploration & Production)(b) 120,500 2,798,469
- ------------------------------------------------------------------------
Rothmans, Inc. (Tobacco) 79,300 1,654,073
- ------------------------------------------------------------------------
Suncor Energy, Inc. (Integrated Oil & Gas) 37,000 2,333,425
- ------------------------------------------------------------------------
TimberWest Forest Corp. (Forest Products)(c) 44,200 585,481
- ------------------------------------------------------------------------
Westaim Corp. (The) (Industrial
Conglomerates)(b) 159,100 585,711
- ------------------------------------------------------------------------
Westaim Corp. (The) (Industrial
Conglomerates) (Acquired 06/02/03-07/14/04;
Cost $226,792)(b)(d) 116,600 429,252
========================================================================
24,361,552
========================================================================
FINLAND-1.40%
Nokia Oyj-ADR (Communications Equipment) 130,600 2,389,980
========================================================================
GERMANY-0.85%
Bayerische Motoren Werke A.G. (Automobile
Manufacturers)(a) 32,800 1,439,521
========================================================================
HONG KONG-1.55%
Cheung Kong (Holdings) Ltd. (Real Estate
Management & Development)(a) 162,000 1,658,007
- ------------------------------------------------------------------------
Henderson Land Development Co. Ltd. (Real
Estate Management & Development)(a) 207,000 972,188
========================================================================
2,630,195
========================================================================
JAPAN-18.52%
Brother Industries, Ltd. (Office
Electronics)(a) 212,000 2,244,389
- ------------------------------------------------------------------------
Honda Motor Co., Ltd. (Automobile
Manufacturers)(a) 15,400 892,596
- ------------------------------------------------------------------------
Meitec Corp. (Diversified Commercial &
Professional Services)(a) 148,200 4,805,607
- ------------------------------------------------------------------------
Nintendo Co., Ltd. (Home Entertainment
Software)(a) 35,700 4,339,662
- ------------------------------------------------------------------------
Nipponkoa Insurance Co., Ltd. (Property &
Casualty Insurance)(a) 234,000 1,857,385
- ------------------------------------------------------------------------
NTT DoCoMo, Inc. (Wireless Telecommunication
Services)(a) 2,200 3,369,076
- ------------------------------------------------------------------------
Olympus Corp. (Health Care Equipment)(a) 149,000 3,901,764
- ------------------------------------------------------------------------
</Table>
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
JAPAN-(CONTINUED)
Shimano Inc. (Leisure Products)(a) 33,000 $ 871,589
- ------------------------------------------------------------------------
Sony Corp. (Consumer Electronics) 80,100 3,273,823
- ------------------------------------------------------------------------
Takeda Pharmaceutical Co. Ltd.
(Pharmaceuticals)(a) 47,300 2,553,308
- ------------------------------------------------------------------------
Toyota Industries Corp. (Auto Parts &
Equipment)(a) 93,900 3,390,719
========================================================================
31,499,918
========================================================================
NETHERLANDS-5.23%
Akzo Nobel N.V. (Diversified Chemicals)(a) 52,600 2,437,754
- ------------------------------------------------------------------------
Heineken N.V. (Brewers)(a) 119,200 3,777,841
- ------------------------------------------------------------------------
Hunter Douglas N.V. (Home Furnishings) 49,100 2,672,681
========================================================================
8,888,276
========================================================================
NEW ZEALAND-0.89%
Telecom Corp. of New Zealand Ltd. (Integrated
Telecommunication Services)(a) 368,400 1,510,992
========================================================================
PERU-0.68%
Compania de Minas Buenaventura S.A.A.-ADR
(Precious Metals & Minerals) 41,000 1,160,300
========================================================================
SOUTH KOREA-1.45%
SK Telecom Co., Ltd.-ADR (Wireless
Telecommunication Services) 121,500 2,465,235
========================================================================
SWITZERLAND-0.97%
Nestle S.A. (Packaged Foods & Meats)(a) 5,550 1,657,304
========================================================================
UNITED KINGDOM-4.71%
Diageo PLC (Distillers & Vintners) 194,454 2,818,652
- ------------------------------------------------------------------------
GlaxoSmithKline PLC-ADR (Pharmaceuticals) 43,700 2,205,976
- ------------------------------------------------------------------------
Royal Bank of Scotland Group PLC (Diversified
Banks)(a) 27,600 833,432
- ------------------------------------------------------------------------
Severn Trent PLC (Water Utilities) 80,653 1,504,196
- ------------------------------------------------------------------------
Unilever PLC (Packaged Foods & Meats) 65,000 644,714
========================================================================
8,006,970
========================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $74,170,467) 86,285,294
========================================================================
DOMESTIC COMMON STOCKS & OTHER EQUITY
INTERESTS-37.37%
APPAREL, ACCESSORIES & LUXURY GOODS-1.27%
Jones Apparel Group, Inc. 70,500 2,165,760
========================================================================
BROADCASTING & CABLE TV-3.58%
Liberty Media Corp.-Class A(b) 773,500 6,087,445
========================================================================
COMPUTER STORAGE & PERIPHERALS-1.90%
Lexmark International, Inc.-Class A(b) 72,100 3,232,243
========================================================================
</Table>
F-1
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
DATA PROCESSING & OUTSOURCED SERVICES-0.70%
First Data Corp. 27,800 $ 1,195,678
========================================================================
HEALTH CARE FACILITIES-1.15%
HealthSouth Corp.(b) 400,100 1,960,490
========================================================================
HOME FURNISHINGS-2.66%
Ethan Allen Interiors Inc. 123,600 4,515,108
========================================================================
HYPERMARKETS & SUPER CENTERS-1.45%
Wal-Mart Stores, Inc. 52,700 2,466,360
========================================================================
OIL & GAS EXPLORATION & PRODUCTION-0.43%
BP Prudhoe Bay Royalty Trust 11,000 732,600
========================================================================
PACKAGED FOODS & MEATS-2.25%
Lancaster Colony Corp. 103,000 3,816,150
========================================================================
PERSONAL PRODUCTS-0.98%
Avon Products, Inc. 58,400 1,667,320
========================================================================
PHARMACEUTICALS-1.43%
Merck & Co. Inc. 76,600 2,436,646
========================================================================
RAILROADS-0.77%
Union Pacific Corp. 16,200 1,304,262
========================================================================
REAL ESTATE-0.75%
Rayonier, Inc. 31,740 1,264,839
========================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-0.50%
Tejon Ranch Co.(b) 21,300 850,296
========================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
REGIONAL BANKS-2.12%
North Fork Bancorp., Inc. 131,850 $ 3,607,416
========================================================================
SOFT DRINKS-1.49%
Coca-Cola Co. (The) 62,700 2,527,437
========================================================================
SYSTEMS SOFTWARE-3.75%
Microsoft Corp. 244,100 6,383,215
========================================================================
THRIFTS & MORTGAGE FINANCE-8.72%
Brookline Bancorp, Inc. 310,500 4,399,785
- ------------------------------------------------------------------------
NewAlliance Bancshares, Inc. 267,800 3,893,812
- ------------------------------------------------------------------------
Washington Mutual, Inc. 150,200 6,533,700
========================================================================
14,827,297
========================================================================
WIRELESS TELECOMMUNICATION SERVICES-1.47%
ALLTEL Corp. 39,600 2,498,760
========================================================================
Total Domestic Common Stocks & Other
Equity Interests (Cost $63,332,384) 63,539,322
========================================================================
MONEY MARKET FUNDS-11.96%
Liquid Assets Portfolio-Institutional
Class(e) 10,167,269 10,167,269
- ------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(e) 10,167,269 10,167,269
========================================================================
Total Money Market Funds (Cost
$20,334,538) 20,334,538
========================================================================
TOTAL INVESTMENTS-100.07% (Cost $157,837,389) 170,159,154
========================================================================
OTHER ASSETS LESS LIABILITIES-(0.07%) (111,204)
========================================================================
NET ASSETS-100.00% $170,047,950
________________________________________________________________________
========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
aggregate value of these securities at December 31, 2005 was $42,788,185,
which represented 25.16% of the Fund's Net Assets. See Note 1A.
(b) Non-income producing security.
(c) Each unit represents one common share, one hundred preferred shares and one
subordinate note receipt.
(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 this security. The
value of this security at December 31, 2005 represented 0.25% 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.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-2
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2005
<Table>
ASSETS:
Investments, at value (cost $137,502,851) $149,824,616
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $20,334,538) 20,334,538
===========================================================
Total investments (cost $157,837,389) 170,159,154
===========================================================
Foreign currencies, at value (cost
$1,273,816) 1,266,776
- -----------------------------------------------------------
Receivables for:
Fund shares sold 455,208
- -----------------------------------------------------------
Dividends 283,531
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 17,040
- -----------------------------------------------------------
Other assets 44,820
===========================================================
Total assets 172,226,529
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 1,342,261
- -----------------------------------------------------------
Fund shares reacquired 290,094
- -----------------------------------------------------------
Foreign currency contracts closed 729
- -----------------------------------------------------------
Foreign currency contracts outstanding 348,976
- -----------------------------------------------------------
Trustee deferred compensation and
retirement plans 18,755
- -----------------------------------------------------------
Accrued distribution fees 82,315
- -----------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 114
- -----------------------------------------------------------
Accrued transfer agent fees 37,292
- -----------------------------------------------------------
Accrued operating expenses 58,043
===========================================================
Total liabilities 2,178,579
===========================================================
Net assets applicable to shares outstanding $170,047,950
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $158,396,352
- -----------------------------------------------------------
Undistributed net investment income (724,755)
- -----------------------------------------------------------
Undistributed net realized gain from
investment securities, foreign currencies,
foreign currency contracts and option
contracts 411,237
- -----------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies and foreign
currency contracts 11,965,116
===========================================================
$170,047,950
___________________________________________________________
===========================================================
NET ASSETS:
Class A $ 93,363,139
___________________________________________________________
===========================================================
Class B $ 49,827,053
___________________________________________________________
===========================================================
Class C $ 24,316,006
___________________________________________________________
===========================================================
Institutional Class $ 2,541,752
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 6,683,002
___________________________________________________________
===========================================================
Class B 3,649,033
___________________________________________________________
===========================================================
Class C 1,779,462
___________________________________________________________
===========================================================
Institutional Class 181,807
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 13.97
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $13.97 divided
by 94.50%) $ 14.78
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 13.65
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 13.66
___________________________________________________________
===========================================================
Institutional Class:
Net asset value and offering price per
share $ 13.98
___________________________________________________________
===========================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-3
STATEMENT OF OPERATIONS
For the year ended December 31, 2005
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $148,207) $ 2,405,380
- -------------------------------------------------------------------------
Dividends from affiliated money market funds 673,560
- -------------------------------------------------------------------------
Interest 46,116
=========================================================================
Total investment income 3,125,056
=========================================================================
EXPENSES:
Advisory fees 1,048,456
- -------------------------------------------------------------------------
Administrative services fees 50,000
- -------------------------------------------------------------------------
Custodian fees 49,535
- -------------------------------------------------------------------------
Distribution fees:
Class A 193,365
- -------------------------------------------------------------------------
Class B 387,057
- -------------------------------------------------------------------------
Class C 172,371
- -------------------------------------------------------------------------
Transfer agent fees -- A, B and C 349,224
- -------------------------------------------------------------------------
Transfer agent fees -- Institutional 184
- -------------------------------------------------------------------------
Trustees' and officer's fees and benefits 18,124
- -------------------------------------------------------------------------
Other 191,801
=========================================================================
Total expenses 2,460,117
=========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangement (71,485)
=========================================================================
Net expenses 2,388,632
=========================================================================
Net investment income 736,424
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES, FOREIGN CURRENCY CONTRACTS
AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities 6,827,859
- -------------------------------------------------------------------------
Foreign currencies (84,192)
- -------------------------------------------------------------------------
Foreign currency contracts 1,857,831
- -------------------------------------------------------------------------
Option contracts written 66,007
=========================================================================
8,667,505
=========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities 4,440,162
- -------------------------------------------------------------------------
Foreign currencies (9,452)
- -------------------------------------------------------------------------
Foreign currency contracts (348,976)
- -------------------------------------------------------------------------
Option contracts written 12,101
=========================================================================
4,093,835
=========================================================================
Net gain from investment securities, foreign currencies,
foreign currency contracts and option contracts 12,761,340
=========================================================================
Net increase in net assets resulting from operations $13,497,764
_________________________________________________________________________
=========================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-4
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2005 and 2004
<Table>
<Caption>
2005 2004
- -----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ 736,424 $ (85,059)
- -----------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies, foreign currency contracts and option
contracts 8,667,505 2,016,014
- -----------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities, foreign currencies, foreign currency
contracts and option contracts 4,093,835 5,419,639
=========================================================================================
Net increase in net assets resulting from operations 13,497,764 7,350,594
=========================================================================================
Distributions to shareholders from net investment income:
Class A (991,871) (71,026)
- -----------------------------------------------------------------------------------------
Class B (274,677) (7,630)
- -----------------------------------------------------------------------------------------
Class C (132,989) (3,042)
- -----------------------------------------------------------------------------------------
Institutional Class (19,788) --
=========================================================================================
Total distributions from net investment income (1,419,325) (81,698)
=========================================================================================
Distributions to shareholders from net realized gains:
Class A (4,164,278) (1,209,975)
- -----------------------------------------------------------------------------------------
Class B (2,297,671) (845,773)
- -----------------------------------------------------------------------------------------
Class C (1,112,363) (337,438)
- -----------------------------------------------------------------------------------------
Institutional Class (81,019) --
=========================================================================================
Total distributions from net realized gains (7,655,331) (2,393,186)
=========================================================================================
Decrease in net assets resulting from distributions (9,074,656) (2,474,884)
=========================================================================================
Share transactions-net:
Class A 54,843,290 24,355,657
- -----------------------------------------------------------------------------------------
Class B 23,688,469 15,906,396
- -----------------------------------------------------------------------------------------
Class C 13,691,530 6,451,669
- -----------------------------------------------------------------------------------------
Institutional Class 2,613,498 --
=========================================================================================
Net increase in net assets resulting from share
transactions 94,836,787 46,713,722
=========================================================================================
Net increase in net assets 99,259,895 51,589,432
=========================================================================================
NET ASSETS:
Beginning of year 70,788,055 19,198,623
=========================================================================================
End of year (including undistributed net investment income
of $(724,755) and $(176,123), respectively) $170,047,950 $70,788,055
_________________________________________________________________________________________
=========================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-5
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Global Value Fund (the "Fund") is a series portfolio of AIM Funds Group (the
"Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of eight separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is long-term growth of capital.
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. The risk of material loss as a result of such indemnification claims
is considered remote.
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 are 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 recorded at amortized cost which approximates value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs and domestic and foreign index futures.
F-6
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be United States of America unless otherwise noted.
D. 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.
E. 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.
F. 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.
G. 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.
H. REDEMPTION FEES -- The Fund has a 2% redemption fee that is to be retained
by the Fund to offset transaction costs and other expenses associated with
short-term redemptions and exchanges. The fee, subject to certain
exceptions, is imposed on certain redemptions, including exchanges of
shares held less than 30 days. The redemption fee is recorded as an
increase in shareholder capital and is allocated among the share classes
based on the relative net assets of each class.
I. 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
F-7
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.
J. 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.
K. 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.
L. 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.
M. 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.
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 $1 billion 0.85%
- -------------------------------------------------------------------
Over $1 billion 0.80%
__________________________________________________________________
===================================================================
</Table>
Through June 30, 2006, AIM has contractually agreed to waive advisory fees
to the extent necessary so that the advisory fees payable by the Fund based on
the Fund's average daily net assets do not exceed the annual rate of:
<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 also 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 1.90%, 2.65%, 2.65% and 1.65% of average daily net
assets, respectively, through December 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 numbers reflected above: (i) interest; (ii)
taxes; (iii) dividend expense on short sales; (iv) extraordinary items; (v)
expenses related to a merger or reorganization, as approved by the Fund's Board
of Trustees; and (vi) expenses that the Fund has incurred but did not actually
pay because of an expense offset arrangement. Currently, in addition to the
expense reimbursement arrangement with AMVESCAP 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
F-8
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.
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 December 31, 2005, AIM waived fees of $66,341.
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
December 31, 2005, AMVESCAP reimbursed expenses of the Fund in the amount of
$1,243.
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, 2005, 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. AISI may make
payments to intermediaries that provide omnibus account services, sub-accounting
services and/or networking services. For the year ended December 31, 2005, the
Fund paid AISI $349,224 for Class A, Class B and Class C share classes and $184
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 0.25% of the Fund's average
daily net assets of Class A shares and 1.00% of the average daily net assets of
Class B and Class C shares. Prior to July 1, 2005, the Fund paid ADI 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. 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 December 31, 2005,
the Class A, Class B and Class C shares paid $193,365, $387,057 and $172,371,
respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During year ended
December 31, 2005, ADI advised the Fund that it retained $86,739 in front-end
sales commissions from the sale of Class A shares and $3, $19,765, and $2,446
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 and approved procedures by the Board of Trustees, to invest
daily available cash balances in affiliated money market funds. The Fund and the
money market funds below have the same investment advisor and therefore, are
considered to be affiliated. The table below shows the transactions in and
earnings from investments in affiliated money market funds for the year ended
December 31, 2005.
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 7,712,432 $33,832,726 $(31,377,889) $ -- $10,167,269 $ 335,888 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 7,712,432 33,832,726 (31,377,889) -- 10,167,269 337,672 --
===================================================================================================================================
Total $15,424,864 $67,665,452 $(62,755,778) $ -- $20,334,538 $ 673,560 $ --
___________________________________________________________________________________________________________________________________
===================================================================================================================================
</Table>
NOTE 4--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer agent
for clearing shareholder transactions. For the year ended December 31, 2005, the
Fund received credits from this arrangement, which resulted in the reduction of
the Fund's total expenses of $3,901.
F-9
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 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 December 31, 2005, the Fund paid legal fees of $4,290
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 2005, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
NOTE 7--FOREIGN CURRENCY CONTRACTS
<Table>
<Caption>
OPEN FOREIGN CURRENCY CONTRACTS AT PERIOD END
- ---------------------------------------------------------------------------------------------------
CONTRACT TO UNREALIZED
--------------------------- APPRECIATION
SETTLEMENT DATE CURRENCY DELIVER RECEIVE VALUE (DEPRECIATION)
- ---------------------------------------------------------------------------------------------------
01/20/06 Australian Dollar 280,000 $ 207,928 $ 205,132 $ 2,796
- ---------------------------------------------------------------------------------------------------
01/20/06 New Zealand Dollar 1,450,000 998,905 988,241 10,664
- ---------------------------------------------------------------------------------------------------
02/21/06 British Pound Sterling 2,050,000 3,514,930 3,526,586 (11,656)
- ---------------------------------------------------------------------------------------------------
02/21/06 Euro 5,400,000 6,331,500 6,411,640 (80,140)
- ---------------------------------------------------------------------------------------------------
02/21/06 Japanese Yen 2,250,000,000 19,061,335 19,204,578 (143,243)
- ---------------------------------------------------------------------------------------------------
03/21/06 Canadian Dollar 18,000,000 15,396,459 15,518,312 (121,853)
- ---------------------------------------------------------------------------------------------------
03/29/06 South Korean Wons 1,300,000,000 1,286,110 1,291,654 (5,544)
===================================================================================================
$46,797,167 $47,146,143 $(348,976)
___________________________________________________________________________________________________
===================================================================================================
</Table>
<Table>
<Caption>
CLOSED FOREIGN CURRENCY CONTRACTS AT PERIOD END
- -------------------------------------------------------------------------------
CONTRACT TO
------------------ REALIZED
CLOSED DATE CURRENCY DELIVER RECEIVE VALUE GAIN (LOSS)
- -------------------------------------------------------------------------------
10/31/05 Australian Dollar 155,000 $115,103 $115,832 $(729)
_______________________________________________________________________________
===============================================================================
</Table>
F-10
NOTE 8--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- ------------------------------------------------------------------------------------
CALL OPTION CONTRACTS
----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- ------------------------------------------------------------------------------------
Beginning of year 433 $ 81,729
- ------------------------------------------------------------------------------------
Written 370 88,013
- ------------------------------------------------------------------------------------
Closed (553) (116,743)
- ------------------------------------------------------------------------------------
Exercised (250) (52,999)
====================================================================================
End of year -- $ --
____________________________________________________________________________________
====================================================================================
</Table>
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, 2005
and 2004 was as follows:
<Table>
<Caption>
2005 2004
- --------------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $6,000,969 $2,422,197
- --------------------------------------------------------------------------------------
Long-term capital gain 3,073,687 52,687
======================================================================================
Total distributions $9,074,656 $2,474,884
______________________________________________________________________________________
======================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2005
- ----------------------------------------------------------------------------
Undistributed ordinary income $ 426,852
- ----------------------------------------------------------------------------
Undistributed long-term gain 94,952
- ----------------------------------------------------------------------------
Unrealized appreciation -- investments 11,174,142
- ----------------------------------------------------------------------------
Temporary book/tax differences (16,659)
- ----------------------------------------------------------------------------
Post-October currency loss deferral (27,689)
- ----------------------------------------------------------------------------
Shares of beneficial interest 158,396,352
============================================================================
Total net assets $170,047,950
____________________________________________________________________________
============================================================================
</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
recognition of income for tax purposes on certain passive foreign investment
companies, realization for tax purposes of unrealized gains on certain foreign
currency contracts and the deferral of losses on certain straddles. The
tax-basis unrealized appreciation on investments amount includes appreciation
(depreciation) on foreign currencies of $(7,673) and foreign currency contracts
of $(5,544).
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 for the year ended
December 31, 2005.
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, 2005 was $139,642,375 and $51,068,727, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $14,765,787
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (3,578,428)
===============================================================================
Net unrealized appreciation of investment securities $11,187,359
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $158,971,795.
</Table>
F-11
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, passive foreign investment companies reclassifications,
utilization of a portion of the proceeds from redemptions as distributions,
partnership items, and distribution reclassifications, on December 31, 2005,
undistributed net investment income was increased by $134,269, undistributed net
realized gain was decreased by $554,629 and shares of beneficial interest
increased by $420,360. This reclassification had no effect on the net assets of
the Fund.
NOTE 12--SHARE INFORMATION
The Fund currently offers four different classes of shares: Class A shares,
Class B shares and Class C shares. Class A shares are sold with a front-end
sales charge. Class B shares and Class C shares are sold with CDSC.
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
- --------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------
2005(a) 2004
-------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------
Sold:
Class A 4,628,084 $ 64,043,288 2,289,921 $28,913,537
- --------------------------------------------------------------------------------------------------------------------
Class B 2,219,043 29,989,281 1,514,229 18,647,078
- --------------------------------------------------------------------------------------------------------------------
Class C 1,244,394 16,870,899 618,798 7,563,706
- --------------------------------------------------------------------------------------------------------------------
Institutional Class(b) 174,838 2,516,045 -- --
====================================================================================================================
Issued as reinvestment of dividends:
Class A 350,754 4,903,550 95,009 1,238,925
- --------------------------------------------------------------------------------------------------------------------
Class B 172,250 2,354,649 62,110 794,388
- --------------------------------------------------------------------------------------------------------------------
Class C 85,511 1,169,800 24,725 316,475
- --------------------------------------------------------------------------------------------------------------------
Institutional Class(b) 7,206 100,807 -- --
====================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 150,162 2,088,244 60,173 757,419
- --------------------------------------------------------------------------------------------------------------------
Class B (153,761) (2,088,237) (61,312) (757,419)
====================================================================================================================
Reacquired(c):
Class A (1,162,810) (16,191,792) (518,218) (6,554,224)
- --------------------------------------------------------------------------------------------------------------------
Class B (483,219) (6,567,224) (231,753) (2,777,651)
- --------------------------------------------------------------------------------------------------------------------
Class C (319,351) (4,349,169) (121,102) (1,428,512)
- --------------------------------------------------------------------------------------------------------------------
Institutional Class(b) (237) (3,354) -- --
====================================================================================================================
6,912,864 $ 94,836,787 3,732,580 $46,713,722
____________________________________________________________________________________________________________________
====================================================================================================================
</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. ADI has an agreement with this entity to sell Fund shares.
The Fund, AIM and/or AIM affiliates may make payments to this entity,
which is considered to be related to the Fund, for providing services to
the Fund, AIM and/or AIM affiliates including but not limited to
services such as, securities brokerage, distribution, third party record
keeping and account servicing. The Trust has no knowledge as to whether
all or any portion of the shares owned of record by this entity is also
owned beneficially.
(b) Institutional Class shares commenced sales on October 25, 2005.
(c) Amount is net of redemption fees of $5,414, $3,133 and $1,376 and $3 for
Class A, Class B, Class C shares and Institutional Class shares,
respectively, for the year ended December 31, 2005 and $1,773, $1,289
and $566 for Class A, Class B and Class C shares, respectively, for the
year ended December 31, 2004.
F-12
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
---------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
2005 2004 2003 2002 2001
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.28 $ 11.74 $ 9.05 $ 9.85 $10.00
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.13(a) 0.01(a)(b) 0.01(a) (0.11)(a) (0.05)(a)
- -----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.38 2.04 2.89 (0.69) (0.10)
=============================================================================================================================
Total from investment operations 1.51 2.05 2.90 (0.80) (0.15)
=============================================================================================================================
Less distributions:
Dividends from net investment income (0.16) (0.03) (0.09) (0.00) (0.00)
=============================================================================================================================
Distributions from net realized gains (0.66) (0.48) (0.12) -- --
=============================================================================================================================
Total distributions (0.82) (0.51) (0.21) (0.00) (0.00)
=============================================================================================================================
Redemption fees added to beneficial interest 0.00 0.00 -- -- --
=============================================================================================================================
Net asset value, end of period $ 13.97 $ 13.28 $11.74 $ 9.05 $ 9.85
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Total return(c) 11.35% 17.50% 32.15% (8.08)% (1.49)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $93,363 $36,092 $9,270 $6,321 $8,725
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.62%(d) 2.00% 2.00% 2.00% 1.91%
- -----------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.67%(d) 2.20% 3.12% 2.75% 4.44%
=============================================================================================================================
Ratio of net investment income (loss) to average net assets 0.91%(d) 0.10%(b) 0.14% (1.16)% (0.52)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Portfolio turnover rate 51% 129% 372% 101% 168%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend of
$3.00 per share owned of Microsoft Corp. on December 2, 2004. Net
investment income (loss) per share and the ratio of net investment
income (loss) to average net assets excluding the special dividend are
$(0.02) and (0.14)%, respectively.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(d) Ratios are based on average daily net assets of $67,221,595.
F-13
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS B
-------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.02 $ 11.57 $ 8.94 $ 9.79 $10.00
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.03(a) (0.07)(a)(b) (0.05)(a) (0.17)(a) (0.11)(a)
- ---------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.34 2.00 2.83 (0.68) (0.10)
===========================================================================================================================
Total from investment operations 1.37 1.93 2.78 (0.85) (0.21)
===========================================================================================================================
Less distributions:
Dividends from net investment income (0.08) (0.00) (0.03) -- (0.00)
- ---------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.66) (0.48) (0.12) -- --
===========================================================================================================================
Total distributions (0.74) (0.48) (0.15) -- (0.00)
===========================================================================================================================
Redemption fees added to beneficial interest 0.00 0.00 -- -- --
===========================================================================================================================
Net asset value, end of period $ 13.65 $ 13.02 $11.57 $ 8.94 $9.79
___________________________________________________________________________________________________________________________
===========================================================================================================================
Total return(c) 10.51% 16.77% 31.26% (8.68)% (2.09)%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $49,827 $24,675 $7,075 $4,624 $3,613
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.33%(d) 2.65% 2.65% 2.65% 2.57%
- ---------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.38%(d) 2.85% 3.77% 3.40% 5.10%
===========================================================================================================================
Ratio of net investment income (loss) to average net assets 0.20%(d) (0.55)%(b) (0.51)% (1.81)% (1.18)%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Portfolio turnover rate 51% 129% 372% 101% 168%
___________________________________________________________________________________________________________________________
===========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend of
$3.00 per share owned of Microsoft Corp. on December 2, 2004. Net
investment income (loss) per share and the ratio of net investment
income (loss) to average net assets excluding the special dividend are
$(0.10) and (0.79)%, respectively.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(d) Ratios are based on average daily net assets of $38,705,741.
F-14
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS C
---------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
2005 2004 2003 2002 2001
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.03 $ 11.58 $ 8.94 $ 9.79 $10.00
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.03(a) (0.07)(a)(b) (0.05)(a) (0.17)(a) (0.11)(a)
- -----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.34 2.00 2.84 (0.68) (0.10)
=============================================================================================================================
Total from investment operations 1.37 1.93 2.79 (0.85) (0.21)
=============================================================================================================================
Less distributions:
Dividends from net investment income (0.08) (0.00) (0.03) -- (0.00)
- -----------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.66) (0.48) (0.12) -- --
=============================================================================================================================
Total distributions (0.74) (0.48) (0.15) -- (0.00)
=============================================================================================================================
Redemption fees added to beneficial interest 0.00 0.00 -- -- --
=============================================================================================================================
Net asset value, end of period $ 13.66 $ 13.03 $11.58 $ 8.94 $ 9.79
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Total return(c) 10.50% 16.75% 31.37% (8.68)% (2.09)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $24,316 $10,021 $2,853 $1,850 $1,312
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.33%(d) 2.65% 2.65% 2.65% 2.57%
- -----------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.38%(d) 2.85% 3.77% 3.40% 5.10%
=============================================================================================================================
Ratio of net investment income (loss) to average net assets 0.20%(d) (0.55)%(b) (0.51)% (1.81)% (1.18)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Portfolio turnover rate 51% 129% 372% 101% 168%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend of
$3.00 per share owned of Microsoft Corp. on December 2, 2004. Net
investment income (loss) per share and the ratio of net investment
income (loss) to average net assets excluding the special dividend are
$(0.10) and (0.79)%, respectively.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(d) Ratios are based on average daily net assets of $17,237,066.
F-15
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
-------------------
OCTOBER 25, 2005
(DATE SALES
COMMENCED) TO
DECEMBER 31,
2005
- -----------------------------------------------------------------------------------
Net asset value, beginning of period $13.90
- -----------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.04(a)
- -----------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.86
===================================================================================
Total from investment operations 0.90
===================================================================================
Less distributions:
Dividends from net investment income (0.16)
- -----------------------------------------------------------------------------------
Distributions from net realized gains (0.66)
===================================================================================
Total distributions (0.82)
===================================================================================
Redemption fees added to beneficial interest 0.00
===================================================================================
Net asset value, end of period $13.98
___________________________________________________________________________________
===================================================================================
Total return(b) 6.48%
___________________________________________________________________________________
===================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,542
___________________________________________________________________________________
===================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.09%(c)
- -----------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.14%(c)
===================================================================================
Ratio of net investment income to average net assets 1.44%(c)
___________________________________________________________________________________
===================================================================================
Portfolio turnover rate 51%
___________________________________________________________________________________
===================================================================================
</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 for less than one
year.
(c) Ratios are annualized and based on average daily net assets of $984,073.
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), AIM and A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached final settlements with certain
regulators, including the Securities and Exchange Commission ("SEC"), the New
York Attorney General and the Colorado Attorney General, to resolve civil
enforcement actions and/or investigations related to market timing and related
activity in the AIM Funds, including those formerly advised by IFG. As part of
the settlements, a $325 million fair fund ($110 million of which is civil
penalties) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. 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.
PENDING LITIGATION AND REGULATORY INQUIRIES
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
F-16
AIM GLOBAL VALUE FUND
NOTE 14--LEGAL PROCEEDINGS--(CONTINUED)
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 October 19, 2005, this lawsuit was transferred for pretrial purposes to the
MDL Court (as defined below). On July 7, 2005, the Supreme Court of West
Virginia ruled in an unrelated lawsuit that is similar to this action that the
WVAG does not have authority 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. Initial research
indicates that these damages could be limited or capped by statute. 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; and
- 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 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 (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits 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.
On August 25, 2005, the MDL Court issued rulings on the common issues of law
presented in motions to dismiss shareholder class action and derivative
complaints that were filed in unrelated lawsuits. On November 3, 2005, the MDL
Court issued short opinions for the most part applying these rulings to the AIM
and IFG lawsuits. The MDL Court dismissed 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"). The Court dismissed all claims asserted in the class
action complaint but three: (i) the securities fraud claims under Section 10(b)
of the Securities Exchange Act of 1934, (ii) the excessive fee claim under
Section 36(b) of the 1940 Act (which survived only insofar as plaintiffs seek
recovery of fees associated with the assets involved in market timing); and
(iii) the MDL Court deferred ruling on the "control person liability" claim
under Section 48 of the 1940 Act. 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.
At the MDL Court's request, the parties submitted proposed orders implementing
these rulings in the AIM and IFG lawsuits. The MDL Court has not entered any
orders on the motions to dismiss in these lawsuits and it is possible the orders
may differ in some respects from the rulings described above. Based on the MDL
Court's opinion and both parties' proposed orders, however, all claims asserted
against the Funds that have been transferred to the MDL Court will be dismissed,
although certain Funds will remain nominal defendants in the derivative lawsuit.
On December 6, 2005, the MDL Court issued rulings on the common issues of law
presented in defendants' omnibus motion to dismiss the ERISA complaints. The
ruling was issued in unrelated lawsuits that are similar to the ERISA lawsuits
brought against AIM and IFG and related entities. The MDL Court: (i) denied the
motion to dismiss on the grounds that the plaintiffs lack standing or that the
defendants' investments in company stock are entitled to a presumption of
prudence; (ii) granted the motion to dismiss as to defendants not named in the
employee benefit plan documents as fiduciaries but gave plaintiffs leave to
replead facts sufficient to show that such defendants acted as de facto
fiduciaries; and (iii) confirmed plaintiffs' withdrawal of their prohibited
transactions and misrepresentations claims.
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, among others, 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. 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.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries described above may have on AIM, ADI or the Fund.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the AIM Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the AIM Funds.
F-17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Funds Group
and Shareholders of AIM Global Value Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM Global Value Fund (one of the
funds constituting AIM Funds Group hereafter referred to as the "Fund") at
December 31, 2005, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the five years in the period then ended, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2005 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
February 17, 2006
Houston, Texas
F-18
AIM GLOBAL VALUE FUND
TRUSTEES AND OFFICERS
As of December 31, 2005
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1992 Director and Chairman, A I M Management None
Trustee, Vice Chair, Group Inc. (financial services holding
Principal Executive Officer company); Director and Vice Chairman,
and President AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- -------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.;
President Director 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
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,
AIM Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1987 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company (2 portfolios))
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and 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); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company); and Owner, Dos Angelos Ranch,
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company (3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1992 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
</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.
TRUSTEES AND OFFICERS--(CONTINUED)
As of December 31, 2005
AIM GLOBAL VALUE FUND
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired None
Trustee
Formerly: Partner, Deloitte & Touche
- -------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Senior Vice President, A I M Management
Senior Vice President and Group Inc.; Senior Vice President and
Chief 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 N/A
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 N/A
Senior Vice President and 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,
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. and A I M
Officer 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 N/A
General Counsel, Liberty Financial
Companies, Inc.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC; 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, Principal Advisors, Inc.
Financial Officer and
Treasurer Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief
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 N/A
Private Asset Management, Inc.; and
Chief Equity Officer, and Senior
Investment Officer, A I M Capital
Management, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1992 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street & Frankel LLP P.O. Box 4739 225 Franklin Street
Philadelphia, PA 19103-7599 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Americas
New York, NY 10036-2714
</Table>
TAX DISCLOSURES
REQUIRED FEDERAL TAX INFORMATION
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2005, 13.11% is eligible for the dividends received deduction for
corporations. The Fund distributed long-term capital gains of $3,501,686 for the
Fund's tax year ended December 31, 2005.
For its tax year ended December 31, 2005, the Fund designates 31.50%, 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 in your Form 1099-DIV.
TAX INFORMATION FOR NON-RESIDENT ALIEN SHAREHOLDERS
For its tax year ended December 31, 2005, the Fund designates 4.23%, or the
maximum amount allowable of its dividend distributions as qualified interest
income exempt from U.S. income tax for non-resident alien shareholders. Your
actual amount of qualified interest income for the calendar year will be
reported in your Form 1042-S mailing. You should consult your tax advisor
regarding treatment of the amounts.
The Fund designates qualified short-term capital gain distributions exempt from
U.S. income tax for non-resident alien shareholders of $4,579,480 for the Fund's
tax year ended December 31, 2005.
The percentage of qualifying assets not subject to the U.S. estate tax for the
fiscal quarters ended March 31, 2005, June 30, 2005, September 30, 2005 and
December 31, 2005 are 71.56%, 69.08%, 64.68% and 62.91%, respectively.
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE
AIM Basic Balanced Fund* AIM Developing Markets Fund
AIM Basic Value Fund AIM European Growth Fund AIM Floating Rate Fund
AIM Blue Chip Fund AIM European Small Company Fund(1) AIM High Yield Fund
AIM Capital Development Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Charter Fund AIM Global Equity Fund AIM Intermediate Government Fund
AIM Constellation Fund AIM Global Growth Fund AIM Limited Maturity Treasury Fund
AIM Diversified Dividend Fund AIM Global Value Fund AIM Money Market Fund
AIM Dynamics Fund AIM International Core Equity Fund AIM Short Term Bond Fund
AIM Large Cap Basic Value Fund AIM International Growth Fund AIM Total Return Bond Fund
AIM Large Cap Growth Fund AIM International Small Company Fund(1) Premier Portfolio
AIM Mid Cap Basic Value Fund AIM Trimark Fund Premier U.S. Government Money Portfolio
AIM Mid Cap Core Equity Fund(1)
AIM Mid Cap Growth Fund SECTOR EQUITY TAX-FREE
AIM Opportunities I Fund
AIM Opportunities II Fund AIM Advantage Health Sciences Fund AIM High Income Municipal Fund(1)
AIM Opportunities III Fund AIM Energy Fund AIM Municipal Bond Fund
AIM Premier Equity Fund AIM Financial Services Fund AIM Tax-Exempt Cash Fund
AIM S&P 500 Index Fund AIM Global Health Care Fund AIM Tax-Free Intermediate Fund
AIM Select Equity Fund AIM Global Real Estate Fund Premier Tax-Exempt Portfolio
AIM Small Cap Equity Fund AIM Gold & Precious Metals Fund
AIM Small Cap Growth Fund(1) AIM Leisure Fund AIM ALLOCATION SOLUTIONS
AIM Small Company Growth Fund AIM Multi-Sector Fund
AIM Summit Fund AIM Real Estate Fund(1) AIM Conservative Allocation Fund
AIM Trimark Endeavor Fund AIM Technology Fund AIM Growth Allocation Fund(2)
AIM Trimark Small Companies Fund AIM Utilities Fund AIM Moderate Allocation Fund
AIM Weingarten Fund AIM Moderate Growth Allocation Fund
AIM Moderately Conservative Allocation
Fund
DIVERSIFIED PORTFOLIOS
AIM Income Allocation Fund
AIM International Allocation Fund
=======================================================================================
CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY. FOR THIS
AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR FINANCIAL ADVISOR
AND READ IT CAREFULLY BEFORE INVESTING.
=======================================================================================
</Table>
*Domestic equity and income fund
(1) This Fund has limited public sales of its shares to certain investors. For
more information on who may continue to invest in the Fund, please see the
appropriate prospectus.
(2) Effective April 29, 2005, AIM Aggressive Allocation Fund was renamed AIM
Growth Allocation Fund.
If used after April 20, 2006, 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 $128 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $386 billion in assets under management. Data as of December 31,
2005.
AIMinvestments.com GLV-AR-1 A I M Distributors, Inc.
<Table>
YOUR GOALS. OUR SOLUTIONS.--Registered Trademark--
- ---------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Management --Registered Trademark--
Plans Accounts
- ---------------------------------------------------------------------------------------
</Table>
AIM INTERNATIONAL SMALL COMPANY FUND
Annual Report to Shareholders o December 31, 2005
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
AIM INTERNATIONAL SMALL COMPANY FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF
CAPITAL.
o Unless otherwise stated, information presented in this report is as of
December 31, 2005, and is based on total net assets.
<Table>
ABOUT SHARE CLASSES mutual fund performance monitor. adjustments to be made to the net assets
of the Fund at period end for financial
o Class B shares are not available as an o The unmanaged MSCI ALL COUNTRY (AC) reporting purposes, and as such, the net
investment for retirement plans maintained WORLD FREE EX U.S. GROWTH INDEX is a asset values for shareholder transactions
pursuant to Section 401 of the Internal subset of the unmanaged MSCI All Country and the returns based on those net asset
Revenue Code, including 401(k) plans, (AC) World Free ex-U.S.A. Index, which values may differ from the net asset
money purchase pension plans and profit represents the performance of securities values and returns reported in the
sharing plans. Plans that had existing in developed and emerging countries, Financial Highlights.
accounts invested in Class B shares prior excluding the United States, covered by
to September 30, 2003, will continue to be Morgan Stanley Capital International. The o Industry classifications used in this
allowed to make additional purchases. Growth portion measures performance of report are generally according to the
companies with higher price/earnings Global Industry Classification Standard,
PRINCIPAL RISKS OF INVESTING IN THE FUND ratios and higher forecasted growth which was developed by and is the
values. A "free" index represents exclusive property and a service mark of
o International investing presents certain investable opportunities for global Morgan Stanley Capital International Inc.
risks not associated with investing solely investors, taking into account the local and Standard & Poor's.
in the United States. These include risks market restrictions on share ownership by
relating to fluctuations in the value of foreign investors. o The Conference Board is a not-for-profit
the U.S. dollar relative to the values of organization that conducts research and
other currencies, the custody arrangements o The unmanaged LIPPER INTERNATIONAL SMALL publishes information and analysis to help
made for the Fund's foreign holdings, CAP FUND INDEX represents an average of businesses strengthen their performance.
differences in accounting, political risks the performance of international small-cap
and the lesser degree of public mutual funds tracked by Lipper, Inc., an The Fund provides a complete list of its
information required to be provided by independent mutual fund performance holdings four times in each fiscal year,
non-U.S. companies. monitor. at the quarter-ends. For the second and
fourth quarters, the lists appear in the
o Investing in smaller companies involves o The unmanaged Standard & Poor's Fund's semiannual and annual reports to
greater risk than investing in more Composite Index of 500 Stocks (the S&P shareholders. For the first and third
established companies, such as business 500--Registered Trademark-- INDEX) is an quarters, the Fund files the lists with
risk, significant stock price fluctuations index of common stocks frequently used as the Securities and Exchange Commission
and illiquidity. a general measure of U.S. stock market (SEC) on Form N-Q. The most recent list of
performance. portfolio holdings is available at
o The Fund is nondiversified, which AIMinvestments.com. From our home page,
increases risks as well as potential o The Fund is not managed to track the click on Products & Performance, then
rewards. performance of any particular index, Mutual Funds, then Fund Overview. Select
including the indexes defined here, and your Fund from the drop-down menu and
ABOUT INDEXES USED IN THIS REPORT consequently, the performance of the Fund click on Complete Quarterly Holdings.
may deviate significantly from the Shareholders can also look up the Fund's
o The unmanaged MSCI Europe, Australasia performance of the indexes. Forms N-Q on the SEC's Web site at
and the Far East Index (the MSCI sec.gov. Copies of the Fund's Forms N-Q
EAFE--Registered Trademark-- INDEX) is a o A direct investment cannot be made in an may be reviewed and copied at the SEC's
group of foreign securities tracked by index. Unless otherwise indicated, index Public Reference Room at 450 Fifth Street,
Morgan Stanley Capital International. results include reinvested dividends, and N.W., Washington, D.C. 20549-0102. You can
they do not reflect sales charges. obtain information on the operation of the
o The unmanaged MSCI WORLD EX USA SMALL Performance of an index of funds reflects Public Reference Room, including
CAP INDEX measures securities in the fund expenses; performance of a market information about duplicating fee charges,
global developed markets excluding the U.S index does not. by calling 202-942-8090 or 800-732-0330,
with market capitalizations between $200 - or by electronic request at the following
$1,500 million dollars. It is compiled by OTHER INFORMATION e-mail address: publicinfo@sec.gov. The
Morgan Stanley Capital International. SEC file numbers for the Fund are
o The returns shown in management's 811-01540 and 2-27334.
o The unmanaged LIPPER INTERNATIONAL discussion of Fund performance are based
SMALL/MID-CAP GROWTH FUND INDEX represents on net asset values calculated for A description of the policies and
an average of the performance of the 10 shareholder transactions. Generally procedures that the Fund uses to determine
largest international small/mid-cap growth accepted accounting principles require how to vote proxies
mutual funds tracked by Lipper, Inc., an
independent
Continued on Page 7
==========================================
FUND NASDAQ SYMBOLS
Class A Shares IEGAX
Class B Shares IEGBX
Class C Shares IEGCX
==========================================
=======================================================================================
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.
=======================================================================================
</Table>
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIMinvestments.com
AIM INTERNATIONAL SMALL COMPANY FUND
DEAR FELLOW AIM FUNDS SHAREHOLDERS:
Although many concerns weighed on investors' minds during
the year covered by this report, stocks posted gains for the
[GRAHAM period. Domestically, the broad-based S&P 500 Index returned
PHOTO] 4.91%. Internationally, Morgan Stanley's MSCI World Index
rose 9.49%. Concern about the inflationary potential of
rising energy costs was frequently cited as a major cause of
market restraint.
Within the indexes, there was considerable variability in
the performance of different sectors and markets.
ROBERT H. GRAHAM Domestically, energy sector performance far outpaced all
other sectors in the S&P 500 Index, reflecting rising oil
and gas prices. Overseas, emerging markets produced more
attractive results than developed markets, partially because
emerging markets tend to be more closely tied to the
performance of natural resources and commodities.
One could make a strong argument for global
[WILLIAMSON diversification of a stock portfolio using the performance
PHOTO] data for the year ended December 31, 2005. Of course, your
financial advisor is the person most qualified to help you
decide whether such diversification is appropriate for you.
A number of key developments affected markets and the
MARK H. WILLIAMSON economy in 2005:
o Hurricane Katrina, which devastated New Orleans in August,
had numerous economic repercussions and dealt a short-term
setback to consumer confidence. However, consumer
confidence rebounded toward the end of the year, with the
Conference Board crediting the resiliency of the economy,
falling gas prices and job growth for this trend.
o The nation's gross domestic product (GDP), the broadest
measure of economic activity, increased at a healthy rate
throughout much of the year. The Bureau of Economic
Analysis of the U.S. Department of Commerce reported that
the nation's GDP grew at annualized rates of 3.8%, 3.3%
and 4.1% for the first, second and third quarters of the
year, respectively.
o For the second straight year, the economy created 2
million new jobs, although job growth was uneven and
sometimes did not meet analysts' expectations on a monthly
basis.
o The Federal Reserve Board (the Fed) continued its
tightening policy, raising the key federal funds target
rate to 4.25% by the end of the year. Many analysts
believed that the central bank was near the end of its
tightening policy as Ben Bernanke succeeded the retiring
Alan Greenspan as Fed chairman early in 2006.
o Gasoline prices, which soared to a nationwide average of
slightly more than $3.08 per gallon on September 5
following Hurricane Katrina, had dropped by more than 80
cents by mid-December, according to the U.S. Energy
Information Administration.
For a discussion of the specific market conditions that
affected your Fund and how your Fund was managed during the
year, please turn to Page 3.
YOUR FUND
Further information about the markets, your Fund, and
investing in general is always available on our
comprehensive 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 pleased to be of help.
Sincerely,
/S/ ROBERT H. GRAHAM /S/ MARK H. WILLIAMSON
Robert H. Graham Mark H. Williamson
President & Vice Chair, President,
AIM Funds A I M Advisors, Inc.
February 9, 2006
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. A I M
Distributors, Inc. is the distributor for the retail funds
represented by AIM Investments.
1
AIM INTERNATIONAL SMALL COMPANY FUND
DEAR FELLOW AIM FUND SHAREHOLDERS:
[CROCKETT Having completed a year of transition and change at AIM
PHOTO] Funds--as well as my first full year as your board's
independent chair--I can assure you that shareholder
interests are at the forefront of every decision your board
makes. While regulators and fund companies debate the value
BRUCE L. CROCKETT of an independent board chair, this structure is working for
you. An independent chair can help lead to unbiased
decisions and eliminate potential conflicts.
Some highlights of 2005 board activity:
o Board approval of voluntary fee reductions, which are
saving shareholders more than $20 million annually, based
on asset levels of March 31, 2005.
o Board approval for the merger of 14 funds into other AIM
funds with similar investment objectives. Eight of these
mergers were approved by shareholders of the target funds
during 2005. The remaining six are being voted on by
shareholders in early 2006. In each case, the goal is for
the resulting merged fund to benefit from strengthened
management and greater efficiency.
o Board approval for portfolio management changes at 11
funds, consistent with the goal of organizing management
teams around common processes and shared investment views.
Again, we hope that these changes will improve fund
performance and efficiency.
In 2006, your board will continue to focus on reducing
costs and shareholder fees and improving portfolio
performance, which is not yet as strong as we expect to see
it. Eight in-person board meetings and several additional
telephone and committee meetings are scheduled to take place
this year. I'll inform you of our progress in my next
semiannual letter to shareholders.
The AIM Funds board is pleased to welcome our newest
independent member, Raymond Stickel, Jr., a former partner
with the international auditing firm of Deloitte & Touche.
We also send our thanks and best wishes to Gerald J. Lewis,
who retired from your board in December 2005, and to Edward
K. Dunn, Jr., who is retiring this year.
Your board welcomes your views. Please mail them to me at
AIM Investments, AIM Investments Tower, 11 Greenway Plaza,
Suite 100, Houston TX 77046.
Sincerely,
/S/ BRUCE L. CROCKETT
Bruce L. Crockett
Independent Chair
On Behalf of the Board of Trustees
AIM Funds
February 9, 2006
2
AIM INTERNATIONAL SMALL COMPANY FUND
<Table>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE We seek to minimize stock-specific risk by
building a portfolio that holds a variety
======================================================================================= of companies that have high earnings
PERFORMANCE SUMMARY quality and reasonable valuations. We
========================================== typically do not hedge currencies because
Despite higher oil prices and rising FUND VS. INDEXES we believe currency exposure increases the
interest rates in some countries, most diversification benefit of international
world equity markets posted gains for the TOTAL RETURNS, 12/31/04--12/31/05, investing.
year. It was another banner year for EXCLUDING APPLICABLE SALES CHARGES. IF
international equities as foreign stocks SALES CHARGES WERE INCLUDED, RETURNS WOULD We consider selling a security for
outperformed U.S. equities for the fourth BE LOWER. several reasons, including:
consecutive year.
Class A Shares 32.21% o a company's fundamentals deteriorate or
The Fund outperformed its broad market it posts disappointing earnings
index, the MSCI EAFE Index, as Class B Shares 31.28
international small-cap stocks o a stock appears to be overvalued
significantly outperformed their large-cap Class C Shares 31.28
peers during the reporting period. o a more attractive opportunity is
Compared with its style-specific index, we MSCI EAFE Index identified.
believe strong stock selection and our (Broad Market Index) 13.54
ability to identify attractive stocks that MARKET CONDITIONS AND YOUR FUND
are often not followed by many analysts, MSCI World Ex USA Small Cap
gave us a competitive edge. For long-term Index (Style-specific Index) 25.04 Although most world markets posted
performance, please turn to pages 6 and 7. positive returns for the year, foreign
MSCI All Country (AC) World Free equities were once again the performance
Ex U.S. Growth Index leaders. Despite a currency headwind from
(Former Style-specific Index) 17.08 a strengthening U.S. dollar, international
stocks outperformed U.S. equities by more
Lipper International Small/ than a two-to-one margin when calculated
Mid-Cap Growth Fund Index in U.S. dollars. In local currency terms,
(Peer Group Index) 27.70 the differential was even greater. It was
another banner year for international
Lipper International small-cap stocks which once again
Small Cap Fund Index significantly outperformed their large-cap
(Former Peer Group Index) 23.77 peers during the fiscal year.
SOURCE: LIPPER, INC. In Europe, markets rallied amid a low
========================================== interest rate environment, attractive
valuations compared to U.S. stocks and
======================================================================================= corporate profits buoyed by restructuring
and cost cutting measures. In Japan,
HOW WE INVEST o accelerating earnings and revenues stocks climbed to levels not witnessed in
several years as Japan's economy finally
We believe that earnings drive stock o strong cash flow generation regained momentum. Japanese corpo-
prices and that companies generating
substantial, repeatable, above average o high return on invested capital
earnings growth should provide long-term
growth of capital. o reasonable valuations.
Therefore, when selecting stocks for We use a systematic, stock-by stock
your Fund we look for international approach, focusing on strengths of
small-cap companies with the following individual companies, rather than sector
attributes: or country macroeconomic trends. We adhere
to our investment process regardless of
the macroeconomic environment. (continued)
========================================== ========================================== ==========================================
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS*
TOP 5 COUNTRIES*
By sector 1. Trican Well Service Ltd. (Canada) 3.1%
1. Canada 22.3%
Industrials 24.2% 2. Bijou Brigitte Modische
2. South Korea 8.5 Accessoires A.G. (Germany) 1.9
Consumer Discretionary 23.4
3. United Kingdom 8.0 3. Total Energy Trust Ltd. (Canada) 1.8
Financials 13.3
4. Norway 6.3 4. Homeserve PLC (United Kingdom) 1.5
Energy 12.1
5. Netherlands 6.2 5. Wajax Income Fund (Canada) 1.5
Information Technology 9.5
TOTAL NET ASSETS $632.1 MILLION 6. Andritz A.G. (Austria) 1.5
Consumer Staples 6.1
TOTAL NUMBER OF HOLDINGS* 143 7. Reitmans Ltd. (Canada)
Materials 4.8 -Class A 1.3
The Fund's holdings are subject to change,
and there is no assurance that the Fund Health Care 1.9 8. Prosafe A.S.A. (Norway) 1.2
will continue to hold any particular
security. *Excluding money market fund Telecommunication Services 1.1 9. Aalberts Industries N.V.
holdings. (Netherlands) 1.2
Money Market Funds
Plus Other Assets Less Liabilities 3.6 10. Hyundai Department
Store Co.,Ltd. (South Korea) 1.2
========================================== ========================================== ==========================================
</Table>
3
AIM INTERNATIONAL SMALL COMPANY FUND
<Table>
rate earnings also continued to improve, performance. Aktiv Kapital bought fewer JASON T. HOLZER,
while Prime Minister Junichiro Koizumi's debt portfolios throughout the year and [HOLZER Chartered Financial
dramatic election victory resonated well therefore experienced slower growth. PHOTO] Analyst, senior
with investors. Shanda Interactive declined on a slowdown portfolio manager, is
in earnings growth due to intense lead manager of AIM
Fund performance was broad-based with competition in the gaming sector. We sold International Small Company Fund with
all regions registering positive returns our position in Shanda during the fiscal respect to the Fund's European and
for the year. Our largest regional year. Canadian investments. Mr. Holzer joined
allocation was in European stocks. Strong AIM in 1996. He received a B.A. in
stock selection helped us outperform our Foreign exchange also proved a drag on quantitative economics and an M.S. in
style-specific benchmark in Europe, Fund returns. Although some foreign engineering-economic systems from Stanford
despite our slightly underweight position currencies, including the Canadian dollar, University.
there. We also found compelling investment Mexican peso and Brazilian real
opportunities in Latin American and appreciated against the dollar during the SHUXIN CAO, Chartered
Canadian markets which were supported by year, the majority of foreign currencies [CAO Financial Analyst,
strong domestic demand and higher did not. For instance, the euro, British PHOTO] portfolio manager, is
commodity prices. pound and Japanese yen depreciated against lead manager of AIM
the dollar during the reporting period. As International Small
On a comparative basis, Asian holdings we did not hedge currencies during this Company Fund with respect to the Fund's
detracted from performance. This was due fiscal year, Fund returns were dampened by Asia Pacific and Latin American
to underperformance by select Japanese this negative currency effect. investments. He joined AIM in 1997. Mr.
holdings as well as our underweight Cao graduated from Tianjin Foreign
position in Japanese securities in IN CLOSING Language Institute with a B.A. in English.
general. Valuations of many small-cap He also received an M.B.A. from Texas A&M
Japanese stocks have been high in our The performance of international stocks University and is a Certified Public
opinion. We also had little exposure to over the last several years underscores Accountant.
retail, banking and property stocks--areas the investment opportunities beyond U.S.
that did well in 2005--as we found borders. We believe our bottom-up BORGE ENDRESEN,
valuations unattractive. Our underweight investment process allows us to build a [ENDRESEN Chartered Financial
in Japan, however, was counterbalanced by strong portfolio based on world class PHOTO] Analyst, portfolio
exposure in other Asian areas that companies from around the world. Given our manager, is manager of
performed well such as Korea, Taiwan and international focus, we believe your Fund AIM International
the Philippines. can provide diversification opportunities Small Company Fund. He joined AIM in 1999
beyond U.S. stocks. We are pleased to once and graduated summa cum laude from the
Beyond regional diversity, sector again provide shareholders with positive University of Oregon with a B.S. in
performance was also broad-based with Fund returns for the year and thank you finance. He also earned an M.B.A. from The
every sector registering double-digit for your continued participation in AIM University of Texas at Austin.
returns for the year. With oil prices International Small Company Fund.
approaching $70 per barrel during the RICHARD NIELD,
fiscal year, energy was the highest The views and opinions expressed in [NIELD Chartered Financial
returning sector. Two of our top five management's discussion of fund PHOTO] Analyst, portfolio
contributors were Canadian oil companies performance are those of A I M Advisors, manager, is manager of
including TRICAN WELL SERVICES LTD. and Inc. These views and opinions are subject AIM International
TOTAL ENERGY SERVICES TRUST. We find these to change at any time based on factors Small Company Fund. Mr. Nield joined AIM
companies attractive as they have strong such as market an economic conditions. in 2000. He earned a bachelor of commerce
earnings growth and underlying return on These views and opinions may not be relied degree in finance and international
capital coupled with attractive upon as investment advice or business from McGill University in
valuations--characteristics we believe can recommendations, or as an offer for a Montreal, Canada.
lead to strong long-term performance. particular secutity. The information is
not a complete analysis of every aspect of Assisted by Asia Pacific/Latin America
Our bottom-up investment approach, any market, country, industry, security or Team and Europe/Canada Team
focusing on strengths of individual the fund. Statements of fact are from
companies, enabled us to outperform our sources condidered reliable, but A I M
benchmark in nearly all sectors. The Fund Advisors, Inc. Makes no representation or
continued to have a large weighting in warranty as to their completeness or
consumer discretionary stocks. Stocks in accuracy. Although historical performance
this group often have attractive is no guarantee of future results, these
valuations, good growth prospects and high insights may help you understand our
cash flow--exactly the type of attributes inbestment management philosophy.
we look for when selecting stocks for the
portfolio. See important Fund and index
disclosures inside front cover. [RIGHT ARROW GRAPHIC]
On a stock basis, AKTIV KAPITAL, a
Norwegian collection company and SHANDA FOR A PRESENTATION OF YOUR FUND'S
INTERACTIVE, a Chinese gaming firm, LONG-TERM PERFORMANCE, PLEASE SEE PAGES 6
detracted from Fund AND 7.
</Table>
4
AIM INTERNATIONAL SMALL COMPANY FUND
<Table>
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE together with the amount you invested, to THE HYPOTHETICAL ACCOUNT VALUES AND
estimate the expenses that you paid over EXPENSES MAY NOT BE USED TO ESTIMATE THE
As a shareholder of the Fund, you incur the period. Simply divide your account ACTUAL ENDING ACCOUNT BALANCE OR EXPENSES
two types of costs: (1) transaction costs, value by $1,000 (for example, an $8,600 YOU PAID FOR THE PERIOD. YOU MAY USE THIS
which may include sales charges (loads) on account value divided by $1,000 = 8.6), INFORMATION TO COMPARE THE ONGOING COSTS
purchase payments; contingent deferred then multiply the result by the number in OF INVESTING IN THE FUND AND OTHER FUNDS.
sales charges on redemptions; and the table under the heading entitled TO DO SO, COMPARE THIS 5% HYPOTHETICAL
redemption fees, if any; and (2) ongoing "Actual Expenses Paid During Period" to EXAMPLE WITH THE 5% HYPOTHETICAL EXAMPLES
costs, including management fees; estimate the expenses you paid on your THAT APPEAR IN THE SHAREHOLDER REPORTS OF
distribution and/or service fees (12b-1); account during this period. THE OTHER FUNDS.
and other Fund expenses. This example is
intended to help you understand your HYPOTHETICAL EXAMPLE FOR COMPARISON Please note that the expenses shown in
ongoing costs (in dollars) of investing in PURPOSES the table are meant to highlight your
the Fund and to compare these costs with ongoing costs only and do not reflect any
ongoing costs of investing in other mutual The table below also provides information transactional costs, such as sales charges
funds. The example is based on an about hypothetical account values and (loads) on purchase payments, contingent
investment of $1,000 invested at the hypothetical expenses based on the Fund's deferred sales charges on redemptions, and
beginning of the period and held for the actual expense ratio and an assumed rate redemption fees, if any. Therefore, the
entire period July 1, 2005, through of return of 5% per year before expenses, hypothetical information is useful in
December 31, 2005. which is not the Fund's actual return. The comparing ongoing costs only, and will not
Fund's actual cumulative total returns at help you determine the relative total
ACTUAL EXPENSES net asset value after expenses for the six costs of owning different funds. In
months ended December 31, 2005, appear in addition, if these transactional costs
The table below provides information about the table "Cumulative Total Returns" on were included, your costs would have been
actual account values and actual expenses. Page 7. higher.
You may use the information in this table,
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/05) (12/31/05)(1) PERIOD(2) (12/31/05) PERIOD(2) RATIO
A $1,000.00 $1,232.20 $ 9.00 $1,017.14 $ 8.13 1.60%
B 1,000.00 1,226.70 13.19 1,013.36 11.93 2.35
C 1,000.00 1,227.50 13.19 1,013.36 11.93 2.35
(1) The actual ending account value is based on the actual total return of the Fund for the period July 1, 2005, through December
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 December 31, 2005, appear in the table "Cumulative Total Returns" on Page 7.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year.
====================================================================================================================================
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
</Table>
5
AIM INTERNATIONAL SMALL COMPANY FUND
<Table>
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
Fund and index data from 8/31/00
[MOUNTAIN CHART]
====================================================================================================================================
AIM AIM AIM MSCI MSCI LIPPER LIPPER
INTERNATIONAL INTERNATIONAL INTERNATIONAL ALL COUNTRY WORLD EX INTERNATIONAL INTERNATIONAL
SMALL COMPANY SMALL COMPANY SMALL COMPANY MSCI (AC) WORLD USA SMALL SMALL CAP SMALL/MID-CAP
FUND FUND FUND EAFE FREE EX U.S. CAP FUND GROWTH
DATE CLASS A SHARES CLASS B SHARES CLASS C SHARES INDEX GROWTH INDEX INDEX INDEX FUND INDEX
8/31/00 $ 9450 $10000 $10000 $10000 $10000 $10000 $10000 $10000
09/00 8930 9450 9450 9513 9244 9515 9544 9454
10/00 8250 8720 8730 9288 8720 8844 8890 8743
11/00 7172 7581 7590 8940 8226 8762 8350 7864
12/00 7532 7951 7950 9258 8345 8838 8554 8051
01/01 8146 8591 8600 9253 8487 9098 8678 8163
02/01 7126 7511 7520 8559 7529 8897 8364 7653
03/01 6237 6570 6580 7989 6956 8270 7625 6818
04/01 6577 6931 6930 8544 7436 8986 8044 7151
05/01 6719 7080 7079 8242 7177 8997 8075 7145
06/01 6577 6930 6919 7905 6838 8740 7842 6839
07/01 6502 6850 6839 7761 6657 8390 7541 6539
08/01 6388 6720 6709 7565 6345 8467 7468 6375
09/01 5557 5841 5839 6799 5696 7372 6559 5539
10/01 6076 6381 6379 6973 5940 7736 6842 5805
11/01 6502 6821 6819 7230 6294 8042 7051 6065
12/01 6742 7071 7070 7273 6390 7898 7025 6095
01/02 6752 7071 7070 6886 6096 7750 6874 5954
02/02 6837 7171 7159 6935 6175 7873 6985 5967
03/02 7245 7591 7580 7343 6461 8417 7319 6260
04/02 7379 7731 7720 7358 6476 8666 7502 6303
05/02 7616 7971 7970 7451 6485 9071 7748 6424
06/02 7626 7981 7970 7155 6276 8699 7511 6174
07/02 6932 7251 7240 6448 5619 7992 6889 5597
08/02 6876 7191 7180 6434 5594 7899 6832 5541
09/02 6296 6571 6570 5743 5103 7291 6278 5027
10/02 6410 6691 6690 6051 5395 7231 6313 5083
11/02 6552 6831 6830 6326 5581 7434 6489 5236
12/02 6562 6841 6840 6113 5448 7313 6467 5148
01/03 6638 6911 6910 5858 5213 7234 6368 5030
02/03 6629 6901 6900 5724 5116 7181 6237 4928
03/03 6705 6981 6970 5611 5058 7111 6186 4887
04/03 7227 7511 7510 6161 5487 7763 6780 5325
05/03 7883 8201 8189 6535 5793 8450 7379 5794
06/03 8158 8481 8479 6693 5919 8890 7657 5961
07/03 8481 8801 8799 6855 6020 9159 7900 6179
08/03 8890 9231 9219 7020 6175 9761 8314 6503
09/03 9460 9811 9799 7236 6360 10319 8740 6737
10/03 10438 10821 10809 7687 6736 11142 9363 7317
11/03 10770 11152 11149 7858 6888 11152 9454 7388
12/03 11491 11892 11880 8472 7351 11833 10031 7831
01/04 12034 12452 12439 8592 7510 12342 10482 8099
02/04 12594 13032 13019 8790 7671 12715 10797 8307
03/04 12661 13082 13079 8840 7678 13205 11010 8454
04/04 12233 12642 12629 8640 7413 12734 10785 8234
05/04 12052 12453 12439 8658 7404 12582 10709 8106
06/04 12385 12783 12769 8859 7505 13233 11150 8380
07/04 12090 12463 12459 8571 7220 12649 10766 8006
08/04 12290 12674 12659 8609 7260 12715 10855 8016
09/04 12946 13334 13329 8834 7484 13062 11172 8374
10/04 13497 13905 13889 9136 7730 13609 11532 8625
11/04 14734 15165 15158 9760 8265 14629 12370 9245
12/04 15607 16049 16043 10188 8606 15311 12990 9669
01/05 15859 16302 16297 10001 8432 15547 13195 9729
02/05 16785 17246 17240 10433 8825 16207 13794 10231
03/05 16427 16870 16865 10171 8589 15944 13490 9973
04/05 16002 16423 16418 9932 8395 15494 13166 9705
05/05 16147 16566 16560 9937 8477 15531 13074 9752
06/05 16747 17176 17160 10068 8594 15943 13460 10046
07/05 17837 18271 18256 10377 8913 16636 14116 10610
08/05 18388 18830 18815 10639 9173 17146 14619 10944
09/05 19140 19582 19575 11113 9627 17841 15134 11510
10/05 18118 18526 18520 10789 9287 17191 14593 11006
11/05 19315 19734 19728 11052 9554 17764 15051 11469
12/05 20638 20964 21064 11567 10075 19145 16077 12347
====================================================================================================================================
SOURCE: LIPPER, INC.
Past performance cannot guarantee This chart, which is a logarithmic The Fund has elected to use the MSCI
comparable future results. chart, presents the fluctuations in the World Ex USA Small Cap Index as its
value of the Fund and its indexes. We style-specific index rather than the MSCI
The data shown in the chart include believe that a logarithmic chart is more All Country (AC) World Free Ex U.S. Growth
reinvested distributions, applicable sales effective than other types of charts in Index because the MSCI World Ex USA Small
charges, Fund expenses and management illustrating changes in value during the Cap Index has a more appropriate fit with
fees. Results for Class B shares are early years shown in the chart. The the Fund's cap size. In addition, the Fund
calculated as if a hypothetical vertical axis, the one that indicates the has elected to use Lipper International
shareholder had liquidated his entire dollar value of an investment, is Small/Mid-Cap Growth Fund Index for a peer
investment in the Fund at the close of the constructed with each segment representing group comparison rather than the Lipper
reporting period and paid the applicable a percent change in the value of the International Small Cap Fund Index as
contingent deferred sales charges. Index investment. In this chart, each segment Lipper recently modified its
results include reinvested dividends, but represents a doubling, or 100% change, in global/international classifications to
they do not reflect sales charges. the value of the investment. In other include more narrow categories.
Performance of an index of funds reflects words, the space between $4,000 and $8,000
fund expenses and management fees; is the same size as the space between
performance of a market index does not. $8,000 and $16,000 and so on.
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.
</Table>
6
AIM INTERNATIONAL SMALL COMPANY FUND
<Table>
========================================== ==========================================
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
As of 12/31/05, including applicable sales 6 months ended 12/31/05, excluding
charges applicable sales charges
CLASS A SHARES Class A Shares 23.22%
Inception (8/31/00) 14.55%
5 Years 20.97 Class B Shares 22.67
1 Year 24.95
Class C Shares 22.75
CLASS B SHARES
Inception (8/31/00) 14.89% ==========================================
5 Years 21.33
1 Year 26.28
CLASS C SHARES
Inception (8/31/00) 14.99%
5 Years 21.52
1 Year 30.28
==========================================
THE PERFORMANCE DATA QUOTED REPRESENT CLASS A SHARE PERFORMANCE REFLECTS THE A REDEMPTION FEE OF 2% WILL BE IMPOSED
PAST PERFORMANCE AND CANNOT GUARANTEE MAXIMUM 5.50% SALES CHARGE, AND CLASS B ON CERTAIN REDEMPTIONS OR EXCHANGES OUT OF
COMPARABLE FUTURE RESULTS; CURRENT AND CLASS C SHARE PERFORMANCE REFLECTS THE THE FUND WITHIN 30 DAYS OF PURCHASE.
PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE APPLICABLE CONTINGENT DEFERRED SALES EXCEPTIONS TO THE REDEMPTION FEE ARE
VISIT AIMINVESTMENTS.COM FOR THE MOST CHARGE (CDSC) FOR THE PERIOD INVOLVED. THE LISTED IN THE FUND'S PROSPECTUS.
RECENT MONTH-END PERFORMANCE. PERFORMANCE CDSC ON CLASS B SHARES DECLINES FROM 5%
FIGURES REFLECT REINVESTED DISTRIBUTIONS, BEGINNING AT THE TIME OF PURCHASE TO 0% AT HAD THE ADVISOR NOT WAIVED FEES AND/OR
CHANGES IN NET ASSET VALUE AND THE EFFECT THE BEGINNING OF THE SEVENTH YEAR. THE REIMBURSED EXPENSES IN THE PAST,
OF THE MAXIMUM SALES CHARGE UNLESS OTHER- CDSC ON CLASS C SHARES IS 1% FOR THE FIRST PERFORMANCE WOULD HAVE BEEN LOWER.
WISE STATED. INVESTMENT RETURN AND YEAR AFTER PURCHASE.
PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU
MAY HAVE A GAIN OR LOSS WHEN YOU SELL THE PERFORMANCE OF THE FUND'S SHARE
SHARES. CLASSES WILL DIFFER DUE TO DIFFERENT SALES
CHARGE STRUCTURES AND CLASS EXPENSES.
Continued from inside front cover
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's 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
</Table>
7
AIM INTERNATIONAL SMALL COMPANY FUND
<Table>
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND SUMMARY OF INDEPENDENT WRITTEN FEE
EVALUATION
The Board of Trustees of AIM Funds Group o The quality of services to be provided funds advised by other advisors with
(the "Board") oversees the management of by AIM. The Board reviewed the credentials investment strategies comparable to those
AIM International Small Company Fund (the and experience of the officers and of the Fund that the Board reviewed. The
"Fund") and, as required by law, employees of AIM who will provide Board noted that AIM has agreed to waive
determines annually whether to approve the investment advisory services to the Fund. advisory fees of the Fund and to limit the
continuance of the Fund's advisory In reviewing the qualifications of AIM to Fund's total operating expenses, as
agreement with A I M Advisors, Inc. provide investment advisory services, the discussed below. Based on this review, the
("AIM"). Based upon the recommendation of Board reviewed the qualifications of AIM's Board concluded that the advisory fee rate
the Investments Committee of the Board, investment personnel and considered such for the Fund under the Advisory Agreement
which is comprised solely of independent issues as AIM's portfolio and product was fair and reasonable.
trustees, at a meeting held on June 30, review process, various back office
2005, the Board, including all of the support functions provided by AIM and o Expense limitations and fee waivers. The
independent trustees, approved the AIM's equity and fixed income trading Board noted that AIM has contractually
continuance of the advisory agreement (the operations. Based on the review of these agreed to waive advisory fees of the Fund
"Advisory Agreement") between the Fund and and other factors, the Board concluded through December 31, 2009 to the extent
AIM for another year, effective July 1, that the quality of services to be necessary so that the advisory fees
2005. provided by AIM was appropriate and that payable by the Fund do not exceed a
AIM currently is providing satisfactory specified maximum advisory fee rate, which
The Board considered the factors services in accordance with the terms of maximum rate includes breakpoints and is
discussed below in evaluating the fairness the Advisory Agreement. based on net asset levels. The Board
and reasonableness of the Advisory considered the contractual nature of this
Agreement at the meeting on June 30, 2005 o The performance of the Fund relative to fee waiver and noted that it remains in
and as part of the Board's ongoing comparable funds. The Board reviewed the effect until December 31, 2009. The Board
oversight of the Fund. In their performance of the Fund during the past noted that AIM has contractually agreed to
deliberations, the Board and the one and three calendar years against the waive fees and/or limit expenses of the
independent trustees did not identify any performance of funds advised by other Fund through December 31, 2005 in an
particular factor that was controlling, advisors with investment strategies amount necessary to limit total annual
and each trustee attributed different comparable to those of the Fund. The Board operating expenses to a specified
weights to the various factors. noted that the Fund's performance in such percentage of average daily net assets for
periods was above the median performance each class of the Fund. The Board
One of the responsibilities of the of such comparable funds. Based on this considered the contractual nature of this
Senior Officer of the Fund, who is review, the Board concluded that no fee waiver/expense limitation and noted
independent of AIM and AIM's affiliates, changes should be made to the Fund and that it remains in effect until December
is to manage the process by which the that it was not necessary to change the 31, 2005. The Board considered the effect
Fund's proposed management fees are Fund's portfolio management team at this these fee waivers/expense limitations
negotiated to ensure that they are time. would have on the Fund's estimated
negotiated in a manner which is at arm's expenses and concluded that the levels of
length and reasonable. To that end, the o The performance of the Fund relative to fee waivers/expense limitations for the
Senior Officer must either supervise a indices. The Board reviewed the Fund were fair and reasonable.
competitive bidding process or prepare an performance of the Fund during the past
independent written evaluation. The Senior one and three calendar years against the o Breakpoints and economies of scale. The
Officer has recommended an independent performance of the Lipper International Board reviewed the structure of the Fund's
written evaluation in lieu of a Small/Medium Growth Index. The Board noted advisory fee under the Advisory Agreement,
competitive bidding process and, upon the that the Fund's performance in such noting that it does not include any
direction of the Board, has prepared such periods was above the performance of such breakpoints. The Board considered whether
an independent written evaluation. Such Index. Based on this review, the Board it would be appropriate to add advisory
written evaluation also considered certain concluded that no changes should be made fee breakpoints for the Fund or whether,
of the factors discussed below. In to the Fund and that it was not necessary due to the nature of the Fund and the
addition, as discussed below, the Senior to change the Fund's portfolio management advisory fee structures of comparable
Officer made certain recommendations to team at this time. funds, it was reasonable to structure the
the Board in connection with such written advisory fee without breakpoints. Based on
evaluation. o Meeting with the Fund's portfolio this review, the Board concluded that it
managers and investment personnel. With was not necessary to add advisory fee
The discussion below serves as a respect to the Fund, the Board is meeting breakpoints to the Fund's advisory fee
summary of the Senior Officer's periodically with such Fund's portfolio schedule. The Board reviewed the level of
independent written evaluation and managers and/or other investment personnel the Fund's advisory fees, and noted that
recommendations to the Board in connection and believes that such individuals are such fees, as a percentage of the Fund's
therewith, as well as a discussion of the competent and able to continue to carry net assets, would remain constant under
material factors and the conclusions with out their responsibilities under the the Advisory Agreement because the
respect thereto that formed the basis for Advisory Agreement. Advisory Agreement does not include any
the Board's approval of the Advisory breakpoints. The Board noted that AIM has
Agreement. After consideration of all of o Overall performance of AIM. The Board contractually agreed to waive advisory
the factors below and based on its considered the overall performance of AIM fees of the Fund through December 31, 2009
informed business judgment, the Board in providing investment advisory and to the extent necessary so that the
determined that the Advisory Agreement is portfolio administrative services to the advisory fees payable by the Fund do not
in the best interests of the Fund and its Fund and concluded that such performance exceed a specified maximum advisory fee
shareholders and that the compensation to was satisfactory. rate, which maximum rate includes
AIM under the Advisory Agreement is fair breakpoints and is based on net asset
and reasonable and would have been o Fees relative to those of clients of AIM levels. The Board concluded that the
obtained through arm's length with comparable investment strategies. The Fund's fee levels under the Advisory
negotiations. Board noted that AIM does not serve as an Agreement therefore would not reflect
advisor to other mutual funds or other economies of scale, although the advisory
o The nature and extent of the advisory clients with investment strategies fee waiver reflects economies of scale.
services to be provided by AIM. The Board comparable to those of the Fund.
reviewed the services to be provided by
AIM under the Advisory Agreement. Based on o Fees relative to those of comparable
such review, the Board concluded that the funds with other advisors. The Board
range of services to be provided by AIM reviewed the advisory fee rate for the
under the Advisory Agreement was Fund under the Advisory Agreement. The
appropriate and that AIM currently is Board compared effective contractual
providing services in accordance with the advisory fee rates at a common asset level
terms of the Advisory Agreement. and noted that the Fund's rate was
comparable to the median rate of the (continued)
</Table>
8
AIM INTERNATIONAL SMALL COMPANY FUND
<Table>
o Investments in affiliated money market o Benefits of soft dollars to AIM. The
funds. The Board also took into account Board considered the benefits realized by
the fact that uninvested cash and cash AIM as a result of brokerage transactions
collateral from securities lending executed through "soft dollar"
arrangements (collectively, "cash arrangements. Under these arrangements,
balances") of the Fund may be invested in brokerage commissions paid by the Fund
money market funds advised by AIM pursuant and/or other funds advised by AIM are used
to the terms of an SEC exemptive order. to pay for research and execution
The Board found that the Fund may realize services. This research is used by AIM in
certain benefits upon investing cash making investment decisions for the Fund.
balances in AIM advised money market The Board concluded that such arrangements
funds, including a higher net return, were appropriate.
increased liquidity, increased
diversification or decreased transaction o AIM's financial soundness in light of
costs. The Board also found that the Fund the Fund's needs. The Board considered
will not receive reduced services if it whether AIM is financially sound and has
invests its cash balances in such money the resources necessary to perform its
market funds. The Board noted that, to the obligations under the Advisory Agreement,
extent the Fund invests in affiliated and concluded that AIM has the financial
money market funds, AIM has voluntarily resources necessary to fulfill its
agreed to waive a portion of the advisory obligations under the Advisory Agreement.
fees it receives from the Fund
attributable to such investment. The Board o Historical relationship between the Fund
further determined that the proposed and AIM. In determining whether to
securities lending program and related continue the Advisory Agreement for the
procedures with respect to the lending Fund, the Board also considered the prior
Fund is in the best interests of the relationship between AIM and the Fund, as
lending Fund and its respective well as the Board's knowledge of AIM's
shareholders. The Board therefore operations, and concluded that it was
concluded that the investment of cash beneficial to maintain the current
collateral received in connection with the relationship, in part, because of such
securities lending program in the money knowledge. The Board also reviewed the
market funds according to the procedures general nature of the non-investment
is in the best interests of the lending advisory services currently performed by
Fund and its respective shareholders. AIM and its affiliates, such as
administrative, transfer agency and
o Independent written evaluation and distribution services, and the fees
recommendations of the Fund's Senior received by AIM and its affiliates for
Officer. The Board noted that, upon their performing such services. In addition to
direction, the Senior Officer of the Fund, reviewing such services, the trustees also
who is independent of AIM and AIM's considered the organizational structure
affiliates, had prepared an independent employed by AIM and its affiliates to
written evaluation in order to assist the provide those services. Based on the
Board in determining the reasonableness of review of these and other factors, the
the proposed management fees of the AIM Board concluded that AIM and its
Funds, including the Fund. The Board noted affiliates were qualified to continue to
that the Senior Officer's written provide non-investment advisory services
evaluation had been relied upon by the to the Fund, including administrative,
Board in this regard in lieu of a transfer agency and distribution services,
competitive bidding process. In and that AIM and its affiliates currently
determining whether to continue the are providing satisfactory non-investment
Advisory Agreement for the Fund, the Board advisory services.
considered the Senior Officer's written
evaluation and the recommendation made by o Other factors and current trends. In
the Senior Officer to the Board that the determining whether to continue the
Board consider implementing a process to Advisory Agreement for the Fund, the Board
assist them in more closely monitoring the considered the fact that AIM, along with
performance of the AIM Funds. The Board others in the mutual fund industry, is
concluded that it would be advisable to subject to regulatory inquiries and
implement such a process as soon as litigation related to a wide range of
reasonably practicable. issues. The Board also considered the
governance and compliance reforms being
o Profitability of AIM and its affiliates. undertaken by AIM and its affiliates,
The Board reviewed information concerning including maintaining an internal controls
the profitability of AIM's (and its committee and retaining an independent
affiliates') investment advisory and other compliance consultant, and the fact that
activities and its financial condition. AIM has undertaken to cause the Fund to
The Board considered the overall operate in accordance with certain
profitability of AIM, as well as the governance policies and practices. The
profitability of AIM in connection with Board concluded that these actions
managing the Fund. The Board noted that indicated a good faith effort on the part
AIM's operations remain profitable, of AIM to adhere to the highest ethical
although increased expenses in recent standards, and determined that the current
years have reduced AIM's profitability. regulatory and litigation environment to
Based on the review of the profitability which AIM is subject should not prevent
of AIM's and its affiliates' investment the Board from continuing the Advisory
advisory and other activities and its Agreement for the Fund.
financial condition, the Board concluded
that the compensation to be paid by the
Fund to AIM under its Advisory Agreement
was not excessive.
</Table>
9
SUPPLEMENT TO ANNUAL REPORT DATED 12/31/05
AIM INTERNATIONAL SMALL COMPANY FUND
<Table>
<Caption>
======================================= ======================================
INSTITUTIONAL CLASS SHARES AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
For periods ended 12/31/05 For periods ended 12/31/05
The following information has been
prepared to provide Institutional Inception 15.79% (10/25/05-12/31/05) 14.19%
Class shareholders with a performance 5 Years 22.35
overview specific to their holdings. 1 Year 32.34 ======================================
Institutional Class shares are offered
exclusively to institutional ======================================= PLEASE NOTE THAT PAST PERFORMANCE IS
investors, including defined NOT INDICATIVE OF FUTURE RESULTS. MORE
contribution plans that meet certain INSTITUTIONAL CLASS SHARES' INCEPTION RECENT RETURNS MAY BE MORE OR LESS
criteria. DATE IS OCTOBER 25, 2005. RETURNS THAN THOSE SHOWN. ALL RETURNS ASSUME
SINCE THAT DATE ARE HISTORICAL REINVESTMENT OF DISTRIBUTIONS AT NAV.
RETURNS. ALL OTHER RETURNS ARE BLENDED INVESTMENT RETURN AND PRINCIPAL VALUE
RETURNS OF HISTORICAL INSTITUTIONAL WILL FLUCTUATE SO YOUR SHARES, WHEN
CLASS SHARE PERFORMANCE AND RESTATED REDEEMED, MAY BE WORTH MORE OR LESS
CLASS A SHARE PERFORMANCE (FOR PERIODS THAN THEIR ORIGINAL COST. SEE FULL
PRIOR TO THE INCEPTION DATE OF REPORT FOR INFORMATION ON COMPARATIVE
INSTITUTIONAL CLASS SHARES) AT NET BENCHMARKS. PLEASE CONSULT YOUR FUND
ASSET VALUE AND REFLECT THE HIGHER PROSPECTUS FOR MORE INFORMATION. FOR
RULE 12b-1 FEES APPLICABLE TO CLASS A THE MOST CURRENT MONTH-END
SHARES. CLASS A SHARES' INCEPTION DATE PERFORMANCE, PLEASE CALL 800-451-4246
IS AUGUST 31, 2000. OR VISIT AIMINVESTMENTS.COM.
INSTITUTIONAL CLASS SHARES HAVE
NO SALES CHARGE; THEREFORE,
PERFORMANCE IS AT NET ASSET VALUE
(NAV). PERFORMANCE OF INSTITUTIONAL
CLASS SHARES WILL DIFFER FROM
PERFORMANCE OF OTHER SHARE CLASSES DUE
TO DIFFERING SALES CHARGES AND CLASS
EXPENSES.
=========================================
NASDAQ SYMBOL IEGIX
=========================================
Over for information on your Fund's expenses.
====================================================================================
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.
====================================================================================
FOR INSTITUTIONAL INVESTOR USE ONLY
This material is for institutional investor use only and may not be quoted, reproduced or shown to the public, nor used in written
form as sales literature for public use.
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
</Table>
AIMinvestments.com ISC-INS-1 A I M Distributors, Inc.
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
<Caption>
EXAMPLE with the amount you invested, to expense ratio and an assumed rate of
estimate the expenses that you paid return of 5% per year before expenses,
As a shareholder of the Fund, you over the period. Simply divide your which is not the Fund's actual return.
incur ongoing costs, including account value by $1,000 (for example,
management fees and other Fund an $8,600 account value divided by The hypothetical account values
expenses. This example is intended to $1,000 = 8.6), then multiply the and expenses may not be used to
help you understand your ongoing costs result by the number in the table estimate the actual ending account
(in dollars) of investing in the Fund under the heading entitled "Actual balance or expenses you paid for the
and to compare these costs with Expenses Paid During Period" to period. You may use this information
ongoing costs of investing in other estimate the expenses you paid on your to compare the ongoing costs of
mutual funds. The actual ending account during the period, October 25, investing in the Fund and other funds.
account value and expenses in the 2005, through December 31, 2005. To do so, compare this 5% hypothetical
below example are based on an Because the actual ending account example with the 5% hypothetical
investment of $1,000 invested on value and expense information in the examples that appear in the
October 25, 2005 (the date the share example is not based upon a six month shareholder reports of the other
class commenced operations), and held period, the ending account value and funds.
through December 31, 2005. The expense information may not provide a
hypothetical ending account value and meaningful comparison to mutual funds Please note that the expenses
expenses in the below example are that provide such information for a shown in the table are meant to
based on an investment of $1,000 full six month period. highlight your ongoing costs only.
invested at the beginning of the Therefore, the hypothetical
period and held for the entire six HYPOTHETICAL EXAMPLE FOR information is useful in comparing
month period July 1, 2005, through COMPARISON PURPOSES ongoing costs only, and will not help
December 31, 2005. you determine the relative total costs
The table below also provides of owning different funds.
ACTUAL EXPENSES information about hypothetical account
values and hypothetical expenses based
The table below provides information on the Fund's actual
about actual account values and actual
expenses. You may use the information
in this table, together
====================================================================================================================================
HYPOTHETICAL
ACTUAL (5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (10/25/05) (12/31/05)(1) PERIOD(2) (12/31/05) PERIOD(3) RATIO
Institutional $1,000.00 $1,141.90 $2.33 $1,019.31 $5.96 1.17%
(1) The actual ending account value is based on the actual total return of the Fund for the period October 25, 2005, through
December 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 over the six month period July 1, 2005, through
December 31, 2005.
(2) Actual expenses are equal to the annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 68 (October 25, 2005, through December 31, 2005)/365. Because the share class has not been in existence
for a full six month period, the actual ending account value and expense information shown may not provide a meaningful
comparison to fund expense information of classes that show such data for a full six month period and, because the actual
ending account value and expense information in the expense example covers a short time period, return and expense data may not
be indicative of return and expense data for longer time periods.
(3) Hypothetical expenses are equal to the annualized as indicated above multiplied by the average account value over the period,
multiplied by 184/365 to reflect a one-half year period. The hypothetical ending account value and expenses may be used to
compare ongoing costs of investing the Institutional Class shares of the Fund and other funds because such data is based on a
full six month period.
====================================================================================================================================
</Table>
AIMinvestments.com ISC-INS-1 A I M Distributors, Inc.
AIM INTERNATIONAL SMALL COMPANY FUND
SCHEDULE OF INVESTMENTS
December 31, 2005
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-96.42%
AUSTRALIA-2.24%
Computershare Ltd. (Data Processing &
Outsourced Services)(a) 815,000 $ 4,055,978
- ------------------------------------------------------------------------
CSL Ltd. (Biotechnology)(a) 143,900 4,469,894
- ------------------------------------------------------------------------
Ramsay Health Care Ltd. (Health Care
Facilities)(a) 425,900 2,976,352
- ------------------------------------------------------------------------
Toll Holdings Ltd. (Trucking)(a) 242,100 2,635,915
========================================================================
14,138,139
========================================================================
AUSTRIA-1.49%
Andritz A.G. (Industrial Machinery) 85,500 9,398,200
========================================================================
BELGIUM-0.79%
EVS Broadcast Equipment S.A. (Communications
Equipment)(a) 146,960 4,995,649
========================================================================
BRAZIL-5.42%
Banco Nossa Caixa S.A. (Regional Banks)
(Acquired 10/27/05; Cost $1,278,198)(b) 93,900 1,401,493
- ------------------------------------------------------------------------
Banco Nossa Caixa S.A. (Regional Banks) 124,700 1,861,194
- ------------------------------------------------------------------------
Cosan S.A. Industria e Comercio (Packaged
Foods & Meats) (Acquired 11/17/05; Cost
$1,540,786)(b)(c) 70,400 2,051,213
- ------------------------------------------------------------------------
Cosan S.A. Industria e Comercio (Packaged
Foods & Meats)(c) 82,100 2,392,111
- ------------------------------------------------------------------------
Cyrela Brazil Realty S.A. (Homebuilding)(a) 174,200 2,362,875
- ------------------------------------------------------------------------
Cyrela Brazil Realty S.A.-GDR (Homebuilding)
(Acquired 09/21/05; Cost $1,171,104)(b)(d) 17,915 2,454,634
- ------------------------------------------------------------------------
Localiza Rent a Car S.A. (Trucking)(a) 295,200 3,587,071
- ------------------------------------------------------------------------
Lojas Americanas S.A.-Pfd. (General
Merchandise Stores)(a) 160,400 4,870,891
- ------------------------------------------------------------------------
Net Servicos de Comunicacao S.A.-Pfd.
(Broadcasting & Cable TV)(a)(c) 10,493,682 4,791,908
- ------------------------------------------------------------------------
Perdigao S.A.-Pfd. (Packaged Foods &
Meats)(a) 134,700 4,601,665
- ------------------------------------------------------------------------
Tim Participacoes S.A.-ADR (Wireless
Telecommunication Services) 153,900 3,890,592
========================================================================
34,265,647
========================================================================
CANADA-22.28%
Aastra Technologies Ltd. (Communications
Equipment)(c) 227,700 7,266,188
- ------------------------------------------------------------------------
ADDENDA Capital Inc. (Investment Banking &
Brokerage) (Acquired 12/03/04; Cost
$2,847,571)(b)(e) 200,000 5,410,287
- ------------------------------------------------------------------------
AKITA Drilling Ltd.-Class A (Oil & Gas
Drilling) 161,640 3,364,603
- ------------------------------------------------------------------------
Aur Resources Inc. (Diversified Metals &
Mining) 397,400 4,026,640
- ------------------------------------------------------------------------
Badger Income Fund (Construction &
Engineering) 264,140 3,975,959
- ------------------------------------------------------------------------
BMTC Group, Inc.-Class A (Homefurnishing
Retail) 147,564 2,030,814
- ------------------------------------------------------------------------
</Table>
<Table>
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
CANADA-(CONTINUED)
Bonnett's Energy Services Trust (Oil & Gas
Equipment & Services) 191,000 $ 3,293,953
- ------------------------------------------------------------------------
Calfrac Well Services Ltd. (Diversified
Metals & Mining) 93,000 3,223,723
- ------------------------------------------------------------------------
Canaccord Capital Inc. (Investment Banking &
Brokerage) 405,000 5,187,038
- ------------------------------------------------------------------------
Canam Group Inc.-Class A (Steel) (Acquired
03/18/05; Cost $2,870,694)(b)(c) 600,000 3,643,558
- ------------------------------------------------------------------------
Canam Group Inc.-Class A (Steel)(c) 93,800 569,609
- ------------------------------------------------------------------------
Crew Energy Inc. (Oil & Gas Exploration &
Production)(c) 347,400 5,587,803
- ------------------------------------------------------------------------
FirstService Corp. (Diversified Commercial &
Professional Services)(c) 181,600 4,661,056
- ------------------------------------------------------------------------
Gammon Lake Resources Inc. (Precious Metals &
Minerals)(c) 186,000 2,209,410
- ------------------------------------------------------------------------
Groupe Laperriere & Verreault Inc.-Class A
(Industrial Machinery) 296,600 4,706,924
- ------------------------------------------------------------------------
Kingsway Financial Services Inc. (Property &
Casualty Insurance) 302,200 6,108,464
- ------------------------------------------------------------------------
Mega Bloks Inc. (Leisure Products)(c) 118,000 2,803,337
- ------------------------------------------------------------------------
Miranda Technologies Inc. (Communications
Equipment) (Acquired 11/30/05; Cost
$3,369,272)(b)(c)(e) 350,000 4,094,271
- ------------------------------------------------------------------------
Miranda Technologies Inc. (Communications
Equipment)(c) 40,000 467,917
- ------------------------------------------------------------------------
Peak Energy Services Trust (Oil & Gas
Equipment & Services) 317,000 3,585,541
- ------------------------------------------------------------------------
Reitmans (Canada) Ltd.-Class A (Apparel
Retail) 555,000 8,177,490
- ------------------------------------------------------------------------
Sherritt International Corp. (Diversified
Metals & Mining) 802,000 6,967,315
- ------------------------------------------------------------------------
Stantec Inc. (Construction & Engineering)(c) 121,900 4,167,835
- ------------------------------------------------------------------------
Total Energy Trust Ltd. (Oil & Gas Equipment
& Services) 785,990 11,472,777
- ------------------------------------------------------------------------
Trican Well Service Ltd. (Oil & Gas Equipment
& Services)(c) 408,240 19,664,063
- ------------------------------------------------------------------------
Wajax Income Fund (Industrial Machinery) 366,870 9,690,846
- ------------------------------------------------------------------------
Western Lakota Energy Services Inc. (Oil &
Gas Drilling)(c) 300,000 4,479,615
========================================================================
140,837,036
========================================================================
CHINA-1.70%
China Mengniu Dairy Co. Ltd. (Packaged Foods
& Meats)(a) 4,296,000 3,649,709
- ------------------------------------------------------------------------
FU JI Food & Catering Services
(Restaurants)(a) 2,639,000 4,308,869
- ------------------------------------------------------------------------
Suntech Power Holdings Co., Ltd.-ADR
(Electrical Components & Equipment)(c) 18,978 517,151
- ------------------------------------------------------------------------
</Table>
F-1
AIM INTERNATIONAL SMALL COMPANY FUND
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
CHINA-(CONTINUED)
Xinyi Glass Holding Co. Ltd. (Auto Parts &
Equipment)(a) 9,786,000 $ 2,246,895
========================================================================
10,722,624
========================================================================
FRANCE-4.21%
Eiffage S.A. (Construction & Engineering)(a) 50,055 5,410,588
- ------------------------------------------------------------------------
Elior (Restaurants)(a) 399,300 5,245,574
- ------------------------------------------------------------------------
Euler Hermes S.A. (Property & Casualty
Insurance)(a) 61,420 5,541,219
- ------------------------------------------------------------------------
Trigano S.A. (Leisure Products) 116,550 5,190,722
- ------------------------------------------------------------------------
Zodiac S.A. (Aerospace & Defense)(c) 81,200 5,214,978
========================================================================
26,603,081
========================================================================
GERMANY-4.28%
Bijou Brigitte Modische Accessoires A.G.
(Apparel, Accessories & Luxury Goods)(a) 43,550 11,827,548
- ------------------------------------------------------------------------
Puma A.G. Rudolf Dassler Sport (Footwear)
(Acquired 01/30/02-05/19/03; Cost
$390,508)(a)(b) 8,470 2,471,653
- ------------------------------------------------------------------------
Puma A.G. Rudolf Dassler Sport (Footwear)(a) 1,849 539,561
- ------------------------------------------------------------------------
Rheinmetall A.G. (Industrial Conglomerates) 74,161 4,675,988
- ------------------------------------------------------------------------
Techem A.G. (Diversified Commercial &
Professional Services)(c) 167,380 7,509,992
========================================================================
27,024,742
========================================================================
GREECE-4.04%
Germanos S.A. (Computer & Electronics Retail) 339,032 5,739,491
- ------------------------------------------------------------------------
Intralot S.A. (Casinos & Gaming)(a) 310,400 5,442,586
- ------------------------------------------------------------------------
Jumbo S.A. (Leisure Products)(a) 382,500 4,140,317
- ------------------------------------------------------------------------
Motor Oil (Hellas) Corinth Refineries S.A.
(Oil & Gas Refining & Marketing)(a) 153,600 3,608,527
- ------------------------------------------------------------------------
Titan Cement Co. S.A. (Construction
Materials)(a) 161,200 6,590,500
========================================================================
25,521,421
========================================================================
HONG KONG-4.37%
AAC Acoustic Technology Holdings Inc.
(Communications Equipment) (Acquired
08/03/05; Cost $448,668)(a)(b)(c) 1,264,600 772,704
- ------------------------------------------------------------------------
AAC Acoustic Technology Holdings Inc.
(Communications Equipment)(a)(c) 5,072,000 3,099,125
- ------------------------------------------------------------------------
Hengan International Group Co. Ltd. (Personal
Products)(a) 5,188,000 5,884,908
- ------------------------------------------------------------------------
Link REIT (The) (Real Estate)(c) 1,353,000 2,565,127
- ------------------------------------------------------------------------
Parkson Retail Group Ltd. (Department Stores)
(Acquired 11/23/05; Cost $508,763)(b)(c) 398,500 719,532
- ------------------------------------------------------------------------
Parkson Retail Group Ltd. (Department
Stores)(c) 1,050,000 1,895,881
- ------------------------------------------------------------------------
Regal Hotels International Holdings Ltd.
(Hotels, Resorts & Cruise Lines)(a) 40,896,000 2,890,185
- ------------------------------------------------------------------------
Solomon Systech International Ltd.
(Semiconductors)(a) 11,354,000 4,710,831
- ------------------------------------------------------------------------
Techtronic Industries Co. Ltd. (Household
Appliances) (Acquired 04/24/02-04/29/02;
Cost $40,716)(a)(b) 100,000 237,983
- ------------------------------------------------------------------------
</Table>
<Table>
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
HONG KONG-(CONTINUED)
Techtronic Industries Co. Ltd. (Household
Appliances)(a) 500,000 $ 1,189,916
- ------------------------------------------------------------------------
Wing Hang Bank Ltd. (Diversified Banks)(a) 510,000 3,672,011
========================================================================
27,638,203
========================================================================
INDIA-1.34%
Bharat Forge Ltd. (Auto Parts & Equipment)(a) 531,950 4,653,840
- ------------------------------------------------------------------------
HDFC Bank Ltd. (Diversified Banks)(a) 244,000 3,843,498
========================================================================
8,497,338
========================================================================
IRELAND-0.99%
FBD Holdings PLC (Multi-Line Insurance) 144,900 6,288,651
========================================================================
JAPAN-4.64%
ARGO GRAPHICS Inc. (IT Consulting & Other
Services)(a) 134,400 4,097,761
- ------------------------------------------------------------------------
EXEDY Corp. (Auto Parts & Equipment)(a) 221,700 6,119,667
- ------------------------------------------------------------------------
NEOMAX Co., Ltd. (Electrical Components &
Equipment)(a) 150,000 4,895,704
- ------------------------------------------------------------------------
NGK Insulators, Ltd. (Industrial
Machinery)(a) 417,000 6,179,065
- ------------------------------------------------------------------------
Optoelectronics Co., Ltd. (Electronic
Equipment Manufacturers)(a) 88,200 3,260,498
- ------------------------------------------------------------------------
Pasona Inc. (Human Resource & Employment
Services)(a) 1,280 3,087,892
- ------------------------------------------------------------------------
Take and Give Needs Co., Ltd. (Specialized
Consumer Services)(a)(c) 1,000 1,661,181
========================================================================
29,301,768
========================================================================
MEXICO-2.23%
Corporacion GEO, S.A. de C.V.-Series B
(Homebuilding)(c) 1,171,900 4,133,200
- ------------------------------------------------------------------------
Grupo Financiero Banorte S.A. de C.V.-Class O
(Diversified Banks) 1,616,500 3,387,314
- ------------------------------------------------------------------------
TV Azteca, S.A. de C. V.-CPO (Broadcasting &
Cable TV) 3,900,000 2,567,599
- ------------------------------------------------------------------------
Urbi, Desarrollos Urbanos, S.A. de C.V.
(Homebuilding)(c) 581,600 4,020,466
========================================================================
14,108,579
========================================================================
NETHERLANDS-6.16%
Aalberts Industries N.V. (Industrial
Conglomerates)(a) 146,621 7,784,754
- ------------------------------------------------------------------------
Ballast Nedam N.V.-Dutch Ctfs. (Construction
& Engineering)(c) 120,129 4,728,639
- ------------------------------------------------------------------------
Koninklijke BAM Groep N.V. (Construction &
Engineering) (Acquired 09/20/04-12/10/04;
Cost $2,797,582)(a)(b) 76,700 6,436,666
- ------------------------------------------------------------------------
Koninklijke BAM Groep N.V. (Construction &
Engineering)(a) 71,400 5,991,890
- ------------------------------------------------------------------------
Nutreco Holding N.V. (Agricultural
Products)(a) 109,800 4,849,446
- ------------------------------------------------------------------------
Smit Internationale N.V. (Marine Ports &
Services)(a) 65,400 4,280,093
- ------------------------------------------------------------------------
</Table>
F-2
AIM INTERNATIONAL SMALL COMPANY FUND
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
NETHERLANDS-(CONTINUED)
USG People N.V. (Human Resource & Employment
Services)(a) 114,700 $ 4,861,074
========================================================================
38,932,562
========================================================================
NORWAY-6.33%
Acta Holding A.S.A. (Diversified Capital
Markets) 2,132,200 5,654,865
- ------------------------------------------------------------------------
Aktiv Kapital A.S.A. (Specialized Finance)(a) 173,954 2,654,257
- ------------------------------------------------------------------------
Petroleum Geo-Services A.S.A. (Oil & Gas
Equipment & Services)(a)(c) 227,100 7,029,516
- ------------------------------------------------------------------------
Prosafe A.S.A. (Oil & Gas Equipment &
Services) 183,800 7,802,098
- ------------------------------------------------------------------------
Schibsted A.S.A. (Publishing)(a) 115,700 3,441,060
- ------------------------------------------------------------------------
TGS Nopec Geophysical Co. A.S.A. (Oil & Gas
Equipment & Services)(a)(c) 144,780 6,820,893
- ------------------------------------------------------------------------
Tomra Systems A.S.A. (Environmental &
Facilities Services)(a) 919,700 6,587,360
========================================================================
39,990,049
========================================================================
PHILIPPINES-0.44%
Philippine Long Distance Telephone Co.
(Integrated Telecommunication Services)(a) 81,500 2,793,132
========================================================================
PORTUGAL-0.30%
Mota-Engil, SGPS, S.A. (Construction &
Engineering)(a) 500,000 1,923,827
========================================================================
SINGAPORE-0.00%
Citiraya Industries Ltd. (Environmental &
Facilities Services)(c)(e)(f) 4,106,000 25
========================================================================
SOUTH AFRICA-1.04%
Massmart Holdings Ltd. (Hypermarkets & Super
Centers) 804,600 6,567,774
========================================================================
SOUTH KOREA-8.54%
Charm E&T Co., Ltd. (Industrial
Machinery)(a)(c) 475,000 2,693,166
- ------------------------------------------------------------------------
Cheil Communications Inc. (Advertising)(a) 16,170 3,511,427
- ------------------------------------------------------------------------
CJ Corp. (Packaged Foods & Meats)(a)(c) 26,610 2,733,452
- ------------------------------------------------------------------------
Daegu Bank (Regional Banks)(a)(c) 274,000 4,107,228
- ------------------------------------------------------------------------
Daekyo Co., Ltd. (Publishing)(a) 28,700 2,233,294
- ------------------------------------------------------------------------
Daesang Corp. (Packaged Foods & Meats)(a)(c) 287,000 4,070,652
- ------------------------------------------------------------------------
DS LCD Co., Ltd. (Semiconductor
Equipment)(a)(c) 62,678 505,469
- ------------------------------------------------------------------------
Emerging Memory & Logic Solutions Inc.
(Semiconductors)(a) 150,342 2,665,993
- ------------------------------------------------------------------------
Hyundai Department Store Co., Ltd.
(Department Stores)(a)(c) 91,900 7,718,677
- ------------------------------------------------------------------------
Hyundai Mipo Dockyard Co., Ltd.
(Construction, Farm Machinery & Heavy
Trucks)(a)(c) 71,710 4,332,716
- ------------------------------------------------------------------------
Lotte Confectionery Co., Ltd. (Packaged Foods
& Meats)(a)(c) 1,276 1,500,389
- ------------------------------------------------------------------------
NHN Corp. (Internet Software &
Services)(a)(c) 22,300 5,885,904
- ------------------------------------------------------------------------
Taegu Department Store Co., Ltd. (Department
Stores)(a) 140,000 2,642,034
- ------------------------------------------------------------------------
</Table>
<Table>
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
SOUTH KOREA-(CONTINUED)
Techno Semichem Co., Ltd. (Commodity
Chemicals)(a)(c) 231,750 $ 2,948,415
- ------------------------------------------------------------------------
Woongjin Coway Co., Ltd. (Housewares &
Specialties)(a)(c) 274,000 6,442,694
========================================================================
53,991,510
========================================================================
SWEDEN-0.35%
Hexagon A.B.-Class B (Industrial
Machinery)(a) 74,000 2,208,132
========================================================================
SWITZERLAND-1.78%
Amazys Holding A.G. (Diversified Commercial &
Professional Services) 81,329 4,778,234
- ------------------------------------------------------------------------
Banque Cantonale Vaudoise (Regional Banks)(a) 10,300 2,962,812
- ------------------------------------------------------------------------
Saurer A.G. (Industrial Machinery)(a) 52,700 3,512,814
========================================================================
11,253,860
========================================================================
TAIWAN-2.71%
Asia Optical Co., Inc. (Photographic
Products)(a) 707,263 4,855,709
- ------------------------------------------------------------------------
Catcher Technology Co., Ltd. (Computer
Storage & Peripherals)(a) 549,260 4,369,783
- ------------------------------------------------------------------------
Hotai Motor Co. Ltd. (Automobile
Manufacturers)(a) 869,000 2,126,854
- ------------------------------------------------------------------------
Tripod Technology Corp. (Electronic Equipment
Manufacturers)(a) 1,537,000 4,443,375
- ------------------------------------------------------------------------
Wistron Corp. (Computer Hardware)(a)(c) 1,080,000 1,352,826
========================================================================
17,148,547
========================================================================
THAILAND-0.73%
Siam Commercial Bank PCL (Diversified
Banks)(a) 3,653,000 4,630,250
========================================================================
UNITED KINGDOM-8.02%
Admiral Group PLC (Property & Casualty
Insurance) (Acquired 09/23/04; Cost
$985,230)(b) 199,900 1,564,872
- ------------------------------------------------------------------------
Admiral Group PLC (Property & Casualty
Insurance) 435,200 3,406,865
- ------------------------------------------------------------------------
Balfour Beatty PLC (Construction &
Engineering) 458,600 2,808,916
- ------------------------------------------------------------------------
Findel PLC (Catalog Retail) 222,900 1,907,910
- ------------------------------------------------------------------------
Hikma Pharmaceuticals PLC (Pharmaceuticals)
(Acquired 11/01/05; Cost $3,594,014)(b)(c) 700,000 4,874,607
- ------------------------------------------------------------------------
Homeserve PLC (Diversified Commercial &
Professional Services) 467,400 9,738,398
- ------------------------------------------------------------------------
Informa PLC (Publishing) 782,859 5,842,217
- ------------------------------------------------------------------------
Kensington Group PLC (Thrifts & Mortgage
Finance)(a) 384,720 6,126,875
- ------------------------------------------------------------------------
NDS Group PLC-ADR (Application Software)(c) 98,300 4,045,045
- ------------------------------------------------------------------------
NETeller PLC (Specialized Finance)(a)(c) 209,000 2,644,854
- ------------------------------------------------------------------------
Savills PLC (Other Diversified Financial
Services) 294,225 5,036,830
- ------------------------------------------------------------------------
Sportingbet PLC (Casinos & Gaming)(a) 458,328 2,711,140
========================================================================
50,708,529
========================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $419,902,378) 609,489,275
========================================================================
</Table>
F-3
AIM INTERNATIONAL SMALL COMPANY FUND
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
MONEY MARKET FUNDS-2.46%
Liquid Assets Portfolio-Institutional
Class(g) 7,770,836 $ 7,770,836
- ------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(g) 7,770,836 7,770,836
========================================================================
Total Money Market Funds (Cost
$15,541,672) 15,541,672
========================================================================
TOTAL INVESTMENTS-98.88% (Cost $435,444,050) 625,030,947
========================================================================
OTHER ASSETS LESS LIABILITIES-1.12% 7,058,490
========================================================================
NET ASSETS-100.00% $632,089,437
________________________________________________________________________
========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
CPO - Certificates of Ordinary Participation
Ctfs - Certificates
GDR - Global Depositary Receipt
Pfd. - Preferred
</Table>
Notes to Schedule of Investments:
(a) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
aggregate value of these securities at December 31, 2005 was $322,019,415,
which represented 50.95% of the Fund's Net Assets. See Note 1A.
(b) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction). The security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate value of these securities at December 31, 2005 was
$36,133,473, which represented 5.72% of the Fund's Net Assets. Unless
otherwise indicated, these securities are not considered to be illiquid.
(c) Non-income producing security.
(d) In accordance with the procedures established by the Board of Trustees,
security fair valued based on an evaluated quote provided by an independent
pricing service. The value of this security at December 31, 2005 represented
0.39% of the Fund's Net Assets. See Note 1A.
(e) Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The aggregate value of these
securities at December 31, 2005 was $9,504,583, which represented 1.50% of
the Fund's Net Assets. See Note 1A.
(f) Security considered to be illiquid. The Fund is limited to investing 15% of
net assets in illiquid securities at the time of purchase. The value of this
security considered illiquid at December 31, 2005 represented 0.00% of the
Fund's Net Assets.
(g) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 2.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-4
AIM INTERNATIONAL SMALL COMPANY FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2005
<Table>
ASSETS:
Investments, at value (cost $419,902,378) $609,489,275
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $15,541,672) 15,541,672
===========================================================
Total investments (cost $435,444,050) 625,030,947
===========================================================
Foreign currencies, at value (cost
$11,225,796) 11,302,563
- -----------------------------------------------------------
Receivables for:
Investments sold 837,649
- -----------------------------------------------------------
Fund shares sold 843,139
- -----------------------------------------------------------
Dividends 1,232,646
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 24,477
- -----------------------------------------------------------
Other assets 76,028
===========================================================
Total assets 639,347,449
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 4,141,823
- -----------------------------------------------------------
Fund shares reacquired 2,424,551
- -----------------------------------------------------------
Trustee deferred compensation and
retirement plans 33,928
- -----------------------------------------------------------
Accrued distribution fees 255,350
- -----------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 153
- -----------------------------------------------------------
Accrued transfer agent fees 118,280
- -----------------------------------------------------------
Accrued operating expenses 283,927
===========================================================
Total liabilities 7,258,012
===========================================================
Net assets applicable to shares outstanding $632,089,437
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $431,863,080
- -----------------------------------------------------------
Undistributed net investment income (602,393)
- -----------------------------------------------------------
Undistributed net realized gain from
investment securities and foreign
currencies 11,173,187
- -----------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 189,655,563
===========================================================
$632,089,437
___________________________________________________________
===========================================================
NET ASSETS:
Class A $451,629,762
___________________________________________________________
===========================================================
Class B $ 76,626,229
___________________________________________________________
===========================================================
Class C $102,861,192
___________________________________________________________
===========================================================
Institutional Class $ 972,254
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 22,013,297
___________________________________________________________
===========================================================
Class B 3,840,798
___________________________________________________________
===========================================================
Class C 5,157,320
___________________________________________________________
===========================================================
Institutional Class 47,391
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 20.52
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $20.52 / 94.50%) $ 21.71
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 19.95
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 19.94
___________________________________________________________
===========================================================
Institutional Class:
Net asset value and offering price per
share $ 20.52
___________________________________________________________
===========================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-5
AIM INTERNATIONAL SMALL COMPANY FUND
STATEMENT OF OPERATIONS
For the year ended December 31, 2005
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $854,076) $ 9,665,795
- --------------------------------------------------------------------------
Dividends from affiliates 729,388
- --------------------------------------------------------------------------
Interest 42,927
==========================================================================
Total investment income 10,438,110
==========================================================================
EXPENSES:
Advisory fees 4,891,684
- --------------------------------------------------------------------------
Administrative services fees 140,293
- --------------------------------------------------------------------------
Custodian fees 682,737
- --------------------------------------------------------------------------
Distribution fees:
Class A 979,597
- --------------------------------------------------------------------------
Class B 656,745
- --------------------------------------------------------------------------
Class C 819,334
- --------------------------------------------------------------------------
Transfer agent fees -- A, B and C 977,065
- --------------------------------------------------------------------------
Transfer agent fees -- Institutional 13
- --------------------------------------------------------------------------
Trustees' and officer's fees and benefits 28,805
- --------------------------------------------------------------------------
Other 373,187
==========================================================================
Total expenses 9,549,460
==========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (173,459)
==========================================================================
Net expenses 9,376,001
==========================================================================
Net investment income 1,062,109
==========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities (Net of tax on the sale of foreign
investments of $(10,905) - Note 1H) 38,533,915
- --------------------------------------------------------------------------
Foreign currencies (542,033)
==========================================================================
37,991,882
==========================================================================
Change in net unrealized appreciation of:
Investment securities (Net of change in estimated tax of
foreign investments held of $107,133 - Note 1H) 105,135,079
- --------------------------------------------------------------------------
Foreign currencies 48,226
==========================================================================
105,183,305
==========================================================================
Net gain from investment securities and foreign currencies 143,175,187
==========================================================================
Net increase in net assets resulting from operations $144,237,296
__________________________________________________________________________
==========================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-6
AIM INTERNATIONAL SMALL COMPANY FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2005 and 2004
<Table>
<Caption>
2005 2004
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ 1,062,109 $ (696,913)
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 37,991,882 6,090,933
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and foreign currencies 105,183,305 59,972,406
==========================================================================================
Net increase in net assets resulting from operations 144,237,296 65,366,426
==========================================================================================
Distributions to shareholders from net investment income:
Class A (1,100,904) (60,067)
- ------------------------------------------------------------------------------------------
Institutional Class (1,979) --
==========================================================================================
Total distributions from net investment income (1,102,883) (60,067)
==========================================================================================
Distributions to shareholders from net realized gains:
Class A (16,860,092) (3,378,922)
- ------------------------------------------------------------------------------------------
Class B (2,943,799) (646,759)
- ------------------------------------------------------------------------------------------
Class C (3,937,571) (626,531)
- ------------------------------------------------------------------------------------------
Institutional Class (26,076) --
==========================================================================================
Total distributions from net realized gains (23,767,538) (4,652,212)
==========================================================================================
Decrease in net assets resulting from distributions (24,870,421) (4,712,279)
==========================================================================================
Share transactions-net:
Class A 108,444,997 126,403,770
- ------------------------------------------------------------------------------------------
Class B 13,612,615 22,472,939
- ------------------------------------------------------------------------------------------
Class C 36,376,030 30,787,540
- ------------------------------------------------------------------------------------------
Institutional Class 950,433 --
==========================================================================================
Net increase in net assets resulting from share
transactions 159,384,075 179,664,249
==========================================================================================
Net increase in net assets 278,750,950 240,318,396
==========================================================================================
NET ASSETS:
Beginning of year 353,338,487 113,020,091
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(602,393) and $(21,967), respectively) $632,089,437 $353,338,487
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-7
AIM INTERNATIONAL SMALL COMPANY FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM International Small Company Fund (the "Fund") is a series portfolio of AIM
Funds Group (the "Trust"). The Trust is a Delaware statutory trust registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as an
open-end series management investment company consisting of eight separate
portfolios, each authorized to issue an unlimited number of shares of beneficial
interest. The Fund currently offers multiple classes of shares. Matters
affecting each portfolio or class will be voted on exclusively by the
shareholders of such portfolio or class. The assets, liabilities and operations
of each portfolio are accounted for separately. Information presented in these
financial statements pertains only to the Fund.
The Fund's investment objective is long-term growth of capital.
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. The risk of material loss as a result of such indemnification plans is
considered remote.
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 are 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 recorded at amortized cost which approximates value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs and domestic and foreign index futures.
F-8
AIM INTERNATIONAL SMALL COMPANY FUND
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. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be United States of America unless otherwise noted.
D. 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.
E. 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.
F. 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.
G. REDEMPTION FEES -- The Fund has a 2% redemption fee that is to be retained
by the Fund to offset transaction costs and other expenses associated with
short-term redemptions and exchanges. The fee, subject to certain
exceptions, is imposed on certain redemptions, including exchanges of
shares held less than 30 days. The redemption fee is recorded as an
increase in shareholder capital by the Fund and is allocated among the
share classes based on the relative net assets of each class.
H. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i) sales
of foreign currencies, (ii) currency gains or losses realized between the
trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
I. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
F-9
AIM INTERNATIONAL SMALL COMPANY FUND
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.95% of the Fund's
average daily net assets.
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 0.935%
- ----------------------------------------------------------------------
Next $250 million 0.91%
- ----------------------------------------------------------------------
Next $500 million 0.885%
- ----------------------------------------------------------------------
Next $1.5 billion 0.86%
- ----------------------------------------------------------------------
Next $2.5 billion 0.835%
- ----------------------------------------------------------------------
Next $2.5 billion 0.81%
- ----------------------------------------------------------------------
Next $2.5 billion 0.785%
- ----------------------------------------------------------------------
Over $10 billion 0.76%
_____________________________________________________________________
======================================================================
</Table>
AIM has also 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 1.90%, 2.65%, 2.65% and 1.65% of average daily net
assets, respectively, through December 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 numbers reflected above: (i) interest; (ii)
taxes; (iii) dividend expense on short sales; (iv) extraordinary items; (v)
expenses related to a merger or reorganization, as approved by the Fund's Board
of Trustees; and (vi) expenses that the Fund has incurred but did not actually
pay because of an expense offset arrangement. Currently, in addition to the
expense reimbursement arrangement with AMVESCAP 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. 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.
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 December 31, 2005, AIM waived fees of $153,257.
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
December 31, 2005, AMVESCAP reimbursed expenses of the Fund in the amount of
$2,430.
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, 2005, AIM was paid $140,293.
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 December 31, 2005, the
Fund paid AISI $977,065 for Class A, Class B and Class C share classes and $13
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 0.25% of the Fund's average
daily net assets of Class A shares and 1.00% of the average daily net assets of
Class B and Class C shares. Prior to July 1, 2005, the Fund paid ADI 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. 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. 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 year ended December 31,
2005, the Class A, Class B and Class C shares paid $979,597, $656,745 and
$819,334, 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, 2005, ADI advised the Fund that it
F-10
AIM INTERNATIONAL SMALL COMPANY FUND
retained $172,425 in front-end sales commissions from the sale of Class A shares
and $2,442, $57,733 and $46,780 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") and approved procedures by the Board of Trustees, to
invest daily available cash balances in affiliated money market funds. The Fund
and the money market funds below have the same investment advisor and therefore,
are considered to be affiliated. The table below shows the transactions in and
earnings from investments in affiliated money market funds for the year ended
December 31, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME GAIN (LOSS)
- --------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $14,652,276 $106,188,079 $(113,069,519) $ -- $7,770,836 $362,884 $ --
- --------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 14,652,276 106,188,079 (113,069,519) -- 7,770,836 366,504 --
================================================================================================================================
Subtotal $29,304,552 $212,376,158 $(226,139,038) $ -- $15,541,672 $729,388 $ --
================================================================================================================================
</Table>
INVESTMENTS IN OTHER AFFILIATES:
The Investment Company Act of 1940 defines affiliates as those companies in
which a fund holds 5% or more of the outstanding voting securities. The Fund has
not owned enough of the outstanding voting securities of the issuer to have
control (as defined in the Investment Company Act of 1940) of that issuer. The
following is a summary of the transactions with affiliates for the year ended
December 31, 2005.
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
ISSUER 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME GAIN (LOSS)
- --------------------------------------------------------------------------------------------------------------------------------
Transat A.T.
Inc.-Class A $1,390,635 $ 2,408,108 $ (3,047,258) $(659,423) $ -- $ -- $(92,062)
================================================================================================================================
Total $30,695,187 $214,784,266 $(229,186,296) $(659,423) $15,541,672 $729,388 $(92,062)
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures, each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended December 31, 2005, the Fund
engaged in securities purchases of $1,030,614.
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, 2005, the Fund received credits from these arrangements,
which resulted in the reduction of the Fund's total expenses of $17,772.
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 December 31, 2005, the Fund paid legal fees of $5,631
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
F-11
AIM INTERNATIONAL SMALL COMPANY FUND
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, 2005, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
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, 2005
and 2004 was as follows:
<Table>
<Caption>
2005 2004
- ---------------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $ 2,445,088 $1,464,397
- ---------------------------------------------------------------------------------------
Long-term capital gain 22,425,329 3,247,882
=======================================================================================
Total distributions $24,870,417 $4,712,279
_______________________________________________________________________________________
=======================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2005
- ----------------------------------------------------------------------------
Undistributed ordinary income $ 3,390,485
- ----------------------------------------------------------------------------
Undistributed long-term gain 8,899,858
- ----------------------------------------------------------------------------
Unrealized appreciation -- investments 188,410,852
- ----------------------------------------------------------------------------
Temporary book/tax differences (28,410)
- ----------------------------------------------------------------------------
Post-October currency loss deferral (446,428)
- ----------------------------------------------------------------------------
Shares of beneficial interest 431,863,080
============================================================================
Total net assets $632,089,437
____________________________________________________________________________
============================================================================
</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 and the recognition of unrealized gains on passive foreign investment
companies. The tax-basis unrealized appreciation on investments amount includes
appreciation on foreign currencies of $68,666.
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 did not have a capital loss carryforward for the year ended
December 31, 2005.
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, 2005 was $431,589,621 and $289,553,497, respectively.
F-12
AIM INTERNATIONAL SMALL COMPANY FUND
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $191,943,664
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (3,601,478)
==============================================================================
Net unrealized appreciation of investment securities $188,342,186
______________________________________________________________________________
==============================================================================
</Table>
Cost of investments for tax purposes is $436,688,761.
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, excise taxes paid and foreign capital gain tax and the use of
proceeds from redemptions as distributions, on December 31, 2005, undistributed
net investment income was decreased by $539,652, undistributed net realized gain
was decreased by $2,594,061 and shares of beneficial interest increased by
$3,133,713. This reclassification had no effect on the net assets of the Fund.
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.
As of March 14, 2005, the Fund's shares are offered on a limited basis.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
2005(A) 2004
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 12,734,728 $ 223,813,862 16,386,746 $ 224,397,563
- ------------------------------------------------------------------------------------------------------------------------
Class B 1,431,141 24,129,493 2,424,445 32,530,604
- ------------------------------------------------------------------------------------------------------------------------
Class C 3,092,473 52,315,760 3,054,037 40,985,997
- ------------------------------------------------------------------------------------------------------------------------
Institutional Class(b) 46,064 923,638 -- --
========================================================================================================================
Issued as reinvestment of dividends:
Class A 760,981 15,354,062 171,758 2,658,846
- ------------------------------------------------------------------------------------------------------------------------
Class B 139,800 2,745,691 40,784 617,885
- ------------------------------------------------------------------------------------------------------------------------
Class C 187,018 3,671,151 39,308 595,120
- ------------------------------------------------------------------------------------------------------------------------
Institutional Class(b) 1,389 28,054 -- --
========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 167,278 3,006,246 124,568 1,742,784
- ------------------------------------------------------------------------------------------------------------------------
Class B (171,587) (3,006,246) (127,016) (1,742,784)
========================================================================================================================
Reacquired:(c)
Class A (7,583,280) (133,729,173) (7,975,559) (102,395,423)
- ------------------------------------------------------------------------------------------------------------------------
Class B (590,477) (10,256,323) (697,463) (8,932,766)
- ------------------------------------------------------------------------------------------------------------------------
Class C (1,147,180) (19,610,881) (843,079) (10,793,577)
- ------------------------------------------------------------------------------------------------------------------------
Institutional Class(b) (62) (1,259) -- --
========================================================================================================================
9,068,286 $ 159,384,075 12,598,529 $ 179,664,249
________________________________________________________________________________________________________________________
========================================================================================================================
</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 15% of the outstanding shares
of the Fund. ADI 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.
(b) Institutional Class shares commenced operations on October 25, 2005.
(c) Amount is net of redemption fees of $12,551, $2,096, $2,574 and $2 for
Class A, Class B, Class C, and Institutional Class shares, respectively,
for the year ended December 31, 2005 and $22,491, $3,963 and $3,254 for
Class A, Class B and Class C shares, respectively, for the year ended
December 31, 2004.
F-13
AIM INTERNATIONAL SMALL COMPANY FUND
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,
----------------------------------------------------------------
2005 2004 2003 2002 2001
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 16.17 $ 12.08 $ 6.91 $ 7.10 $ 7.97
- ------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.07 (0.03)(a) (0.04)(a) (0.06)(a) (0.08)(a)
- ------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 5.12 4.34 5.24 (0.13) (0.76)
==============================================================================================================================
Total from investment operations 5.19 4.31 5.20 (0.19) (0.84)
==============================================================================================================================
Less distributions:
Dividends from net investment income (0.05) (0.00) (0.03) -- (0.03)
- ------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.79) (0.22) -- -- --
==============================================================================================================================
Total distributions (0.84) (0.22) (0.03) -- (0.03)
==============================================================================================================================
Redemption fees added to shares of beneficial interest 0.00 0.00 0.00 -- --
==============================================================================================================================
Net asset value, end of period $ 20.52 $ 16.17 $ 12.08 $ 6.91 $ 7.10
______________________________________________________________________________________________________________________________
==============================================================================================================================
Total return(b) 32.21% 35.83% 75.10% (2.68)% (10.48)%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $451,630 $257,579 $87,269 $9,703 $ 5,202
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.61%(c) 1.83% 2.00% 2.01% 2.02%
- ------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.64%(c) 1.85% 2.35% 3.03% 4.55%
==============================================================================================================================
Ratio of net investment income (loss) to average net assets 0.42%(c) (0.19)% (0.46)% (0.85)% (1.12)%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Portfolio turnover rate 60% 87% 93% 118% 145%
______________________________________________________________________________________________________________________________
==============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $367,236,495.
<Table>
<Caption>
CLASS B
-----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
2005 2004 2003 2002 2001
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 15.81 $ 11.89 $ 6.84 $ 7.07 $ 7.95
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05) (0.11)(a) (0.10)(a) (0.11)(a) (0.13)(a)
- -------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 4.98 4.25 5.15 (0.12) (0.75)
===============================================================================================================================
Total from investment operations 4.93 4.14 5.05 (0.23) (0.88)
===============================================================================================================================
Less distributions from net realized gains (0.79) (0.22) -- -- --
===============================================================================================================================
Redemption fees added to shares of beneficial interest 0.00 0.00 0.00 -- --
===============================================================================================================================
Net asset value, end of period $ 19.95 $ 15.81 $ 11.89 $ 6.84 $ 7.07
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(b) 31.28% 34.94% 73.83% (3.25)% (11.07)%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 76,626 $47,942 $16,543 $ 3,918 $ 2,016
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.35%(c) 2.48% 2.65% 2.66% 2.72%
- -------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.38%(c) 2.50% 3.00% 3.68% 5.25%
===============================================================================================================================
Ratio of net investment income (loss) to average net assets (0.32)%(c) (0.84)% (1.11)% (1.50)% (1.83)%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate 60% 87% 93% 118% 145%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $65,674,463.
F-14
AIM INTERNATIONAL SMALL COMPANY FUND
NOTE 12--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS C
-----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
2005 2004 2003 2002 2001
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 15.81 $ 11.89 $ 6.83 $ 7.07 $ 7.95
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05) (0.11)(a) (0.10)(a) (0.11)(a) (0.13)(a)
- -------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 4.97 4.25 5.16 (0.13) (0.75)
===============================================================================================================================
Total from investment operations 4.92 4.14 5.06 (0.24) (0.88)
===============================================================================================================================
Less distributions from net realized gains (0.79) (0.22) -- -- --
===============================================================================================================================
Redemption fees added to shares of beneficial interest 0.00 0.00 0.00 -- --
===============================================================================================================================
Net asset value, end of period $ 19.94 $ 15.81 $ 11.89 $ 6.83 $ 7.07
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(b) 31.22% 34.94% 74.09% (3.39)% (11.07)%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $102,861 $47,818 $ 9,208 $ 2,849 $ 2,588
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.35%(c) 2.48% 2.65% 2.66% 2.72%
- -------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.38%(c) 2.50% 3.00% 3.68% 5.25%
===============================================================================================================================
Ratio of net investment income (loss) to average net assets (0.32)%(c) (0.84)% (1.11)% (1.50)% (1.83)%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate 60% 87% 93% 118% 145%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $81,933,419.
<Table>
<Caption>
INSTITUTIONAL CLASS
---------------------------
OCTOBER 25, 2005
(DATE OPERATIONS
COMMENCED) TO
DECEMBER 31,
2005
- -------------------------------------------------------------------------------------------
Net asset value, beginning of period $18.73
- -------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.03
- -------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 2.61
===========================================================================================
Total from investment operations 2.64
===========================================================================================
Less distributions:
Dividends from net investment income (0.06)
- -------------------------------------------------------------------------------------------
Distributions from net realized gains (0.79)
===========================================================================================
Total distributions (0.85)
===========================================================================================
Redemption fees added to shares of beneficial interest 0.00
===========================================================================================
Net asset value, end of period $20.52
___________________________________________________________________________________________
===========================================================================================
Total return(a) 14.19%
___________________________________________________________________________________________
===========================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 972
___________________________________________________________________________________________
===========================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.18%(b)
- -------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.21%(b)
===========================================================================================
Ratio of net investment income to average net assets 0.85%(b)
___________________________________________________________________________________________
===========================================================================================
Portfolio turnover rate 60%
___________________________________________________________________________________________
===========================================================================================
</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 the returns for
shareholder transactions. Not annualized for periods less than one year.
(b) Ratios are annualized and based on average daily net assets of $374,145.
F-15
AIM INTERNATIONAL SMALL COMPANY FUND
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) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. 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.
PENDING LITIGATION AND REGULATORY INQUIRIES
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 October 19, 2005, this lawsuit was transferred for pretrial purposes to the
MDL Court (as defined below). On July 7, 2005, the Supreme Court of West
Virginia ruled in an unrelated lawsuit that is similar to this action that the
WVAG does not have authority 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. Initial research
indicates that these damages could be limited or capped by statute. 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; and
- 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 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 (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits 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
F-16
AIM INTERNATIONAL SMALL COMPANY FUND
NOTE 13--LEGAL PROCEEDINGS--(CONTINUED)
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.
On August 25, 2005, the MDL Court issued rulings on the common issues of law
presented in motions to dismiss shareholder class action and derivative
complaints that were filed in unrelated lawsuits. On November 3, 2005, the MDL
Court issued short opinions for the most part applying these rulings to the AIM
and IFG lawsuits. The MDL Court dismissed 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"). The Court dismissed all claims asserted in the class
action complaint but three: (i) the securities fraud claims under Section 10(b)
of the Securities Exchange Act of 1934, (ii) the excessive fee claim under
Section 36(b) of the 1940 Act (which survived only insofar as plaintiffs seek
recovery of fees associated with the assets involved in market timing); and
(iii) the MDL Court deferred ruling on the "control person liability" claim
under Section 48 of the 1940 Act. 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.
At the MDL Court's request, the parties submitted proposed orders implementing
these rulings in the AIM and IFG lawsuits. The MDL Court has not entered any
orders on the motions to dismiss in these lawsuits and it is possible the orders
may differ in some respects from the rulings described above. Based on the MDL
Court's opinion and both parties' proposed orders, however, all claims asserted
against the Funds that have been transferred to the MDL Court will be dismissed,
although certain Funds will remain nominal defendants in the derivative lawsuit.
On December 6, 2005, the MDL Court issued rulings on the common issues of law
presented in defendants' omnibus motion to dismiss the ERISA complaints. The
ruling was issued in unrelated lawsuits that are similar to the ERISA lawsuits
brought against AIM and IFG and related entities. The MDL Court: (i) denied the
motion to dismiss on the grounds that the plaintiffs lack standing or that the
defendants' investments in company stock are entitled to a presumption of
prudence; (ii) granted the motion to dismiss as to defendants not named in the
employee benefit plan documents as fiduciaries but gave plaintiffs leave to
replead facts sufficient to show that such defendants acted as de facto
fiduciaries; and (iii) confirmed plaintiffs' withdrawal of their prohibited
transactions and misrepresentations claims.
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, among others, 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. 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.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries described above may have on AIM, ADI or the Fund.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* * * * * *
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the AIM Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the AIM Funds.
F-17
AIM INTERNATIONAL SMALL COMPANY FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Funds Group
and Shareholders of AIM International Small Company Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM International Small Company
Fund (one of the funds constituting AIM Funds Group hereafter referred to as the
"Fund") at December 31, 2005, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the period
then ended, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 2005 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
February 17, 2006
Houston, Texas
F-18
AIM INTERNATIONAL SMALL COMPANY FUND
TRUSTEES AND OFFICERS
As of December 31, 2005
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1992 Director and Chairman, A I M Management None
Trustee, Vice Chair, Group Inc. (financial services holding
Principal Executive Officer company); Director and Vice Chairman,
and President AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- -------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.;
President Director 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
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,
AIM Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1987 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company (2 portfolios))
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and 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); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company); and Owner, Dos Angelos Ranch,
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company (3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
</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.
AIM INTERNATIONAL SMALL COMPANY FUND
TRUSTEES AND OFFICERS--(CONTINUED)
As of December 31, 2005
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1992 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired None
Trustee
Formerly: Partner, Deloitte & Touche
- -------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc.; Senior Vice President and
Chief 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 -- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President and 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 General Counsel, A I M
Secretary and Chief Legal Management Group Inc. and A I M
Officer 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.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC; 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, Principal Advisors, Inc.
Financial Officer and
Treasurer Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc.
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, and Senior
Investment Officer, A I M Capital
Management, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1992 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street & Frankel LLP P.O. Box 4739 225 Franklin Street
Philadelphia, PA 19103-7599 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Americas
New York, NY 10036-2714
</Table>
TAX DISCLOSURES
REQUIRED FEDERAL TAX INFORMATION OF ORDINARY DIVIDENDS PAID
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2005, 0% is eligible for the dividends received deduction for
corporations.
For its tax year ended December 31, 2005, the Fund designates 100%, or the
maximum amount allowable of its dividend distributions as qualified dividend
income. Your actual amount of qualified dividend income for the calendar year
will be reported in your Form 1099-DIV. You should consult your tax advisor
regarding treatment of the amounts. The Fund distributed long-term capital gains
of $25,572,329 for the Fund's tax year ended December 31, 2005.
TAX INFORMATION FOR NON-RESIDENT ALIEN SHAREHOLDERS
For its tax year ended December 31, 2005, the Fund designates 1.88%, or the
maximum amount allowable of its dividend distributions as qualified interest
income exempt from U.S. income tax for non-resident alien shareholders. Your
actual amount of qualified interest income for the calendar year will be
reported in your Form 1042-S mailing. You should consult your tax advisor
regarding treatment of the amounts.
The Fund designates qualified short-term capital gain distributions exempt from
U.S. income tax for non-resident alien shareholders of $864,202 for the Fund's
tax year ended December 31, 2005.
The percentage of qualifying assets not subject to the U.S. estate tax for the
fiscal quarters ended March 31, 2005, June 30, 2005, September 30, 2005 and
December 31, 2005 are 99.89%, 99.47%, 99.88% and 99.95%, respectively.
<Table>
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE
AIM Basic Balanced Fund* AIM Developing Markets Fund
AIM Basic Value Fund AIM European Growth Fund AIM Floating Rate Fund
AIM Blue Chip Fund AIM European Small Company Fund(1) AIM High Yield Fund
AIM Capital Development Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Charter Fund AIM Global Equity Fund AIM Intermediate Government Fund
AIM Constellation Fund AIM Global Growth Fund AIM Limited Maturity Treasury Fund
AIM Diversified Dividend Fund AIM Global Value Fund AIM Money Market Fund
AIM Dynamics Fund AIM International Core Equity Fund AIM Short Term Bond Fund
AIM Large Cap Basic Value Fund AIM International Growth Fund AIM Total Return Bond Fund
AIM Large Cap Growth Fund AIM International Small Company Fund(1) Premier Portfolio
AIM Mid Cap Basic Value Fund AIM Trimark Fund Premier U.S. Government Money Portfolio
AIM Mid Cap Core Equity Fund(1)
AIM Mid Cap Growth Fund SECTOR EQUITY TAX-FREE
AIM Opportunities I Fund
AIM Opportunities II Fund AIM Advantage Health Sciences Fund AIM High Income Municipal Fund(1)
AIM Opportunities III Fund AIM Energy Fund AIM Municipal Bond Fund
AIM Premier Equity Fund AIM Financial Services Fund AIM Tax-Exempt Cash Fund
AIM S&P 500 Index Fund AIM Global Health Care Fund AIM Tax-Free Intermediate Fund
AIM Select Equity Fund AIM Global Real Estate Fund Premier Tax-Exempt Portfolio
AIM Small Cap Equity Fund AIM Gold & Precious Metals Fund
AIM Small Cap Growth Fund(1) AIM Leisure Fund AIM ALLOCATION SOLUTIONS
AIM Small Company Growth Fund AIM Multi-Sector Fund
AIM Summit Fund AIM Real Estate Fund(1) AIM Conservative Allocation Fund
AIM Trimark Endeavor Fund AIM Technology Fund AIM Growth Allocation Fund(2)
AIM Trimark Small Companies Fund AIM Utilities Fund AIM Moderate Allocation Fund
AIM Weingarten Fund AIM Moderate Growth Allocation Fund
AIM Moderately Conservative Allocation
*Domestic equity and income fund Fund
DIVERSIFIED PORTFOLIOS
AIM Income Allocation Fund
AIM International Allocation Fund
=======================================================================================
CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY. FOR THIS
AND OTHER INFORMATION ABOUT AIM FUNDS,OBTAIN A PROSPECTUS FROM YOUR FINANCIAL ADVISOR
AND READ IT CAREFULLY BEFORE INVESTING.
=======================================================================================
</Table>
(1) This Fund has limited public sales of its shares to certain investors. For
more information on who may continue to invest in the Fund, please see the
appropriate prospectus.
(2) Effective April 29, 2005, AIM Aggressive Allocation Fund was renamed AIM
Growth Allocation Fund.
If used after April 20, 2006, 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 $128 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $386 billion in assets under management. Data as of December 31,
2005.
AIMinvestments.com ISC-AR-1 A I M Distributors, Inc.
<Table>
YOUR GOALS. OUR SOLUTIONS.--Registered Trademark--
- ---------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Management --Registered Trademark--
Plans Accounts
- ---------------------------------------------------------------------------------------
</Table>
AIM MID CAP BASIC VALUE FUND
Annual Report to Shareholders o December 31, 2005
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
-- Registered Trademark -- -- Registered Trademark --
AIM MID CAP BASIC VALUE FUND SEEKS TO ACHIEVE LONG-TERM GROWTH OF CAPITAL.
o Unless otherwise stated, information presented in this report is as of
December 31, 2005, and is based on total net assets.
<Table>
ABOUT SHARE CLASSES o The unmanaged RUSSELL o Commonality measures the similarity of
MIDCAP--Registered Trademark-- VALUE holdings between two portfolios using the
o Class B shares are not available as an INDEX is a subset of the RUSSELL lowest common percentage method. This
investment for retirement plans MIDCAP--Registered Trademark-- INDEX, method compares each security's
maintained pursuant to Section 401 of the which represents the performance of the percentage of total net assets in both
Internal Revenue Code, including 401(k) stocks of domestic mid-capitalization portfolios and adds the lower percentages
plans, money purchase pension plans and companies; the Value subset measures the of the two portfolios to determine
profit sharing plans. Plans that had performance of Russell Midcap companies commonality.
existing accounts invested in Class B with lower price/book ratios and lower
shares prior to September 30, 2003, will forecasted growth values. o The Conference Board is a
continue to be allowed to make additional not-for-profit organization that conducts
purchases. o The unmanaged MSCI WORLD INDEX is a research and publishes information and
group of global securities tracked by analysis to help businesses strengthen
o Class R shares are available only to Morgan Stanley Capital International. their performance.
certain retirement plans. Please see the
prospectus for more information. o The Fund is not managed to track the The Fund provides a complete list of its
performance of any particular index, holdings four times in each fiscal year,
PRINCIPAL RISKS OF INVESTING IN THE FUND including the indexes defined here, and at the quarter-ends. For the second and
consequently, the performance of the Fund fourth quarters, the lists appear in the
o Investing in smaller companies involves may deviate significantly from the Fund's semiannual and annual reports to
greater risk than investing in more performance of the indexes. shareholders. For the first and third
established companies, such as business quarters, the Fund files the lists with
risk, significant stock price o A direct investment cannot be made in the Securities and Exchange Commission
fluctuations and illiquidity. an index. Unless otherwise indicated, (SEC) on Form N-Q. The most recent list
index results include reinvested of portfolio holdings is available at
o The Fund may invest up to 25% of its dividends, and they do not reflect sales AIMinvestments.com. From our home page,
assets in the securities of non-U.S. charges. Performance of an index of funds click on Products & Performance, then
issuers. International investing presents reflects fund expenses; performance of a Mutual Funds, then Fund Overview. Select
certain risks not associated with market index does not. your Fund from the drop-down menu and
investing solely in the United States. click on Complete Quarterly Holdings.
These include risks relating to OTHER INFORMATION Shareholders can also look up the Fund's
fluctuations in the value of the U.S. Forms N-Q on the SEC's Web site at sec.
dollar relative to the values of other o The returns shown in management's gov. Copies of the Fund's Forms N-Q may
currencies, the custody arrangements made discussion of Fund performance are based be reviewed and copied at the SEC's
for the Fund's foreign holdings, on net asset values calculated for Public Reference Room at 450 Fifth
differences in accounting, political shareholder transactions. Generally Street, N.W., Washington, D.C.
risks and the lesser degree of public accepted accounting principles require 20549-0102. You can obtain information on
information required to be provided by adjustments to be made to the net assets the operation of the Public Reference
non-U.S. companies. of the Fund at period end for financial Room, including information about
reporting purposes, and as such, the net duplicating fee charges, by calling
ABOUT INDEXES USED IN THIS REPORT asset values for shareholder transactions 202-942-8090 or 800-732-0330, or by
and the returns based on those net asset electronic request at the following
o The unmanaged Standard & Poor's values may differ from the net asset e-mail address: publicinfo@sec.gov. The
Composite Index of 500 Stocks (the S&P values and returns reported in the SEC file numbers for the Fund are
500--Registered Trademark-- INDEX) is an Financial Highlights. 811-01540 and 2-27334.
index of common stocks frequently used as
a general measure of U.S. stock market o Industry classifications used in this A description of the policies and
performance. report are generally according to the procedures that the Fund uses to
Global Industry Classification Standard, determine how to vote proxies relating to
o The unmanaged LIPPER MID-CAP VALUE which was developed by and is the portfolio securities is available without
FUNDS INDEX represents an average of the exclusive property and a service mark of charge, upon request, from our Client
performance of the 30 largest Morgan Stanley Capital International Inc. Services department at 800-959-4246 or on
mid-capitalization value funds tracked by and Standard & Poor's. the AIM Web site, AIMinvestments.com. On
Lipper, Inc., an independent mutual fund the home page, scroll down and click on
performance monitor. 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.
============================================================================= =======================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND FUND NASDAQ SYMBOLS
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING. Class A shares MDCAX
============================================================================= Class B shares MDCBX
Class C shares MDCVX
Class R shares MDCRX
=======================================
</Table>
=====================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
=====================================================
AIMinvestments.com
AIM MID CAP BASIC VALUE FUND
DEAR FELLOW AIM FUNDS SHAREHOLDERS:
Although many concerns weighed on investors' minds during
the year covered by this report, stocks posted gains for the
period. Domestically, the broad-based S&P 500 Index returned
4.91%. Internationally, Morgan Stanley's MSCI World Index
[GRAHAM rose 9.49%. Concern about the inflationary potential of
PHOTO] rising energy costs was frequently cited as a major cause of
market restraint.
Within the indexes, there was considerable variability in
the performance of different sectors and markets.
ROBERT H. GRAHAM Domestically, energy sector performance far outpaced all
other sectors in the S&P 500 Index, reflecting rising oil
and gas prices. Overseas, emerging markets produced more
attractive results than developed markets, partially because
emerging markets tend to be more closely tied to the
performance of natural resources and commodities.
One could make a strong argument for global
diversification of a stock portfolio using the performance
[WILLIAMSON data for the year ended December 31, 2005. Of course, your
PHOTO] financial advisor is the person most qualified to help you
decide whether such diversification is appropriate for you.
MARK H. WILLIAMSON A number of key developments affected markets and the
economy in 2005:
o Hurricane Katrina, which devastated New Orleans in
August, had numerous economic repercussions and dealt a
short-term setback to consumer confidence. However,
consumer confidence rebounded toward the end of the year,
with the Conference Board crediting the resiliency of the
economy, falling gas prices and job growth for this
trend.
o The nation's gross domestic product (GDP), the broadest
measure of economic activity, increased at a healthy rate
throughout much of the year. The Bureau of Economic
Analysis of the U.S. Department of Commerce reported that
the nation's GDP grew at annualized rates of 3.8%, 3.3%
and 4.1% for the first, second and third quarters of the
year, respectively.
o For the second straight year, the economy created 2
million new jobs, although job growth was uneven and
sometimes did not meet analysts' expectations on a
monthly basis.
o The Federal Reserve Board (the Fed) continued its
tightening policy, raising the key federal funds target
rate to 4.25% by the end of the year. Many analysts
believed that the central bank was near the end of its
tightening policy as Ben Bernanke succeeded the retiring
Alan Greenspan as Fed chairman early in 2006.
o Gasoline prices, which soared to a nationwide average of
slightly more than $3.08 per gallon on September 5
following Hurricane Katrina, had dropped by more than 80
cents by mid-December, according to the U.S. Energy
Information Administration.
For a discussion of the specific market conditions that
affected your Fund and how your Fund was managed during the
year, please turn to Page 3.
YOUR FUND
Further information about the markets, your Fund, and
investing in general is always available on our
comprehensive 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 pleased to be of help.
Sincerely,
/S/ ROBERT H. GRAHAM /S/ MARK H. WILLIAMSON
Robert H. Graham Mark H. Williamson
President & Vice Chair, President,
AIM Funds A I M Advisors, Inc.
February 9, 2006
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. A I M
Distributors, Inc. is the distributor for the retail funds
represented by AIM Investments.
1
AIM MID CAP BASIC VALUE FUND
Dear Fellow AIM Fund Shareholders:
Having completed a year of transition and change at AIM
Funds--as well as my first full year as your board's
[CROCKETT independent chair--I can assure you that shareholder
PHOTO] interests are at the forefront of every decision your board
makes. While regulators and fund companies debate the value
of an independent board chair, this structure is working for
BRUCE L. CROCKETT you. An independent chair can help lead to unbiased
decisions and eliminate potential conflicts.
Some highlights of 2005 board activity:
o Board approval of voluntary fee reductions, which are
saving shareholders more than $20 million annually, based
on asset levels of March 31, 2005.
o Board approval for the merger of 14 funds into other AIM
funds with similar investment objectives. Eight of these
mergers were approved by shareholders of the target funds
during 2005. The remaining six are being voted on by
shareholders in early 2006. In each case, the goal is for
the resulting merged fund to benefit from strengthened
management and greater efficiency.
o Board approval for portfolio management changes at 11
funds, consistent with the goal of organizing management
teams around common processes and shared investment
views. Again, we hope that these changes will improve
fund performance and efficiency.
In 2006, your board will continue to focus on reducing
costs and shareholder fees and improving portfolio
performance, which is not yet as strong as we expect to see
it. Eight in-person board meetings and several additional
telephone and committee meetings are scheduled to take place
this year. I'll inform you of our progress in my next
semiannual letter to shareholders.
The AIM Funds board is pleased to welcome our newest
independent member, Raymond Stickel, Jr., a former partner
with the international auditing firm of Deloitte & Touche.
We also send our thanks and best wishes to Gerald J. Lewis,
who retired from your board in December 2005, and to Edward
K. Dunn, Jr., who is retiring this year.
Your board welcomes your views. Please mail them to me at
AIM Investments, AIM Investments Tower, 11 Greenway Plaza,
Suite 100, Houston TX 77046.
Sincerely,
/S/ BRUCE L. CROCKETT
Bruce L. Crockett
Independent Chair
On Behalf of the Board of Trustees
AIM Funds
February 9, 2006
2
AIM MID CAP BASIC VALUE FUND
<Table>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE Fund's largest contributor, as the stock
rose 64% during the year in response to
========================================================================================= the progress made in the pharmaceutical
PERFORMANCE SUMMARY ============================================ distribution industry's ongoing
FUND VS. INDEXES transition to a fee-for-service pricing,
For the year ended December 31, 2005, a move that will substantially reduce
Class A shares of AIM Mid Cap Basic Value Total returns, 12/31/04-12/31/05, excluding the company's exposure to the level and
Fund at net asset value outperformed the applicable sales charges. If sales volatility of drug price inflation.
S&P 500 Index and our value peers. During charges were included, returns would be
the period, the Fund underperformed the lower. Higher energy prices and improved
Russell Midcap Value Index. earnings prospects led to significant
Class A Shares 10.37% stock price increases in oil and gas
Long-term Fund performance information drilling contractor investments TODCO,
appears on Pages 6 and 7. Class B Shares 9.56 PRIDE INTERNATIONAL and NABORS
INDUSTRIES. During 2005, TODCO's stock
Our outperformance of the broad Class C Shares 9.56 more than doubled in response to rapidly
market index was largely driven by improving fundamentals in the Gulf of
significant above-market returns from Class R Shares 10.15 Mexico. Last fall's hurricanes in the
selected investments in the energy and region damaged or destroyed more than 5%
health care sectors. Primary detractors S&P 500 Index of the market's shallow water drilling
from performance were selected (Broad Market Index) 4.91 rig supply which exacerbated an already
investments in consumer discretionary and existing capacity shortage. TODCO
information technology. Russell Midcap Value Index controls a meaningful portion of that
(Style-specific Index) 12.65 market's spare capacity. While the
profitability outlook has steadily
Lipper Mid-Cap Value Fund Index improved for rigs already in operation,
(Peer Group Index) 8.75 the market has clearly shifted its focus
to the inherent value of this idle
SOURCE: LIPPER, INC. capacity.
============================================ The Fund's largest detractors to
performance during the year were
========================================================================================= advertising and marketing conglomerate
INTERPUBLIC GROUP, for-profit
CURRENT PERIOD ANALYSIS standout performers while consumer postsecondary education firm CORINTHIAN
discretionary and telecommunications COLLEGES and scientific equipment and
Soaring energy prices were the focus of declined. Other sectors posted modest chemical manufacturer WATERS CORP.
much investor attention during 2005. gains. Against this diverse backdrop, Multi-year restructuring situations like
Crude oil prices rose more than 50% from equity markets delivered single-digit the one taking place at Interpublic
$41 to $70 during the year. While higher gains during 2005. Group are often
gasoline prices, rising short term
interest rates and the ongoing fear of a Our health care and energy sector
housing bubble seemed to dominate the stocks were among the largest
popular press, the U.S. economy continued contributors to Fund performance. Health
its expansion and inflation remained low. care holdings MCKESSON, AETNA, and
Energy and utility stocks were WELLPOINT were significant performers
during 2005. McKesson was your
(continued)
========================================== ======================================== =========================================
PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector
1.Oil And Gas Drilling 9.0% 1.McKesson Corp. 4.1%
[PIE CHART] 2.Data Processing & Outsourced 2.Aetna Inc. 3.4
Financials 25.8% Services 8.4 3.TODCO-Class A 3.2
Consumer Discretionary 15.8% 3.Managed Health Care 6.6 4.Jackson Hewitt Tax Service Inc. 3.2
Health Care 14.3% 4.Thrifts & Mortgage Finance 6.4 5.WellPoint,Inc. 3.2
Information Technology 14.0% 5.Regional Banks 4.8 6.Radian Group Inc. 3.2
Energy 9.0% 7.ACE Ltd. 3.1
Materials 7.0% TOTAL NET ASSETS $252.7 MILLION 8.Pride International,Inc. 3.0
Consumer Staples 6.7% 9.DST Systems, Inc. 3.0
Industrials 3.2% TOTAL NUMBER OF HOLDINGS* 41 10.Computer Associates
Money Market Funds Plus International, Inc. 2.9
Other Assets Less Liabilities 4.2%
The Fund's holdings are subject to change, and there is no assurance that the
Fund will continue to hold any particular security.
*Excluding money market fund holdings.
========================================== ======================================== =========================================
</Table>
3
AIM MID CAP BASIC VALUE FUND
subject to short-term periods of The Fund's underperformance in PORTFOLIO ASSESSMENT
underperformance. With a new management consumer discretionary stocks led to our
team and the accounting restatement underperformance versus the We believe the single most important
complete, we continue to expect style-specific benchmark during 2005. indicator of the way AIM Mid Cap Basic
significant margin improvement over the Value Fund is positioned for potential
next several years and believe the stock Chicago Bridge & Iron is an success is not our historical investment
remains undervalued. engineering and construction firm with results or popular statistical measures,
significant exposure to oil and gas but rather the portfolio's estimated
We had initially purchased Corinthian projects. The stock declined in price intrinsic value. Since we can estimate
Colleges in 2004 following a 70% decline when the company delayed reporting its the intrinsic value of each holding in
that third quarter results due to an the portfolio, we can also estimate the
investigation of its accounting for intrinsic value of the entire Fund. The
SOARING ENERGY PRICES several projects. While the board of difference between market price and
WERE THE FOCUS directors' investigation has not yet estimated intrinsic value is slightly
OF MUCH INVESTOR been completed, our analysis suggests below average for your Fund by its
ATTENTION DURING 2005. these issues are not material to the historical standards. However, we
economic value of the company and we believe this estimated intrinsic value
was caused in large part by evidence of viewed the price decline as an content is significantly greater
slowing growth and fear of increased attractive buying opportunity.
regulatory scrutiny of the for-profit WE BELIEVE THE SINGLE
education industry. While the regulatory INVESTMENT PROCESS AND EVALUATION MOST IMPORTANT
risk had subsided, increased competition INDICATOR OF THE WAY
for new students led to enrollment We seek to create wealth by maintaining AIM MID CAP BASIC
declines and an impairment of the a long-term investment horizon and VALUE FUND IS
company's estimated intrinsic value. investing in companies that are selling POSITIONED FOR POTENTIAL
With better investment opportunities at a significant discount to their SUCCESS IS NOT OUR
elsewhere, we sold the stock at a very estimated intrinsic value--a value that HISTORICAL INVESTMENT
modest loss to shareholders. is based on the future cash flows RESULTS OR POPULAR
generated by the business. The Fund's STATISTICAL MEASURES,
We have made a few changes to the philosophy is based on two elements that BUT RATHER THE
portfolio since the Fund's semiannual we believe have extensive empirical PORTFOLIO'S ESTIMATED
report. We sold our remaining shares in evidence: INTRINSIC VALUE.
SPEEDWAY MOTORSPORTS, MONEYGRAM
INTERNATIONAL, AMERICAN FINANCIAL GROUP o Companies have a measurable estimated than what is available in the market.
and CEC ENTERTAINMENT based on valuation intrinsic value. Importantly, this fair While there is no assurance that market
and other portfolio considerations. We value is independent of the company's value will ever reflect our estimate of
initiated new positions in CEMEX, stock price. portfolio intrinsic value, as managers
CHICAGO BRIDGE & IRON, SMURFIT-STONE and shareholders we believe this
CONTAINER and MCDERMID. o Market prices are more volatile than provides the best indication that your
business values, partly because Fund is positioned to potentially
CEMEX proved to be a significant investors regularly overreact to achieve its objective of long-term
positive contributor to Fund performance negative news. growth of capital.
during 2005. The company is a global
leader in the pr oduction of cement, Since our application of this
aggregates and ready-mix concrete. The strategy is highly disciplined and
cement industry and end-market prices relatively unique, it is important to
continue to benefit from global growth understand the benefits and limitations
trends as well as the structural of our process. First, the investment
advantages related to the cement strategy is intended to preserve your
business. capital while growing it at above-market
rates over the long term. Second, we
have little portfolio commonality with
popular benchmarks and most of our
peers. Third, short-term relative
performance will differ from the
benchmarks and have little information
value simply because we don't own the
exact same stocks (low commonality).
4
AIM MID CAP BASIC VALUE FUND
IN CLOSING BRET W. STANLEY, Chartered
Financial Analyst, senior
Excluding sales charges, our 2005 [STANLEY portfolio manager, is lead
results were better than those of our PHOTO] manager of AIM Mid Cap Basic
peers. As managers and shareholders, we Value Fund and the head of
know a long-term investment horizon and AIM's Value Investment
attractive portfolio intrinsic value Management Unit. Prior to joining AIM in
content are critical to creating wealth. 1998, Mr. Stanley served as a vice
But we know maintaining a long-term president and portfolio manager and
investment horizon is a challenge. Every managed growth and income, equity income
year brings more investment choices, and and value portfolios. He began his
conventional wisdom suggests the need investment career in 1988. Mr. Stanley
for many portfolio changes and received a B.B.A. in finance from The
adjustments to beat the market. University of Texas at Austin and an
Empirical evidence reveals the reality M.S. in finance from the University of
that short-term behavior by both Houston.
portfolio managers and fund shareholders
continues to dilute investors' actual R. CANON COLEMAN II,
returns. One recent study estimated the Chartered Financial Analyst,
combined effects of short-term activity [COLEMAN II portfolio manager, is
and expenses have caused investors to PHOTO] manager of AIM Mid Cap Basic
underperform the market by 5% per year Value Fund. He joined
for 20 years. During this period, the AMVESCAP in 1999 in its
average holding period for a typical corporate associate rotation program,
stock has declined from more than three working with fund managers throughout
years to less than 12 months. AMVESCAP before joining AIM in 2000. He
Considering this market backdrop, your previously worked as a CPA. Mr. Coleman
Fund is doing something different and earned a B.S. and an M.S. in accounting
old fashioned--investing for the long from the University of Florida. He also
term. Our strategy of buying undervalued has an M.B.A. from The Wharton School at
stocks and avoiding the rest is based on the University of Pennsylvania.
common sense.
MATTHEW W.
We remain optimistic about AIM Mid SEINSHEIMER,
Cap Basic Value Fund's portfolio. As [SEINSHEIMER Chartered Financial
always, we are continually searching for PHOTO] Analyst, senior
opportunities to increase portfolio portfolio manager,
estimated intrinsic value. In the is manager of AIM
meantime, we thank you for sharing our Mid Cap Basic Value Fund. He began his
long-term investment horizon. investment career in 1992 as a
fixed-income trader. He later served as
THE VIEWS AND OPINIONS EXPRESSED IN a portfolio manager on both fixed income
MANAGEMENT'S DISCUSSION OF FUND and equity portfolios. Mr. Seinsheimer
PERFORMANCE ARE THOSE OF A I M ADVISORS, joined AIM as a senior analyst in 1998
INC. THESE VIEWS AND OPINIONS ARE and assumed his current responsibilities
SUBJECT TO CHANGE AT ANY TIME BASED ON in 2000. He received a B.B.A. from
FACTORS SUCH AS MARKET AND ECONOMIC Southern Methodist University and an
CONDITIONS. THESE VIEWS AND OPINIONS MAY M.B.A. from The University of Texas at
NOT BE RELIED UPON AS INVESTMENT ADVICE Austin.
OR RECOMMENDATIONS, OR AS AN OFFER FOR A
PARTICULAR SECURITY. THE INFORMATION IS MICHAEL J. SIMON, Chartered
NOT A COMPLETE ANALYSIS OF EVERY ASPECT Financial Analyst, senior
OF ANY MARKET, COUNTRY, INDUSTRY, [SIMON portfolio manager, is
SECURITY OR THE FUND. STATEMENTS OF FACT PHOTO] manager of AIM Mid Cap Basic
ARE FROM SOURCES CONSIDERED RELIABLE, Value Fund. He joined AIM in
BUT A I M ADVISORS, INC. MAKES NO 2001. Prior to joining AIM,
REPRESENTATION OR WARRANTY AS TO THEIR Mr. Simon worked as a vice president,
COMPLETENESS OR ACCURACY. ALTHOUGH equity analyst and portfolio manager.
HISTORICAL PERFORMANCE IS NO GUARANTEE Mr. Simon, who began his investment
OF FUTURE RESULTS, THESE INSIGHTS MAY career in 1989, received a B.B.A. in
HELP YOU UNDERSTAND OUR INVESTMENT finance from Texas Christian University
MANAGEMENT PHILOSOPHY. and an M.B.A. from the University of
Chicago. Mr. Simon has served as
See important Fund and index Occasional Faculty in the Finance and
disclosures inside front cover. Decision Sciences Department of Texas [RIGHT ARROW GRAPHIC]
Christian University's M.J. Neeley
School of Business. FOR A PRESENTATION OF YOUR FUND'S
LONG-TERM PERFORMANCE, PLEASE SEE
Assisted by the Basic Value Team PAGES 6 AND 7.
5
AIM MID CAP BASIC VALUE FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
FUND AND INDEX DATA FROM 12/31/01
[MOUNTAIN CHART]
================================================================================
DATE AIM MID CAP BASIC AIM MID CAP BASIC AIM MID CAP BASIC S&P 500 RUSSELL MIDCAP LIPPER MID-CAP
VALUE FUND- VALUE FUND- VALUE FUND- INDEX VALUE FUND INDEX VALUE FUND
CLASS A SHARES CLASS B SHARES CLASS C SHARES INDEX INDEX
12/31/01 $ 9450 $10000 $10000 $10000 $10000 $10000
1/02 9431 9980 9970 9854 10101 9959
2/02 9507 10050 10040 9664 10265 9995
3/02 10357 10949 10939 10028 10790 10623
4/02 10121 10700 10690 9420 10783 10594
5/02 9999 10560 10550 9351 10766 10439
6/02 9101 9600 9600 8685 10286 9701
7/02 8099 8540 8541 8008 9279 8750
8/02 8137 8570 8570 8061 9387 8774
9/02 7211 7589 7590 7185 8439 8007
10/02 7494 7889 7890 7817 8707 8278
11/02 8279 8709 8700 8277 9256 8946
12/02 7778 8179 8180 7791 9036 8534
1/03 7637 8019 8019 7587 8785 8327
2/03 7410 7779 7780 7473 8640 8141
3/03 7410 7779 7780 7545 8669 8174
4/03 7968 8360 8350 8167 9328 8801
5/03 8847 9279 9270 8597 10149 9593
6/03 8931 9359 9360 8706 10220 9741
7/03 9480 9929 9930 8860 10538 10048
8/03 9820 10278 10280 9032 10912 10498
9/03 9499 9938 9930 8937 10827 10343
10/03 10066 10528 10520 9442 11622 11060
11/03 10208 10669 10660 9525 11959 11405
12/03 10661 11139 11130 10024 12475 11870
1/04 10992 11469 11469 10208 12804 12212
2/04 11275 11769 11760 10350 13121 12554
3/04 11304 11789 11780 10194 13142 12535
4/04 11228 11700 11690 10034 12586 12199
5/04 11313 11790 11780 10171 12909 12362
6/04 11597 12080 12070 10369 13369 12811
7/04 11078 11519 11519 10026 13007 12313
8/04 10832 11269 11259 10066 13217 12277
9/04 11115 11559 11550 10175 13601 12689
10/04 11115 11539 11539 10331 13916 12885
11/04 11928 12379 12379 10749 14856 13712
12/04 12400 12870 12860 11114 15432 14190
1/05 12126 12580 12569 10843 15073 13842
2/05 12343 12800 12789 11071 15599 14278
3/05 12173 12611 12609 10876 15552 14159
4/05 11786 12211 12199 10669 15142 13552
5/05 12240 12671 12659 11009 15768 14170
6/05 12664 13111 13099 11024 16283 14524
7/05 13109 13551 13539 11434 17059 15181
8/05 12920 13351 13339 11330 16926 15082
9/05 13015 13440 13439 11422 17155 15142
10/05 12939 13350 13349 11231 16630 14653
11/05 13506 13920 13919 11655 17217 15273
12/05 13686 13800 14090 11660 17384 15432
SOURCE: LIPPER,INC.
================================================================================
Past performance cannot guarantee include reinvested dividends, but they
comparable future results. do not reflect sales charges.
Performance of an index of funds
The data shown in the chart include reflects fund expenses and management
reinvested distributions, applicable fees; performance of a market index does
sales charges, Fund expenses and not. Performance shown in the chart and
management fees. Results for Class B table(s) does not reflect deduction of
shares are calculated as if a taxes a shareholder would pay on Fund
hypothetical shareholder had liquidated distributions or sale of Fund shares.
his entire investment in the Fund at the Performance of the indexes does not
close of the reporting period and paid reflect the effects of taxes.
the applicable contingent deferred sales
charges. Index results
[ARROW
BUTTON For More Information Visit
IMAGE] AIMINVESTMENTS.COM
6
AIM MID CAP BASIC VALUE FUND
======================================== ========================================
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
As of 12/31/05, including applicable
sales charges 6 months ended 12/31/05,excluding
applicable sales charges
CLASS A SHARES
Inception (12/31/01) 8.16% Class A Shares 8.06%
1 Year 4.32 Class B Shares 7.55
Class C Shares 7.56
CLASS B SHARES Class R Shares 7.84
Inception (12/31/01) 8.39% ========================================
1 Year 4.56 ========================================
For the three years ended December 31,
CLASS C SHARES 2005,the Fund's Class A shares at net
Inception (12/31/01) 8.95% asset value have performed essentially
1 Year 8.56 in line with the Lipper Mid-Cap Value
Fund Index. Since the Fund's inception
CLASS R SHARES on December 31,2001, and excluding
Inception 9.53% applicable sales charges, Class A
1 Year 10.15 shares' average annual total returns
======================================== have been 20.72% versus 21.83% for the
index.
========================================
CLASS R SHARES' INCEPTION DATE IS APRIL LOWER OR HIGHER. PLEASE VISIT ON CLASS B SHARES DECLINES FROM 5%
30, 2004. RETURNS SINCE THAT DATE ARE AIMinvestments.com FOR THE MOST RECENT BEGINNING AT THE TIME OF PURCHASE TO 0%
HISTORICAL RETURNS. ALL OTHER RETURNS MONTH-END PERFORMANCE. PERFORMANCE AT THE BEGINNING OF THE SEVENTH YEAR.
ARE BLENDED RETURNS OF HISTORICAL CLASS FIGURES REFLECT REINVESTED THE CDSC ON CLASS C SHARES IS 1% FOR THE
R SHARE PERFORMANCE AND RESTATED CLASS A DISTRIBUTIONS, CHANGES IN NET ASSET FIRST YEAR AFTER PURCHASE. CLASS R
SHARE PERFORMANCE (FOR PERIODS PRIOR TO VALUE AND THE EFFECT OF THE MAXIMUM SHARES DO NOT HAVE A FRONT-END SALES
THE INCEPTION DATE OF CLASS R SHARES) AT SALES CHARGE UNLESS OTHERWISE STATED. CHARGE; RETURNS SHOWN ARE AT NET ASSET
NET ASSET VALUE, ADJUSTED TO REFLECT THE INVESTMENT RETURN AND PRINCIPAL VALUE VALUE AND DO NOT REFLECT A 0.75% CDSC
HIGHER RULE 12B-1 FEES APPLICABLE TO WILL FLUCTUATE SO THAT YOU MAY HAVE A THAT MAY BE IMPOSED ON A TOTAL
CLASS R SHARES. CLASS A SHARES' GAIN OR LOSS WHEN YOU SELL SHARES. REDEMPTION OF RETIREMENT PLAN ASSETS
INCEPTION DATE IS DECEMBER 31, 2001. WITHIN THE FIRST YEAR.
CLASS A SHARE PERFORMANCE REFLECTS
THE PERFORMANCE DATA QUOTED REPRESENT THE MAXIMUM 5.50% SALES CHARGE, AND THE PERFORMANCE OF THE FUND'S SHARE
PAST PERFORMANCE AND CANNOT GUARANTEE CLASS B AND CLASS C SHARE PERFORMANCE CLASSES WILL DIFFER DUE TO DIFFERENT
COMPARABLE FUTURE RESULTS; CURRENT REFLECTS THE APPLICABLE CONTINGENT SALES CHARGE STRUCTURES AND CLASS
PERFORMANCE MAY BE DEFERRED SALES CHARGE (CDSC) FOR THE EXPENSES.
7
AIM MID CAP BASIC VALUE FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE together with the amount you invested, The hypothetical account values and
to estimate the expenses that you paid expenses may not be used to estimate the
As a shareholder of the Fund, you incur over the period. Simply divide your actual ending account balance or
two types of costs: (1) transaction account value by $1,000 (for example, an expenses you paid for the period. You
costs, which may include sales charges $8,600 account value divided by $1,000 = may use this information to compare the
(loads) on purchase payments; contingent 8.6), then multiply the result by the ongoing costs of investing in the Fund
deferred sales charges on redemptions; number in the table under the heading and other funds. To do so, compare this
and redemption fees, if any; and (2) entitled "Actual Expenses Paid During 5% hypothetical example with the 5%
ongoing costs, including management Period" to estimate the expenses you hypothetical examples that appear in the
fees; distribution and/or service fees paid on your account during this period. shareholder reports of the other funds.
(12b-1); and other Fund expenses. This
example is intended to help you HYPOTHETICAL EXAMPLE FOR Please note that the expenses shown
understand your ongoing costs (in COMPARISON PURPOSES in the table are meant to highlight your
dollars) of investing in the Fund and to ongoing costs only and do not reflect
compare these costs with ongoing costs The table below also provides any transactional costs, such as sales
of investing in other mutual funds. The information about hypothetical account charges (loads) on purchase payments,
example is based on an investment of values and hypothetical expenses based contingent deferred sales charges on
$1,000 invested at the beginning of the on the Fund's actual expense ratio and redemptions, and redemption fees, if
period and held for the entire period an assumed rate of return of 5% per year any. Therefore, the hypothetical
July 1, 2005, through December 31, 2005. before expenses, which is not the Fund's information is useful in comparing
actual return. The Fund's actual ongoing costs only, and will not help
ACTUAL EXPENSES cumulative total returns at net asset you determine the relative total costs
value after expenses for the six months of owning different funds. In addition,
The table below provides information ended December 31, 2005, appear in the if these transactional costs were
about actual account values and actual table "Cumulative Total Returns" on Page included, your costs would have been
expenses. You may use the information in 7. higher.
this table,
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/01/05) (12/31/05)(1) PERIOD(2) (12/31/05) PERIOD(2) RATIO
A $1,000.00 $1,080.60 $ 7.92 $1,017.59 $ 7.68 1.51%
B 1,000.00 1,075.50 11.82 1,013.81 11.47 2.26
C 1,000.00 1,075.60 11.82 1,013.81 11.47 2.26
R 1,000.00 1,078.40 9.22 1,016.33 8.94 1.76
(1) The actual ending account value is based on the actual total return of the Fund for the period July 1, 2005, through December
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 December 31, 2005, appear in the table "Cumulative Total Returns" on Page 7.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year.
====================================================================================================================================
8
AIM MID CAP BASIC VALUE FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND
SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION
The Board of Trustees of AIM Funds Group o The quality of services to be provided o Fees relative to those of clients of
(the "Board") oversees the management of by AIM. The Board reviewed the AIM with comparable investment
AIM Mid Cap Basic Value Fund (the credentials and experience of the strategies. The Board noted that AIM
"Fund") and, as required by law, officers and employees of AIM who will does not serve as an advisor to other
determines annually whether to approve provide investment advisory services to mutual funds or other clients with
the continuance of the Fund's advisory the Fund. In reviewing the investment strategies comparable to
agreement with A I M Advisors, Inc. qualifications of AIM to provide those of the Fund.
("AIM"). Based upon the recommendation investment advisory services, the Board
of the Investments Committee of the reviewed the qualifications of AIM's o Fees relative to those of comparable
Board, which is comprised solely of investment personnel and considered such funds with other advisors. The Board
independent trustees, at a meeting held issues as AIM's portfolio and product reviewed the advisory fee rate for the
on June 30, 2005, the Board, including review process, various back office Fund under the Advisory Agreement. The
all of the independent trustees, support functions provided by AIM and Board compared effective contractual
approved the continuance of the advisory AIM's equity and fixed income trading advisory fee rates at a common asset
agreement (the "Advisory Agreement") operations. Based on the review of these level and noted that the Fund's rate was
between the Fund and AIM for another and other factors, the Board concluded below the median rate of the funds
year, effective July 1, 2005. that the quality of services to be advised by other advisors with
provided by AIM was appropriate and that investment strategies comparable to
The Board considered the factors AIM currently is providing satisfactory those of the Fund that the Board
discussed below in evaluating the services in accordance with the terms of reviewed. The Board noted that AIM has
fairness and reasonableness of the the Advisory Agreement. agreed to waive advisory fees of the
Advisory Agreement at the meeting on Fund and to limit the Fund's total
June 30, 2005 and as part of the Board's o The performance of the Fund relative operating expenses, as discussed below.
ongoing oversight of the Fund. In their to comparable funds. The Board reviewed Based on this review, the Board
deliberations, the Board and the the performance of the Fund during the concluded that the advisory fee rate for
independent trustees did not identify past one and three calendar years the Fund under the Advisory Agreement
any particular factor that was against the performance of funds advised was fair and reasonable.
controlling, and each trustee attributed by other advisors with investment
different weights to the various strategies comparable to those of the o Expense limitations and fee waivers.
factors. Fund. The Board noted that the Fund's The Board noted that AIM has
performance in such periods was below contractually agreed to waive advisory
One of the responsibilities of the the median performance of such fees of the Fund through December 31,
Senior Officer of the Fund, who is comparable funds. The Board noted that 2009 to the extent necessary so that the
independent of AIM and AIM's affiliates, AIM has recently made changes to the advisory fees payable by the Fund do not
is to manage the process by which the Fund's portfolio management team, which exceed a specified maximum advisory fee
Fund's proposed management fees are appear to be producing encouraging early rate, which maximum rate includes
negotiated to ensure that they are results but need more time to be breakpoints and is based on net asset
negotiated in a manner which is at arm's evaluated before a conclusion can be levels. The Board considered the
length and reasonable. To that end, the made that the changes have addressed the contractual nature of this fee waiver
Senior Officer must either supervise a Fund's under-performance. Based on this and noted that it remains in effect
competitive bidding process or prepare review, the Board concluded that no until December 31, 2009. The Board also
an independent written evaluation. The changes should be made to the Fund and noted that AIM has voluntarily agreed to
Senior Officer has recommended an that it was not necessary to change the waive fees and/or limit expenses of the
independent written evaluation in lieu Fund's portfolio management team at this Fund in an amount necessary to limit
of a competitive bidding process and, time. total annual operating expenses to a
upon the direction of the Board, has specified percentage of average daily
prepared such an independent written o The performance of the Fund relative net assets for each class of the Fund.
evaluation. Such written evaluation also to indices. The Board reviewed the The Board considered the voluntary
considered certain of the factors performance of the Fund during the past nature of this fee waiver/expense
discussed below. In addition, as one and three calendar years against the limitation and noted that it can be
discussed below, the Senior Officer made performance of the Lipper Mid-Cap Value terminated at any time by AIM without
certain recommendations to the Board in Index. The Board noted that the Fund's further notice to investors. The Board
connection with such written evaluation. performance in such periods was below considered the effect these fee
the performance of such Index. The Board waivers/expense limitations would have
The discussion below serves as a noted that AIM has recently made changes on the Fund's estimated expenses and
summary of the Senior Officer's to the Fund's portfolio management team, concluded that the levels of fee
independent written evaluation and which appear to be producing encouraging waivers/expense limitations for the Fund
recommendations to the Board in early results but need more time to be were fair and reasonable.
connection therewith, as well as a evaluated before a conclusion can be
discussion of the material factors and made that the changes have addressed the o Breakpoints and economies of scale.
the conclusions with respect thereto Fund's under-performance. Based on this The Board reviewed the structure of the
that formed the basis for the Board's review, the Board concluded that no Fund's advisory fee under the Advisory
approval of the Advisory Agreement. changes should be made to the Fund and Agreement, noting that it includes two
After consideration of all of the that it was not necessary to change the breakpoints. The Board reviewed the
factors below and based on its informed Fund's portfolio management team at this level of the Fund's advisory fees, and
business judgment, the Board determined time. noted that such fees, as a percentage of
that the Advisory Agreement is in the the Fund's net assets, would decrease as
best interests of the Fund and its o Meeting with the Fund's portfolio net assets increase because the Advisory
shareholders and that the compensation managers and investment personnel. With Agreement includes breakpoints. The
to AIM under the Advisory Agreement is respect to the Fund, the Board is Board noted that, due to the Fund's
fair and reasonable and would have been meeting periodically with such Fund's current asset levels and the way in
obtained through arm's length portfolio managers and/or other which the advisory fee breakpoints have
negotiations. investment personnel and believes that been structured, the Fund has yet to
such individuals are competent and able benefit from the breakpoints. The Board
o The nature and extent of the advisory to continue to carry out their noted that AIM has contractually agreed
services to be provided by AIM. The responsibilities under the Advisory to waive advisory fees of the Fund
Board reviewed the services to be Agreement. through December 31, 2009 to the extent
provided by AIM under the Advisory necessary so that the advisory fees
Agreement. Based on such review, the o Overall performance of AIM. payable by the Fund do not exceed a
Board concluded that the range of The Board considered the overall specified maximum advisory fee rate,
services to be provided by AIM under the performance of AIM in providing which maximum rate includes breakpoints
Advisory Agreement was appropriate and investment advisory and portfolio and is based on net asset levels. The
that AIM currently is providing services administrative services to the Fund and Board concluded that the Fund's fee
in accordance with the terms of the concluded that such performance was levels under
Advisory Agreement. satisfactory.
(continued)
9
AIM MID CAP BASIC VALUE FUND
the Advisory Agreement therefore would o Profitability of AIM and its o Other factors and current trends. In
reflect economies of scale at higher affiliates. The Board reviewed determining whether to continue the
asset levels and that it was not information concerning the profitability Advisory Agreement for the Fund, the
necessary to change the advisory fee of AIM's (and its affiliates') Board considered the fact that AIM,
breakpoints in the Fund's advisory fee investment advisory and other activities along with others in the mutual fund
schedule. and its financial condition. The Board industry, is subject to regulatory
considered the overall profitability of inquiries and litigation related to a
o Investments in affiliated money market AIM, as well as the profitability of AIM wide range of issues. The Board also
funds. The Board also took into account in connection with managing the Fund. considered the governance and compliance
the fact that uninvested cash and cash The Board noted that AIM's operations reforms being undertaken by AIM and its
collateral from securities lending remain profitable, although increased affiliates, including maintaining an
arrangements (collectively, "cash expenses in recent years have reduced internal controls committee and
balances") of the Fund may be invested AIM's profitability. Based on the review retaining an independent compliance
in money market funds advised by AIM of the profitability of AIM's and its consultant, and the fact that AIM has
pursuant to the terms of an SEC affiliates' investment advisory and undertaken to cause the Fund to operate
exemptive order. The Board found that other activities and its financial in accordance with certain governance
the Fund may realize certain benefits condition, the Board concluded that the policies and practices. The Board
upon investing cash balances in AIM compensation to be paid by the Fund to concluded that these actions indicated a
advised money market funds, including a AIM under its Advisory Agreement was not good faith effort on the part of AIM to
higher net return, increased liquidity, excessive. adhere to the highest ethical standards,
increased diversification or decreased and determined that the current
transaction costs. The Board also found o Benefits of soft dollars to AIM. The regulatory and litigation environment to
that the Fund will not receive reduced Board considered the benefits realized which AIM is subject should not prevent
services if it invests its cash balances by AIM as a result of brokerage the Board from continuing the Advisory
in such money market funds. The Board transactions executed through "soft Agreement for the Fund.
noted that, to the extent the Fund dollar" arrangements. Under these
invests in affiliated money market arrangements, brokerage commissions paid
funds, AIM has voluntarily agreed to by the Fund and/or other funds advised
waive a portion of the advisory fees it by AIM are used to pay for research and
receives from the Fund attributable to execution services. This research is
such investment. The Board further used by AIM in making investment
determined that the proposed securities decisions for the Fund. The Board
lending program and related procedures concluded that such arrangements were
with respect to the lending Fund is in appropriate.
the best interests of the lending Fund
and its respective shareholders. The o AIM's financial soundness in light of
Board therefore concluded that the the Fund's needs. The Board considered
investment of cash collateral received whether AIM is financially sound and has
in connection with the securities the resources necessary to perform its
lending program in the money market obligations under the Advisory
funds according to the procedures is in Agreement, and concluded that AIM has
the best interests of the lending Fund the financial resources necessary to
and its respective shareholders. fulfill its obligations under the
Advisory Agreement.
o Independent written evaluation and
recommendations of the Fund's Senior o Historical relationship between the
Officer. The Board noted that, upon Fund and AIM. In determining whether to
their direction, the Senior Officer of continue the Advisory Agreement for the
the Fund, who is independent of AIM and Fund, the Board also considered the
AIM's affiliates, had prepared an prior relationship between AIM and the
independent written evaluation in order Fund, as well as the Board's knowledge
to assist the Board in determining the of AIM's operations, and concluded that
reasonableness of the proposed it was beneficial to maintain the
management fees of the AIM Funds, current relationship, in part, because
including the Fund. The Board noted that of such knowledge. The Board also
the Senior Officer's written evaluation reviewed the general nature of the
had been relied upon by the Board in non-investment advisory services
this regard in lieu of a competitive currently performed by AIM and its
bidding process. In determining whether affiliates, such as administrative,
to continue the Advisory Agreement for transfer agency and distribution
the Fund, the Board considered the services, and the fees received by AIM
Senior Officer's written evaluation and and its affiliates for performing such
the recommendation made by the Senior services. In addition to reviewing such
Officer to the Board that the Board services, the trustees also considered
consider implementing a process to the organizational structure employed by
assist them in more closely monitoring AIM and its affiliates to provide those
the performance of the AIM Funds. The services. Based on the review of these
Board concluded that it would be and other factors, the Board concluded
advisable to implement such a process as that AIM and its affiliates were
soon as reasonably practicable. 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.
10
SUPPLEMENT TO ANNUAL REPORT DATED 12/31/05
AIM MID CAP BASIC VALUE FUND
<Table>
<Caption>
========================================
INSTITUTIONAL CLASS SHARES AVERAGE ANNUAL TOTAL RETURNS PLEASE NOTE THAT PAST PERFORMANCE IS
For periods ended 12/31/05 NOT INDICATIVE OF FUTURE RESULTS. MORE
The following information has been RECENT RETURNS MAY BE MORE OR LESS
prepared to provide Institutional Inception 9.96% THAN THOSE SHOWN. ALL RETURNS ASSUME
Class shareholders with a performance 1 Year 11.01 REINVESTMENT OF DISTRIBUTIONS AT NAV.
overview specific to their holdings. 6 Months* 8.30 INVESTMENT RETURN AND PRINCIPAL VALUE
Institutional Class shares are offered WILL FLUCTUATE SO YOUR SHARES, WHEN
exclusively to institutional *Cumulative total return that has not REDEEMED, MAY BE WORTH MORE OR LESS
investors, including defined been annualized THAN THEIR ORIGINAL COST. SEE FULL
contribution plans that meet certain REPORT FOR INFORMATION ON COMPARATIVE
criteria. ======================================== BENCHMARKS. PLEASE CONSULT YOUR FUND
PROSPECTUS FOR MORE INFORMATION. FOR
INSTITUTIONAL CLASS SHARES' INCEPTION THE MOST CURRENT MONTH-END
DATE IS APRIL 30, 2004. RETURNS SINCE PERFORMANCE, PLEASE CALL 800-451-4246
THAT DATE ARE HISTORICAL RETURNS. ALL OR VISIT AIMINVESTMENTS.COM.
OTHER RETURNS ARE BLENDED RETURNS OF
HISTORICAL INSTITUTIONAL CLASS SHARE
PERFORMANCE AND RESTATED CLASS A SHARE
PERFORMANCE (FOR PERIODS PRIOR TO THE
INCEPTION DATE OF INSTITUTIONAL CLASS
SHARES) AT NET ASSET VALUE AND REFLECT
THE HIGHER RULE 12b-1 FEES APPLICABLE
TO CLASS A SHARES. CLASS A SHARES'
INCEPTION DATE IS DECEMBER 31, 2001.
INSTITUTIONAL CLASS SHARES HAVE
NO SALES CHARGE; THEREFORE,
PERFORMANCE IS AT NET ASSET VALUE
(NAV). PERFORMANCE OF INSTITUTIONAL
CLASS SHARES WILL DIFFER FROM
PERFORMANCE OF OTHER SHARE CLASSES DUE
TO DIFFERING SALES CHARGES AND CLASS
======================================== EXPENSES.
NASDAQ SYMBOL MDICX
========================================
Over for information on your Fund's expenses.
=====================================================================================
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.
=====================================================================================
FOR INSTITUTIONAL INVESTOR USE ONLY
This material is for institutional investor use only and may not be quoted, reproduced or shown to the public, nor used in written
form as sales literature for public use.
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
</Table>
AIMinvestments.com MCBV-INS-1 A I M Distributors, Inc.
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
<Caption>
EXAMPLE period. Simply divide your account The hypothetical account values
value by $1,000 (for example, an and expenses may not be used to
As a shareholder of the Fund, you $8,600 account value divided by $1,000 estimate the actual ending account
incur ongoing costs, including = 8.6), then multiply the result by balance or expenses you paid for the
management fees and other Fund the number in the table under the period. You may use this information
expenses. This example is intended to heading entitled "Actual Expenses Paid to compare the ongoing costs of
help you understand your ongoing costs During Period" to estimate the investing in the Fund and other funds.
(in dollars) of investing in the Fund expenses you paid on your account To do so, compare this 5% hypothetical
and to compare these costs with during this period. example with the 5% hypothetical
ongoing costs of investing in other examples that appear in the
mutual funds. The example is based on HYPOTHETICAL EXAMPLE FOR shareholder reports of the other
an investment of $1,000 invested at COMPARISON PURPOSES funds.
the beginning of the period and held
for the entire period July 1, 2005, The table below also provides Please note that the expenses
through December 31, 2005. information about hypothetical account shown in the table are meant to
values and hypothetical expenses based highlight your ongoing costs only.
ACTUAL EXPENSES on the Fund's actual expense ratio and Therefore, the hypothetical
an assumed rate of return of 5% per information is useful in comparing
The table below provides information year before expenses, which is not the ongoing costs only, and will not help
about actual account values and actual Fund's actual return. The Fund's you determine the relative total costs
expenses. You may use the information actual cumulative total return after of owning different funds.
in this table, together with the expenses for the six months ended
amount you invested, to estimate the December 31, 2005, appears in the
expenses that you paid over the table on the front of this supplement.
====================================================================================================================================
HYPOTHETICAL
ACTUAL (5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/05) (12/31/05)(1) PERIOD(2) (12/31/05) PERIOD(2) RATIO
Institutional $1,000.00 $1,083.00 $4.88 $1,020.52 $4.74 0.93%
(1) The actual ending account value is based on the actual total return of the Fund for the period July 1, 2005, through December
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 return after expenses for the
six months ended December 31, 2005, appears in the table on the front of this supplement.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year.
====================================================================================================================================
</Table>
AIMinvestments.com MCBV-INS-1 A I M Distributors, Inc.
AIM MID CAP BASIC VALUE FUND
SCHEDULE OF INVESTMENTS
December 31, 2005
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-95.80%
ADVERTISING-2.52%
Interpublic Group of Cos., Inc. (The)(a) 659,670 $ 6,365,815
=======================================================================
APPAREL RETAIL-4.14%
Gap, Inc. (The) 292,700 5,163,228
- -----------------------------------------------------------------------
TJX Cos., Inc. (The) 227,800 5,291,794
=======================================================================
10,455,022
=======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-2.03%
Waddell & Reed Financial, Inc.-Class A 244,490 5,126,955
=======================================================================
BREWERS-2.03%
Molson Coors Brewing Co.-Class B 76,449 5,121,319
=======================================================================
BUILDING PRODUCTS-2.09%
American Standard Cos. Inc. 132,350 5,287,382
=======================================================================
COMPUTER STORAGE & PERIPHERALS-0.58%
Lexmark International, Inc.-Class A(a) 33,000 1,479,390
=======================================================================
CONSTRUCTION & ENGINEERING-1.10%
Chicago Bridge & Iron Co. N.V.-New York
Shares 110,000 2,773,100
=======================================================================
CONSTRUCTION MATERIALS-2.24%
CEMEX, S.A. de C.V.-ADR (Mexico) 95,350 5,657,116
=======================================================================
DATA PROCESSING & OUTSOURCED SERVICES-8.41%
BISYS Group, Inc. (The)(a) 197,300 2,764,173
- -----------------------------------------------------------------------
Ceridian Corp.(a) 205,180 5,098,723
- -----------------------------------------------------------------------
Certegy Inc. 144,550 5,862,948
- -----------------------------------------------------------------------
DST Systems, Inc.(a) 125,470 7,516,908
=======================================================================
21,242,752
=======================================================================
FOOD RETAIL-2.27%
Kroger Co. (The)(a) 303,200 5,724,416
=======================================================================
HEALTH CARE DISTRIBUTORS-4.08%
McKesson Corp. 199,700 10,302,523
=======================================================================
HEALTH CARE EQUIPMENT-2.04%
Waters Corp.(a) 136,100 5,144,580
=======================================================================
HEALTH CARE FACILITIES-1.53%
Universal Health Services, Inc.-Class B 82,750 3,867,735
=======================================================================
HOTELS, RESORTS & CRUISE LINES-1.84%
Orient-Express Hotels Ltd.-Class A (Bermuda) 147,400 4,646,048
=======================================================================
INSURANCE BROKERS-2.75%
Aon Corp.(b) 193,000 6,938,350
=======================================================================
</Table>
<Table>
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
LEISURE PRODUCTS-2.24%
Brunswick Corp. 139,470 $ 5,670,850
=======================================================================
LIFE & HEALTH INSURANCE-4.32%
Nationwide Financial Services, Inc.-Class A 139,190 6,124,360
- -----------------------------------------------------------------------
Protective Life Corp. 109,300 4,784,061
=======================================================================
10,908,421
=======================================================================
MANAGED HEALTH CARE-6.62%
Aetna Inc. 91,380 8,618,048
- -----------------------------------------------------------------------
WellPoint, Inc.(a) 101,660 8,111,451
=======================================================================
16,729,499
=======================================================================
MULTI-LINE INSURANCE-2.37%
Genworth Financial Inc.-Class A 173,500 5,999,630
=======================================================================
OIL & GAS DRILLING-9.03%
Nabors Industries Ltd.(a) 93,690 7,097,018
- -----------------------------------------------------------------------
Pride International, Inc.(a) 245,910 7,561,733
- -----------------------------------------------------------------------
Todco-Class A 214,100 8,148,646
=======================================================================
22,807,397
=======================================================================
PACKAGED FOODS & MEATS-2.48%
Cadbury Schweppes PLC-ADR (United Kingdom) 163,800 6,271,902
=======================================================================
PAPER PACKAGING-2.28%
Smurfit-Stone Container Corp.(a) 406,400 5,758,688
=======================================================================
PROPERTY & CASUALTY INSURANCE-3.13%
ACE Ltd. 147,800 7,898,432
=======================================================================
REGIONAL BANKS-4.77%
Cullen/Frost Bankers, Inc. 101,600 5,453,888
- -----------------------------------------------------------------------
Zions Bancorp 87,470 6,609,233
=======================================================================
12,063,121
=======================================================================
RESTAURANTS-1.84%
Outback Steakhouse, Inc. 111,730 4,649,085
=======================================================================
SEMICONDUCTOR EQUIPMENT-2.08%
Brooks Automation, Inc.(a) 420,000 5,262,600
=======================================================================
SPECIALIZED CONSUMER SERVICES-3.21%
Jackson Hewitt Tax Service Inc. 292,800 8,113,488
=======================================================================
SPECIALTY CHEMICALS-2.46%
MacDermid, Inc. 223,000 6,221,700
=======================================================================
SYSTEMS SOFTWARE-2.88%
Computer Associates International, Inc. 258,600 7,289,934
=======================================================================
THRIFTS & MORTGAGE FINANCE-6.44%
Federal Agricultural Mortgage Corp.-Class
C(b) 103,800 3,106,734
- -----------------------------------------------------------------------
</Table>
F-1
AIM MID CAP BASIC VALUE FUND
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE-(CONTINUED)
MGIC Investment Corp. 77,400 $ 5,094,468
- -----------------------------------------------------------------------
Radian Group Inc. 137,880 8,078,389
=======================================================================
16,279,591
=======================================================================
Total Common Stocks & Other Equity
Interests (Cost $183,547,638) 242,056,841
=======================================================================
MONEY MARKET FUNDS-7.42%
Liquid Assets Portfolio-Institutional
Class(c) 9,368,194 9,368,194
- -----------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(c) 9,368,194 9,368,194
=======================================================================
Total Money Market Funds (Cost
$18,736,388) 18,736,388
=======================================================================
TOTAL INVESTMENTS-103.22% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $202,284,026) 260,793,229
=======================================================================
</Table>
<Table>
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-2.62%
Liquid Assets Portfolio-Institutional
Class(c)(d) 6,623,640 $ 6,623,640
- -----------------------------------------------------------------------
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $6,623,640) 6,623,640
=======================================================================
TOTAL INVESTMENTS-105.84% (Cost $208,907,666) 267,416,869
=======================================================================
OTHER ASSETS LESS LIABILITIES-(5.84%) (14,752,353)
=======================================================================
NET ASSETS-100.00% $252,664,516
_______________________________________________________________________
=======================================================================
</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, 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 to Financial Statements which are an integral part of the
financial statements.
F-2
AIM MID CAP BASIC VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2005
<Table>
ASSETS:
Investments, at value (cost $183,547,638)* $242,056,841
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $25,360,028) 25,360,028
===========================================================
Total investments (cost $208,907,666) 267,416,869
===========================================================
Receivables for:
Fund shares sold 598,651
- -----------------------------------------------------------
Dividends 187,269
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 13,476
- -----------------------------------------------------------
Other assets 38,148
===========================================================
Total assets 268,254,413
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 8,397,642
- -----------------------------------------------------------
Investments purchased from affiliates 119,372
- -----------------------------------------------------------
Fund shares reacquired 206,899
- -----------------------------------------------------------
Trustee deferred compensation and
retirement plans 19,518
- -----------------------------------------------------------
Collateral upon return of securities loaned 6,623,640
- -----------------------------------------------------------
Accrued distribution fees 109,505
- -----------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 122
- -----------------------------------------------------------
Accrued transfer agent fees 70,267
- -----------------------------------------------------------
Accrued operating expenses 42,932
===========================================================
Total liabilities 15,589,897
===========================================================
Net assets applicable to shares outstanding $252,664,516
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $195,471,706
- -----------------------------------------------------------
Undistributed net investment income (loss) (15,873)
- -----------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (1,300,520)
- -----------------------------------------------------------
Unrealized appreciation of investment
securities 58,509,203
===========================================================
$252,664,516
___________________________________________________________
===========================================================
NET ASSETS:
Class A $127,775,091
___________________________________________________________
===========================================================
Class B $ 69,594,095
___________________________________________________________
===========================================================
Class C $ 29,946,393
___________________________________________________________
===========================================================
Class R $ 175,084
___________________________________________________________
===========================================================
Institutional Class $ 25,173,853
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 8,825,579
___________________________________________________________
===========================================================
Class B 4,935,027
___________________________________________________________
===========================================================
Class C 2,124,829
___________________________________________________________
===========================================================
Class R 12,122
___________________________________________________________
===========================================================
Institutional Class 1,721,513
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 14.48
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $14.48 divided by
94.50%) $ 15.32
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 14.10
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 14.09
___________________________________________________________
===========================================================
Class R:
Net asset value and offering price per
share $ 14.44
___________________________________________________________
===========================================================
Institutional Class:
Net asset value and offering price per
share $ 14.62
___________________________________________________________
===========================================================
</Table>
* At December 31, 2005, securities with an aggregate value of $6,303,015 were on
loan to brokers.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-3
AIM MID CAP BASIC VALUE FUND
STATEMENT OF OPERATIONS
For the year ended December 31, 2005
<Table>
INVESTMENT INCOME:
Dividends $ 2,029,118
- -------------------------------------------------------------------------
Dividends from affiliated money market funds (includes
securities lending income of $3,945, after compensation to
counterparties of $254,780) 282,580
=========================================================================
Total investment income 2,311,698
=========================================================================
EXPENSES:
Advisory fees 1,852,909
- -------------------------------------------------------------------------
Administrative services fees 93,271
- -------------------------------------------------------------------------
Custodian fees 21,356
- -------------------------------------------------------------------------
Distribution fees:
Class A 362,707
- -------------------------------------------------------------------------
Class B 656,543
- -------------------------------------------------------------------------
Class C 286,200
- -------------------------------------------------------------------------
Class R 395
- -------------------------------------------------------------------------
Transfer agent fees -- A, B, C and R 649,045
- -------------------------------------------------------------------------
Transfer agent fees -- Institutional 1,594
- -------------------------------------------------------------------------
Trustees' and officer's fees and benefits 21,590
- -------------------------------------------------------------------------
Other 242,841
=========================================================================
Total expenses 4,188,451
=========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangement (138,821)
=========================================================================
Net expenses 4,049,630
=========================================================================
Net investment income (loss) (1,737,932)
=========================================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES:
Net realized gain from investment securities (includes gains
from securities sold to affiliates of $285,511) 8,411,791
=========================================================================
Change in net unrealized appreciation of investment
securities 16,912,296
=========================================================================
Net gain from investment securities 25,324,087
=========================================================================
Net increase in net assets resulting from operations $23,586,155
_________________________________________________________________________
=========================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-4
AIM MID CAP BASIC VALUE FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2005 and 2004
<Table>
<Caption>
2005 2004
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (1,737,932) $ (1,770,374)
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities 8,411,791 1,517,779
- ------------------------------------------------------------------------------------------
Net increase from payments by affiliates -- 146,526
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 16,912,296 24,454,568
==========================================================================================
Net increase in net assets resulting from operations 23,586,155 24,348,499
==========================================================================================
Share transactions-net:
Class A (127,307) 46,344,715
- ------------------------------------------------------------------------------------------
Class B 112,153 17,811,507
- ------------------------------------------------------------------------------------------
Class C (191,498) 11,353,920
- ------------------------------------------------------------------------------------------
Class R 130,063 31,275
- ------------------------------------------------------------------------------------------
Institutional Class 15,452,598 6,853,263
==========================================================================================
Net increase in net assets resulting from share
transactions 15,376,009 82,394,680
==========================================================================================
Net increase in net assets 38,962,164 106,743,179
__________________________________________________________________________________________
==========================================================================================
NET ASSETS:
Beginning of year 213,702,352 106,959,173
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(15,873) and $(12,855), respectively) $252,664,516 $213,702,352
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-5
AIM MID CAP BASIC VALUE FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Mid Cap Basic Value Fund (the "Fund") is a series portfolio of AIM Funds
Group (the "Trust"). The Trust is a Delaware statutory trust registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of eight separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is long-term growth of capital.
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. The risk of material loss as a result of such indemnification claims
is considered remote.
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 are 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 recorded at amortized cost which approximates value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs and domestic and foreign index futures.
F-6
AIM MID CAP BASIC VALUE FUND
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. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be United States of America unless otherwise noted.
D. 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.
E. 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.
F. 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.
G. 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 daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- --------------------------------------------------------------------
First $1 billion 0.80%
- --------------------------------------------------------------------
Next $4 billion 0.75%
- --------------------------------------------------------------------
Over $5 billion 0.70%
___________________________________________________________________
====================================================================
</Table>
F-7
AIM MID CAP BASIC VALUE FUND
Through December 31, 2009, AIM has contractually agreed to waive advisory
fees to the extent necessary so that the advisory fees payable by the Fund based
on the Fund's average daily net assets do not exceed the annual rate of:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- --------------------------------------------------------------------
First $250 million 0.745%
- --------------------------------------------------------------------
Next $250 million 0.73%
- --------------------------------------------------------------------
Next $500 million 0.715%
- --------------------------------------------------------------------
Next $1.5 billion 0.70%
- --------------------------------------------------------------------
Next $2.5 billion 0.685%
- --------------------------------------------------------------------
Next $2.5 billion 0.67%
- --------------------------------------------------------------------
Next $2.5 billion 0.655%
- --------------------------------------------------------------------
Over $10 billion 0.64%
___________________________________________________________________
====================================================================
</Table>
AIM 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 below) of Class A, Class B, Class C, Class R and
Institutional Class shares to 1.70%, 2.45%, 2.45%, 1.95% and 1.45% of average
daily net assets, respectively. In determining the advisor's obligation to waive
advisory fees and/or reimburse expenses, the following expenses are not taken
into account, and could cause the total annual fund operating expenses to exceed
the numbers reflected above: (i) interest; (ii) taxes; (iii) dividend expense on
short sales; (iv) extraordinary items; (v) expenses related to a merger or
reorganization, as approved by the Fund's Board of Trustees; and (vi) expenses
that the Fund has incurred but did not actually pay because of an expense offset
arrangement. Currently, in addition to the expense reimbursement arrangement
with AMVESCAP 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. 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 December 31, 2005, AIM waived fees of $129,266.
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
December 31, 2005, AMVESCAP reimbursed expenses of the Fund in the amount of
$2,219.
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, 2005, AIM was paid $93,271.
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 December 31, 2005, the
Fund paid AISI $649,045 for Class A, Class B, Class C and Class R share classes
and $1,594 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
0.25% of the Fund's average daily net assets of Class A shares, 1.00% of the
average daily net assets of Class B and Class C shares and 0.50% of the average
daily net assets of Class R shares. Prior to July 1, 2005, the Fund paid ADI
0.35% of the average daily 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.
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 December
31, 2005, the Class A, Class B, Class C and Class R shares paid $362,707,
$656,543, $286,200 and $395, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During year ended
December 31, 2005, ADI advised the Fund that it retained $72,594 in front-end
sales commissions from the sale of Class A shares and $139, $27,306, $3,997 and
$0 from Class A, Class B, Class C and Class R shares, respectively, for CDSC
imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or ADI.
F-8
AIM MID CAP BASIC VALUE FUND
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, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME GAIN (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $4,883,864 $ 43,692,479 $ (39,208,149) $ -- $9,368,194 $138,808 $ --
- ------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 4,883,864 43,692,479 (39,208,149) -- 9,368,194 139,827 --
==============================================================================================================================
Subtotal $9,767,728 $ 87,384,958 $ (78,416,298) $ -- $18,736,388 $278,635 $ --
==============================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME* GAIN (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ -- $ 40,095,900 $ (33,472,260) $ -- $6,623,640 $ 2,645 $ --
- ------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 1,530,900 34,334,200 (35,865,100) -- -- 1,300 --
==============================================================================================================================
Subtotal $1,530,900 $ 74,430,100 $ (69,337,360) $ -- $6,623,640 $ 3,945 $ --
==============================================================================================================================
Total $11,298,628 $161,815,058 $(147,753,658) $ -- $25,360,028 $282,580 $ --
______________________________________________________________________________________________________________________________
==============================================================================================================================
</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 year ended December 31, 2005, the Fund
engaged in securities purchases of $494,575 and sales of $1,980,000, which
resulted in net realized gains of $285,511.
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 which. For the year ended December 31,
2005, the Fund received credits from this arrangement, which resulted in the
reduction of the Fund's total expenses of $7,336.
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 December 31, 2005, the Fund paid legal fees of $4,751
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
F-9
AIM MID CAP BASIC VALUE FUND
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, 2005, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
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, 2005, securities with an aggregate value of $6,303,015 were
on loan to brokers. The loans were secured by cash collateral of $6,623,640
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended December 31, 2005, the Fund received dividends on cash
collateral of $3,945 for securities lending transactions, which are net of
compensation to counterparties.
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long term capital distributions paid during the
years ended December 31, 2005 and 2004.
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2005
- ----------------------------------------------------------------------------
Undistributed long-term gain 1,071,188
- ----------------------------------------------------------------------------
Unrealized appreciation -- investments 56,137,495
- ----------------------------------------------------------------------------
Temporary book/tax differences (15,873)
- ----------------------------------------------------------------------------
Shares of beneficial interest 195,471,706
============================================================================
Total net assets $252,664,516
____________________________________________________________________________
============================================================================
</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.
F-10
AIM MID CAP BASIC VALUE FUND
The Fund utilized $6,979,841 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund did not have a capital loss carryforward for the year ended December 31,
2005.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during year ended
December 31, 2005 was $77,516,068 and $64,043,447, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $61,727,197
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (5,589,702)
===============================================================================
Net unrealized appreciation of investment securities $56,137,495
_______________________________________________________________________________
===============================================================================
</Table>
Cost of investments for tax purposes is $211,279,374.
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses,
on December 31, 2005, undistributed net investment income (loss) was increased
by $1,734,914, and shares of beneficial interest decreased by $1,734,914. This
reclassification had no effect on the net assets of the Fund.
NOTE 12--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and Institutional Class shares.
Class A shares are sold with a front-end sales charge. Class B shares and Class
C shares are sold with CDSC. Class R shares and Institutional Class shares are
sold at net asset value. Under certain circumstances, Class A shares and Class R
shares are subject to CDSC. Generally, Class B shares will automatically convert
to Class A shares eight years after the end of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING YEAR ENDED DECEMBER 31,
- ----------------------------------------------------------------------------------------------------------------------
2005(a) 2004
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 4,227,501 $ 56,368,546 6,159,742 $ 73,250,946
- ----------------------------------------------------------------------------------------------------------------------
Class B 1,654,961 21,569,582 3,016,119 35,457,428
- ----------------------------------------------------------------------------------------------------------------------
Class C 871,236 11,314,095 1,748,301 20,660,237
- ----------------------------------------------------------------------------------------------------------------------
Class R(b) 10,187 137,391 2,516 31,275
- ----------------------------------------------------------------------------------------------------------------------
Institutional Class(b) 1,189,861 15,990,676 575,259 6,898,180
======================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 288,275 3,841,999 286,013 3,430,679
- ----------------------------------------------------------------------------------------------------------------------
Class B (295,324) (3,841,999) (290,717) (3,430,679)
======================================================================================================================
Reacquired:
Class A (4,467,385) (60,337,852) (2,577,027) (30,336,910)
- ----------------------------------------------------------------------------------------------------------------------
Class B (1,348,862) (17,615,430) (1,227,626) (14,215,242)
- ----------------------------------------------------------------------------------------------------------------------
Class C (892,221) (11,505,593) (808,272) (9,306,317)
- ----------------------------------------------------------------------------------------------------------------------
Class R(b) (581) (7,328) -- --
- ----------------------------------------------------------------------------------------------------------------------
Institutional Class(b) (39,882) (538,078) (3,725) (44,917)
======================================================================================================================
1,197,766 $ 15,376,009 6,880,583 $ 82,394,680
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) 9% of the outstanding shares of the Fund are owned by affiliated mutual
funds. Affiliated mutual funds are other mutual funds that are also
advised by AIM.
(b) Class R shares and Institutional Class shares commenced sales on April
30, 2004.
F-11
AIM MID CAP BASIC VALUE FUND
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
--------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, DECEMBER 31, 2001
-------------------------------------------------- (DATE OPERATIONS
2005 2004 2003 2002 COMMENCED)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.12 $ 11.28 $ 8.23 $ 9.99 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07) (0.10)(a) (0.08) (0.06)(a) (0.00)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.43 1.93 3.13 (1.70) (0.01)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase from payments by affiliates -- 0.01 -- -- --
=================================================================================================================================
Total from investment operations 1.36 1.84 3.05 (1.76) (0.01)
=================================================================================================================================
Net asset value, end of period $ 14.48 $ 13.12 $ 11.28 $ 8.23 $ 9.99
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 10.37% 16.31%(c) 37.06% (17.62)% (0.10)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $127,775 $115,164 $55,372 $39,130 $ 400
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.51%(d) 1.67% 1.80% 1.80% 1.80%(e)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.57%(d) 1.69% 1.92% 1.93% 199.49%(e)
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.51)%(d) (0.85)% (1.00)% (0.70)% (0.31)%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 29% 34% 52% 41% --
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Total return is after the reimbursement the advisor paid for an economic
loss due to a trading error. Total return before reimbursement by the
advisor was 16.22%.
(d) Ratios are based on average daily net assets of $121,336,010.
(e) Annualized.
(f) Not annualized for periods less than one year.
F-12
AIM MID CAP BASIC VALUE FUND
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS B
---------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, DECEMBER 31, 2001
--------------------------------------------------- (DATE OPERATIONS
2005 2004 2003 2002 COMMENCED)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.87 $ 11.14 $ 8.18 $ 9.99 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.16) (0.18)(a) (0.13) (0.12)(a) (0.00)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 1.39 1.90 3.09 (1.69) (0.01)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase from payments by affiliates -- 0.01 -- -- --
=================================================================================================================================
Total from investment operations 1.23 1.73 2.96 (1.81) (0.01)
=================================================================================================================================
Less dividends from net investment income -- -- -- (0.00) --
=================================================================================================================================
Net asset value, end of period $ 14.10 $ 12.87 $ 11.14 $ 8.18 $ 9.99
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 9.56% 15.53%(c) 36.19% (18.12)% (0.10)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $69,594 $63,374 $38,165 $21,204 $ 300
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.21%(d) 2.32% 2.45% 2.45% 2.45%(e)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.27%(d) 2.34% 2.57% 2.58% 200.14%(e)
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (1.21)%(d) (1.50)% (1.65)% (1.35)% (0.96)%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 29% 34% 52% 41% --
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Total return is after the reimbursement the advisor paid for an economic
loss due to a trading error. Total return before reimbursement by the
advisor was 15.44%.
(d) Ratios are based on average daily net assets of $65,654,263.
(e) Annualized.
(f) Not annualized for periods less than one year.
F-13
AIM MID CAP BASIC VALUE FUND
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS C
---------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, DECEMBER 31, 2001
--------------------------------------------------- (DATE OPERATIONS
2005 2004 2003 2002 COMMENCED)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.86 $ 11.13 $ 8.18 $ 9.99 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.16) (0.18)(a) (0.12) (0.12)(a) (0.00)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 1.39 1.90 3.07 (1.69) (0.01)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase from payments by affiliates -- 0.01 -- -- --
=================================================================================================================================
Total from investment operations 1.23 1.73 2.95 (1.81) (0.01)
=================================================================================================================================
Less dividends from net investment income -- -- -- (0.00) --
=================================================================================================================================
Net asset value, end of period $ 14.09 $ 12.86 $ 11.13 $ 8.18 $ 9.99
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 9.56% 15.54%(c) 36.06% (18.12)% (0.10)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $29,946 $27,601 $13,422 $ 8,059 $ 300
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.21%(d) 2.32% 2.45% 2.45% 2.45%(e)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.27%(d) 2.34% 2.57% 2.58% 200.14%(e)
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (1.21)%(d) (1.50)% (1.65)% (1.35)% (0.96)%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 29% 34% 52% 41% --
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Total return is after the reimbursement the advisor paid for an economic
loss due to a trading error. Total return before reimbursement by the
advisor was 15.45%.
(d) Ratios are based on average daily net assets of $28,620,051.
(e) Annualized.
(f) Not annualized for periods less than one year.
F-14
AIM MID CAP BASIC VALUE FUND
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS R
---------------------------------
APRIL 30, 2004
(DATE SALES
YEAR ENDED COMMENCED) TO
DECEMBER 31, DECEMBER 31,
2005 2004
- -----------------------------------------------------------------------------------------------
Net asset value, beginning of period $13.11 $11.88
- -----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05) (0.08)(a)
- -----------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 1.38 1.30
- -----------------------------------------------------------------------------------------------
Net increase from payments by affiliates -- 0.01
===============================================================================================
Total from investment operations 1.33 1.23
===============================================================================================
Net asset value, end of period $14.44 $13.11
_______________________________________________________________________________________________
===============================================================================================
Total return(b) 10.15% 10.35%(c)
_______________________________________________________________________________________________
===============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 175 $ 33
_______________________________________________________________________________________________
===============================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.71%(d) 1.78%(e)
- -----------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.77%(d) 1.80%(e)
===============================================================================================
Ratio of net investment income (loss) to average net assets (0.71)%(d) (0.96)%(e)
_______________________________________________________________________________________________
===============================================================================================
Portfolio turnover rate(f) 29% 34%
_______________________________________________________________________________________________
===============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Total return is after the reimbursement the advisor paid for an economic
loss due to a trading error. Total return before reimbursement by the
advisor was 10.27%
(d) Ratios are based on average daily net assets of $78,942.
(e) Annualized.
(f) Not annualized for periods less than one year.
F-15
AIM MID CAP BASIC VALUE FUND
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
---------------------------------
APRIL 30, 2004
(DATE SALES
YEAR ENDED COMMENCED) TO
DECEMBER 31, DECEMBER 31,
2005 2004
- -----------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.17 $11.88
- -----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.01 (0.02)(a)
- -----------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 1.44 1.30
- -----------------------------------------------------------------------------------------------
Net increase from payments by affiliates -- 0.01
===============================================================================================
Total from investment operations 1.45 1.29
===============================================================================================
Net asset value, end of period $ 14.62 $13.17
_______________________________________________________________________________________________
===============================================================================================
Total return(b) 11.01% 10.86%(c)
_______________________________________________________________________________________________
===============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $25,174 $7,530
_______________________________________________________________________________________________
===============================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.92%(d) 1.03%(e)
- -----------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.98%(d) 1.05%(e)
===============================================================================================
Ratio of net investment income (loss) to average net assets (0.08)%(d) (0.21)%(e)
_______________________________________________________________________________________________
===============================================================================================
Portfolio turnover rate(f) 29% 34%
_______________________________________________________________________________________________
===============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Total return is after the reimbursement the advisor paid for an economic
loss due to a trading error. Total return before reimbursement by the
advisor was 10.77%.
(d) Ratios are based on average daily net assets of $15,924,375.
(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), 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. 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.
PENDING LITIGATION AND REGULATORY INQUIRIES
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.
F-16
AIM MID CAP BASIC VALUE FUND
NOTE 14--LEGAL PROCEEDINGS--(CONTINUED)
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 October 19, 2005, this lawsuit was transferred for pretrial purposes to the
MDL Court (as defined below). On July 7, 2005, the Supreme Court of West
Virginia ruled in an unrelated lawsuit that is similar to this action that the
WVAG does not have authority 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. Initial research
indicates that these damages could be limited or capped by statute. 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; and
- 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 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 (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits 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.
On August 25, 2005, the MDL Court issued rulings on the common issues of law
presented in motions to dismiss shareholder class action and derivative
complaints that were filed in unrelated lawsuits. On November 3, 2005, the MDL
Court issued short opinions for the most part applying these rulings to the AIM
and IFG lawsuits. The MDL Court dismissed 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"). The Court dismissed all claims asserted in the class
action complaint but three: (i) the securities fraud claims under Section 10(b)
of the Securities Exchange Act of 1934, (ii) the excessive fee claim under
Section 36(b) of the 1940 Act (which survived only insofar as plaintiffs seek
recovery of fees associated with the assets involved in market timing); and
(iii) the MDL Court deferred ruling on the "control person liability" claim
under Section 48 of the 1940 Act. 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.
At the MDL Court's request, the parties submitted proposed orders implementing
these rulings in the AIM and IFG lawsuits. The MDL Court has not entered any
orders on the motions to dismiss in these lawsuits and it is possible the orders
may differ in some respects from the rulings described above. Based on the MDL
Court's opinion and both parties' proposed orders, however, all claims asserted
against the Funds that have been transferred to the MDL Court will be dismissed,
although certain Funds will remain nominal defendants in the derivative lawsuit.
On December 6, 2005, the MDL Court issued rulings on the common issues of law
presented in defendants' omnibus motion to dismiss the ERISA complaints. The
ruling was issued in unrelated lawsuits that are similar to the ERISA lawsuits
brought against AIM and IFG and related entities. The MDL Court: (i) denied the
motion to dismiss on the grounds that the plaintiffs lack standing or that the
defendants' investments in company stock are entitled to a presumption of
prudence; (ii) granted the motion to dismiss as to defendants not named in the
employee benefit plan documents as fiduciaries but gave plaintiffs leave to
replead facts sufficient to show that such defendants acted as de facto
fiduciaries; and (iii) confirmed plaintiffs' withdrawal of their prohibited
transactions and misrepresentations claims.
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, among others, 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,
F-17
AIM MID CAP BASIC VALUE FUND
NOTE 14--LEGAL PROCEEDINGS--(CONTINUED)
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. 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.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries 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-18
AIM MID CAP BASIC VALUE FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Funds Group
and Shareholders of AIM Mid Cap Basic Value Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM Mid Cap Basic Value Fund (one
of the funds constituting AIM Funds Group hereafter referred to as the "Fund")
at December 31, 2005, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the five years in the period then ended, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2005 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
February 17, 2006
Houston, Texas
F-19
AIM MID CAP BASIC VALUE FUND
TRUSTEES AND OFFICERS
As of December 31, 2005
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1992 Director and Chairman, A I M Management
Trustee, Vice Chair, Group Inc. (financial services holding
Principal Executive Officer company); Director and Vice Chairman,
and President AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive None
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
Trustee and Executive Vice Officer, A I M Management Group Inc.;
President Director 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
Formerly: Director, Chairman, President None
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,
AIM Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1987 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired
Trustee
Formerly: Partner, law firm of Baker & Badgley Funds, Inc. (registered
McKenzie investment company (2 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and
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); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation
Formerly: Director, President and Chief None
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First
Trustee Century Group, Inc. (government affairs
company); and Owner, Dos Angelos Ranch,
L.P.
Formerly: Chief Executive Officer, Administaff, and Discovery Global
Texana Timber LP (sustainable forestry Education Fund (non-profit)
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company (3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
</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.
AIM MID CAP BASIC VALUE FUND
TRUSTEES AND OFFICERS--(CONTINUED)
As of December 31, 2005
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1992 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired None
Trustee
Formerly: Partner, Deloitte & Touche
- -------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Senior Vice President, A I M Management
Senior Vice President and Group Inc.; Senior Vice President and
Chief 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 N/A
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 N/A
Senior Vice President and 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,
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. and A I M
Officer 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 N/A
General Counsel, Liberty Financial
Companies, Inc.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC; 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, Principal Advisors, Inc.
Financial Officer and
Treasurer Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief
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 N/A
Private Asset Management, Inc.; and
Chief Equity Officer, and Senior
Investment Officer, A I M Capital
Management, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1992 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street & Frankel LLP P.O. Box 4739 225 Franklin Street
Philadelphia, PA 19103-7599 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Americas
New York, NY 10036-2714
</Table>
TAX INFORMATION FOR NON-RESIDENT ALIEN SHAREHOLDERS
The percentage of qualifying assets not subject to the U.S. estate tax for the
fiscal quarters ended March 31, 2005, June 30, 2005, September 30, 2005 and
December 31, 2005 are 8.76, 9.07%, 8.29% and 14.58%, respectively.
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE
AIM Basic Balanced Fund* AIM Developing Markets Fund
AIM Basic Value Fund AIM European Growth Fund AIM Floating Rate Fund
AIM Blue Chip Fund AIM European Small Company Fund(1) AIM High Yield Fund
AIM Capital Development Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Charter Fund AIM Global Equity Fund AIM Intermediate Government Fund
AIM Constellation Fund AIM Global Growth Fund AIM Limited Maturity Treasury Fund
AIM Diversified Dividend Fund AIM Global Value Fund AIM Money Market Fund
AIM Dynamics Fund AIM International Core Equity Fund AIM Short Term Bond Fund
AIM Large Cap Basic Value Fund AIM International Growth Fund AIM Total Return Bond Fund
AIM Large Cap Growth Fund AIM International Small Company Fund(1) Premier Portfolio
AIM Mid Cap Basic Value Fund AIM Trimark Fund Premier U.S. Government Money Portfolio
AIM Mid Cap Core Equity Fund(1)
AIM Mid Cap Growth Fund SECTOR EQUITY
AIM Opportunities I Fund TAX-FREE
AIM Opportunities II Fund AIM Advantage Health Sciences Fund
AIM Opportunities III Fund AIM Energy Fund AIM High Income Municipal Fund(1)
AIM Premier Equity Fund AIM Financial Services Fund AIM Municipal Bond Fund
AIM S&P 500 Index Fund AIM Global Health Care Fund AIM Tax-Exempt Cash Fund
AIM Select Equity Fund AIM Global Real Estate Fund AIM Tax-Free Intermediate Fund
AIM Small Cap Equity Fund AIM Gold & Precious Metals Fund Premier Tax-Exempt Portfolio
AIM Small Cap Growth Fund(1) AIM Leisure Fund
AIM Small Company Growth Fund AIM Multi-Sector Fund
AIM Summit Fund AIM Real Estate Fund(1) AIM ALLOCATION SOLUTIONS
AIM Trimark Endeavor Fund AIM Technology Fund
AIM Trimark Small Companies Fund AIM Utilities Fund AIM Conservative Allocation Fund
AIM Weingarten Fund AIM Growth Allocation Fund(2)
AIM Moderate Allocation Fund
*Domestic equity and income fund AIM Moderate Growth Allocation Fund
AIM Moderately Conservative Allocation
Fund
DIVERSIFIED PORTFOLIOS
AIM Income Allocation Fund
AIM International Allocation Fund
================================================================================
CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
FOR THIS AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR
FINANCIAL ADVISOR AND READ IT CAREFULLY BEFORE INVESTING.
================================================================================
(1) This Fund has limited public sales of its shares to certain investors. For
more information on who may continue to invest in the Fund, please see the
appropriate prospectus.
(2) Effective April 29, 2005, AIM Aggressive Allocation
Fund was renamed AIM Growth Allocation Fund.
If used after April 20, 2006, 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 $128 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $386 billion in assets under management. Data as of December 31,
2005.
AIMinvestments.com MCBV-AR-1 A I M Distributors, Inc.
YOUR GOALS. OUR SOLUTIONS.--Registered Trademark--
- --------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Management --Registered Trademark--
Plans Accounts
- --------------------------------------------------------------------------------
AIM PREMIER EQUITY FUND
Annual Report to Shareholders o December 31, 2005
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
AIM PREMIER EQUITY FUND SEEKS TO ACHIEVE LONG-TERM GROWTH OF CAPITAL. INCOME IS
A SECONDARY OBJECTIVE.
o Unless otherwise stated, information presented in this report is as of
December 31, 2005, and is based on total net assets.
<Table>
ABOUT SHARE CLASSES investment disciplines effect to be made to the net assets of the Fund
transactions in the same security on or at period end for financial reporting
o Class B shares are not available as an about the same time. purposes, and as such, the net asset
investment for retirement plans values for shareholder transactions and
maintained pursuant to Section 401 of ABOUT INDEXES USED IN THIS REPORT the returns based on those net asset
the Internal Revenue Code, including values may differ from the net asset
401(k) plans, money purchase pension o The unmanaged Standard & Poor's values and returns reported in the
plans and profit sharing plans. Plans Composite Index of 500 Stocks (the S&P Financial Highlights.
that had existing accounts invested in 500--Registered Trademark-- Index) is an
Class B shares prior to September 30, index of common stocks frequently used o Industry classifications used in this
2003, will continue to be allowed to as a general measure of U.S. stock report are generally according to the
make additional purchases. market performance. Global Industry Classification Standard,
which was developed by and is the
o Class R shares are available only to o The unmanaged MSCI World Index is a exclusive property and a service mark of
certain retirement plans. Please see the group of global securities tracked by Morgan Stanley Capital International
prospectus for more information. Morgan Stanley Capital International. Inc. and Standard & Poor's.
PRINCIPAL RISKS OF INVESTING IN THE FUND o The unmanaged Lipper Large-Cap Core In November 2005, your Fund's board
Fund Index represents an average of the approved--subject to shareholder
o The Fund may invest up to 25% of its performance of the 30 largest large- approval--the proposed merger of AIM
assets in the securities of non-U.S. capitalization core equity funds tracked Premier Equity Fund into AIM Charter
issuers. International investing by Lipper, Inc., an independent mutual Fund.
presents certain risks not associated fund performance monitor.
with investing solely in the United The Fund provides a complete list of its
States. These include risks relating to o The Fund is not managed to track the holdings four times in each fiscal year,
fluctuations in the value of the U.S. performance of any particular index, at the quarter-ends. For the second and
dollar relative to the values of other including the indexes defined here, and fourth quarters, the lists appear in the
currencies, the custody arrangements consequently, the performance of the Fund's semiannual and annual reports to
made for the Fund's foreign holdings, Fund may deviate significantly from the shareholders. For the first and third
differences in accounting, political performance of the indexes. quarters, the Fund files the lists with
risks and the lesser degree of public the Securities and Exchange Commission
information required to be provided by o A direct investment cannot be made in (SEC) on Form N-Q. The most recent list
non-U.S. companies. an index. Unless otherwise indicated, of portfolio holdings is available at
index results include reinvested AIMinvestments.com. From our home page,
o The Fund's investments in different, dividends, and they do not reflect sales click on Products & Performance, then
independently managed investment charges. Performance of an index of Mutual Funds, then Fund Overview. Select
disciplines create allocation risk, funds reflects fund expenses; your Fund from the drop-down menu and
which is the risk that the allocation of performance of a market index does not. click on Complete Quarterly Holdings.
investments among core, growth and value Shareholders can also look up the Fund's
companies may have a more significant OTHER INFORMATION Forms N-Q on the SEC's Web site at
effect on the Fund's net asset value sec.gov. Copies of the Fund's Forms N-Q
when one of these disciplines is o The Conference Board is a may be reviewed and copied at the SEC's
performing more poorly than the others. not-for-profit organization that Public Reference Room at 450 Fifth
The active rebalancing of the Fund among conducts research and publishes Street, N.W., Washington, D.C.
these investment disciplines may result information and analysis to help 20549-0102. You can obtain information
in increased transaction costs. businesses strengthen their performance. on the operation of the Public Reference
Room, including information about
o The independent management of the o The returns shown in management's duplicating fee charges, by calling
three discipline sections may also discussion of Fund performance are based 202-942-8090 or 800-732-0330, or by
result in adverse tax consequences if on net asset values calculated for electronic request at the following
the portfolio managers responsible for shareholder transactions. Generally e-mail address: publicinfo@sec.gov. The
the Fund's three accepted accounting principles require SEC file numbers for the Fund are
adjustments 811-01540 and 2-27334.
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.
Continued on page 7
========================================
==========================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND FUND NASDAQ SYMBOLS
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES
CHARGES AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING. Class A Shares AVLFX
========================================================================== Class B Shares AVLBX
Class C Shares AVLCX
Class R Shares AVLRX
========================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIMinvestments.com
AIM PREMIER EQUITY FUND
DEAR FELLOW AIM FUNDS SHAREHOLDERS:
[GRAHAM Although many concerns weighed on investors' minds during
PHOTO] the year covered by this report, stocks posted gains for the
period. Domestically, the broad-based S&P 500 Index returned
4.91%. Internationally, Morgan Stanley's MSCI World Index
rose 9.49%. Concern about the inflationary potential of
rising energy costs was frequently cited as a major cause of
market restraint.
ROBERT H. GRAHAM Within the indexes, there was considerable variability
in the performance of different sectors and markets.
Domestically, energy sector performance far outpaced all
other sectors in the S&P 500 Index, reflecting rising oil
and gas prices. Overseas, emerging markets produced more
attractive results than developed markets, partially because
emerging markets tend to be more closely tied to the
performance of natural resources and commodities.
One could make a strong argument for global
diversification of a stock portfolio using the performance
data for the year ended December 31, 2005. Of course, your
financial advisor is the person most qualified to help you
decide whether such diversification is appropriate for you.
[WILLIAMSON
PHOTO] A number of key developments affected markets and the
economy in 2005:
o Hurricane Katrina, which devastated New Orleans in
August, had numerous economic repercussions and dealt
a short-term setback to consumer confidence. However,
consumer confidence rebounded toward the end of the
MARK H. WILLIAMSON year, with the Conference Board crediting the
resiliency of the economy, falling gas prices and job
growth for this trend.
o The nation's gross domestic product (GDP), the
broadest measure of economic activity, increased at
a healthy rate throughout much of the year. The
Bureau of Economic Analysis of the U.S. Department of
Commerce reported that the nation's GDP grew at
annualized rates of 3.8%, 3.3% and 4.1% for the
first, second and third quarters of the year,
respectively.
o For the second straight year, the economy created 2
million new jobs, although job growth was uneven and
sometimes did not meet analysts' expectations on a
monthly basis.
o The Federal Reserve Board (the Fed) continued its
tightening policy, raising the key federal funds
target rate to 4.25% by the end of the year. Many
analysts believed that the central bank was near the
end of its tightening policy as Ben Bernanke
succeeded the retiring Alan Greenspan as Fed chairman
early in 2006.
o Gasoline prices, which soared to a nationwide average
of slightly more than $3.08 per gallon on September 5
following Hurricane Katrina, had dropped by more than
80 cents by mid-December, according to the U.S.
Energy Information Administration.
For a discussion of the specific market conditions that
affected your Fund and how your Fund was managed during the
year, please turn to Page 3.
YOUR FUND
Further information about the markets, your Fund, and
investing in general is always available on our
comprehensive 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 pleased to be of help.
Sincerely,
/s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
Robert H. Graham Mark H. Williamson
President & Vice Chair, President,
AIM Funds A I M Advisors, Inc.
February 9, 2006
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. A I M
Distributors, Inc. is the distributor for the retail funds
represented by AIM Investments.
1
AIM PREMIER EQUITY FUND
DEAR FELLOW AIM FUND SHAREHOLDERS:
Having completed a year of transition and change at AIM
Funds--as well as my first full year as your board's
independent chair--I can assure you that shareholder
interests are at the forefront of every decision your board
[CROCKETT makes.
PHOTO]
While regulators and fund companies debate the value of an
independent board chair, this structure is working for you.
BRUCE L. CROCKETT
An independent chair can help lead to unbiased decisions and
eliminate potential conflicts.
Some highlights of 2005 board activity:
o Board approval of voluntary fee reductions, which are
saving shareholders more than $20 million annually,
based on asset levels of March 31, 2005.
o Board approval for the merger of 14 funds into other
AIM funds with similar investment objectives. Eight
of these mergers were approved by shareholders of the
target funds during 2005. The remaining six are being
voted on by shareholders in early 2006. In each case,
the goal is for the resulting merged fund to benefit
from strengthened management and greater efficiency.
o Board approval for portfolio management changes at 11
funds, consistent with the goal of organizing
management teams around common processes and shared
investment views. Again, we hope that these changes
will improve fund performance and efficiency.
In 2006, your board will continue to focus on reducing
costs and shareholder fees and improving portfolio
performance, which is not yet as strong as we expect to see
it. Eight in-person board meetings and several additional
telephone and committee meetings are scheduled to take place
this year. I'll inform you of our progress in my next
semiannual letter to shareholders.
The AIM Funds board is pleased to welcome our newest
independent member, Raymond Stickel, Jr., a former partner
with the international auditing firm of Deloitte & Touche.
We also send our thanks and best wishes to Gerald J. Lewis,
who retired from your board in December 2005, and to Edward
K. Dunn, Jr., who is retiring this year.
Your board welcomes your views. Please mail them to me
at AIM Investments, AIM Investments Tower, 11 Greenway
Plaza, Suite 100, Houston TX 77046.
Sincerely,
/s/ BRUCE L. CROCKETT
Bruce L. Crockett
Independent Chair
On Behalf of the Board of Trustees
AIM Funds
February 9, 2006
2
AIM PREMIER EQUITY FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
intrinsic value, or if there is a
permanent, fundamental deterioration
===================================================================================== resulting in reduced intrinsic value
with inadequate upside potential or
PERFORMANCE SUMMARY ======================================== unexpected deterioration in financial
strength.
For the year ended December 31, 2005, FUND VS. INDEXES
your Fund's performance was in line with The growth team uses quantitative and
that of the S&P 500 Index. The Fund's TOTAL RETURNS, 12/31/04-12/31/05, fundamental analysis to identify
energy and health care sector holdings EXCLUDING APPLICABLE SALES CHARGES. IF companies generating sustainable,
outperformed their respective sectors in SALES CHARGES WERE INCLUDED, RETURNS above-average earnings and cash flow
the S&P 500 Index, while the Fund's WOULD BE LOWER. growth that is not fully reflected in
holdings in information technology and investor expectations or equity
industrials underperformed. Class A Shares 5.24% valuations. Quantitative analysis
focuses on the level, growth rate and
Your Fund's long-term performance Class B Shares 4.48 sustainability of earnings, revenue and
appears on Pages 6 and 7. cash flow. Fundamental analysis seeks to
Class C Shares 4.47 understand a company's drivers of
success and to assess their durability.
Class R Shares 4.98 The team's sell process seeks to
identify deterioration in the underlying
S&P 500 Index (Broad Market reasons a stock was initially purchased.
Index and Style-specific Index) 4.91 Conditions that may cause us to sell a
stock include deteriorating business
Lipper Large-Cap Core Fund prospects, slowing earnings growth, an
Index (Peer Group Index) 5.72 extended valuation or a more attractive
opportunity in another security.
SOURCE: LIPPER, INC.
Our portfolio is a well-diversified,
======================================== large-cap core fund of 125 to 200 stocks
with the majority of holdings allocated
===================================================================================== to core holdings and lesser amounts
allocated to value and growth holdings.
HOW WE INVEST The team considers selling a stock when We strive to manage risk through the
a price target is exceeded, there is large number of holdings and our
We combine core, value and growth deterioration in fundamentals, or a more diversified exposure to a broad variety
disciplines, each of which has a compelling opportunity exists. of industries across the value-to-growth
different management team, to provide continuum.
return potential in a variety of The value team capitalizes on the
markets. Each team manages its fact that stock prices are more volatile MARKET CONDITIONS AND YOUR FUND
respective discipline independently. than business values and seeks to invest
when a significant difference exists During the year, economic indicators
The core team identifies growing between a stock's market price and its were generally positive, pointing to the
companies whose stock prices may be estimate of the company's intrinsic health of the
experiencing some near-term distress. value. (Estimated intrinsic value is a
Applying rigorous fundamental research value determined by the business's (continued)
focusing on cash flow analysis, the team estimated future cash flows and is
identifies companies with management independent of the stock market.) The
teams capable of weathering any team considers selling a stock to
near-term challenges while successfully capitalize on a more attractive
generating improving levels of free cash opportunity, if a stock is trading
flow. significantly above estimated
======================================= ======================================== =======================================
PORTFOLIO COMPOSITION TOP 10 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector 1. Pharmaceuticals 8.9% 1. Tyco International Ltd. 3.2%
Health Care 18.6% 2. Oil & Gas Equipment 2. Microsoft Corp. 1.7
& Services 5.3
Financials 18.3 3. BJ Services Co. 1.6
3. Property & Casualty Insurance 5.2
Information Technology 17.7 4. ACE Ltd. 1.5
4. Industrial Conglomerates 4.7
Industrials 11.9 5. Waste Management, Inc. 1.5
5. Investment Banking
Energy 10.9 & Brokerage 4.0 6. Merck & Co. Inc. 1.5
Consumer Discretionary 10.0 6. Systems Software 3.8 7. Citigroup Inc. 1.5
Consumer Staples 8.2 7. Managed Health Care 3.5 8. Computer Associates
International, Inc. 1.5
Telecommunication Services 1.3 8. Semiconductors 3.3
9. WellPoint, Inc. 1.5
Materials 1.0 9. Integrated Oil & Gas 3.2
10. Analog Devices, Inc. 1.4
Utilities 0.5 10. Packaged Foods & Meats 3.1
Exchange Traded Funds 0.5 TOTAL NET ASSETS $5.1 BILLION
Money Market Funds Plus TOTAL NUMBER OF HOLDINGS* 150
Other Assets Less Liabilities 1.1
The Fund's holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
======================================= ======================================== =======================================
3
AIM PREMIER EQUITY FUND
<Table>
U.S. economy. Throughout the year, the WELLPOINT, as well as pharmaceutical The views and opinions expressed in
nation's gross domestic product holdings JOHNSON & JOHNSON and WYETH, management's discussion of Fund
reflected continuing growth. Corporate benefited Fund performance. performance are those of A I M Advisors,
earnings growth was generally healthy, Inc. These views and opinions are
while manufacturing growth continued and Some well-known large-cap names in subject to change at any time based on
inflation remained low. However, many information technology struggled this factors such as market and economic
investors focused on the impact that year. In your Fund's portfolio, IBM and conditions. These views and opinions may
record-breaking energy prices and rising CISCO SYSTEMS detracted from not be relied upon as investment advice
interest rates could have on consumer performance. At fiscal year-end, we or recommendations, or as an offer for a
spending, which accounts for continued to hold these stocks and particular security. The information is
approximately two-thirds of the U.S. remained confident in their potential to not a complete analysis of every aspect
economy. achieve the price targets we set for of any market, country, industry,
them. security or the Fund. Statements of fact
Most domestic equity indexes produced are from sources considered reliable,
single-digit returns for 2005. In the In your Fund's 2004 annual report, we but A I M Advisors, Inc. makes no
S&P 500 Index, energy and utilities were highlighted Tyco as a top contributor representation or warranty as to their
the highest-performing sectors, while for the year. However, for 2005, this completeness or accuracy. Although
consumer discretionary and holding detracted from performance. This historical performance is no guarantee
telecommunication services both posted manufacturing conglomerate disappointed of future results, these insights may
negative returns for the year. investors by missing its forecasted help you understand our investment
earnings for the second quarter. Part of management philosophy.
During the year, we did not change the reason for the disappointment was
the weighting of the three investment the effect of increased cost of raw See important Fund and index
disciplines within the portfolio. We did materials on margins in its plastics and disclosures inside front cover.
make some marginal shifts within adhesives business when oil prices rose
sectors. In financials, we increased our dramatically. As the price of oil RONALD S. SLOAN,
exposure by adding to our insurance flattened later in the year, Tyco was [SLOAN Chartered Financial
holdings. In the consumer discretionary able to recapture some of the lost PHOTO] Analyst, senior
sector, which was the worst performing margins. We continue to hold this stock, portfolio manager, is
sector in the index, we reduced our as we remain confident in company lead portfolio manager
exposure. leadership, which has continued to pay of AIM Premier Equity
back debt, repurchase shares and focus Fund. Mr. Sloan has 35 years of
Several of the Fund's stocks in the on the company's most successful core experience in the investment industry.
property and casualty insurance industry pursuits. In December, management He joined AIM in 1998. Mr. Sloan
were strong performers. These announced an agreement on the sale of attended the University of Missouri,
stocks--long-term holdings ACE LTD. and the plastics and adhesives business, and where he received both a B.S. in
ST. PAUL TRAVELERS, along with CHUBB, at year-end, we expected positive business administration and an M.B.A.
which we acquired this year--saw price long-term prospects for this holding.
appreciation partly based on LANNY H. SACHNOWITZ,
anticipation of better times ahead for IN CLOSING [SACHNOWITZ senior portfolio
the industry. As a result of the PHOTO] manager, is a manager
hurricane devastation in 2005, many Throughout the year, we balanced the of AIM Premier Equity
insurers sustained heavy losses. weighting of the Fund's holdings to Fund. Mr. Sachnowitz
Investors acted on the belief that such provide shareholders the investment joined AIM in 1987. He
losses would put an end to the profile of a core fund. A core fund is received a B.S. in finance from the
discounting of premium prices and that a designed to benefit from favorable University of Southern California, and
stronger pricing cycle would result in markets and to give up less during he received his M.B.A from the
increased profitability and difficult times. As such, we provided University of Houston.
corresponding share price increases. competitive returns, providing
performance that was in line with the BRET W. STANLEY,
In the second half of the year we S&P 500 Index for the year. At the same [STANLEY Chartered Financial
shifted our focus within the energy time, we maintained our long-term PHOTO] Analyst, senior
sector to oil and gas equipment and investment horizon, owning companies portfolio manager, is a
services companies and away from oil and with management teams that have track manager of AIM Premier
gas exploration and production records of generating cash and Equity Fund. Mr.
companies. The top contributor to Fund appropriating it to benefit their Stanley has 17 years of experience in
performance for the year, BJ SERVICES, shareholders. Thank you for your the investment industry. He joined AIM
is an oil and gas services company. We investment in AIM Premier Equity Fund. in 1998. Mr. Stanley attended The
selected BJ Services for its clean University of Texas, where he received
balance sheet, high returns on invested his B.B.A in finance, and the University
capital and disciplined management. of Houston, where he earned his M.S. in
finance.
As a group, the Fund's health care
stocks outperformed the health care Assisted by the Mid/Large Cap Core Team,
sector in the S&P 500 Index. Managed Large/Multi-Cap Growth Team and Basic
health care companies CIGNA, Value Team
UNITEDHEALTH GROUP and
[RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S
LONG-TERM PERFORMANCE, PLEASE SEE
PAGES 6 AND 7.
4
AIM PREMIER EQUITY FUND
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE together with the amount you invested, The hypothetical account values and
to estimate the expenses that you paid expenses may not be used to estimate the
As a shareholder of the Fund, you incur over the period. Simply divide your actual ending account balance or
two types of costs: (1) transaction account value by $1,000 (for example, an expenses you paid for the period. You
costs, which may include sales charges $8,600 account value divided by $1,000 = may use this information to compare the
(loads) on purchase payments; contingent 8.6), then multiply the result by the ongoing costs of investing in the Fund
deferred sales charges on redemptions; number in the table under the heading and other funds. To do so, compare this
and redemption fees, if any; and (2) entitled "Actual Expenses Paid During 5% hypothetical example with the 5%
ongoing costs, including management Period" to estimate the expenses you hypothetical examples that appear in the
fees; distribution and/or service fees paid on your account during this period. shareholder reports of the other funds.
(12b-1); and other Fund expenses. This
example is intended to help you HYPOTHETICAL EXAMPLE FOR COMPARISON Please note that the expenses shown
understand your ongoing costs (in PURPOSES in the table are meant to highlight your
dollars) of investing in the Fund and to ongoing costs only and do not reflect
compare these costs with ongoing costs The table below also provides any transactional costs, such as sales
of investing in other mutual funds. The information about hypothetical account charges (loads) on purchase payments,
example is based on an investment of values and hypothetical expenses based contingent deferred sales charges on
$1,000 invested at the beginning of the on the Fund's actual expense ratio and redemptions, and redemption fees, if
period and held for the entire period an assumed rate of return of 5% per year any. Therefore, the hypothetical
July 1, 2005, through December 31, 2005. before expenses, which is not the Fund's information is useful in comparing
actual return. The Fund's actual ongoing costs only, and will not help
ACTUAL EXPENSES cumulative total returns at net asset you determine the relative total costs
value after expenses for the six months of owning different funds. In addition,
The table below provides information ended December 31, 2005, appear in the if these transactional costs were
about actual account values and actual table "Cumulative Total Returns" on included, your costs would have been
expenses. You may use the information in Page 7. higher.
this table,
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/05) (12/31/05)(1) PERIOD(2) (12/31/05) PERIOD(2) RATIO
A $1,000.00 $1,060.00 $ 6.59 $1,018.80 $ 6.46 1.27%
B 1,000.00 1,056.30 10.47 1,015.02 10.26 2.02
C 1,000.00 1,056.20 10.47 1,015.02 10.26 2.02
R 1,000.00 1,058.50 7.89 1,017.54 7.73 1.52
(1) The actual ending account value is based on the actual total return of the Fund for the period July 1, 2005, through December
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 December 31, 2005, appear in the table "Cumulative Total Returns" on Page 7.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year.
====================================================================================================================================
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
</Table>
5
AIM PREMIER EQUITY FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
FUND AND INDEX DATA FROM 12/31/95
==================================================================
[MOUNTAIN CHART]
DATE AIM PREMIER EQUITY S&P 500 LIPPER LARGE-CAP
FUND-CLASS A SHARES INDEX CORE FUND INDEX
12/31/95 $ 9450 $10000 $10000
1/96 9499 10340 10294
2/96 9584 10436 10420
3/96 9499 10537 10515
4/96 9693 10692 10667
5/96 9767 10967 10880
6/96 9947 11009 10896
7/96 9485 10523 10451
8/96 9703 10745 10688
9/96 10094 11349 11242
10/96 10330 11662 11466
11/96 10789 12543 12209
12/96 10821 12295 11984
1/97 11174 13062 12639
2/97 11222 13165 12624
3/97 10658 12625 12084
4/97 11136 13378 12753
5/97 12002 14196 13527
6/97 12566 14827 14114
7/97 13504 16006 15228
8/97 12803 15110 14454
9/97 13634 15937 15198
10/97 13160 15406 14729
11/97 13331 16118 15210
12/97 13414 16395 15486
1/98 13505 16576 15639
2/98 14381 17771 16748
3/98 15069 18680 17576
4/98 15192 18871 17754
5/98 15027 18547 17451
6/98 15907 19300 18280
7/98 15891 19096 18132
8/98 13123 16337 15418
9/98 13984 17385 16185
10/98 15167 18797 17399
11/98 16003 19936 18433
12/98 17806 21084 19657
1/99 18860 21965 20345
2/99 18430 21282 19716
3/99 19391 22134 20510
4/99 19414 22991 21059
5/99 19109 22448 20500
6/99 20395 23691 21644
7/99 19926 22954 21009
8/99 19593 22841 20795
9/99 19642 22215 20232
10/99 20789 23621 21471
11/99 21808 24101 21998
12/99 23140 25518 23461
1/00 22576 24236 22512
2/00 23515 23778 22505
3/00 25234 26103 24462
4/00 24149 25318 23663
5/00 22244 24799 23060
6/00 23049 25409 23904
7/00 22233 25012 23532
8/00 23829 26565 25155
9/00 21556 25163 23816
10/00 21228 25056 23540
11/00 19218 23082 21470
12/00 19677 23196 21732
1/01 20763 24018 22348
2/01 18924 21829 20268
3/01 17429 20447 19024
4/01 19050 22035 20470
5/01 18939 22183 20585
6/01 18483 21643 20038
7/01 18089 21430 19748
8/01 16846 20090 18585
9/01 15541 18468 17174
10/01 15934 18820 17579
11/01 16941 20263 18731
12/01 17122 20441 18943
1/02 16477 20143 18644
2/02 15814 19754 18332
3/02 16507 20497 18956
4/02 15120 19255 17964
5/02 14821 19114 17834
6/02 13435 17753 16602
7/02 12491 16369 15368
8/02 12507 16476 15495
9/02 11121 14687 13990
10/02 11956 15979 15077
11/02 12618 16918 15750
12/02 11830 15925 14921
1/03 11563 15509 14529
2/03 11453 15276 14336
3/03 11658 15423 14457
4/03 12430 16693 15522
5/03 12918 17572 16275
6/03 13045 17796 16435
7/03 13344 18110 16695
8/03 13485 18463 17017
9/03 13375 18267 16797
10/03 14083 19300 17619
11/03 14131 19470 17767
12/03 14777 20490 18622
1/04 14935 20866 18885
2/04 15077 21156 19108
3/04 14857 20837 18808
4/04 14480 20510 18516
5/04 14637 20791 18704
6/04 14937 21195 19039
7/04 14228 20494 18365
8/04 14150 20576 18377
9/04 14355 20799 18587
10/04 14513 21117 18839
11/04 15096 21971 19554
12/04 15591 22718 20165
1/05 15276 22165 19709
2/05 15593 22631 20077
3/05 15371 22230 19709
4/05 15008 21809 19270
5/05 15372 22502 19894
6/05 15482 22535 19962
7/05 15972 23372 20672
8/05 15797 23159 20483
9/05 16003 23347 20720
10/05 15704 22957 20471
11/05 16303 23825 21256
12/05 16405 23833 21318
==================================================================
SOURCE: LIPPER, INC.
Past performance cannot guarantee This chart, which is a logarithmic
comparable future results. chart, presents the fluctuations in the
value of the Fund and its indexes. We
The data shown in the chart include believe that a logarithmic chart is more
reinvested distributions, applicable effective than other types of charts in
sales charges, Fund expenses and illustrating changes in value during the
management fees. Index results include early years shown in the chart. The
reinvested dividends, but they do not vertical axis, the one that indicates
reflect sales charges. Performance of an the dollar value of an investment, is
index of funds reflects fund expenses constructed with each segment
and management fees; performance of a representing a percent change in the
market index does not. Performance shown value of the investment. In this chart,
in the chart and table(s) does not each segment represents a doubling, or
reflect deduction of taxes a shareholder 100% change, in the value of the
would pay on Fund distributions or sale investment. In other words, the space
of Fund shares. Performance of the between $5,000 and $10,000 is the same
indexes does not reflect the effects of size as the space between $10,000 and
taxes. $20,000, and the space between $10,000
and $20,000 is the same as that between
$20,000 and $40,000, and so on.
6
AIM PREMIER EQUITY FUND
======================================= =======================================
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
As of 12/31/05, including applicable 6 months ended 12/31/05, excluding
sales charges applicable sales charges
CLASS A SHARES Class A Shares 6.00%
Inception (5/1/84) 11.88% Class B Shares 5.63
10 Years 5.07 Class C Shares 5.62
5 Years -4.66 Class R Shares 5.85
1 Year -0.59
=======================================
CLASS B SHARES
Inception (10/18/93) 6.89%
10 Years 5.01
5 Years -4.69
1 Year -0.52
CLASS C SHARES
Inception (8/4/97) 1.67%
5 Years -4.30
1 Year 3.47
CLASS R SHARES
10 Years 5.41%
5 Years -3.82
1 Year 4.98
=======================================
CLASS R SHARES' INCEPTION DATE IS JUNE FOR THE MOST RECENT MONTH-END 5% BEGINNING AT THE TIME OF PURCHASE TO
3, 2002. RETURNS SINCE THAT DATE ARE PERFORMANCE. PERFORMANCE FIGURES REFLECT 0% AT THE BEGINNING OF THE SEVENTH YEAR.
HISTORICAL RETURNS. ALL OTHER RETURNS REINVESTED DISTRIBUTIONS, CHANGES IN NET THE CDSC ON CLASS C SHARES IS 1% FOR THE
ARE BLENDED RETURNS OF HISTORICAL CLASS ASSET VALUE AND THE EFFECT OF THE FIRST YEAR AFTER PURCHASE. CLASS R
R SHARE PERFORMANCE AND RESTATED CLASS A MAXIMUM SALES CHARGE UNLESS OTHERWISE SHARES DO NOT HAVE A FRONT-END SALES
SHARE PERFORMANCE (FOR PERIODS PRIOR TO STATED. INVESTMENT RETURN AND PRINCIPAL CHARGE; RETURNS SHOWN ARE AT NET ASSET
THE INCEPTION DATE OF CLASS R SHARES) AT VALUE WILL FLUCTUATE SO THAT YOU MAY VALUE AND DO NOT REFLECT A 0.75% CDSC
NET ASSET VALUE, ADJUSTED TO REFLECT THE HAVE A GAIN OR LOSS WHEN YOU SELL THAT MAY BE IMPOSED ON A TOTAL
HIGHER RULE 12b-1 FEES APPLICABLE TO SHARES. REDEMPTION OF RETIREMENT PLAN ASSETS
CLASS R SHARES. WITHIN THE FIRST YEAR.
CLASS A SHARE PERFORMANCE REFLECTS
THE PERFORMANCE DATA QUOTED REPRESENT THE MAXIMUM 5.50% SALES CHARGE, AND THE PERFORMANCE OF THE FUND'S SHARE
PAST PERFORMANCE AND CANNOT GUARANTEE CLASS B AND CLASS C SHARE PERFORMANCE CLASSES WILL DIFFER DUE TO DIFFERENT
COMPARABLE FUTURE RESULTS; CURRENT REFLECTS THE APPLICABLE CONTINGENT SALES CHARGE STRUCTURES AND CLASS
PERFORMANCE MAY BE LOWER OR HIGHER. DEFERRED SALES CHARGE (CDSC) FOR THE EXPENSES.
PLEASE VISIT AIMinvestments.com PERIOD INVOLVED. THE CDSC ON CLASS B
SHARES DECLINES FROM
Continued from inside front cover
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.
7
AIM PREMIER EQUITY FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND SUMMARY OF INDEPENDENT WRITTEN FEE
EVALUATION
The Board of Trustees of AIM Funds Group o The quality of services to be provided o Fees relative to those of clients of
(the "Board") oversees the management of by AIM. The Board reviewed the AIM with comparable investment
AIM Premier Equity Fund (the "Fund") credentials and experience of the strategies. The Board reviewed the
and, as required by law, determines officers and employees of AIM who will advisory fee rate for the Fund under the
annually whether to approve the provide investment advisory services to Advisory Agreement. The Board noted
continuance of the Fund's advisory the Fund. In reviewing the that, based on the Fund's current assets
agreement with A I M Advisors, Inc. qualifications of AIM to provide and taking account of the breakpoint in
("AIM"). Based upon the recommendation investment advisory services, the Board the Fund's advisory fee schedule, this
of the Investments Committee of the reviewed the qualifications of AIM's rate (i) was comparable to the advisory
Board, which is comprised solely of investment personnel and considered such fee rates for a variable insurance fund
independent trustees, at a meeting held issues as AIM's portfolio and product advised by AIM and offered to insurance
on June 30, 2005, the Board, including review process, various back office company separate accounts with
all of the independent trustees, support functions provided by AIM and investment strategies comparable to
approved the continuance of the advisory AIM's equity and fixed income trading those of the Fund; and (ii) was lower
agreement (the "Advisory Agreement") operations. Based on the review of these than the advisory fee rates for three
between the Fund and AIM for another and other factors, the Board concluded offshore funds for which an affiliate of
year, effective July 1, 2005. that the quality of services to be AIM serves as advisor with investment
provided by AIM was appropriate and that strategies comparable to those of the
The Board considered the factors AIM currently is providing satisfactory Fund. The Board noted that AIM has
discussed below in evaluating the services in accordance with the terms of agreed to waive advisory fees of the
fairness and reasonableness of the the Advisory Agreement. Fund, as discussed below. Based on this
Advisory Agreement at the meeting on review, the Board concluded that the
June 30, 2005 and as part of the Board's o The performance of the Fund relative advisory fee rate for the Fund under the
ongoing oversight of the Fund. In their to comparable funds. The Board reviewed Advisory Agreement was fair and
deliberations, the Board and the the performance of the Fund during the reasonable.
independent trustees did not identify past one, three and five calendar years
any particular factor that was against the performance of funds advised o Fees relative to those of comparable
controlling, and each trustee attributed by other advisors with investment funds with other advisors. The Board
different weights to the various strategies comparable to those of the reviewed the advisory fee rate for the
factors. Fund. The Board noted that the Fund's Fund under the Advisory Agreement. The
performance in such periods was below Board compared effective contractual
One of the responsibilities of the the median performance of such advisory fee rates at a common asset
Senior Officer of the Fund, who is comparable funds. The Board noted that level and noted that the Fund's rate was
independent of AIM and AIM's affiliates, AIM has acknowledged that the Fund above the median rate of the funds
is to manage the process by which the continues to require a long-term advised by other advisors with
Fund's proposed management fees are solution to its under-performance, and investment strategies comparable to
negotiated to ensure that they are that management is continuing to closely those of the Fund that the Board
negotiated in a manner which is at arm's monitor the performance of the Fund and reviewed. The Board noted that AIM has
length and reasonable. To that end, the analyze various possible long-term agreed to waive advisory fees of the
Senior Officer must either supervise a solutions. Based on this review, the Fund, as discussed below. Based on this
competitive bidding process or prepare Board concluded that no changes should review, the Board concluded that the
an independent written evaluation. The be made to the Fund and that it was not advisory fee rate for the Fund under the
Senior Officer has recommended an necessary to change the Fund's portfolio Advisory Agreement was fair and
independent written evaluation in lieu management team at this time. reasonable.
of a competitive bidding process and,
upon the direction of the Board, has o The performance of the Fund relative o Expense limitations and fee waivers.
prepared such an independent written to indices. The Board reviewed the The Board noted that AIM has
evaluation. Such written evaluation also performance of the Fund during the past contractually agreed to waive advisory
considered certain of the factors one, three and five calendar years fees of the Fund through December 31,
discussed below. In addition, as against the performance of the Lipper 2009 to the extent necessary so that the
discussed below, the Senior Officer made Large-Cap Core Index. The Board noted advisory fees payable by the Fund do not
certain recommendations to the Board in that the Fund's performance in such exceed a specified maximum advisory fee
connection with such written evaluation. periods was below the performance of rate, which maximum rate includes
such Index. The Board noted that AIM has breakpoints and is based on net asset
The discussion below serves as a acknowledged that the Fund continues to levels. The Board considered the
summary of the Senior Officer's require a long-term solution to its contractual nature of this fee waiver
independent written evaluation and under-performance, and that management and noted that it remains in effect
recommendations to the Board in is continuing to closely monitor the until December 31, 2009. The Board noted
connection therewith, as well as a performance of the Fund and analyze that AIM also has contractually agreed
discussion of the material factors and various possible long-term solutions. to waive an additional 0.02% of the
the conclusions with respect thereto Based on this review, the Board Fund's advisory fees through June 30,
that formed the basis for the Board's concluded that no changes should be made 2006. The Board considered the
approval of the Advisory Agreement. to the Fund and that it was not contractual nature of this fee waiver
After consideration of all of the necessary to change the Fund's portfolio and noted that it remains in effect
factors below and based on its informed management team at this time. until June 30, 2006. The Board
business judgment, the Board determined considered the effect these fee waivers
that the Advisory Agreement is in the o Meeting with the Fund's portfolio would have on the Fund's estimated
best interests of the Fund and its managers and investment personnel. With expenses and concluded that the levels
shareholders and that the compensation respect to the Fund, the Board is of fee waivers/expense limitations for
to AIM under the Advisory Agreement is meeting periodically with such Fund's the Fund were fair and reasonable.
fair and reasonable and would have been portfolio managers and/or other
obtained through arm's length investment personnel and believes that o Breakpoints and economies of scale.
negotiations. such individuals are competent and able The Board reviewed the structure of the
to continue to carry out their Fund's advisory fee under the Advisory
o The nature and extent of the advisory responsibilities under the Advisory Agreement, noting that it includes one
services to be provided by AIM. The Agreement. breakpoint. The Board reviewed the level
Board reviewed the services to be of the Fund's advisory fees, and noted
provided by AIM under the Advisory o Overall performance of AIM. The Board that such fees, as a percentage of the
Agreement. Based on such review, the considered the overall performance of Fund's net assets, have decreased as net
Board concluded that the range of AIM in providing investment advisory and assets increased because the Advisory
services to be provided by AIM under the portfolio administrative services to the Agreement includes a breakpoint. The
Advisory Agreement was appropriate and Fund and concluded that such performance Board noted that AIM has contractually
that AIM currently is providing services was satisfactory. agreed to waive advisory fees of the
in accordance with the terms of the Fund through December 31, 2009 to the
Advisory Agreement. 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
(continued)
8
AIM PREMIER EQUITY FUND
net asset levels. The Board concluded o Profitability of AIM and its AIM and its affiliates, including
that the Fund's fee levels under the affiliates. The Board reviewed maintaining an internal controls
Advisory Agreement therefore reflect information concerning the profitability committee and retaining an independent
economies of scale and that it was not of AIM's (and its affiliates') compliance consultant, and the fact that
necessary to change the advisory fee investment advisory and other activities AIM has undertaken to cause the Fund to
breakpoints in the Fund's advisory fee and its financial condition. The Board operate in accordance with certain
schedule. considered the overall profitability of governance policies and practices. The
AIM, as well as the profitability of AIM Board concluded that these actions
o Investments in affiliated money market in connection with managing the Fund. indicated a good faith effort on the
funds. The Board also took into account The Board noted that AIM's operations part of AIM to adhere to the highest
the fact that uninvested cash and cash remain profitable, although increased ethical standards, and determined that
collateral from securities lending expenses in recent years have reduced the current regulatory and litigation
arrangements (collectively, "cash AIM's profitability. Based on the review environment to which AIM is subject
balances") of the Fund may be invested of the profitability of AIM's and its should not prevent the Board from
in money market funds advised by AIM affiliates' investment advisory and continuing the Advisory Agreement for
pursuant to the terms of an SEC other activities and its financial the Fund.
exemptive order. The Board found that condition, the Board concluded that the
the Fund may realize certain benefits compensation to be paid by the Fund to
upon investing cash balances in AIM AIM under its Advisory Agreement was not
advised money market funds, including a excessive.
higher net return, increased liquidity,
increased diversification or decreased o Benefits of soft dollars to AIM. The
transaction costs. The Board also found Board considered the benefits realized
that the Fund will not receive reduced by AIM as a result of brokerage
services if it invests its cash balances transactions executed through "soft
in such money market funds. The Board dollar" arrangements. Under these
noted that, to the extent the Fund arrangements, brokerage commissions paid
invests in affiliated money market by the Fund and/or other funds advised
funds, AIM has voluntarily agreed to by AIM are used to pay for research and
waive a portion of the advisory fees it execution services. This research is
receives from the Fund attributable to used by AIM in making investment
such investment. The Board further decisions for the Fund. The Board
determined that the proposed securities concluded that such arrangements were
lending program and related procedures appropriate.
with respect to the lending Fund is in
the best interests of the lending Fund o AIM's financial soundness in light of
and its respective shareholders. The the Fund's needs. The Board considered
Board therefore concluded that the whether AIM is financially sound and has
investment of cash collateral received the resources necessary to perform its
in connection with the securities obligations under the Advisory
lending program in the money market Agreement, and concluded that AIM has
funds according to the procedures is in the financial resources necessary to
the best interests of the lending Fund fulfill its obligations under the
and its respective shareholders. Advisory Agreement.
o Independent written evaluation and o Historical relationship between the
recommendations of the Fund's Senior Fund and AIM. In determining whether to
Officer. The Board noted that, upon continue the Advisory Agreement for the
their direction, the Senior Officer of Fund, the Board also considered the
the Fund, who is independent of AIM and prior relationship between AIM and the
AIM's affiliates, had prepared an Fund, as well as the Board's knowledge
independent written evaluation in order of AIM's operations, and concluded that
to assist the Board in determining the it was beneficial to maintain the
reasonableness of the proposed current relationship, in part, because
management fees of the AIM Funds, of such knowledge. The Board also
including the Fund. The Board noted that reviewed the general nature of the
the Senior Officer's written evaluation non-investment advisory services
had been relied upon by the Board in currently performed by AIM and its
this regard in lieu of a competitive affiliates, such as administrative,
bidding process. In determining whether transfer agency and distribution
to continue the Advisory Agreement for services, and the fees received by AIM
the Fund, the Board considered the and its affiliates for performing such
Senior Officer's written evaluation and services. In addition to reviewing such
the recommendation made by the Senior services, the trustees also considered
Officer to the Board that the Board the organizational structure employed by
consider implementing a process to AIM and its affiliates to provide those
assist them in more closely monitoring services. Based on the review of these
the performance of the AIM Funds. The and other factors, the Board concluded
Board concluded that it would be that AIM and its affiliates were
advisable to implement such a process as qualified to continue to provide
soon as reasonably practicable. The non-investment advisory services to the
Board also considered the Senior Fund, including administrative, transfer
Officer's recommendation that the Board agency and distribution services, and
consider an additional fee waiver for that AIM and its affiliates currently
the Fund due to the Fund's are providing satisfactory
under-performance. The Board concluded non-investment advisory services.
that such a fee waiver in the amount of
0.02% of the Fund's advisory fees was o Other factors and current trends. In
appropriate for the Fund and requested determining whether to continue the
such a fee waiver from AIM. The Board Advisory Agreement for the Fund, the
noted that AIM has agreed to this fee Board considered the fact that AIM,
waiver, as discussed above. 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
9
SUPPLEMENT TO ANNUAL REPORT DATED 12/31/05
AIM PREMIER EQUITY FUND
========================================
INSTITUTIONAL CLASS SHARES
AVERAGE ANNUAL TOTAL RETURNS PLEASE NOTE THAT PAST PERFORMANCE IS NOT
The following information has been For periods ended 12/31/05 INDICATIVE OF FUTURE RESULTS. MORE
prepared to provide Institutional Class RECENT RETURNS MAY BE MORE OR LESS THAN
shareholders with a performance overview Inception (3/15/02) 0.03% THOSE SHOWN. ALL RETURNS ASSUME
specific to their holdings. 1 Year 6.25 REINVESTMENT OF DISTRIBUTIONS AT NAV.
Institutional Class shares are offered 6 Months* 6.35 INVESTMENT RETURN AND PRINCIPAL VALUE
exclusively to institutional investors, WILL FLUCTUATE SO YOUR SHARES, WHEN
including defined contribution plans *Cumulative total return that has not REDEEMED, MAY BE WORTH MORE OR LESS THAN
that meet certain criteria. been annualized THEIR ORIGINAL COST. SEE FULL REPORT FOR
INFORMATION ON COMPARATIVE BENCHMARKS.
======================================== PLEASE CONSULT YOUR FUND PROSPECTUS FOR
MORE INFORMATION. FOR THE MOST CURRENT
INSTITUTIONAL CLASS SHARES HAVE NO SALES MONTH-END PERFORMANCE, PLEASE CALL
CHARGE; THEREFORE, PERFORMANCE IS AT NET 800-451-4246 OR VISIT
ASSET VALUE (NAV). PERFORMANCE OF AIMinvestments.com.
INSTITUTIONAL CLASS SHARES WILL DIFFER
FROM PERFORMANCE OF OTHER SHARE CLASSES
DUE TO DIFFERING SALES CHARGES AND CLASS
EXPENSES.
========================================
NASDAQ SYMBOL AVLVX
========================================
Over for information on your Fund's expenses.
================================================================================
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.
================================================================================
FOR INSTITUTIONAL INVESTOR USE ONLY
This material is for institutional investor use only and may not be quoted, reproduced or shown to the public, nor used in written
form as sales literature for public use.
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
</Table>
AIMinvestments.com PEQ-INS-1 A I M Distributors, Inc.
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE $1,000 (for example, an $8,600 account The hypothetical account values and
value divided by $1,000 = 8.6), then expenses may not be used to estimate the
As a shareholder of the Fund, you incur multiply the result by the number in the actual ending account balance or
ongoing costs, including management fees table under the heading entitled "Actual expenses you paid for the period. You
and other Fund expenses. This example is Expenses Paid During Period" to estimate may use this information to compare the
intended to help you understand your the expenses you paid on your account ongoing costs of investing in the Fund
ongoing costs (in dollars) of investing during this period. and other funds. To do so, compare this
in the Fund and to compare these costs 5% hypothetical example with the 5%
with ongoing costs of investing in other HYPOTHETICAL EXAMPLE FOR COMPARISON hypothetical examples that appear in the
mutual funds. The example is based on an PURPOSES shareholder reports of the other funds.
investment of $1,000 invested at the
beginning of the period and held for the The table below also provides Please note that the expenses shown
entire period July 1, 2005, through information about hypothetical account in the table are meant to highlight your
December 31, 2005. values and hypothetical expenses based ongoing costs only. Therefore, the
on the Fund's actual expense ratio and hypothetical information is useful in
ACTUAL EXPENSES an assumed rate of return of 5% per year comparing ongoing costs only, and will
before expenses, which is not the Fund's not help you determine the relative
The table below provides information actual return. The Fund's actual total costs of owning different funds.
about actual account values and actual cumulative total return after expenses
expenses. You may use the information in for the six months ended December 31,
this table, together with the amount you 2005, appears in the table on the front
invested, to estimate the expenses that of this supplement.
you paid over the period. Simply divide
your account value by
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/05) (12/31/05)(1) PERIOD(2) (12/31/05) PERIOD(2) RATIO
Institutional $1,000.00 $1,063.50 $4.00 $1,021.32 $3.92 0.77%
(1) The actual ending account value is based on the actual total return of the Fund for the period July 1, 2005, through December
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 return after expenses for the
six months ended December 31, 2005, appears in the table on the front of this supplement.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year.
====================================================================================================================================
AIMinvestments.com PEQ-INS-1 A I M Distributors, Inc.
AIM PREMIER EQUITY FUND
SCHEDULE OF INVESTMENTS
December 31, 2005
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
DOMESTIC COMMON STOCKS & OTHER EQUITY
INTERESTS-86.98%
ADVERTISING-1.01%
Interpublic Group of Cos., Inc. (The)(a) 1,279,900 $ 12,351,035
- --------------------------------------------------------------------------
Omnicom Group Inc. 464,500 39,542,885
==========================================================================
51,893,920
==========================================================================
AEROSPACE & DEFENSE-2.36%
Boeing Co. (The) 300,000 21,072,000
- --------------------------------------------------------------------------
General Dynamics Corp. 100,000 11,405,000
- --------------------------------------------------------------------------
Honeywell International Inc. 549,900 20,483,775
- --------------------------------------------------------------------------
Lockheed Martin Corp. 340,000 21,634,200
- --------------------------------------------------------------------------
Northrop Grumman Corp. 608,314 36,565,755
- --------------------------------------------------------------------------
Precision Castparts Corp. 200,000 10,362,000
==========================================================================
121,522,730
==========================================================================
ALUMINUM-0.31%
Alcoa Inc. 535,100 15,822,907
==========================================================================
APPAREL RETAIL-0.95%
Chico's FAS, Inc.(a) 175,000 7,687,750
- --------------------------------------------------------------------------
Gap, Inc. (The) 1,585,400 27,966,456
- --------------------------------------------------------------------------
TJX Cos., Inc. (The) 571,927 13,285,864
==========================================================================
48,940,070
==========================================================================
APPLICATION SOFTWARE-0.40%
Amdocs Ltd.(a) 750,000 20,625,000
==========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.24%
Bank of New York Co., Inc. (The) 1,996,534 63,589,608
==========================================================================
BIOTECHNOLOGY-1.98%
Amgen Inc.(a) 752,130 59,312,972
- --------------------------------------------------------------------------
Genentech, Inc.(a) 120,000 11,100,000
- --------------------------------------------------------------------------
Genzyme Corp.(a) 145,000 10,263,100
- --------------------------------------------------------------------------
Gilead Sciences, Inc.(a) 400,000 21,052,000
==========================================================================
101,728,072
==========================================================================
BUILDING PRODUCTS-1.00%
Masco Corp. 1,700,100 51,326,019
==========================================================================
COMMUNICATIONS EQUIPMENT-1.90%
Cisco Systems, Inc.(a) 3,435,000 58,807,200
- --------------------------------------------------------------------------
QUALCOMM Inc. 900,000 38,772,000
==========================================================================
97,579,200
==========================================================================
COMPUTER & ELECTRONICS RETAIL-0.13%
Best Buy Co., Inc. 150,000 6,522,000
==========================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
COMPUTER HARDWARE-1.67%
Apple Computer, Inc.(a) 600,000 $ 43,134,000
- --------------------------------------------------------------------------
Dell Inc.(a) 370,000 11,096,300
- --------------------------------------------------------------------------
International Business Machines Corp. 387,262 31,832,937
==========================================================================
86,063,237
==========================================================================
COMPUTER STORAGE & PERIPHERALS-0.96%
EMC Corp.(a) 1,000,000 13,620,000
- --------------------------------------------------------------------------
Lexmark International, Inc.-Class A(a) 791,789 35,495,901
==========================================================================
49,115,901
==========================================================================
CONSUMER FINANCE-0.35%
American Express Co. 128,168 6,595,525
- --------------------------------------------------------------------------
SLM Corp. 211,000 11,623,990
==========================================================================
18,219,515
==========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-1.05%
First Data Corp. 1,260,200 54,201,202
==========================================================================
DEPARTMENT STORES-1.09%
Federated Department Stores, Inc. 200,000 13,266,000
- --------------------------------------------------------------------------
J.C. Penney Co., Inc. 235,000 13,066,000
- --------------------------------------------------------------------------
Nordstrom, Inc. 800,000 29,920,000
==========================================================================
56,252,000
==========================================================================
DIVERSIFIED BANKS-0.49%
Bank of America Corp. 550,215 25,392,422
==========================================================================
DIVERSIFIED CHEMICALS-0.17%
Dow Chemical Co. (The) 196,600 8,615,012
==========================================================================
DIVERSIFIED COMMERCIAL & PROFESSIONAL
SERVICES-0.56%
Cendant Corp. 1,670,000 28,807,500
==========================================================================
ELECTRIC UTILITIES-0.46%
FPL Group, Inc. 571,900 23,768,164
==========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-0.00%
Symbol Technologies, Inc. 1,346 17,256
==========================================================================
ENVIRONMENTAL & FACILITIES SERVICES-1.52%
Waste Management, Inc. 2,581,780 78,357,023
==========================================================================
FOOD RETAIL-1.71%
Kroger Co. (The)(a) 3,153,308 59,534,455
- --------------------------------------------------------------------------
Safeway Inc. 1,193,500 28,238,210
==========================================================================
87,772,665
==========================================================================
</Table>
F-1
AIM PREMIER EQUITY FUND
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
GENERAL MERCHANDISE STORES-0.96%
Target Corp. 898,700 $ 49,401,539
==========================================================================
HEALTH CARE DISTRIBUTORS-1.85%
Cardinal Health, Inc. 1,030,400 70,840,000
- --------------------------------------------------------------------------
McKesson Corp. 470,766 24,286,818
==========================================================================
95,126,818
==========================================================================
HEALTH CARE EQUIPMENT-0.53%
Baxter International Inc. 729,100 27,450,615
==========================================================================
HEALTH CARE FACILITIES-0.68%
HCA Inc. 690,300 34,860,150
==========================================================================
HEALTH CARE SERVICES-0.30%
Caremark Rx, Inc.(a) 300,000 15,537,000
==========================================================================
HOME IMPROVEMENT RETAIL-0.51%
Home Depot, Inc. (The) 650,000 26,312,000
==========================================================================
HOMEFURNISHING RETAIL-0.47%
Bed Bath & Beyond Inc.(a) 660,610 23,881,052
==========================================================================
HOUSEHOLD PRODUCTS-0.71%
Procter & Gamble Co. (The) 633,750 36,681,450
==========================================================================
INDUSTRIAL CONGLOMERATES-4.74%
General Electric Co. 1,889,253 66,218,318
- --------------------------------------------------------------------------
Textron Inc. 150,000 11,547,000
- --------------------------------------------------------------------------
Tyco International Ltd. 5,742,462 165,727,453
==========================================================================
243,492,771
==========================================================================
INDUSTRIAL MACHINERY-0.86%
Dover Corp. 567,743 22,987,914
- --------------------------------------------------------------------------
Illinois Tool Works Inc.(b) 242,800 21,363,972
==========================================================================
44,351,886
==========================================================================
INSURANCE BROKERS-0.47%
Marsh & McLennan Cos., Inc. 759,000 24,105,840
==========================================================================
INTEGRATED OIL & GAS-2.38%
ConocoPhillips 525,000 30,544,500
- --------------------------------------------------------------------------
Exxon Mobil Corp. 1,057,353 59,391,518
- --------------------------------------------------------------------------
Murphy Oil Corp. 604,424 32,632,852
==========================================================================
122,568,870
==========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-1.29%
AT&T Inc. 1,758,827 43,073,673
- --------------------------------------------------------------------------
Verizon Communications Inc. 777,028 23,404,083
==========================================================================
66,477,756
==========================================================================
INTERNET RETAIL-0.25%
eBay Inc.(a) 300,000 12,975,000
==========================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES-1.17%
Google Inc.-Class A(a) 50,000 $ 20,743,000
- --------------------------------------------------------------------------
Yahoo! Inc.(a) 1,000,000 39,180,000
==========================================================================
59,923,000
==========================================================================
INVESTMENT BANKING & BROKERAGE-3.96%
Goldman Sachs Group, Inc. (The) 370,000 47,252,700
- --------------------------------------------------------------------------
Lehman Brothers Holdings Inc. 225,000 28,838,250
- --------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 947,473 64,172,346
- --------------------------------------------------------------------------
Morgan Stanley 1,112,760 63,138,003
==========================================================================
203,401,299
==========================================================================
INVESTMENT COMPANIES -- EXCHANGE TRADED
FUNDS-0.52%
iShares Russell 1000 Growth Index Fund 525,000 26,780,250
==========================================================================
IT CONSULTING & OTHER SERVICES-0.48%
Accenture Ltd.-Class A 853,758 24,647,993
==========================================================================
MANAGED HEALTH CARE-3.52%
Aetna Inc. 510,000 48,098,100
- --------------------------------------------------------------------------
CIGNA Corp. 122,000 13,627,400
- --------------------------------------------------------------------------
UnitedHealth Group Inc. 700,000 43,498,000
- --------------------------------------------------------------------------
WellPoint, Inc.(a) 950,300 75,824,437
==========================================================================
181,047,937
==========================================================================
MOVIES & ENTERTAINMENT-1.55%
News Corp.-Class A 2,205,400 34,293,970
- --------------------------------------------------------------------------
Walt Disney Co. (The) 1,891,900 45,348,843
==========================================================================
79,642,813
==========================================================================
MULTI-LINE INSURANCE-1.88%
American International Group, Inc. 452,724 30,889,359
- --------------------------------------------------------------------------
Genworth Financial Inc.-Class A 727,000 25,139,660
- --------------------------------------------------------------------------
Hartford Financial Services Group, Inc. (The) 470,600 40,419,834
==========================================================================
96,448,853
==========================================================================
OFFICE ELECTRONICS-1.07%
Xerox Corp. 3,743,500 54,842,275
==========================================================================
OIL & GAS DRILLING-1.29%
Nabors Industries Ltd.(a)(c) 371,500 28,141,125
- --------------------------------------------------------------------------
Transocean Inc.(a) 546,800 38,106,492
==========================================================================
66,247,617
==========================================================================
OIL & GAS EQUIPMENT & SERVICES-5.10%
BJ Services Co.(c) 2,192,600 80,402,642
- --------------------------------------------------------------------------
Halliburton Co. 903,800 55,999,448
- --------------------------------------------------------------------------
National-Oilwell Varco Inc.(a) 300,000 18,810,000
- --------------------------------------------------------------------------
</Table>
F-2
AIM PREMIER EQUITY FUND
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES-(CONTINUED)
Schlumberger Ltd. 679,240 $ 65,988,166
- --------------------------------------------------------------------------
Smith International, Inc. 1,112,794 41,295,785
==========================================================================
262,496,041
==========================================================================
OIL & GAS EXPLORATION & PRODUCTION-0.49%
Apache Corp. 368,500 25,249,620
==========================================================================
OIL & GAS REFINING & MARKETING-0.50%
Valero Energy Corp. 496,000 25,593,600
==========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-2.32%
Citigroup Inc. 1,592,153 77,267,185
- --------------------------------------------------------------------------
JPMorgan Chase & Co. 1,063,700 42,218,253
==========================================================================
119,485,438
==========================================================================
PACKAGED FOODS & MEATS-1.61%
Campbell Soup Co. 591,573 17,611,128
- --------------------------------------------------------------------------
ConAgra Foods, Inc. 575,000 11,661,000
- --------------------------------------------------------------------------
General Mills, Inc. 698,563 34,453,127
- --------------------------------------------------------------------------
Kraft Foods Inc.-Class A 680,600 19,152,084
==========================================================================
82,877,339
==========================================================================
PERSONAL PRODUCTS-1.21%
Avon Products, Inc. 953,000 27,208,150
- --------------------------------------------------------------------------
Estee Lauder Cos. Inc. (The)-Class A 1,044,889 34,982,884
==========================================================================
62,191,034
==========================================================================
PHARMACEUTICALS-5.64%
Bristol-Myers Squibb Co. 1,649,800 37,912,404
- --------------------------------------------------------------------------
Forest Laboratories, Inc.(a) 892,000 36,286,560
- --------------------------------------------------------------------------
Johnson & Johnson 750,000 45,075,000
- --------------------------------------------------------------------------
Merck & Co. Inc. 2,458,162 78,194,133
- --------------------------------------------------------------------------
Pfizer Inc. 1,200,000 27,984,000
- --------------------------------------------------------------------------
Wyeth 1,397,901 64,401,299
==========================================================================
289,853,396
==========================================================================
PROPERTY & CASUALTY INSURANCE-5.15%
ACE Ltd. 1,473,919 78,766,231
- --------------------------------------------------------------------------
Allstate Corp. (The) 375,000 20,276,250
- --------------------------------------------------------------------------
Berkshire Hathaway Inc.-Class A(a) 760 67,351,200
- --------------------------------------------------------------------------
Chubb Corp. (The) 333,701 32,585,903
- --------------------------------------------------------------------------
St. Paul Travelers Cos., Inc. (The) 736,482 32,898,651
- --------------------------------------------------------------------------
XL Capital Ltd.-Class A 489,179 32,960,881
==========================================================================
264,839,116
==========================================================================
PUBLISHING-0.60%
Gannett Co., Inc. 507,730 30,753,206
==========================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
RAILROADS-0.90%
Burlington Northern Santa Fe Corp. 200,000 $ 14,164,000
- --------------------------------------------------------------------------
Union Pacific Corp. 400,600 32,252,306
==========================================================================
46,416,306
==========================================================================
REGIONAL BANKS-0.94%
Fifth Third Bancorp 591,814 22,323,224
- --------------------------------------------------------------------------
North Fork Bancorp., Inc. 957,687 26,202,316
==========================================================================
48,525,540
==========================================================================
RESTAURANTS-0.52%
YUM! Brands, Inc. 575,000 26,956,000
==========================================================================
SEMICONDUCTOR EQUIPMENT-0.51%
Applied Materials, Inc. 1,457,800 26,152,932
==========================================================================
SEMICONDUCTORS-3.30%
Analog Devices, Inc. 2,033,284 72,933,897
- --------------------------------------------------------------------------
Intel Corp. 1,328,200 33,151,872
- --------------------------------------------------------------------------
National Semiconductor Corp. 1,025,000 26,629,500
- --------------------------------------------------------------------------
Texas Instruments Inc. 425,000 13,629,750
- --------------------------------------------------------------------------
Xilinx, Inc.(b) 923,300 23,276,393
==========================================================================
169,621,412
==========================================================================
SOFT DRINKS-0.59%
Coca-Cola Co. (The) 757,878 30,550,062
==========================================================================
SPECIALTY STORES-0.32%
Office Depot, Inc.(a) 525,000 16,485,000
==========================================================================
SYSTEMS SOFTWARE-3.78%
Computer Associates International, Inc. 2,733,400 77,054,546
- --------------------------------------------------------------------------
Microsoft Corp. 3,276,100 85,670,015
- --------------------------------------------------------------------------
Oracle Corp.(a) 1,455,000 17,765,550
- --------------------------------------------------------------------------
Symantec Corp.(a) 780,000 13,650,000
==========================================================================
194,140,111
==========================================================================
THRIFTS & MORTGAGE FINANCE-0.75%
Fannie Mae 791,100 38,613,591
==========================================================================
Total Domestic Common Stocks & Other
Equity Interests (Cost $3,756,228,106) 4,473,135,951
==========================================================================
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-11.89%
ARGENTINA-0.23%
Tenaris S.A.-ADR (Oil & Gas Equipment &
Services) 102,219 11,704,076
==========================================================================
FINLAND-0.67%
Nokia Oyj-ADR (Communications Equipment) 1,886,651 34,525,713
==========================================================================
FRANCE-2.02%
Sanofi-Aventis (Pharmaceuticals)(d) 677,245 59,335,676
- --------------------------------------------------------------------------
TOTAL S.A. (Integrated Oil & Gas)(d) 176,515 44,423,207
- --------------------------------------------------------------------------
103,758,883
==========================================================================
</Table>
F-3
AIM PREMIER EQUITY FUND
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
ISRAEL-0.67%
Teva Pharmaceutical Industries Ltd.-ADR
(Pharmaceuticals)(b) 800,058 $ 34,410,495
==========================================================================
JAPAN-0.81%
Nintendo Co., Ltd. (Home Entertainment
Software)(d) 105,900 12,873,115
- --------------------------------------------------------------------------
Sony Corp.-ADR (Consumer Electronics) 709,800 28,959,840
==========================================================================
41,832,955
==========================================================================
MEXICO-0.55%
CEMEX, S.A. de C.V.-ADR (Construction
Materials) 480,000 28,478,400
==========================================================================
NETHERLANDS-3.02%
Heineken N.V. (Brewers)(d) 1,359,286 43,080,251
- --------------------------------------------------------------------------
Koninklijke (Royal) Philips Electronics N.V.
(Consumer Electronics) 1,856,500 57,692,710
- --------------------------------------------------------------------------
Unilever N.V. (Packaged Foods & Meats)(d) 792,294 54,258,005
==========================================================================
155,030,966
==========================================================================
SINGAPORE-0.24%
Marvel Technology Group Ltd.
(Semiconductors)(a) 223,000 12,508,070
==========================================================================
SWITZERLAND-1.41%
Alcon, Inc. (Health Care Supplies) 325,000 42,120,000
- --------------------------------------------------------------------------
Novartis A.G.-ADR (Pharmaceuticals) 335,000 17,580,800
- --------------------------------------------------------------------------
UBS A.G. (Diversified Capital Markets) 133,000 12,662,329
==========================================================================
72,363,129
==========================================================================
TAIWAN-0.21%
Taiwan Semiconductor Manufacturing Co.
Ltd.-ADR (Semiconductors) 1,100,000 10,901,000
==========================================================================
UNITED KINGDOM-2.06%
Barclays PLC (Diversified Banks) 2,407,401 25,307,213
- --------------------------------------------------------------------------
Cadbury Schweppes PLC (Packaged Foods &
Meats) 2,490,000 23,540,827
- --------------------------------------------------------------------------
GlaxoSmithKline PLC-ADR (Pharmaceuticals) 863,258 43,577,264
- --------------------------------------------------------------------------
Shire PLC-ADR (Pharmaceuticals) 350,000 13,576,500
==========================================================================
106,001,804
==========================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $522,377,366) 611,515,491
==========================================================================
</Table>
<Table>
<Caption>
NUMBER
OF EXERCISE EXPIRATION
CONTRACTS PRICE DATE VALUE
- ------------------------------------------------------------------------------------------
PUT OPTIONS PURCHASED-0.00%
OIL & GAS DRILLING-0.00%
Nabors Industries, Ltd. 2,600 $60.0 Jan-06 $2,860
==========================================================================================
OIL & GAS EQUIPMENT & SERVICES-0.00%
BJ Services Co. 11,000 27.5 Jan-06 0
==========================================================================================
Total Put Options Purchased (Cost
$2,463,878) 2,860
==========================================================================================
</Table>
<Table>
SHARES
MONEY MARKET FUNDS-1.07%
Liquid Assets Portfolio-Institutional
Class(e) 27,662,328 27,662,328
- --------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(e) 27,662,328 27,662,328
==========================================================================
Total Money Market Funds (Cost
$55,324,656) 55,324,656
==========================================================================
TOTAL INVESTMENTS-99.94% (excluding
investments purchased with cash collateral
from securities loaned) (Cost
$4,336,394,006) 5,139,978,958
==========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-1.18%
Liquid Assets Portfolio-Institutional
Class(e)(f) 60,701,625 60,701,625
==========================================================================
Total Money Market Funds (purchased with
cash collateral from securities
loaned)(Cost $60,701,625) 60,701,625
==========================================================================
TOTAL INVESTMENTS-101.12% (Cost
$4,397,095,631) 5,200,680,583
==========================================================================
OTHER ASSETS LESS LIABILITIES-(1.12%) (57,840,224)
==========================================================================
NET ASSETS-100.00% $5,142,840,359
__________________________________________________________________________
==========================================================================
</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, 2005.
(c) A portion of this security is subject to call options written. See Note 1I
and Note 9.
(d) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
aggregate value of these securities at December 31, 2005 was $213,970,254,
which represented 4.16% of the Fund's Net Assets. See Note 1A.
(e) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(f) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-4
AIM PREMIER EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2005
<Table>
ASSETS:
Investments, at value (cost $4,281,069,350)* $5,084,654,302
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $116,026,281) 116,026,281
============================================================
Total investments (cost $4,397,095,631) 5,200,680,583
============================================================
Foreign currencies, at value (cost $956,421) 956,946
- ------------------------------------------------------------
Receivables for:
Investments sold 33,376,135
- ------------------------------------------------------------
Fund shares sold 740,754
- ------------------------------------------------------------
Dividends 6,466,112
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 507,775
- ------------------------------------------------------------
Other assets 39,533
============================================================
Total assets 5,242,767,838
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 28,622,665
- ------------------------------------------------------------
Options written, at value (premiums
received $1,431,028) 3,961,180
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 1,263,803
- ------------------------------------------------------------
Collateral upon return of securities
loaned 60,701,625
- ------------------------------------------------------------
Accrued distribution fees 1,992,930
- ------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 596
- ------------------------------------------------------------
Accrued transfer agent fees 2,536,406
- ------------------------------------------------------------
Accrued operating expenses 848,274
============================================================
Total liabilities 99,927,479
============================================================
Net assets applicable to shares outstanding $5,142,840,359
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $8,133,447,142
- ------------------------------------------------------------
Undistributed net investment income (1,328,955)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign
currencies (3,790,331,925)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies and option
contracts 801,054,097
============================================================
$5,142,840,359
____________________________________________________________
============================================================
NET ASSETS:
Class A $3,407,365,130
____________________________________________________________
============================================================
Class B $1,483,793,030
____________________________________________________________
============================================================
Class C $ 220,531,127
____________________________________________________________
============================================================
Class R $ 1,591,011
____________________________________________________________
============================================================
Institutional Class $ 29,560,061
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 327,831,705
____________________________________________________________
============================================================
Class B 154,977,273
____________________________________________________________
============================================================
Class C 23,014,297
____________________________________________________________
============================================================
Class R 154,123
____________________________________________________________
============================================================
Institutional Class 2,813,634
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 10.39
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $10.39 divided
by 94.50%) $ 10.99
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 9.57
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 9.58
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 10.32
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 10.51
____________________________________________________________
============================================================
</Table>
* At December 31, 2005, securities with an aggregate value of $58,574,821 were
on loan to brokers.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-5
AIM PREMIER EQUITY FUND
STATEMENT OF OPERATIONS
For the year ended December 31, 2005
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $1,275,779) $ 83,911,634
- ---------------------------------------------------------------------------
Dividends from affiliated money market funds (includes
securities lending income of $273,904, after compensation
to counterparties of $1,764,640) 5,657,578
===========================================================================
Total investment income 89,569,212
===========================================================================
EXPENSES:
Advisory fees 36,532,023
- ---------------------------------------------------------------------------
Administrative services fees 664,094
- ---------------------------------------------------------------------------
Custodian fees 605,805
- ---------------------------------------------------------------------------
Distribution fees:
Class A 9,243,698
- ---------------------------------------------------------------------------
Class B 18,315,727
- ---------------------------------------------------------------------------
Class C 2,557,309
- ---------------------------------------------------------------------------
Class R 6,350
- ---------------------------------------------------------------------------
Transfer agent fees -- A, B, C & R 19,533,194
- ---------------------------------------------------------------------------
Transfer agent fees -- Institutional 17,065
- ---------------------------------------------------------------------------
Trustees' and officer's fees and benefits 194,873
- ---------------------------------------------------------------------------
Other 2,257,528
===========================================================================
Total expenses 89,927,666
===========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (1,881,219)
===========================================================================
Net expenses 88,046,447
===========================================================================
Net investment income 1,522,765
===========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (includes gains (losses) from
securities sold to affiliates of $(1,589,736)) 391,700,165
- ---------------------------------------------------------------------------
Foreign currencies (462,570)
===========================================================================
391,237,595
===========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (143,012,260)
- ---------------------------------------------------------------------------
Foreign currencies (956)
- ---------------------------------------------------------------------------
Option contracts written (2,530,152)
===========================================================================
(145,543,368)
===========================================================================
Net gain from investment securities, foreign currencies and
option contracts 245,694,227
===========================================================================
Net increase in net assets resulting from operations $ 247,216,992
___________________________________________________________________________
===========================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-6
AIM PREMIER EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2005 and 2004
<Table>
<Caption>
2005 2004
- ------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 1,522,765 $ 6,495,939
- ------------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies and futures contracts 391,237,595 543,675,823
- ------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies, futures
contracts and option contracts (145,543,368) (233,501,742)
================================================================================================
Net increase in net assets resulting from operations 247,216,992 316,670,020
================================================================================================
Distributions to shareholders from net investment income:
Class A (2,709,837) (6,005,272)
- ------------------------------------------------------------------------------------------------
Institutional Class (175,098) (28,013)
================================================================================================
Decrease in net assets resulting from distributions (2,884,935) (6,033,285)
================================================================================================
Share transactions-net:
Class A (990,328,444) (1,093,570,069)
- ------------------------------------------------------------------------------------------------
Class B (892,609,951) (1,396,211,918)
- ------------------------------------------------------------------------------------------------
Class C (100,698,039) (134,394,245)
- ------------------------------------------------------------------------------------------------
Class R 675,718 137,938
- ------------------------------------------------------------------------------------------------
Institutional Class 25,317,158 603,693
================================================================================================
Net increase (decrease) in net assets resulting from
share transactions (1,957,643,558) (2,623,434,601)
================================================================================================
Net increase (decrease) in net assets (1,713,311,501) (2,312,797,866)
================================================================================================
NET ASSETS:
Beginning of year 6,856,151,860 9,168,949,726
================================================================================================
End of year (including undistributed net investment income
of $(1,328,955) and $(788,589), respectively) $ 5,142,840,359 $ 6,856,151,860
________________________________________________________________________________________________
================================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-7
AIM PREMIER EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Premier Equity Fund (the "Fund") is a series portfolio of AIM Funds Group
(the "Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of eight separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's primary investment objective is to achieve long-term growth of
capital. Income is a secondary investment objective.
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. The risk of material loss as a result of such indemnification claims
is considered remote.
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 are 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 recorded at amortized cost which approximates 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 value as of the close of the NYSE.
Foreign securities meeting the approved degree of certainty that the price
is not reflective of current 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
F-8
AIM PREMIER EQUITY FUND
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. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be United States of America unless otherwise noted.
D. 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.
E. 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.
F. 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.
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. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received. A risk in writing a
call option is that the Fund gives up the opportunity for profit if the
market price of the security increases and the option is exercised.
F-9
AIM PREMIER EQUITY FUND
J. 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.
K. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are 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.
L. 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 daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- --------------------------------------------------------------------
First $150 million 0.80%
====================================================================
Over $150 million 0.625%
___________________________________________________________________
====================================================================
</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 $150 million 0.75%
- --------------------------------------------------------------------
Next $4.85 billion 0.615%
- --------------------------------------------------------------------
Next $2.5 billion 0.57%
- --------------------------------------------------------------------
Next $2.5 billion 0.545%
====================================================================
Over $10 billion 0.52%
___________________________________________________________________
====================================================================
</Table>
AIM has also contractually agreed to waive advisory fees equal to 0.02% of
the Fund's average daily net assets, through June 30, 2006.
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 December 31, 2005, AIM waived fees of $1,594,592.
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 year ended December 31, 2005, AMVESCAP reimbursed expenses of the Fund in
the amount of $94,706.
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, 2005, AIM was paid $664,094.
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 December 31, 2005, the
Fund paid AISI $19,533,194 for Class A, Class B, Class C and Class R share
classes and $17,065 for Institutional Class shares.
F-10
AIM PREMIER EQUITY FUND
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
0.25% of the Fund's average daily net assets of Class A shares, 1.00% of the
average daily net assets of Class B and Class C shares and 0.50% of the average
daily net assets of Class R shares. Of these amounts, up to 0.25% of the average
daily net assets of the Class A, Class B, Class C or Class R shares may be paid
to furnish continuing personal shareholder services to customers who purchase
and own shares of such classes. Any amounts not paid as a service fee under the
Plans would constitute an asset-based sales charge. 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 December 31, 2005, the Class
A, Class B, Class C and Class R shares paid $9,243,698, $18,315,727, $2,557,309,
and $6,350, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During year ended
December 31, 2005, ADI advised the Fund that it retained $257,944 in front-end
sales commissions from the sale of Class A shares and $6,425, $472,527, $12,018
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 year ended December 31, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $119,054,041 $1,114,826,414 $(1,206,218,127) $ -- $ 27,662,328 $2,681,973 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 119,054,041 1,114,826,414 (1,206,218,127) -- 27,662,328 2,701,701 --
===================================================================================================================================
Subtotal $238,108,082 $2,229,652,828 $(2,412,436,254) $ -- $ 55,324,656 $5,383,674 $ --
===================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME* GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ -- $ 240,126,486 $ (179,424,861) $ -- $ 60,701,625 $ 114,926 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 27,306,920 404,168,873 (431,475,793) -- -- 158,978 --
===================================================================================================================================
Subtotal $ 27,306,920 $ 644,295,359 $ (610,900,654) $ -- $ 60,701,625 $ 273,904 $ --
===================================================================================================================================
Total $265,415,002 $2,873,948,187 $(3,023,336,908) $ -- $116,026,281 $5,657,578 $ --
___________________________________________________________________________________________________________________________________
===================================================================================================================================
</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 year ended December 31, 2005, the Fund
engaged in securities purchases of $51,835,454 and sales of $26,780,147, which
resulted in net realized gains (losses) of $(1,589,736).
F-11
AIM PREMIER EQUITY FUND
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, 2005, the Fund received credits from these arrangements,
which resulted in the reduction of the Fund's total expenses of $191,921.
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 December 31, 2005, the Fund paid legal fees of $28,990
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, 2005, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
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, 2005, securities with an aggregate value of $58,574,821 were
on loan to brokers. The loans were secured by cash collateral of $60,701,625
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended December 31, 2005, the Fund received dividends on cash
collateral of $273,904 for securities lending transactions, which are net of
compensation to counterparties.
F-12
AIM PREMIER EQUITY FUND
NOTE 9--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- -------------------------------------------------------------------------------------
CALL OPTION CONTRACTS
-----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- -------------------------------------------------------------------------------------
Beginning of year -- $ --
- -------------------------------------------------------------------------------------
Written 13,600 1,431,028
=====================================================================================
End of year 13,600 $1,431,028
_____________________________________________________________________________________
=====================================================================================
</Table>
<Table>
<Caption>
OPEN CALL OPTIONS WRITTEN AT PERIOD END
- ---------------------------------------------------------------------------------------------------------------------------------
UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUMS VALUE APPRECIATION
MONTH PRICE CONTRACTS RECEIVED 12/31/05 (DEPRECIATION)
- ---------------------------------------------------------------------------------------------------------------------------------
BJ Services Co. Jan-06 $35 11,000 $ 782,808 $2,313,300 $(1,530,492)
- ---------------------------------------------------------------------------------------------------------------------------------
Nabors Industries, Ltd. Jan-06 70 2,600 648,220 1,647,880 (999,660)
=================================================================================================================================
13,600 $1,431,028 $3,961,180 $(2,530,152)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
NOTE 10--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31, 2005
and 2004 was as follows:
<Table>
<Caption>
2005 2004
- --------------------------------------------------------------------------------------
Distributions paid from ordinary income $2,884,935 $6,033,285
______________________________________________________________________________________
======================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2005
- -----------------------------------------------------------------------------
Unrealized appreciation -- investments $ 773,474,549
- -----------------------------------------------------------------------------
Temporary book/tax differences (1,130,597)
- -----------------------------------------------------------------------------
Capital loss carryforward (3,762,752,377)
- -----------------------------------------------------------------------------
Post-October currency loss deferral (198,358)
- -----------------------------------------------------------------------------
Shares of beneficial interest 8,133,447,142
=============================================================================
Total net assets $ 5,142,840,359
_____________________________________________________________________________
=============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation difference is attributable primarily to the deferral of losses on
wash sales. The tax-basis unrealized appreciation on investments amount includes
appreciation (depreciation) on foreign currencies of $(703) and option contracts
written of $(2,530,152).
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions. Under these limitation rules, the Fund is limited as of December
31, 2005 to utilizing $3,750,714,158 of capital loss carryforward in the fiscal
year ended December 31, 2006.
F-13
AIM PREMIER EQUITY FUND
The Fund utilized $396,677,924 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, 2005 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- ------------------------------------------------------------------------------
December 31, 2009 $ 750,402,770
- ------------------------------------------------------------------------------
December 31, 2010 2,279,293,105
- ------------------------------------------------------------------------------
December 31, 2011 733,056,502
==============================================================================
Total capital loss carryforward $3,762,752,377
______________________________________________________________________________
==============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code. To
the extent that unrealized gains as of November 24, 2003, the date of the
reorganization of AIM Premier Equity II Fund into the Fund, are realized on
securities held in each fund at such date, the capital loss carryforward may
be further limited for up to five years from the date of the reorganization.
NOTE 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, 2005 was $2,335,536,002 and $4,127,322,460, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ---------------------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 934,048,735
- ---------------------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (158,043,331)
=============================================================================================
Net unrealized appreciation of investment securities $ 776,005,404
_____________________________________________________________________________________________
=============================================================================================
</Table>
Cost of investments for tax purposes is $4,424,675,179.
NOTE 12--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions and distributions, on December 31, 2005, undistributed net
investment income was increased by $821,804, undistributed net realized gain
(loss) was increased by $462,570 and shares of beneficial interest decreased by
$1,284,374. This reclassification had no effect on the net assets of the Fund.
F-14
AIM PREMIER EQUITY FUND
NOTE 13--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and Institutional Class shares.
Class A shares are sold with a front-end sales charge. Class B shares and Class
C shares are sold with CDSC. Class R shares and Institutional Class shares are
sold at net asset value. Under certain circumstances, Class A shares and Class R
shares are subject to CDSC. Generally, Class B shares will automatically convert
to Class A shares eight years after the end of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- --------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
2005(A) 2004
------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 8,766,990 $ 86,775,735 19,026,912 $ 177,793,866
- --------------------------------------------------------------------------------------------------------------------------------
Class B 4,787,414 43,808,552 7,798,250 67,922,205
- --------------------------------------------------------------------------------------------------------------------------------
Class C 1,074,774 9,846,216 1,961,009 17,069,552
- --------------------------------------------------------------------------------------------------------------------------------
Class R 112,984 1,109,181 39,878 369,677
- --------------------------------------------------------------------------------------------------------------------------------
Institutional Class 3,195,907 32,083,076 276,850 2,558,155
================================================================================================================================
Issued as reinvestment of dividends:
Class A 245,505 2,577,750 550,080 5,357,824
- --------------------------------------------------------------------------------------------------------------------------------
Institutional Class 16,337 173,338 2,565 25,160
================================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 31,726,231 313,604,548 64,231,883 602,604,466
- --------------------------------------------------------------------------------------------------------------------------------
Class B (34,332,159) (313,604,548) (69,041,635) (602,604,466)
================================================================================================================================
Reacquired:
Class A (140,555,271) (1,393,286,477) (201,673,468) (1,879,326,225)
- --------------------------------------------------------------------------------------------------------------------------------
Class B (68,142,998) (622,813,955) (99,213,876) (861,529,657)
- --------------------------------------------------------------------------------------------------------------------------------
Class C (12,086,988) (110,544,255) (17,405,960) (151,463,797)
- --------------------------------------------------------------------------------------------------------------------------------
Class R (43,491) (433,463) (24,986) (231,739)
- --------------------------------------------------------------------------------------------------------------------------------
Institutional Class (697,536) (6,939,256) (205,058) (1,979,622)
================================================================================================================================
(205,932,301) $(1,957,643,558) (293,677,556) $(2,623,434,601)
________________________________________________________________________________________________________________________________
================================================================================================================================
</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. 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.
NOTE 14--SIGNIFICANT EVENT
The Board of Trustees of the Trust unanimously approved, on November 14, 2005, a
Plan of Reorganization pursuant to which the Fund would transfer all of its
assets to AIM Charter Fund ("Buying Fund"), a series of AIM Equity Funds ("the
Reorganization"). Upon closing of the Reorganization, shareholders of the Fund
will receive a corresponding class of shares of Buying Fund in exchange for
their shares of the Fund, and the Fund will cease operations.
The Plan of Reorganization requires approval of the Fund's shareholders. The
Fund currently intends to submit the Plan of Reorganization to the shareholders
for their consideration at a meeting to be held on or around February 28, 2006.
Additional information regarding the Plan of Reorganization will be included in
proxy materials to be mailed to shareholders for consideration. If the Plan of
Reorganization is approved by the shareholders of the Fund and certain
conditions required by the Plan of Reorganization are satisfied, the
Reorganization is expected to become effective shortly thereafter.
F-15
AIM PREMIER EQUITY FUND
NOTE 15--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,
---------------------------------------------------------------------------------
2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.88 $ 9.38 $ 7.51 $ 10.87 $ 12.51
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.03 0.04(a)(b) 0.01(a) (0.01)(a) (0.00)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.49 0.47 1.86 (3.35) (1.63)
=================================================================================================================================
Total from investment operations 0.52 0.51 1.87 (3.36) (1.63)
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.01) (0.01) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- (0.01)
=================================================================================================================================
Total distributions (0.01) (0.01) -- -- (0.01)
=================================================================================================================================
Net asset value, end of period $ 10.39 $ 9.88 $ 9.38 $ 7.51 $ 10.87
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 5.24% 5.48% 24.90% (30.91)% (12.99)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $3,407,365 $4,225,192 $5,116,444 $4,642,361 $8,502,699
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 1.25%(d) 1.26% 1.26% 1.17% 1.08%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.28%(d) 1.28% 1.27% 1.19% 1.12%
=================================================================================================================================
Ratio of net investment income (loss) to
average net assets 0.29%(d) 0.39%(b) 0.07% (0.08)% (0.03)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 41% 86% 37% 36% 38%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2,
2004. Net investment income per share and the ratio of net investment
income to average net assets excluding the special dividend are $0.03
and 0.24%, respectively.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based on those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(d) Ratios are based on average daily net assets of $3,697,479,289.
F-16
AIM PREMIER EQUITY FUND
NOTE 15--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS B
---------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.16 $ 8.75 $ 7.07 $ 10.30 $ 11.94
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05) (0.03)(a)(b) (0.05)(a) (0.07)(a) (0.09)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.46 0.44 1.73 (3.16) (1.54)
=================================================================================================================================
Total from investment operations 0.41 0.41 1.68 (3.23) (1.63)
=================================================================================================================================
Less distributions from net realized gains -- -- -- -- (0.01)
=================================================================================================================================
Net asset value, end of period $ 9.57 $ 9.16 $ 8.75 $ 7.07 $ 10.30
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 4.48% 4.69% 23.76% (31.36)% (13.61)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,483,793 $2,315,119 $3,616,395 $4,274,489 $9,186,980
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 2.00%(d) 2.01% 2.01% 1.92% 1.84%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 2.03%(d) 2.03% 2.02% 1.94% 1.88%
=================================================================================================================================
Ratio of net investment income (loss) to
average net assets (0.46)%(d) (0.36)%(b) (0.68)% (0.84)% (0.79)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 41% 86% 37% 36% 38%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2,
2004. Net investment income (loss) per share and the ratio of net
investment income (loss) to average net assets excluding the special
dividend are $(0.04) and (0.51)%, respectively.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based on those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(d) Ratios are based on average daily net assets of $1,831,572,728.
F-17
AIM PREMIER EQUITY FUND
NOTE 15--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS C
-----------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.17 $ 8.76 $ 7.07 $ 10.31 $ 11.95
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05) (0.03)(a)(b) (0.05)(a) (0.07)(a) (0.09)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.46 0.44 1.74 (3.17) (1.54)
=================================================================================================================================
Total from investment operations 0.41 0.41 1.69 (3.24) (1.63)
=================================================================================================================================
Less distributions from net realized gains -- -- -- -- (0.01)
=================================================================================================================================
Net asset value, end of period $ 9.58 $ 9.17 $ 8.76 $ 7.07 $ 10.31
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 4.47% 4.68% 23.90% (31.43)% (13.60)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $220,531 $312,035 $433,332 $444,901 $943,211
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.00%(d) 2.01% 2.01% 1.92% 1.84%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.03%(d) 2.03% 2.02% 1.94% 1.88%
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.46)%(d) (0.36)%(b) (0.68)% (0.84)% (0.79)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 41% 86% 37% 36% 38%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2,
2004. Net investment income (loss) per share and the ratio of net
investment income (loss) to average net assets excluding the special
dividend are $(0.04) and (0.51)%, respectively.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based on 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 $255,730,915.
<Table>
<Caption>
CLASS R
------------------------------------------------------
JUNE 3, 2002
(DATE SALES
YEAR ENDED DECEMBER 31, COMMENCED) TO
---------------------------------- DECEMBER 31,
2005 2004 2003 2002
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.83 $9.34 $ 7.50 $ 9.16
- --------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.00 0.01(a)(b) (0.01)(a) (0.02)(a)
- --------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.49 0.48 1.85 (1.64)
====================================================================================================================
Total from investment operations 0.49 0.49 1.84 (1.66)
====================================================================================================================
Net asset value, end of period $10.32 $9.83 $ 9.34 $ 7.50
____________________________________________________________________________________________________________________
====================================================================================================================
Total return(c) 4.98% 5.25% 24.53% (18.12)%
____________________________________________________________________________________________________________________
====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,591 $832 $ 651 $ 207
____________________________________________________________________________________________________________________
====================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.50%(d) 1.51% 1.51% 1.48%(e)
- --------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.53%(d) 1.53% 1.52% 1.50%(e)
====================================================================================================================
Ratio of net investment income (loss) to average net assets 0.04%(d) 0.14%(b) (0.18)% (0.40)%(e)
____________________________________________________________________________________________________________________
====================================================================================================================
Portfolio turnover rate 41% 86% 37% 36%
____________________________________________________________________________________________________________________
====================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2,
2004. Net investment income (loss) per share and the ratio of net
investment income (loss) to average net assets excluding the special
dividend are $(0.00) and (0.01)%, respectively.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based on those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(d) Ratios are based on average daily net assets of $1,269,925.
(e) Annualized.
F-18
AIM PREMIER EQUITY FUND
NOTE 15--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
---------------------------------------------------------
MARCH 15,
2002
(DATE SALES
YEAR ENDED DECEMBER 31, COMMENCED) TO
------------------------------------ DECEMBER 31,
2005 2004 2003 2002
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.95 $ 9.47 $ 7.55 $ 10.66
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.05 0.10(a)(b) 0.05(a) 0.03(a)
- -----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.57 0.47 1.87 (3.14)
=======================================================================================================================
Total from investment operations 0.62 0.57 1.92 (3.11)
=======================================================================================================================
Less dividends from net investment income (0.06) (0.09) -- --
=======================================================================================================================
Net asset value, end of period $ 10.51 $ 9.95 $ 9.47 $ 7.55
_______________________________________________________________________________________________________________________
=======================================================================================================================
Total return(c) 6.25% 6.06% 25.43% (29.17)%
_______________________________________________________________________________________________________________________
=======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $29,560 $2,975 $2,127 $ 2,255
_______________________________________________________________________________________________________________________
=======================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.76%(d) 0.58% 0.71% 0.66%(e)
- -----------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.79%(d) 0.60% 0.72% 0.68%(e)
=======================================================================================================================
Ratio of net investment income to average net assets 0.78%(d) 1.07%(b) 0.62% 0.42%(e)
_______________________________________________________________________________________________________________________
=======================================================================================================================
Portfolio turnover rate 41% 86% 37% 36%
_______________________________________________________________________________________________________________________
=======================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income per share and the ratio of net investment income
to average net assets include a special cash dividend received of $3.00
per share owned of Microsoft Corp. on December 2, 2004. Net investment
income per share and the ratio of net investment income to average net
assets excluding the special dividend are $0.09 and 0.92%, respectively.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based on those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(d) Ratios are based on average daily net assets of $17,070,807.
(e) Annualized.
NOTE 16--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. 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.
PENDING LITIGATION AND REGULATORY INQUIRIES
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.
F-19
AIM PREMIER EQUITY FUND
NOTE 16--LEGAL PROCEEDINGS--(CONTINUED)
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 October 19, 2005, this lawsuit was transferred for pretrial purposes to the
MDL Court (as defined below). On July 7, 2005, the Supreme Court of West
Virginia ruled in an unrelated lawsuit that is similar to this action that the
WVAG does not have authority 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. Initial research
indicates that these damages could be limited or capped by statute. 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; and
- 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 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 (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits 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.
On August 25, 2005, the MDL Court issued rulings on the common issues of law
presented in motions to dismiss shareholder class action and derivative
complaints that were filed in unrelated lawsuits. On November 3, 2005, the MDL
Court issued short opinions for the most part applying these rulings to the AIM
and IFG lawsuits. The MDL Court dismissed 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"). The Court dismissed all claims asserted in the class
action complaint but three: (i) the securities fraud claims under Section 10(b)
of the Securities Exchange Act of 1934, (ii) the excessive fee claim under
Section 36(b) of the 1940 Act (which survived only insofar as plaintiffs seek
recovery of fees associated with the assets involved in market timing); and
(iii) the MDL Court deferred ruling on the "control person liability" claim
under Section 48 of the 1940 Act. 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.
At the MDL Court's request, the parties submitted proposed orders implementing
these rulings in the AIM and IFG lawsuits. The MDL Court has not entered any
orders on the motions to dismiss in these lawsuits and it is possible the orders
may differ in some respects from the rulings described above. Based on the MDL
Court's opinion and both parties' proposed orders, however, all claims asserted
against the Funds that have been transferred to the MDL Court will be dismissed,
although certain Funds will remain nominal defendants in the derivative lawsuit.
On December 6, 2005, the MDL Court issued rulings on the common issues of law
presented in defendants' omnibus motion to dismiss the ERISA complaints. The
ruling was issued in unrelated lawsuits that are similar to the ERISA lawsuits
brought against AIM and IFG and related entities. The MDL Court: (i) denied the
motion to dismiss on the grounds that the plaintiffs lack standing or that the
defendants' investments in company stock are entitled to a presumption of
prudence; (ii) granted the motion to dismiss as to defendants not named in the
employee benefit plan documents as fiduciaries but gave plaintiffs leave to
replead facts sufficient to show that such defendants acted as de facto
fiduciaries; and (iii) confirmed plaintiffs' withdrawal of their prohibited
transactions and misrepresentations claims.
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, among others, 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
F-20
AIM PREMIER EQUITY FUND
NOTE 16--LEGAL PROCEEDINGS--(CONTINUED)
to these inquiries. 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.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries 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
AIM PREMIER EQUITY FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Funds Group
and Shareholders of AIM Premier Equity Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM Premier Equity Fund (one of the
funds constituting AIM Funds Group hereafter referred to as the "Fund") at
December 31, 2005, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the five years in the period then ended, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2005 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
February 17, 2006
Houston, Texas
F-22
AIM PREMIER EQUITY FUND
TRUSTEES AND OFFICERS
As of December 31, 2005
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1992 Director and Chairman, A I M Management None
Trustee, Vice Chair, Group Inc. (financial services holding
Principal Executive Officer company); Director and Vice Chairman,
and President AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- -------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.;
President Director 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
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,
AIM Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1987 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company (2 portfolios))
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and 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); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company); and Owner, Dos Angelos Ranch,
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company (3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
</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.
TRUSTEES AND OFFICERS--(CONTINUED)
As of December 31, 2005
AIM PREMIER EQUITY FUND
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1992 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired None
Trustee
Formerly: Partner, Deloitte & Touche
- -------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc.; Senior Vice President and
Chief 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 -- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President and 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 General Counsel, A I M
Secretary and Chief Legal Management Group Inc. and A I M
Officer 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.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC; 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, Principal Advisors, Inc.
Financial Officer and
Treasurer Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc.
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, and Senior
Investment Officer, A I M Capital
Management, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1992 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street & Frankel LLP P.O. Box 4739 225 Franklin Street
Philadelphia, PA 19103-7599 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Americas
New York, NY 10036-2714
</Table>
TAX DISCLOSURES
REQUIRED FEDERAL TAX INFORMATION OF ORDINARY DIVIDENDS PAID
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2005, 100% is eligible for the dividends received deduction for
corporations.
For its tax year ended December 31, 2005, the Fund designates 100%, or the
maximum amount allowable of its dividend distributions as qualified dividend
income. Your actual amount of qualified dividend income for the calendar year
will be reported in your Form 1099-DIV. You should consult your tax advisor
regarding treatment of the amounts.
TAX INFORMATION FOR NON-RESIDENT ALIEN SHAREHOLDERS
For its tax year ended December 31, 2005, the Fund designates 1.33%, or the
maximum amount allowable of its dividend distributions as qualified interest
income exempt from U.S. income tax for non-resident alien shareholders. Your
actual amount of qualified interest income for the calendar year will be
reported in your Form 1042-S mailing. You should consult your tax advisor
regarding treatment of the amounts pending.
The percentage of qualifying assets not subject to the U.S. estate tax for the
fiscal quarters ended March 31, 2005, June 30, 2005, September 30, 2005 and
December 31, 2005 are 15.07%, 13.73%, 13.38% and 14.01%, respectively.
<Table>
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE
AIM Basic Balanced Fund* AIM Developing Markets Fund
AIM Basic Value Fund AIM European Growth Fund AIM Floating Rate Fund
AIM Blue Chip Fund AIM European Small Company Fund(1) AIM High Yield Fund
AIM Capital Development Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Charter Fund AIM Global Equity Fund AIM Intermediate Government Fund
AIM Constellation Fund AIM Global Growth Fund AIM Limited Maturity Treasury Fund
AIM Diversified Dividend Fund AIM Global Value Fund AIM Money Market Fund
AIM Dynamics Fund AIM International Core Equity Fund AIM Short Term Bond Fund
AIM Large Cap Basic Value Fund AIM International Growth Fund AIM Total Return Bond Fund
AIM Large Cap Growth Fund AIM International Small Company Fund(1) Premier Portfolio
AIM Mid Cap Basic Value Fund AIM Trimark Fund Premier U.S. Government Money Portfolio
AIM Mid Cap Core Equity Fund(1)
AIM Mid Cap Growth Fund SECTOR EQUITY TAX-FREE
AIM Opportunities I Fund
AIM Opportunities II Fund AIM Advantage Health Sciences Fund AIM High Income Municipal Fund(1)
AIM Opportunities III Fund AIM Energy Fund AIM Municipal Bond Fund
AIM Premier Equity Fund AIM Financial Services Fund AIM Tax-Exempt Cash Fund
AIM S&P 500 Index Fund AIM Global Health Care Fund AIM Tax-Free Intermediate Fund
AIM Select Equity Fund AIM Global Real Estate Fund Premier Tax-Exempt Portfolio
AIM Small Cap Equity Fund AIM Gold & Precious Metals Fund
AIM Small Cap Growth Fund(1) AIM Leisure Fund AIM ALLOCATION SOLUTIONS
AIM Small Company Growth Fund AIM Multi-Sector Fund
AIM Summit Fund AIM Real Estate Fund(1) AIM Conservative Allocation Fund
AIM Trimark Endeavor Fund AIM Technology Fund AIM Growth Allocation Fund(2)
AIM Trimark Small Companies Fund AIM Utilities Fund AIM Moderate Allocation Fund
AIM Weingarten Fund AIM Moderate Growth Allocation Fund
AIM Moderately Conservative
Allocation Fund
DIVERSIFIED PORTFOLIOS
AIM Income Allocation Fund
AIM International Allocation Fund
================================================================================
CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
FOR THIS AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR
FINANCIAL ADVISOR AND READ IT CAREFULLY BEFORE INVESTING.
================================================================================
*Domestic equity and income fund
(1) This Fund has limited public sales of its shares to certain investors. For
more information on who may continue to invest in the Fund, please see the
appropriate prospectus.
(2) Effective April 29, 2005, AIM Aggressive Allocation Fund was renamed AIM
Growth Allocation Fund.
If used after April 20, 2006, 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 $128 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $386 billion in assets under management. Data as of December 31,
2005.
AIMinvestments.com PEQ-AR-1 A I M Distributors, Inc.
<Table>
YOUR GOALS. OUR SOLUTIONS.--Registered Trademark--
- ------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Management --Registered Trademark--
Plans Accounts
- ------------------------------------------------------------------------
</Table>
AIM SELECT EQUITY FUND
Annual Report to Shareholders o December 31, 2005
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
AIM SELECT EQUITY FUND SEEKS TO ACHIEVE LONG-TERM GROWTH OF CAPITAL.
o Unless otherwise stated, information presented in this report is as of
December 31, 2005, and is based on total net assets.
ABOUT SHARE CLASSES o The unmanaged Russell 3000--Registered The Fund provides a complete list of its
Trademark-- Index is an index of common holdings four times in each fiscal year,
o Class B shares are not available as an stocks that measures performance of the at the quarter-ends. For the second and
investment for retirement plans largest 3,000 U.S. companies based on fourth quarters, the lists appear in the
maintained pursuant to Section 401 of the market capitalization. Fund's semiannual and annual reports to
Internal Revenue Code, including 401(k) shareholders. For the first and third
plans, money purchase pension plans and o The unmanaged MSCI World Index is a quarters, the Fund files the lists with
profit sharing plans. Plans that had group of global securities tracked by the Securities and Exchange Commission
existing accounts invested in Class B Morgan Stanley Capital International. (SEC) on Form N-Q. The most recent list
shares prior to September 30, 2003, will of portfolio holdings is available at
continue to be allowed to make additional o The Fund is not managed to track the AIMinvestments.com. From our home page,
purchases. performance of any particular index, click on Products & Performance, then
including the indexes defined here, and Mutual Funds, then Fund Overview. Select
PRINCIPAL RISKS OF INVESTING IN THE FUND consequently, the performance of the Fund your Fund from the drop-down menu and
may deviate significantly from the click on Complete Quarterly Holdings.
o Investing in smaller companies involves performance of the indexes. Shareholders can also look up the Fund's
greater risk than investing in more Forms N-Q on the SEC's Web site at
established companies, such as business o A direct investment cannot be made in sec.gov. Copies of the Fund's Forms N-Q
risk, significant stock price an index. Unless otherwise indicated, may be reviewed and copied at the SEC's
fluctuations and illiquidity. index results include reinvested Public Reference Room at 450 Fifth
dividends, and they do not reflect sales Street, N.W., Washington, D.C.
o The Fund may invest up to 25% of its charges. Performance of an index of funds 20549-0102. You can obtain information on
assets in the securities of non-U.S. reflects fund expenses; performance of a the operation of the Public Reference
issuers. International investing presents market index does not. Room, including information about
certain risks not associated with duplicating fee charges, by calling
investing solely in the United States. OTHER INFORMATION 202-942-8090 or 800-732-0330,or by
These include risks relating to electronic request at the following
fluctuations in the value of the U.S. o The returns shown in management's e-mail address: publicinfo@sec.gov. The
dollar relative to the values of other discussion of Fund performance are based SEC file numbers for the Fund are
currencies, the custody arrangements made on net asset values calculated for 811-01540 and 2-27334.
for the Fund's foreign holdings, shareholder transactions. Generally
differences in accounting, political accepted accounting principles require A description of the policies and
risks and the lesser degree of public adjustments to be made to the net assets procedures that the Fund uses to
information required to be provided by of the Fund at period end for financial determine how to vote proxies relating to
non-U.S. companies. reporting purposes, and as such, the net portfolio securities is available without
asset values for shareholder transactions charge, upon request, from our Client
ABOUT INDEXES USED IN THIS REPORT and the returns based on those net asset Services department at 800-959-4246 or on
values may differ from the net asset the AIM Web site, AIMinvestments.com. On
o The unmanaged Standard & Poor's values and returns reported in the the home page, scroll down and click on
Composite Index of 500 Stocks (the S&P Financial Highlights. AIM Funds Proxy Policy. The information
500--Registered Trademark-- Index) is an is also available on the SEC's Web site,
index of common stocks frequently used as o Industry classifications used in this sec.gov.
a general measure of U.S. stock market report are generally according to the
performance. Global Industry Classification Standard, Information regarding how the Fund voted
which was developed by and is the proxies related to its portfolio
o The unmanaged Lipper Multi-Cap Core exclusive property and a service mark of securities during the 12 months ended
Fund Index represents an average of the Morgan Stanley Capital International Inc. June 30, 2005, is available at our Web
performance of the 30 largest and Standard & Poor's. site. Go to AIMinvestments.com, access
multi-capitalization core funds tracked the About Us tab, click on Required
by Lipper, Inc., an independent mutual o The Conference Board is a Notices and then click on Proxy Voting
fund performance monitor. not-for-profit organization that conducts Activity. Next, select the Fund from the
research and publishes information and drop-down menu. The information is also
analysis to help businesses strengthen available on the SEC's Web site, sec.gov.
their performance.
=========================================
FUND NASDAQ SYMBOLS
Class A shares AGWFX
Class B shares AGWBX
Class C shares AGWCX
=========================================
==================================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES AND
EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
==================================================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIMinvestments.com
AIM SELECT EQUITY FUND
DEAR FELLOW AIM FUNDS SHAREHOLDERS:
Although many concerns weighed on investors' minds during
the year covered by this report, stocks posted gains for
the period. Domestically, the broad-based S&P 500 Index
[GRAHAM returned 4.91%. Internationally, Morgan Stanley's MSCI
PHOTO] World Index rose 9.49%. Concern about the inflationary
potential of rising energy costs was frequently cited as a
major cause of market restraint.
Within the indexes, there was considerable variability
in the performance of different sectors and markets.
ROBERT H. GRAHAM Domestically, energy sector performance far outpaced all
other sectors in the S&P 500 Index, reflecting rising oil
and gas prices. Overseas, emerging markets produced more
attractive results than developed markets, partially
because emerging markets tend to be more closely tied to
the performance of natural resources and commodities.
[WILLIAMSON
PHOTO] One could make a strong argument for global
diversification of a stock portfolio using the performance
data for the year ended December 31, 2005. Of course, your
financial advisor is the person most qualified to help you
decide whether such diversification is appropriate for
you.
MARK H. WILLIAMSON
A number of key developments affected markets and the
economy in 2005:
o Hurricane Katrina, which devastated New Orleans in
August, had numerous economic repercussions and
dealt a short-term setback to consumer confidence.
However, consumer confidence rebounded toward the
end of the year, with the Conference Board
crediting the resiliency of the economy, falling
gas prices and job growth for this trend.
o The nation's gross domestic product (GDP), the
broadest measure of economic activity, increased
at a healthy rate throughout much of the year. The
Bureau of Economic Analysis of the U.S. Department
of Commerce reported that the nation's GDP grew at
annualized rates of 3.8%, 3.3% and 4.1% for the
first, second and third quarters of the year,
respectively.
o For the second straight year, the economy created
2 million new jobs, although job growth was uneven
and sometimes did not meet analysts' expectations
on a monthly basis.
o The Federal Reserve Board (the Fed) continued its
tightening policy, raising the key federal funds
target rate to 4.25% by the end of the year. Many
analysts believed that the central bank was near
the end of its tightening policy as Ben Bernanke
succeeded the retiring Alan Greenspan as Fed
chairman early in 2006.
o Gasoline prices, which soared to a nationwide
average of slightly more than $3.08 per gallon on
September 5 following Hurricane Katrina, had
dropped by more than 80 cents by mid-December,
according to the U.S. Energy Information
Administration.
For a discussion of the specific market conditions
that affected your Fund and how your Fund was managed
during the year, please turn to Page 3.
YOUR FUND
Further information about the markets, your Fund, and
investing in general is always available on our
comprehensive 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 pleased to be of help.
Sincerely,
/s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
Robert H. Graham Mark H. Williamson
President & Vice Chair, AIM Funds President, A I M Advisors, Inc.
February 9, 2006
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.
A I M Distributors, Inc. is the distributor for the retail
funds represented by AIM Investments.
1
AIM SELECT EQUITY FUND
DEAR FELLOW AIM FUND SHAREHOLDERS:
Having completed a year of transition and change at AIM
Funds--as well as my first full year as your board's
[CROCKETT independent chair--I can assure you that shareholder
PHOTO] interests are at the forefront of every decision your
board makes. While regulators and fund companies debate
the value of an independent board chair, this structure is
working for you. An independent chair can help lead to
unbiased decisions and eliminate potential conflicts.
BRUCE L. CROCKETT
Some highlights of 2005 board activity:
o Board approval of voluntary fee reductions, which
are saving shareholders more than $20 million
annually, based on asset levels of March 31, 2005.
o Board approval for the merger of 14 funds into
other AIM funds with similar investment
objectives. Eight of these mergers were approved
by shareholders of the target funds during 2005.
The remaining six are being voted on by
shareholders in early 2006. In each case, the goal
is for the resulting merged fund to benefit from
strengthened management and greater efficiency.
o Board approval for portfolio management changes at
11 funds, consistent with the goal of organizing
management teams around common processes and
shared investment views. Again, we hope that these
changes will improve fund performance and
efficiency.
In 2006, your board will continue to focus on reducing
costs and shareholder fees and improving portfolio
performance, which is not yet as strong as we expect to
see it. Eight in-person board meetings and several
additional telephone and committee meetings are scheduled
to take place this year. I'll inform you of our progress
in my next semiannual letter to shareholders.
The AIM Funds board is pleased to welcome our newest
independent member, Raymond Stickel, Jr., a former partner
with the international auditing firm of Deloitte & Touche.
We also send our thanks and best wishes to Gerald J.
Lewis, who retired from your board in December 2005, and
to Edward K. Dunn, Jr., who is retiring this year.
Your board welcomes your views. Please mail them to me
at AIM Investments, AIM Investments Tower, 11 Greenway
Plaza, Suite 100, Houston TX 77046.
Sincerely,
/S/ BRUCE L. CROCKETT
Bruce L. Crockett
Independent Chair
On Behalf of the Board of Trustees
AIM Funds
February 9, 2006
2
AIM SELECT EQUITY FUND
MANAGEMENT'S DISCUSSION OF FUND The portfolio generally includes 150
PERFORMANCE to 200 stocks that are allocated equally
across investment disciplines and market
====================================================================================== capitalizations.
PERFORMANCE SUMMARY ========================================= We also use a quantitative tool that
helps us detect "red flags" in companies
For the year ended December 31,2005, FUND VS. INDEXES that would trigger a decision to sell a
Class A shares of AIM Select Equity Fund particular stock. A stock is considered
at net asset value posted returns that TOTAL RETURNS, 12/31/04--12/31/05, for sale in any of the following
were in line with the S&P 500 Index, the EXCLUDING APPLICABLE SALES CHARGES. IF circumstances:
Fund's broad market benchmark, but SALES CHARGES WERE INCLUDED, RETURNS
trailed returns of the Russell 3000 WOULD BE LOWER. o analysis indicates a deterioration in
Index, your Fund's style-specific company fundamentals
benchmark. Please turn to Pages 6 and 7 Class A Shares 5.10%
for long-term results. o analysis indicates there are more
Class B Shares 4.31 attractive opportunities
Your Fund's underperformance in
comparison to the Russell 3000 Index was Class C Shares 4.32 o a stock adversely affects the desired
mainly due to poor returns in the risk level of the Fund
industrials, information technology and S&P 500 Index
financials sectors. Strong stock picks in (Broad Market Index) 4.91 MARKET CONDITIONS AND YOUR FUND
the health care, consumer staples and
consumer discretionary sectors aided Russell 3000 Index Despite the negative effects of
overall returns. (Style-specific Index) 6.12 Hurricanes Katrina and Rita and higher
gasoline prices, economic activity
Lipper Multi-Cap Core Fund Index continued to expand throughout 2005,
(Peer Group Index) 8.22 according to Beige Book reports published
by the U.S. Federal Reserve Bank.
SOURCE: LIPPER, INC. Economic growth and corporate profit
growth were positive throughout the year.
========================================= The S&P 500 Index, considered a barometer
of overall stock market performance,
====================================================================================== posted a modest gain for the fiscal year.
During the reporting period, large- and
HOW WE INVEST o applying a series of quantitative mid-cap stocks outpaced small-cap stocks.
measurements to rank stocks based on This aided Fund performance, because
We select stocks based on analysis of factors specific to the growth; approximately 75% of Fund holdings were
individual companies. We use our blend/core and value investment comprised of large- and mid-cap stocks.
proprietary quantitative models to build disciplines
a portfolio diversified across investment Although we don't buy businesses
styles (growth, blend/core and value) as o scrutinizing the highest ranked stocks based on sector returns or trends, if we
well as market capitalization (large-, through fundamental analysis, which were to broadly characterize companies
mid- and small-sized companies). We identifies key drivers of success and with which we had the
believe this diversification positions assesses their durability, with a goal to
the Fund to perform well in a variety of validate the results of our quantitative (continued)
market environments. tools, and
We seek to generate superior o using risk analysis to identify the
risk-adjusted returns by: best mix of the highest-ranked stocks
from each discipline
========================================= ========================================= =========================================
PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector
1. Managed Health Care 6.3% 1. Bank of America Corp. 3.3%
[PIE CHART] 2. Pharmaceuticals 5.3 2. Exxon Mobil Corp. 2.3
Financials 26.0% 3. Diversified Banks 5.1 3. UnitedHealth Group Inc. 2.1
Health Care 19.8% 4. Property & Casualty Insurance 4.2 4. Aetna Inc. 1.7
Consumer Discretionary 15.0% 5. Integrated Oil & Gas 3.5 5. PepsiCo, Inc. 1.6
Information Technology 14.0% 6. Intel Corp. 1.5
Energy 8.0% TOTAL NET ASSETS $388.9 MILLION 7. Aon Corp. 1.5
Industrials 7.5% 8. IPSCO, Inc. (Canada) 1.4
Consumer Staples 3.6% TOTAL NUMBER OF HOLDINGS* 199 9. Cisco Systems, Inc. 1.4
Materials 3.0% 10. Yum! Brands, Inc. 1.4
Two Other Sectors, Each Less
Than 3% of Net Assets 0.03%
Money Market Funds Plus
Other Assets Less Liabilities 2.8%
The Fund's holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
========================================= ========================================= =========================================
3
AIM SELECT EQUITY FUND
most success during the year, your Fund's rates negotiated with hospitals along THE VIEWS AND OPINIONS EXPRESSED IN
investments in the energy and health care with more use of generic drugs. The MANAGEMENT'S DISCUSSION OF FUND
sectors contributed positively to firm's ability to control expenses may PERFORMANCE ARE THOSE OF A I M ADVISORS,
performance. Buoyed by continued high help it successfully compete for INC. THESE VIEWS AND OPINIONS ARE SUBJECT
prices for oil and gas, energy was the customers from the Medicare health- TO CHANGE AT ANY TIME BASED ON FACTORS
top-performing sector in both the S&P 500 insurance plan, which expands drug SUCH AS MARKET AND ECONOMIC CONDITIONS.
Index and Russell 3000 Index. The health coverage in 2006. THESE VIEWS AND OPINIONS MAY NOT BE
care sector performed well because the RELIED UPON AS INVESTMENT ADVICE OR
need for medical services tends to remain Computer manufacturer DELL INC. and RECOMMENDATIONS, OR AS AN OFFER FOR A
stable in all economic environments. mortgage giant FANNIE MAE were two of the PARTICULAR SECURITY. THE INFORMATION IS
largest detractors from Fund performance. NOT A COMPLETE ANALYSIS OF EVERY ASPECT
Sectors that hindered Fund Dell shares fell sharply in August 2005 OF ANY MARKET, COUNTRY, INDUSTRY,
performance included industrials and after the company reported that quarterly SECURITY OR THE FUND. STATEMENTS OF FACT
financials. In industrials, the impact of revenue had not grown as fast as ARE FROM SOURCES CONSIDERED RELIABLE, BUT
higher gasoline prices negatively expected. The company's stock price A I M ADVISORS, INC. MAKES NO
affected our logistics and trucking and continued to slide as Dell struggled with REPRESENTATION OR WARRANTY AS TO THEIR
trucking-related holdings. weak prices for computers and investors COMPLETENESS OR ACCURACY. ALTHOUGH
worried that Dell is maturing and would HISTORICAL PERFORMANCE IS NO GUARANTEE OF
not be able to sustain its historically FUTURE RESULTS, THESE INSIGHTS MAY HELP
Buoyed by continued high growth rates. We believe Dell YOU UNDERSTAND OUR INVESTMENT MANAGEMENT
high prices for oil continues to be attractively valued, and PHILOSOPHY.
and gas, energy was we continued to hold the stock at the
the top-performing close of the year. See important Fund and index
sector in both the disclosures inside front cover.
S&P 500 Index and Fannie Mae continued the arduous
Russell 3000 Index. process of restating its historical
results caused by a change in DUY NGUYEN, Chartered
interpretation of accounting standards. [NGUYEN Financial Analyst, is lead
The financials sector underperformed The firm's stock tumbled in November as PHOTO] manager of AIM Select Equity
largely due to our position in DRL, a it announced new accounting errors. We Fund. Mr. Nguyen joined AIM
Puerto Rico-based financial services sold Fannie Mae just prior to the close in May 2000. Prior to joining
company whose stock was negatively of the year as our quantitative models AIM, he held the positions of vice
affected by management's overaggressive indicated the company's valuation was president, assistant vice president and
accounting policies. We sold DRL after becoming increasingly less attractive. quantitative equity analyst for two other
our fundamental analysis indicated it was financial services firms. Mr. Nguyen
no longer a good fit for the portfolio. We made no significant changes to earned a B.B.A. at The University of
your Fund's portfolio during the year. Texas.
Among individual companies, top
contributors to Fund performance during IN CLOSING DEREK IZUEL, Chartered
the year included AON CORP. and [IZUEL Financial Analyst, is manager
UNITEDHEALTH GROUP. Shares of Aon Corp., We'd like to take a moment to welcome new PHOTO] of AIM Select Equity Fund.
the world's second-largest insurance shareholders to AIM Select Equity Fund Mr. Izuel, Chartered
broker, began a sharp upward climb in and thank all shareholders for sharing Financial Analyst, began his
August when the firm reported an our long-term investment perspective. We investment career in 1997 as an equity
unexpected quarterly profit increase, believe our quantitative stock-selection analyst for another investment firm. He
signaling that the firm might recover process and focus on investing in quality holds a Bachelor of Arts degree in
quickly from a sell-off sparked by New companies despite economic or sector computer science from the University of
York Attorney General Eliot Spitzer's trends positions your Fund for potential California-Berkeley and a Masters of
fraud investigation. We believe Aon may growth. We remain committed to helping Business Administration from the
be positioned for further price you reach your investment goals. University of Michigan.
appreciation as it continues to pick up
market share. Assisted by the Global Quantitative
Strategies Team
In December 2005, UnitedHealth Group,
the second-largest health care provider
in the United States, purchased [RIGHT ARROW GRAPHIC]
PacifiCare Health Systems Inc., expanding
the company's business in the West.
UnitedHealth also benefited from lower FOR A PRESENTATION OF YOUR FUND'S
LONG-TERM PERFORMANCE, PLEASE SEE PAGES 6
AND 7.
4
AIM SELECT EQUITY FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE together with the amount you invested, to The hypothetical account values and
estimate the expenses that you paid over expenses may not be used to estimate the
As a shareholder of the Fund, you incur the period. Simply divide your account actual ending account balance or expenses
two types of costs: (1) transaction value by $1,000 (for example, an $8,600 you paid for the period. You may use this
costs, which may include sales charges account value divided by $1,000 = 8.6), information to compare the ongoing costs
(loads) on purchase payments; contingent then multiply the result by the number in of investing in the Fund and other funds.
deferred sales charges on redemptions; the table under the heading entitled To do so, compare this 5% hypothetical
and redemption fees, if any; and (2) "Actual Expenses Paid During Period" to example with the 5% hypothetical examples
ongoing costs, including management fees; estimate the expenses you paid on your that appear in the shareholder reports of
distribution and/or service fees (12b-1); account during this period. the other funds.
and other Fund expenses. This example is
intended to help you understand your HYPOTHETICAL EXAMPLE FOR COMPARISON Please note that the expenses shown
ongoing costs (in dollars) of investing PURPOSES in the table are meant to highlight your
in the Fund and to compare these costs ongoing costs only and do not reflect any
with ongoing costs of investing in other The table below also provides information transactional costs, such as sales
mutual funds. The example is based on an about hypothetical account values and charges (loads) on purchase payments,
investment of $1,000 invested at the hypothetical expenses based on the Fund's contingent deferred sales charges on
beginning of the period and held for the actual expense ratio and an assumed rate redemptions, and redemption fees, if any.
entire period July 1, 2005, through of return of 5% per year before expenses, Therefore, the hypothetical information
December 31, 2005. which is not the Fund's actual return. is useful in comparing ongoing costs
The Fund's actual cumulative total only, and will not help you determine the
ACTUAL EXPENSES returns at net asset value after expenses relative total costs of owning different
for the six months ended December 31, funds. In addition, if these
The table below provides information 2005, appear in the table "Cumulative transactional costs were included, your
about actual account values and actual Total Returns" on Page 7. costs would have been higher.
expenses. You may use the information in
this table,
====================================================================================================================================
HYPOTHETICAL
ACTUAL (5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/01/05) (12/31/05)(1) PERIOD(2) (12/31/05) PERIOD(2) RATIO
A $1,000.00 $1,057.00 $ 7.36 $1,018.05 $ 7.22 1.42%
B 1,000.00 1,053.80 11.23 1,014.27 11.02 2.17
C 1,000.00 1,053.20 11.23 1,014.27 11.02 2.17
(1) The actual ending account value is based on the actual total return of the Fund for the period July 1, 2005, through December
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 December 31, 2005, appear in the table "Cumulative Total Returns" on Page 7.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year.
====================================================================================================================================
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
5
AIM SELECT EQUITY FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
FUND AND INDEX DATA FROM 12/31/95
[MOUNTAIN CHART]
================================================================================
DATE AIM SELECT EQUITY FUND- S&P 500 RUSSELL 3000 LIPPER MULTI-CAP
CLASS A SHARES INDEX INDEX CORE FUND INDEX
12/95 $9450 $10000 $10000 $10000
1/96 9573 10340 10290 10259
2/96 9963 10436 10442 10470
3/96 9970 10537 10547 10606
4/96 10368 10692 10747 10863
5/96 10643 10967 11022 11075
6/96 10440 11009 10986 10957
7/96 9730 10523 10411 10421
8/96 10157 10745 10727 10769
9/96 10852 11349 11311 11315
10/96 10859 11662 11518 11456
11/96 11489 12543 12330 12196
12/96 11205 12295 12182 12047
1/97 11805 13062 12856 12618
2/97 11524 13165 12870 12580
3/97 10842 12625 12287 12116
4/97 11160 13378 12893 12535
5/97 12146 14196 13773 13381
6/97 12586 14827 14346 13886
7/97 13889 16006 15471 14941
8/97 13464 15110 14843 14530
9/97 14154 15937 15685 15329
10/97 13411 15406 15158 14752
11/97 13425 16118 15738 15003
12/97 13393 16395 16053 15212
1/98 13290 16576 16137 15297
2/98 14486 17771 17291 16390
3/98 15008 18680 18148 17159
4/98 15299 18871 18326 17345
5/98 14751 18547 17874 16869
6/98 15357 19300 18479 17342
7/98 15075 19096 18143 16988
8/98 12203 16337 15364 14344
9/98 13151 17385 16412 15024
10/98 13997 18797 17658 16049
11/98 15082 19936 18738 16909
12/98 17017 21084 19928 18055
1/99 17913 21965 20605 18654
2/99 16674 21282 19876 17936
3/99 18213 22134 20605 18502
4/99 19092 22991 21535 19257
5/99 18346 22448 21126 19042
6/99 19366 23691 22193 19975
7/99 18768 22954 21520 19535
8/99 18355 22841 21276 19195
9/99 18452 22215 20732 18716
10/99 19596 23621 22032 19666
11/99 21091 24101 22649 20299
12/99 24078 25518 24094 21805
1/00 23471 24236 23150 21189
2/00 28125 23778 23364 22005
3/00 28941 26103 25194 23416
4/00 27482 25318 24307 22546
5/00 25427 24799 23624 21763
6/00 27969 25409 24323 22681
7/00 27427 25012 23893 22326
8/00 30775 26565 25665 23901
9/00 29554 25163 24503 22803
10/00 27828 25056 24154 22546
11/00 23000 23082 21928 20626
12/00 23648 23196 22297 21077
1/01 23792 24018 23059 21805
2/01 20009 21829 20952 19842
3/01 17466 20447 19587 18665
4/01 19429 22035 21157 20177
5/01 19420 22183 21327 20347
6/01 19429 21643 20934 19997
7/01 18860 21430 20589 19595
8/01 17661 20090 19374 18485
9/01 15283 18468 17664 16590
10/01 15759 18820 18075 17040
11/01 17031 20263 19467 18379
12/01 17581 20441 19742 18809
1/02 16928 20143 19494 18393
2/02 16349 19754 19096 18061
3/02 17674 20497 19933 18792
4/02 16734 19255 18887 17993
5/02 16454 19114 18668 17846
6/02 14902 17753 17325 16448
7/02 13083 16369 15947 15151
8/02 12917 16476 16023 15247
9/02 11613 14687 14339 13844
10/02 12389 15979 15481 14721
11/02 13134 16918 16418 15617
12/02 12379 15925 15489 14720
1/03 12017 15509 15110 14472
2/03 11759 15276 14862 14222
3/03 11852 15423 15018 14268
4/03 12586 16693 16244 15377
5/03 13569 17572 17225 16417
6/03 13755 17796 17457 16662
7/03 14200 18110 17858 16984
8/03 14697 18463 18254 17507
9/03 14376 18267 18055 17274
10/03 15306 19300 19148 18302
11/03 15628 19470 19412 18588
12/03 16031 20490 20300 19329
1/04 16382 20866 20723 19783
2/04 16641 21156 21002 20091
3/04 16776 20837 20753 19863
4/04 16538 20510 20324 19444
5/04 16713 20791 20619 19677
6/04 17137 21195 21029 20113
7/04 16268 20494 20234 19288
8/04 16083 20576 20317 19274
9/04 16487 20799 20630 19686
10/04 16777 21117 20968 19983
11/04 17676 21971 21943 20986
12/04 18256 22718 22725 21724
1/05 17810 22165 22120 21230
2/05 18049 22631 22607 21659
3/05 17749 22230 22224 21319
4/05 17150 21809 21742 20738
5/05 17863 22502 22565 21588
6/05 18152 22535 22723 21825
7/05 18681 23372 23655 22750
8/05 18432 23159 23430 22647
9/05 18722 23347 23635 22850
10/05 18484 22957 23192 22378
11/05 19218 23825 24096 23239
12/05 19200 23833 24116 23510
================================================================================
SOURCE: LIPPER, INC.
Past performance cannot guarantee This chart, which is a logarithmic
comparable future results. chart, presents the fluctuations in the
value of the Fund and its indexes. We
The data shown in the chart include believe that a logarithmic chart is more
reinvested distributions, applicable effective than other types of charts in
sales charges, Fund expenses and illustrating changes in value during the
management fees. Index results include early years shown in the chart. The
reinvested dividends, but they do not vertical axis, the one that indicates the
reflect sales charges. Performance of an dollar value of an investment, is
index of funds reflects fund expenses and constructed with each segment
management fees; performance of a market representing a percent change in the
index does not. Performance shown in the value of the investment. In this chart,
chart and table(s) does not reflect each segment represents a doubling, or
deduction of taxes a shareholder would 100% change, in the value of the
pay on Fund distributions or sale of Fund investment. In other words, the space
shares. Performance of the indexes does between $5,000 and $10,000 is the same
not reflect the effects of taxes. size as the space between $10,000 and
$20,000, and so on.
6
AIM SELECT EQUITY FUND
========================================== =========================================
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
As of 12/31/05, including applicable sales 6 months ended 12/31/05, excluding
charges applicable sales charges
CLASS A SHARES Class A Shares 5.70%
Inception (12/4/67) 8.42% Class B Shares 5.38
10 Years 6.74 Class C Shares 5.32
5 Years -5.17
1 Year -0.70 =========================================
CLASS B SHARES
Inception (9/1/93) 7.38% CLASS A SHARE PERFORMANCE REFLECTS
10 Years 6.67 THE MAXIMUM 5.50% SALES CHARGE, AND CLASS
5 Years -5.19 B AND CLASS C SHARE PERFORMANCE REFLECTS
1 Year -0.69 THE APPLICABLE CONTINGENT DEFERRED SALES
CHARGE (CDSC) FOR THE PERIOD INVOLVED.
CLASS C SHARES THE CDSC ON CLASS B SHARES DECLINES FROM
Inception (8/4/97) 3.12% 5% BEGINNING AT THE TIME OF PURCHASE TO
5 Years -4.82 0% AT THE BEGINNING OF THE SEVENTH YEAR.
1 Year 3.32 THE CDSC ON CLASS C SHARES IS 1% FOR THE
FIRST YEAR AFTER PURCHASE.
==========================================
THE PERFORMANCE OF THE FUND'S SHARE
THE PERFORMANCE DATA QUOTED REPRESENT CLASSES WILL DIFFER DUE TO DIFFERENT
PAST PERFORMANCE AND CANNOT GUARANTEE SALES CHARGE STRUCTURES AND CLASS
COMPARABLE FUTURE RESULTS; CURRENT EXPENSES.
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.
7
AIM SELECT EQUITY FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND
SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION
The Board of Trustees of AIM Funds Group o The quality of services to be provided o Fees relative to those of comparable
(the "Board") oversees the management of by AIM. The Board reviewed the funds with other advisors. The Board
AIM Select Equity Fund (the "Fund") and, credentials and experience of the reviewed the advisory fee rate for the
as required by law, determines annually officers and employees of AIM who will Fund under the Advisory Agreement. The
whether to approve the continuance of the provide investment advisory services to Board compared effective contractual
Fund's advisory agreement with A I M the Fund. In reviewing the qualifications advisory fee rates at a common asset
Advisors, Inc. ("AIM"). Based upon the of AIM to provide investment advisory level and noted that the Fund's rate was
recommendation of the Investments services, the Board reviewed the below the median rate of the funds
Committee of the Board, which is qualifications of AIM's investment advised by other advisors with investment
comprised solely of independent trustees, personnel and considered such issues as strategies comparable to those of the
at a meeting held on June 30, 2005, the AIM's portfolio and product review Fund that the Board reviewed. The Board
Board, including all of the independent process, various back office support noted that AIM has agreed to waive
trustees, approved the continuance of the functions provided by AIM and AIM's advisory fees of the Fund, as discussed
advisory agreement (the "Advisory equity and fixed income trading below. Based on this review, the Board
Agreement") between the Fund and AIM for operations. Based on the review of these concluded that the advisory fee rate for
another year, effective July 1, 2005. and other factors, the Board concluded the Fund under the Advisory Agreement was
that the quality of services to be fair and reasonable.
The Board considered the factors provided by AIM was appropriate and that
discussed below in evaluating the AIM currently is providing satisfactory o Expense limitations and fee waivers.
fairness and reasonableness of the services in accordance with the terms of The Board noted that AIM has
Advisory Agreement at the meeting on June the Advisory Agreement. contractually agreed to waive advisory
30, 2005 and as part of the Board's fees of the Fund through June 30, 2006 to
ongoing oversight of the Fund. In their o The performance of the Fund relative to the extent necessary so that the advisory
deliberations, the Board and the comparable funds. The Board reviewed the fees payable by the Fund do not exceed a
independent trustees did not identify any performance of the Fund during the past specified maximum advisory fee rate,
particular factor that was controlling, one, three and five calendar years which maximum rate includes breakpoints
and each trustee attributed different against the performance of funds advised and is based on net asset levels. The
weights to the various factors. by other advisors with investment Board considered the contractual nature
strategies comparable to those of the of this fee waiver and noted that it
One of the responsibilities of the Fund. The Board noted that the Fund's remains in effect until June 30, 2006.
Senior Officer of the Fund, who is performance was above the median The Board considered the effect this fee
independent of AIM and AIM's affiliates, performance of such comparable funds for waiver would have on the Fund's estimated
is to manage the process by which the the one year period and below such median expenses and concluded that the levels of
Fund's proposed management fees are performance for the three and five year fee waivers/expense limitations for the
negotiated to ensure that they are periods. Based on this review, the Board Fund were fair and reasonable.
negotiated in a manner which is at arm's concluded that no changes should be made
length and reasonable. To that end, the to the Fund and that it was not necessary o Breakpoints and economies of scale. The
Senior Officer must either supervise a to change the Fund's portfolio management Board reviewed the structure of the
competitive bidding process or prepare an team at this time. Fund's advisory fee under the Advisory
independent written evaluation. The Agreement, noting that it includes one
Senior Officer has recommended an o The performance of the Fund relative to breakpoint. The Board reviewed the level
independent written evaluation in lieu of indices. The Board reviewed the of the Fund's advisory fees, and noted
a competitive bidding process and, upon performance of the Fund during the past that such fees, as a percentage of the
the direction of the Board, has prepared one, three and five calendar years Fund's net assets, have decreased as net
such an independent written evaluation. against the performance of the Lipper assets increased because the Advisory
Such written evaluation also considered Multi-Cap Core Index. The Board noted Agreement includes a breakpoint. The
certain of the factors discussed below. that the Fund's performance was above the Board noted that AIM has contractually
In addition, as discussed below, the performance of such Index for the one agreed to waive advisory fees of the Fund
Senior Officer made certain year period and below such Index for the through June 30, 2006 to the extent
recommendations to the Board in three and five year periods. Based on necessary so that the advisory fees
connection with such written evaluation. this review, the Board concluded that no payable by the Fund do not exceed a
changes should be made to the Fund and specified maximum advisory fee rate,
The discussion below serves as a that it was not necessary to change the which maximum rate includes breakpoints
summary of the Senior Officer's Fund's portfolio management team at this and is based on net asset levels. The
independent written evaluation and time. Board concluded that the Fund's fee
recommendations to the Board in levels under the Advisory Agreement
connection therewith, as well as a o Meeting with the Fund's portfolio therefore reflect economies of scale and
discussion of the material factors and managers and investment personnel. With that it was not necessary to change the
the conclusions with respect thereto that respect to the Fund, the Board is meeting advisory fee breakpoints in the Fund's
formed the basis for the Board's approval periodically with such Fund's portfolio advisory fee schedule.
of the Advisory Agreement. After managers and/or other investment
consideration of all of the factors below personnel and believes that such o Investments in affiliated money market
and based on its informed business individuals are competent and able to funds. The Board also took into account
judgment, the Board determined that the continue to carry out their the fact that uninvested cash and cash
Advisory Agreement is in the best responsibilities under the Advisory collateral from securities lending
interests of the Fund and its Agreement. arrangements (collectively, "cash
shareholders and that the compensation to balances") of the Fund may be invested in
AIM under the Advisory Agreement is fair o Overall performance of AIM. The Board money market funds advised by AIM
and reasonable and would have been considered the overall performance of AIM pursuant to the terms of an SEC exemptive
obtained through arm's length in providing investment advisory and order. The Board found that the Fund may
negotiations. portfolio administrative services to the realize certain benefits upon investing
Fund and concluded that such performance cash balances in AIM advised money market
o The nature and extent of the advisory was satisfactory. funds, including a higher net return,
services to be provided by AIM. The Board increased liquidity, increased
reviewed the services to be provided by o Fees relative to those of clients of diversification or decreased transaction
AIM under the Advisory Agreement. Based AIM with comparable investment costs. The Board also found that the Fund
on such review, the Board concluded that strategies. The Board noted that AIM does will not receive reduced services if it
the range of services to be provided by not serve as an advisor to other mutual invests its cash balances in such money
AIM under the Advisory Agreement was funds or other clients with investment market funds. The Board noted that, to
appropriate and that AIM currently is strategies comparable to those of the the extent the Fund invests in
providing services in accordance with the Fund.
terms of the Advisory Agreement.
(continued)
8
AIM SELECT EQUITY FUND
affiliated money market funds, AIM has o AIM's financial soundness in light of
voluntarily agreed to waive a portion of the Fund's needs. The Board considered
the advisory fees it receives from the whether AIM is financially sound and has
Fund attributable to such investment. The the resources necessary to perform its
Board further determined that the obligations under the Advisory Agreement,
proposed securities lending program and and concluded that AIM has the financial
related procedures with respect to the resources necessary to fulfill its
lending Fund is in the best interests of obligations under the Advisory Agreement.
the lending Fund and its respective
shareholders. The Board therefore o Historical relationship between the
concluded that the investment of cash Fund and AIM. In determining whether to
collateral received in connection with continue the Advisory Agreement for the
the securities lending program in the Fund, the Board also considered the prior
money market funds according to the relationship between AIM and the Fund, as
procedures is in the best interests of well as the Board's knowledge of AIM's
the lending Fund and its respective operations, and concluded that it was
shareholders. beneficial to maintain the current
relationship, in part, because of such
o Independent written evaluation and knowledge. The Board also reviewed the
recommendations of the Fund's Senior general nature of the non-investment
Officer. The Board noted that, upon their advisory services currently performed by
direction, the Senior Officer of the AIM and its affiliates, such as
Fund, who is independent of AIM and AIM's administrative, transfer agency and
affiliates, had prepared an independent distribution services, and the fees
written evaluation in order to assist the received by AIM and its affiliates for
Board in determining the reasonableness performing such services. In addition to
of the proposed management fees of the reviewing such services, the trustees
AIM Funds, including the Fund. The Board also considered the organizational
noted that the Senior Officer's written structure employed by AIM and its
evaluation had been relied upon by the affiliates to provide those services.
Board in this regard in lieu of a Based on the review of these and other
competitive bidding process. In factors, the Board concluded that AIM and
determining whether to continue the its affiliates were qualified to continue
Advisory Agreement for the Fund, the to provide non-investment advisory
Board considered the Senior Officer's services to the Fund, including
written evaluation and the recommendation administrative, transfer agency and
made by the Senior Officer to the Board distribution services, and that AIM and
that the Board consider implementing a its affiliates currently are providing
process to assist them in more closely satisfactory non-investment advisory
monitoring the performance of the AIM services.
Funds. The Board concluded that it would
be advisable to implement such a process o Other factors and current trends. In
as soon as reasonably practicable. determining whether to continue the
Advisory Agreement for the Fund, the
o Profitability of AIM and its Board considered the fact that AIM, along
affiliates. The Board reviewed with others in the mutual fund industry,
information concerning the profitability is subject to regulatory inquiries and
of AIM's (and its affiliates') investment litigation related to a wide range of
advisory and other activities and its issues. The Board also considered the
financial condition. The Board considered governance and compliance reforms being
the overall profitability of AIM, as well undertaken by AIM and its affiliates,
as the profitability of AIM in connection including maintaining an internal
with managing the Fund. The Board noted controls committee and retaining an
that AIM's operations remain profitable, independent compliance consultant, and
although increased expenses in recent the fact that AIM has undertaken to cause
years have reduced AIM's profitability. the Fund to operate in accordance with
Based on the review of the profitability certain governance policies and
of AIM's and its affiliates' investment practices. The Board concluded that these
advisory and other activities and its actions indicated a good faith effort on
financial condition, the Board concluded the part of AIM to adhere to the highest
that the compensation to be paid by the ethical standards, and determined that
Fund to AIM under its Advisory Agreement the current regulatory and litigation
was not excessive. environment to which AIM is subject
should not prevent the Board from
o Benefits of soft dollars to AIM. The continuing the Advisory Agreement for the
Board considered the benefits realized by Fund.
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.
9
AIM SELECT EQUITY FUND
SCHEDULE OF INVESTMENTS
December 31, 2005
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-97.17%
ADVERTISING-0.63%
Harte-Hanks, Inc. 92,900 $ 2,451,631
=======================================================================
AEROSPACE & DEFENSE-1.37%
General Dynamics Corp. 18,300 2,087,115
- -----------------------------------------------------------------------
Lockheed Martin Corp. 9,700 617,211
- -----------------------------------------------------------------------
Precision Castparts Corp. 13,600 704,616
- -----------------------------------------------------------------------
Rockwell Collins, Inc. 41,700 1,937,799
=======================================================================
5,346,741
=======================================================================
AIR FREIGHT & LOGISTICS-0.38%
EGL, Inc.(a) 17,700 664,989
- -----------------------------------------------------------------------
Forward Air Corp. 22,300 817,295
=======================================================================
1,482,284
=======================================================================
AIRLINES-0.13%
World Air Holdings, Inc.(a) 52,900 508,898
=======================================================================
APPAREL RETAIL-1.30%
Abercrombie & Fitch Co.-Class A 10,200 664,836
- -----------------------------------------------------------------------
Gap, Inc. (The) 60,900 1,074,276
- -----------------------------------------------------------------------
Genesco Inc.(a) 16,800 651,672
- -----------------------------------------------------------------------
Payless ShoeSource, Inc.(a) 76,400 1,917,640
- -----------------------------------------------------------------------
Stage Stores, Inc. 25,650 763,857
=======================================================================
5,072,281
=======================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-1.16%
Coach, Inc.(a) 40,400 1,346,936
- -----------------------------------------------------------------------
V. F. Corp. 56,900 3,148,846
=======================================================================
4,495,782
=======================================================================
APPLICATION SOFTWARE-1.57%
Amdocs Ltd.(a) 35,200 968,000
- -----------------------------------------------------------------------
ANSYS, Inc.(a) 32,500 1,387,425
- -----------------------------------------------------------------------
Autodesk, Inc. 27,600 1,185,420
- -----------------------------------------------------------------------
Epicor Software Corp.(a) 71,300 1,007,469
- -----------------------------------------------------------------------
Fair Isaac Corp. 35,300 1,559,201
=======================================================================
6,107,515
=======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-2.41%
Affiliated Managers Group, Inc.(a) 27,150 2,178,787
- -----------------------------------------------------------------------
Ameriprise Financial, Inc. 9,540 391,140
- -----------------------------------------------------------------------
Bank of New York Co., Inc. (The) 111,900 3,564,015
- -----------------------------------------------------------------------
Franklin Resources, Inc. 14,700 1,381,947
- -----------------------------------------------------------------------
</Table>
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
ASSET MANAGEMENT & CUSTODY BANKS-(CONTINUED)
Nuveen Investments, Inc.-Class A 27,200 $ 1,159,264
- -----------------------------------------------------------------------
State Street Corp. 12,600 698,544
=======================================================================
9,373,697
=======================================================================
BIOTECHNOLOGY-0.66%
Amgen Inc.(a) 12,700 1,001,522
- -----------------------------------------------------------------------
Techne Corp.(a) 27,900 1,566,585
=======================================================================
2,568,107
=======================================================================
BUILDING PRODUCTS-1.59%
American Standard Cos. Inc. 19,100 763,045
- -----------------------------------------------------------------------
Masco Corp. 86,100 2,599,359
- -----------------------------------------------------------------------
USG Corp.(a) 43,500 2,827,500
=======================================================================
6,189,904
=======================================================================
CASINOS & GAMING-0.75%
GTECH Holdings Corp. 56,800 1,802,832
- -----------------------------------------------------------------------
Monarch Casino & Resort, Inc.(a) 49,300 1,114,180
=======================================================================
2,917,012
=======================================================================
COMMERCIAL PRINTING-0.21%
Harland (John H.) Co. 21,700 815,920
=======================================================================
COMMUNICATIONS EQUIPMENT-2.21%
ADTRAN, Inc. 23,500 698,890
- -----------------------------------------------------------------------
Cisco Systems, Inc.(a) 311,400 5,331,168
- -----------------------------------------------------------------------
Harris Corp. 17,400 748,374
- -----------------------------------------------------------------------
Motorola, Inc. 47,300 1,068,507
- -----------------------------------------------------------------------
Scientific-Atlanta, Inc. 17,100 736,497
=======================================================================
8,583,436
=======================================================================
COMPUTER HARDWARE-1.28%
Apple Computer, Inc.(a) 17,600 1,265,264
- -----------------------------------------------------------------------
Dell Inc.(a) 105,800 3,172,942
- -----------------------------------------------------------------------
International Business Machines Corp. 6,800 558,960
=======================================================================
4,997,166
=======================================================================
COMPUTER STORAGE & PERIPHERALS-0.35%
Komag, Inc.(a) 20,500 710,530
- -----------------------------------------------------------------------
Lexmark International, Inc.-Class A(a) 14,900 667,967
=======================================================================
1,378,497
=======================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.53%
Caterpillar Inc. 14,700 849,219
- -----------------------------------------------------------------------
Cummins Inc. 13,600 1,220,328
=======================================================================
2,069,547
=======================================================================
</Table>
F-1
AIM SELECT EQUITY FUND
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
CONSTRUCTION MATERIALS-0.22%
CEMEX, S.A. de C.V.-ADR (Mexico) 14,300 $ 848,419
=======================================================================
CONSUMER ELECTRONICS-0.45%
Koninklijke (Royal) Philips Electronics
N.V.-New York Shares (Netherlands) 56,007 1,741,818
=======================================================================
CONSUMER FINANCE-0.69%
ASTA Funding, Inc.(b) 30,600 836,604
- -----------------------------------------------------------------------
First Cash Financial Services, Inc.(a) 63,100 1,839,996
=======================================================================
2,676,600
=======================================================================
DATA PROCESSING & OUTSOURCED SERVICES-1.54%
Fiserv, Inc.(a) 100,700 4,357,289
- -----------------------------------------------------------------------
Paychex, Inc. 42,800 1,631,536
=======================================================================
5,988,825
=======================================================================
DEPARTMENT STORES-1.00%
Nordstrom, Inc. 103,700 3,878,380
=======================================================================
DIVERSIFIED BANKS-5.09%
Bank of America Corp. 277,400 12,802,010
- -----------------------------------------------------------------------
Credicorp Ltd. (Peru) 97,700 2,226,583
- -----------------------------------------------------------------------
U.S. Bancorp 136,300 4,074,007
- -----------------------------------------------------------------------
Unibanco-Uniao de Bancos Brasileiros S.A.-ADR
(Brazil) 10,800 686,556
=======================================================================
19,789,156
=======================================================================
DIVERSIFIED COMMERCIAL & PROFESSIONAL
SERVICES-0.73%
Cendant Corp. 163,600 2,822,100
=======================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-1.47%
Amphenol Corp.-Class A 83,700 3,704,562
- -----------------------------------------------------------------------
Mettler-Toledo International Inc.(a) 36,700 2,025,840
=======================================================================
5,730,402
=======================================================================
ELECTRONIC MANUFACTURING SERVICES-0.50%
Jabil Circuit, Inc.(a) 26,100 968,049
- -----------------------------------------------------------------------
Trimble Navigation Ltd.(a) 27,100 961,779
=======================================================================
1,929,828
=======================================================================
ENVIRONMENTAL & FACILITIES SERVICES-0.23%
Stericycle, Inc.(a) 15,300 900,864
=======================================================================
FOOD RETAIL-0.72%
Kroger Co. (The)(a) 23,500 443,680
- -----------------------------------------------------------------------
Safeway Inc. 99,900 2,363,634
=======================================================================
2,807,314
=======================================================================
FOOTWEAR-0.73%
NIKE, Inc.-Class B 32,500 2,820,675
=======================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
GENERAL MERCHANDISE STORES-0.19%
Pantry, Inc. (The)(a) 16,000 $ 751,840
=======================================================================
HEALTH CARE DISTRIBUTORS-0.86%
Cardinal Health, Inc. 25,500 1,753,125
- -----------------------------------------------------------------------
McKesson Corp. 31,000 1,599,290
=======================================================================
3,352,415
=======================================================================
HEALTH CARE EQUIPMENT-1.31%
Bard (C.R.), Inc. 16,100 1,061,312
- -----------------------------------------------------------------------
IDEXX Laboratories, Inc.(a) 25,400 1,828,292
- -----------------------------------------------------------------------
Varian Medical Systems, Inc.(a) 20,200 1,016,868
- -----------------------------------------------------------------------
Waters Corp.(a) 31,700 1,198,260
=======================================================================
5,104,732
=======================================================================
HEALTH CARE FACILITIES-1.57%
AmSurg Corp.(a) 47,500 1,085,850
- -----------------------------------------------------------------------
Community Health Systems, Inc.(a) 40,000 1,533,600
- -----------------------------------------------------------------------
Universal Health Services, Inc.-Class B 22,600 1,056,324
- -----------------------------------------------------------------------
VCA Antech, Inc.(a) 86,500 2,439,300
=======================================================================
6,115,074
=======================================================================
HEALTH CARE SERVICES-2.44%
Caremark Rx, Inc.(a) 51,500 2,667,185
- -----------------------------------------------------------------------
Cerner Corp.(a)(b) 6,300 572,733
- -----------------------------------------------------------------------
Express Scripts, Inc.(a) 17,200 1,441,360
- -----------------------------------------------------------------------
IMS Health Inc. 73,500 1,831,620
- -----------------------------------------------------------------------
Lincare Holdings Inc.(a) 34,400 1,441,704
- -----------------------------------------------------------------------
Quest Diagnostics Inc. 29,900 1,539,252
=======================================================================
9,493,854
=======================================================================
HEALTH CARE SUPPLIES-1.34%
Alcon Inc. (Switzerland) 33,400 4,328,640
- -----------------------------------------------------------------------
Sybron Dental Specialties, Inc.(a) 21,800 867,858
=======================================================================
5,196,498
=======================================================================
HOME IMPROVEMENT RETAIL-1.20%
Home Depot, Inc. (The) 89,800 3,635,104
- -----------------------------------------------------------------------
Sherwin-Williams Co. (The) 22,900 1,040,118
=======================================================================
4,675,222
=======================================================================
HOMEBUILDING-0.55%
D.R. Horton, Inc. 42,200 1,507,806
- -----------------------------------------------------------------------
NVR, Inc.(a) 900 631,800
=======================================================================
2,139,606
=======================================================================
HOMEFURNISHING RETAIL-0.19%
Bed Bath & Beyond Inc.(a) 20,700 748,305
=======================================================================
HOTELS, RESORTS & CRUISE LINES-0.24%
Bluegreen Corp.(a) 59,400 938,520
=======================================================================
</Table>
F-2
AIM SELECT EQUITY FUND
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
HOUSEHOLD APPLIANCES-0.49%
Black & Decker Corp. (The) 22,100 $ 1,921,816
=======================================================================
HOUSEHOLD PRODUCTS-0.68%
Kimberly-Clark Corp. 10,200 608,430
- -----------------------------------------------------------------------
Procter & Gamble Co. (The) 34,900 2,020,012
=======================================================================
2,628,442
=======================================================================
INDUSTRIAL GASES-0.53%
Airgas, Inc. 63,200 2,079,280
=======================================================================
INDUSTRIAL MACHINERY-1.54%
Danaher Corp. 20,400 1,137,912
- -----------------------------------------------------------------------
Ingersoll-Rand Co. Ltd.-Class A 69,000 2,785,530
- -----------------------------------------------------------------------
ITT Industries, Inc. 19,900 2,046,118
=======================================================================
5,969,560
=======================================================================
INSURANCE BROKERS-1.48%
Aon Corp.(b) 159,800 5,744,810
=======================================================================
INTEGRATED OIL & GAS-3.52%
Chevron Corp. 29,600 1,680,392
- -----------------------------------------------------------------------
ConocoPhillips 16,000 930,880
- -----------------------------------------------------------------------
Exxon Mobil Corp. 156,400 8,784,988
- -----------------------------------------------------------------------
Occidental Petroleum Corp. 28,500 2,276,580
=======================================================================
13,672,840
=======================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.12%
TALK America Holdings, Inc.(a) 55,500 478,965
=======================================================================
INVESTMENT BANKING & BROKERAGE-2.61%
Goldman Sachs Group, Inc. (The) 15,500 1,979,505
- -----------------------------------------------------------------------
Lehman Brothers Holdings Inc. 28,900 3,704,113
- -----------------------------------------------------------------------
Merrill Lynch & Co., Inc. 33,700 2,282,501
- -----------------------------------------------------------------------
Morgan Stanley 38,500 2,184,490
=======================================================================
10,150,609
=======================================================================
IT CONSULTING & OTHER SERVICES-0.41%
Accenture Ltd.-Class A 55,800 1,610,946
=======================================================================
LEISURE PRODUCTS-0.52%
Brunswick Corp. 41,300 1,679,258
- -----------------------------------------------------------------------
Marvel Entertainment, Inc.(a) 22,000 360,360
=======================================================================
2,039,618
=======================================================================
LIFE & HEALTH INSURANCE-2.07%
Nationwide Financial Services, Inc.-Class A 96,900 4,263,600
- -----------------------------------------------------------------------
Prudential Financial, Inc. 51,900 3,798,561
=======================================================================
8,062,161
=======================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
MANAGED HEALTH CARE-6.32%
Aetna Inc. 69,300 $ 6,535,683
- -----------------------------------------------------------------------
CIGNA Corp. 24,800 2,770,160
- -----------------------------------------------------------------------
Coventry Health Care, Inc.(a) 13,350 760,416
- -----------------------------------------------------------------------
Sierra Health Services, Inc.(a) 35,300 2,822,588
- -----------------------------------------------------------------------
UnitedHealth Group Inc. 130,000 8,078,200
- -----------------------------------------------------------------------
WellPoint, Inc.(a) 45,100 3,598,529
=======================================================================
24,565,576
=======================================================================
METAL & GLASS CONTAINERS-0.20%
Silgan Holdings Inc. 22,000 794,640
=======================================================================
MOTORCYCLE MANUFACTURERS-0.41%
Harley-Davidson, Inc. 31,100 1,601,339
=======================================================================
MULTI-LINE INSURANCE-1.82%
American Financial Group, Inc. 65,200 2,497,812
- -----------------------------------------------------------------------
Assurant, Inc. 22,800 991,572
- -----------------------------------------------------------------------
Genworth Financial Inc.-Class A 47,400 1,639,092
- -----------------------------------------------------------------------
Hartford Financial Services Group, Inc. (The) 22,500 1,932,525
=======================================================================
7,061,001
=======================================================================
MULTI-UTILITIES-0.16%
PG&E Corp. 16,700 619,904
=======================================================================
OFFICE SERVICES & SUPPLIES-0.43%
Brady Corp.-Class A 46,200 1,671,516
=======================================================================
OIL & GAS DRILLING-0.69%
Nabors Industries Ltd.(a) 10,700 810,525
- -----------------------------------------------------------------------
Pride International, Inc.(a) 20,000 615,000
- -----------------------------------------------------------------------
Todco-Class A 17,300 658,438
- -----------------------------------------------------------------------
Unit Corp.(a) 10,600 583,318
=======================================================================
2,667,281
=======================================================================
OIL & GAS EQUIPMENT & SERVICES-1.71%
BJ Services Co. 89,800 3,292,966
- -----------------------------------------------------------------------
Cal Dive International, Inc.(a) 60,600 2,174,934
- -----------------------------------------------------------------------
Core Laboratories N.V. (Netherlands)(a) 16,800 627,648
- -----------------------------------------------------------------------
Oceaneering International, Inc.(a) 11,100 552,558
=======================================================================
6,648,106
=======================================================================
OIL & GAS EXPLORATION & PRODUCTION-1.26%
Anadarko Petroleum Corp. 14,300 1,354,925
- -----------------------------------------------------------------------
Cimarex Energy Co.(a) 15,500 666,655
- -----------------------------------------------------------------------
Devon Energy Corp. 16,500 1,031,910
- -----------------------------------------------------------------------
Harvest Natural Resources, Inc.(a) 54,900 487,512
- -----------------------------------------------------------------------
Noble Energy, Inc. 15,800 636,740
- -----------------------------------------------------------------------
Swift Energy Co.(a) 16,200 730,134
=======================================================================
4,907,876
=======================================================================
</Table>
F-3
AIM SELECT EQUITY FUND
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
OIL & GAS REFINING & MARKETING-0.86%
Sunoco, Inc. 14,300 $ 1,120,834
- -----------------------------------------------------------------------
Valero Energy Corp. 42,800 2,208,480
=======================================================================
3,329,314
=======================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.21%
Citigroup Inc. 96,700 4,692,851
=======================================================================
PACKAGED FOODS & MEATS-0.47%
Flowers Foods, Inc. 66,150 1,823,094
=======================================================================
PHARMACEUTICALS-5.30%
AstraZeneca PLC-ADR (United Kingdom) 20,200 981,720
- -----------------------------------------------------------------------
Barr Pharmaceuticals Inc.(a) 10,300 641,587
- -----------------------------------------------------------------------
Forest Laboratories, Inc.(a) 15,500 630,540
- -----------------------------------------------------------------------
Johnson & Johnson 79,500 4,777,950
- -----------------------------------------------------------------------
King Pharmaceuticals, Inc.(a) 78,800 1,333,296
- -----------------------------------------------------------------------
Merck & Co. Inc. 76,200 2,423,922
- -----------------------------------------------------------------------
Novartis A.G.-ADR (Switzerland) 89,600 4,702,208
- -----------------------------------------------------------------------
Pfizer Inc. 130,500 3,043,260
- -----------------------------------------------------------------------
Wyeth 45,500 2,096,185
=======================================================================
20,630,668
=======================================================================
PROPERTY & CASUALTY INSURANCE-4.17%
American Physicians Capital, Inc.(a) 31,400 1,437,806
- -----------------------------------------------------------------------
Chubb Corp. (The) 7,300 712,845
- -----------------------------------------------------------------------
Fidelity National Financial, Inc. 40,100 1,475,279
- -----------------------------------------------------------------------
FPIC Insurance Group, Inc.(a) 27,600 957,720
- -----------------------------------------------------------------------
LandAmerica Financial Group, Inc. 70,000 4,368,000
- -----------------------------------------------------------------------
MBIA Inc. 26,700 1,606,272
- -----------------------------------------------------------------------
Safeco Corp. 21,400 1,209,100
- -----------------------------------------------------------------------
Selective Insurance Group, Inc. 21,800 1,157,580
- -----------------------------------------------------------------------
Stewart Information Services Corp. 30,100 1,464,967
- -----------------------------------------------------------------------
United Fire & Casualty Co. 24,000 970,320
- -----------------------------------------------------------------------
W. R. Berkley Corp. 17,600 838,112
=======================================================================
16,198,001
=======================================================================
PUBLISHING-0.46%
McGraw-Hill Cos., Inc. (The) 34,600 1,786,398
=======================================================================
REGIONAL BANKS-2.78%
City National Corp. 67,200 4,867,968
- -----------------------------------------------------------------------
Cullen/Frost Bankers, Inc. 33,800 1,814,384
- -----------------------------------------------------------------------
KeyCorp 76,700 2,525,731
- -----------------------------------------------------------------------
Nara Bancorp, Inc. 44,200 785,876
- -----------------------------------------------------------------------
Zions Bancorp 10,700 808,492
=======================================================================
10,802,451
=======================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
RESTAURANTS-2.90%
CEC Entertainment Inc.(a) 47,600 $ 1,620,304
- -----------------------------------------------------------------------
Darden Restaurants, Inc. 92,800 3,608,064
- -----------------------------------------------------------------------
Papa John's International, Inc.(a) 12,400 735,444
- -----------------------------------------------------------------------
YUM! Brands, Inc. 113,400 5,316,192
=======================================================================
11,280,004
=======================================================================
SEMICONDUCTORS-2.71%
Broadcom Corp.-Class A(a) 13,600 641,240
- -----------------------------------------------------------------------
Intel Corp. 239,200 5,970,432
- -----------------------------------------------------------------------
Microchip Technology Inc. 22,100 710,515
- -----------------------------------------------------------------------
National Semiconductor Corp. 52,500 1,363,950
- -----------------------------------------------------------------------
Taiwan Semiconductor Manufacturing Co.
Ltd.-ADR (Taiwan) 82,000 812,620
- -----------------------------------------------------------------------
Texas Instruments Inc. 32,900 1,055,103
=======================================================================
10,553,860
=======================================================================
SOFT DRINKS-1.62%
PepsiCo, Inc. 106,700 6,303,836
=======================================================================
SPECIALIZED CONSUMER SERVICES-0.97%
H&R Block, Inc. 77,200 1,895,260
- -----------------------------------------------------------------------
Jackson Hewitt Tax Service Inc. 68,100 1,887,051
=======================================================================
3,782,311
=======================================================================
SPECIALTY STORES-0.90%
Michaels Stores, Inc. 31,400 1,110,618
- -----------------------------------------------------------------------
Staples, Inc. 105,700 2,400,447
=======================================================================
3,511,065
=======================================================================
STEEL-2.08%
IPSCO, Inc. (Canada) 64,700 5,368,806
- -----------------------------------------------------------------------
Nucor Corp. 8,800 587,136
- -----------------------------------------------------------------------
Reliance Steel & Aluminum Co. 34,700 2,120,864
=======================================================================
8,076,806
=======================================================================
SYSTEMS SOFTWARE-1.66%
Microsoft Corp. 87,400 2,285,510
- -----------------------------------------------------------------------
Oracle Corp.(a) 89,600 1,094,016
- -----------------------------------------------------------------------
Progress Software Corp.(a) 108,500 3,079,230
=======================================================================
6,458,756
=======================================================================
TECHNOLOGY DISTRIBUTORS-0.28%
CDW Corp. 18,800 1,082,316
=======================================================================
THRIFTS & MORTGAGE FINANCE-1.62%
MGIC Investment Corp. 29,100 1,915,362
- -----------------------------------------------------------------------
Radian Group Inc. 64,900 3,802,491
- -----------------------------------------------------------------------
Washington Mutual, Inc. 13,216 574,896
=======================================================================
6,292,749
=======================================================================
</Table>
F-4
AIM SELECT EQUITY FUND
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
TOBACCO-0.10%
Vector Group Ltd.(b) 20,895 $ 379,662
=======================================================================
TRADING COMPANIES & DISTRIBUTORS-0.18%
MSC Industrial Direct Co., Inc.-Class A 17,000 683,740
=======================================================================
TRUCKING-0.14%
Yellow Roadway Corp.(a) 11,800 526,398
=======================================================================
Total Common Stocks & Other Equity
Interests (Cost $316,156,848) 377,899,431
=======================================================================
MONEY MARKET FUNDS-3.08%
Liquid Assets Portfolio-Institutional
Class(c) 5,977,525 5,977,525
- -----------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(c) 5,977,525 5,977,525
=======================================================================
Total Money Market Funds (Cost
$11,955,050) 11,955,050
=======================================================================
TOTAL INVESTMENTS-100.25% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $328,111,898) 389,854,481
=======================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-0.36%
Liquid Assets Portfolio-Institutional
Class(c)(d) 1,402,365 $ 1,402,365
=======================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $1,402,365) 1,402,365
=======================================================================
TOTAL INVESTMENTS-100.61% (Cost $329,514,263) 391,256,846
=======================================================================
OTHER ASSETS LESS LIABILITIES-(0.61%) (2,354,476)
=======================================================================
NET ASSETS-100.00% $388,902,370
_______________________________________________________________________
=======================================================================
</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, 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 to Financial Statements which are an integral part of the
financial statements.
F-5
AIM SELECT EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2005
<Table>
ASSETS:
Investments, at value (cost $316,156,848)* $ 377,899,431
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $13,357,415) 13,357,415
============================================================
Total investments (cost $329,514,263) 391,256,846
============================================================
Cash 6,679
- ------------------------------------------------------------
Receivables for:
Fund shares sold 59,019
- ------------------------------------------------------------
Dividends 270,316
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 78,935
- ------------------------------------------------------------
Other assets 22,748
============================================================
Total assets 391,694,543
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 855,418
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 118,769
- ------------------------------------------------------------
Collateral upon return of securities loaned 1,402,365
- ------------------------------------------------------------
Accrued distribution fees 155,431
- ------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 136
- ------------------------------------------------------------
Accrued transfer agent fees 166,980
- ------------------------------------------------------------
Accrued operating expenses 93,074
============================================================
Total liabilities 2,792,173
============================================================
Net assets applicable to shares outstanding $ 388,902,370
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 430,108,112
- ------------------------------------------------------------
Undistributed net investment income (loss) (106,381)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies
and option contracts (102,841,944)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities 61,742,583
============================================================
$ 388,902,370
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 259,945,744
____________________________________________________________
============================================================
Class B $ 106,096,792
____________________________________________________________
============================================================
Class C $ 22,859,834
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 14,013,944
____________________________________________________________
============================================================
Class B 6,447,411
____________________________________________________________
============================================================
Class C 1,391,360
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 18.55
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $18.55 divided by
94.50%) $ 19.63
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 16.46
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 16.43
____________________________________________________________
============================================================
</Table>
* At December 31, 2005, securities with an aggregate value of $1,373,490 were on
loan to brokers.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-6
AIM SELECT EQUITY FUND
STATEMENT OF OPERATIONS
For the year ended December 31, 2005
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $12,300) $ 4,474,094
- --------------------------------------------------------------------------
Dividends from affiliated money market funds (includes
securities lending income of $29,591, after compensation
to counterparties of $111,616) 434,963
==========================================================================
Total investment income 4,909,057
==========================================================================
EXPENSES:
Advisory fees 2,866,180
- --------------------------------------------------------------------------
Administrative services fees 115,815
- --------------------------------------------------------------------------
Custodian fees 41,204
- --------------------------------------------------------------------------
Distribution fees:
Class A 672,000
- --------------------------------------------------------------------------
Class B 1,222,895
- --------------------------------------------------------------------------
Class C 254,994
- --------------------------------------------------------------------------
Transfer agent fees 1,438,510
- --------------------------------------------------------------------------
Trustees' and officer's fees and benefits 27,644
- --------------------------------------------------------------------------
Other 269,256
==========================================================================
Total expenses 6,908,498
==========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangement (33,083)
==========================================================================
Net expenses 6,875,415
==========================================================================
Net investment income (loss) (1,966,358)
==========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (includes gains from securities sold
to affiliates of $877,464) 69,494,668
- --------------------------------------------------------------------------
Foreign currencies (549)
- --------------------------------------------------------------------------
Option contracts written 184,480
==========================================================================
69,678,599
==========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (50,194,703)
- --------------------------------------------------------------------------
Option contracts written 8,225
==========================================================================
(50,186,478)
==========================================================================
Net gain from investment securities, foreign currencies and
option contracts 19,492,121
==========================================================================
Net increase in net assets resulting from operations $ 17,525,763
__________________________________________________________________________
==========================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-7
AIM SELECT EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2005 and 2004
<Table>
<Caption>
2005 2004
- -------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (1,966,358) $ (3,436,088)
- -------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies and option contracts 69,678,599 44,009,278
- -------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and option contracts (50,186,478) 19,628,835
===========================================================================================
Net increase in net assets resulting from operations 17,525,763 60,202,025
===========================================================================================
Share transactions-net:
Class A (45,443,426) (33,113,988)
- -------------------------------------------------------------------------------------------
Class B (46,135,865) (69,580,725)
- -------------------------------------------------------------------------------------------
Class C (7,734,281) (7,526,304)
===========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (99,313,572) (110,221,017)
===========================================================================================
Net increase (decrease) in net assets (81,787,809) (50,018,992)
===========================================================================================
NET ASSETS:
Beginning of year 470,690,179 520,709,171
===========================================================================================
End of year (including undistributed net investment income
(loss) of $(106,381) and $(114,811), respectively) $388,902,370 $ 470,690,179
___________________________________________________________________________________________
===========================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-8
AIM SELECT EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Select Equity Fund (the "Fund") is a series portfolio of AIM Funds Group
(the "Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of eight separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is to achieve long-term growth of capital.
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. The risk of material loss as a result of such indemnification claims
is considered remote.
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 are 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 recorded at amortized cost which approximates value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs and domestic and foreign index futures.
F-9
AIM SELECT EQUITY FUND
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. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be United States of America unless otherwise noted.
D. 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.
E. 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.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. 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.
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 replace such collateral no later than the next business day.
This practice does not apply to securities pledged as collateral for
securities lending transactions.
F-10
AIM SELECT EQUITY FUND
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 $150 million 0.80%
- --------------------------------------------------------------------
Over $150 million 0.625%
___________________________________________________________________
====================================================================
</Table>
Through June 30, 2006, AIM has contractually agreed to waive advisory fees
to the extent necessary so that the advisory fees payable by the Fund based on
the Fund's average daily net assets do not exceed the annual rate of:
<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 year ended December 31, 2005, AIM waived fees of $15,623.
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 year ended December 31, 2005, AMVESCAP reimbursed expenses of the Fund in
the amount of $4,198.
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, 2005, AIM was paid $115,815.
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 December 31, 2005, the
Fund paid AISI $1,438,510.
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
and Class C shares of the Fund. The Trust has adopted plans pursuant to Rule
12b-1 under the 1940 Act with respect to the Fund's Class A, Class B and Class C
shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays ADI
compensation at the annual rate of 0.25% of the Fund's average daily net assets
of Class A shares and 1.00% of the average daily net assets of Class B and Class
C shares. Of these amounts, up to 0.25% of the average daily net assets of the
Class A, Class B or Class C shares may be paid to furnish continuing personal
shareholder services to customers who purchase and own shares of such classes.
Any amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge 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 December 31, 2005, the Class A, Class B and Class C
shares paid $672,000, $1,222,895 and $254,994, 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, 2005, ADI advised the Fund that it retained $33,228 in
front-end sales commissions from the sale of Class A shares and $72, $39,286 and
$2,407 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.
F-11
AIM SELECT EQUITY FUND
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, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 7,878,327 $48,428,221 $ (50,329,023) $ -- $ 5,977,525 $201,752 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 7,878,327 48,428,221 (50,329,023) -- 5,977,525 203,620 --
==================================================================================================================================
Subtotal $15,756,654 $96,856,442 $(100,658,046) $ -- $11,955,050 $405,372 $ --
==================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME* GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ -- $ 16,215,725 $ (14,813,360) $ -- $ 1,402,365 $ 5,131 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 10,195,750 22,693,485 (32,889,235) -- -- 24,460 --
==================================================================================================================================
Subtotal $10,195,750 $ 38,909,210 $ (47,702,595) $ -- $ 1,402,365 $ 29,591 $ --
==================================================================================================================================
Total $25,952,404 $135,765,652 $(148,360,641) $ -- $13,357,415 $434,963 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</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 year ended December 31, 2005, the Fund
engaged in securities purchases of $7,853,404 and sales of $5,000,387, which
resulted in net realized gains of $877,464.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer agent
for clearing shareholder transactions. For the year ended December 31, 2005, the
Fund received credits from this arrangement, which resulted in the reduction of
the Fund's total expenses of $13,262.
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 December 31, 2005, the Fund paid legal fees of $5,538
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
F-12
AIM SELECT EQUITY FUND
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, 2005, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
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, 2005, securities with an aggregate value of $1,373,490 were
on loan to brokers. The loans were secured by cash collateral of $1,402,365
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended December 31, 2005, the Fund received dividends on cash
collateral of $29,591 for securities lending transactions, which are net of
compensation to counterparties.
NOTE 9--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- ------------------------------------------------------------------------------------
CALL OPTION CONTRACTS
----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- ------------------------------------------------------------------------------------
Beginning of year 694 $ 61,920
- ------------------------------------------------------------------------------------
Written 4,615 267,214
- ------------------------------------------------------------------------------------
Closed (760) (48,258)
- ------------------------------------------------------------------------------------
Exercised (1,470) (105,241)
- ------------------------------------------------------------------------------------
Expired (3,079) (175,635)
====================================================================================
End of year -- $ --
____________________________________________________________________________________
====================================================================================
</Table>
F-13
AIM SELECT EQUITY FUND
NOTE 10--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary or long term capital distributions paid during the years
ended December 31, 2005 and 2004.
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2005
- --------------------------------------------------------------------------
Unrealized appreciation -- investments $ 61,694,573
- --------------------------------------------------------------------------
Temporary book/tax differences (106,381)
- --------------------------------------------------------------------------
Capital loss carryforward (102,793,934)
- --------------------------------------------------------------------------
Shares of beneficial interest 430,108,112
==========================================================================
Total net assets $388,902,370
__________________________________________________________________________
==========================================================================
</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 $67,444,692 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, 2005 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
December 31, 2010 $ 56,001,620
- -----------------------------------------------------------------------------
December 31, 2011 46,792,314
=============================================================================
Total capital loss carryforward $102,793,934
_____________________________________________________________________________
=============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 11--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2005 was $368,180,472 and $465,175,855, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $67,480,785
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (5,786,212)
===============================================================================
Net unrealized appreciation of investment securities $61,694,573
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $329,562,273.
</Table>
F-14
AIM SELECT EQUITY FUND
NOTE 12--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses
and foreign currency transactions, on December 31, 2005, undistributed net
investment income (loss) was increased by $1,974,788, undistributed net realized
gain (loss) was increased by $549 and shares of beneficial interest decreased by
$1,975,337. This reclassification had no effect on the net assets of the Fund.
NOTE 13--SHARE INFORMATION
The Fund currently offers three different classes of shares: Class A shares,
Class B shares and Class C shares. Class A shares are sold with a front-end
sales charge. Class B shares and Class C shares are sold with CDSC. Under
certain circumstances, Class A shares are subject to CDSC. Generally, Class B
shares will automatically convert to Class A shares eight years after the end of
the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- -----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
2005 2004
-------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 780,120 $ 13,761,890 1,604,107 $ 25,910,160
- -----------------------------------------------------------------------------------------------------------------------
Class B 498,217 7,793,624 824,169 11,973,132
- -----------------------------------------------------------------------------------------------------------------------
Class C 193,899 3,028,919 400,935 5,803,543
=======================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 1,121,759 19,623,817 2,267,898 36,759,445
- -----------------------------------------------------------------------------------------------------------------------
Class B (1,259,304) (19,623,817) (2,527,551) (36,759,445)
=======================================================================================================================
Reacquired:
Class A (4,470,464) (78,829,133) (5,935,445) (95,783,593)
- -----------------------------------------------------------------------------------------------------------------------
Class B (2,192,148) (34,305,672) (3,094,338) (44,794,412)
- -----------------------------------------------------------------------------------------------------------------------
Class C (688,802) (10,763,200) (924,673) (13,329,847)
=======================================================================================================================
(6,016,723) $(99,313,572) (7,384,898) $(110,221,017)
_______________________________________________________________________________________________________________________
=======================================================================================================================
</Table>
F-15
AIM SELECT EQUITY FUND
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,
----------------------------------------------------------------
2005 2004 2003 2002 2001
- --------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 17.65 $ 15.50 $ 11.97 $ 17.00 $ 22.88
- --------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)(a) (0.06)(a)(b) (0.09)(a) (0.06)(a) (0.08)(a)
- --------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.94 2.21 3.62 (4.97) (5.79)
==============================================================================================================
Total from investment operations 0.90 2.15 3.53 (5.03) (5.87)
==============================================================================================================
Less distributions from net realized gains -- -- -- -- (0.01)
==============================================================================================================
Net asset value, end of period $ 18.55 $ 17.65 $ 15.50 $ 11.97 $ 17.00
______________________________________________________________________________________________________________
==============================================================================================================
Total return(c) 5.10% 13.87% 29.49% (29.59)% (25.64)%
______________________________________________________________________________________________________________
==============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $259,946 $292,681 $288,976 $250,666 $396,779
______________________________________________________________________________________________________________
==============================================================================================================
Ratio of expenses to average net assets 1.39%(d) 1.38%(e) 1.47% 1.32% 1.24%
==============================================================================================================
Ratio of net investment income (loss) to
average net assets (0.21)%(d) (0.40)%(b) (0.65)% (0.45)% (0.45)%
______________________________________________________________________________________________________________
==============================================================================================================
Portfolio turnover rate 91% 38% 69% 86% 117%
______________________________________________________________________________________________________________
==============================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2,
2004. Net investment income (loss) per share and the ratio of net
investment income (loss) to average net assets excluding the special
dividend are $(0.08) and (0.51)%, respectively, for the year ended
December 31, 2004.
(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 $268,799,905.
(e) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.40%, for the year ended December 31, 2004.
F-16
AIM SELECT EQUITY FUND
NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS B
---------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
2005 2004 2003 2002 2001
- -------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 15.78 $ 13.96 $ 10.86 $ 15.54 $ 21.07
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.15)(a) (0.17)(a)(b) (0.17)(a) (0.16)(a) (0.20)(a)
- -------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.83 1.99 3.27 (4.52) (5.32)
===================================================================================================================
Total from investment operations 0.68 1.82 3.10 (4.68) (5.52)
===================================================================================================================
Less distributions from net realized gains -- -- -- -- (0.01)
===================================================================================================================
Net asset value, end of period $ 16.46 $ 15.78 $ 13.96 $ 10.86 $ 15.54
___________________________________________________________________________________________________________________
===================================================================================================================
Total return(c) 4.31% 13.04% 28.55% (30.12)% (26.19)%
___________________________________________________________________________________________________________________
===================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $106,097 $148,300 $198,148 $214,709 $432,002
___________________________________________________________________________________________________________________
===================================================================================================================
Ratio of expenses to average net assets 2.14%(d) 2.13%(e) 2.22% 2.07% 2.00%
===================================================================================================================
Ratio of net investment income (loss) to
average net assets (0.96)%(d) (1.15)%(b) (1.40)% (1.20)% (1.21)%
___________________________________________________________________________________________________________________
===================================================================================================================
Portfolio turnover rate 91% 38% 69% 86% 117%
___________________________________________________________________________________________________________________
===================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2,
2004. Net investment income (loss) per share and the ratio of net
investment income (loss) to average net assets excluding the special
dividend are $(0.19) and (1.26)%, respectively, for the year ended
December 31, 2004.
(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 $122,289,507.
(e) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.15%, for the year ended December 31, 2004.
F-17
AIM SELECT EQUITY FUND
NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS C
----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
2005 2004 2003 2002 2001
- --------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 15.75 $ 13.94 $ 10.84 $ 15.52 $ 21.05
- --------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.15)(a) (0.17)(a)(b) (0.17)(a) (0.16)(a) (0.20)(a)
- --------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.83 1.98 3.27 (4.52) (5.32)
==============================================================================================================
Total from investment operations 0.68 1.81 3.10 (4.68) (5.52)
==============================================================================================================
Less distributions from net realized gains -- -- -- -- (0.01)
==============================================================================================================
Net asset value, end of period $ 16.43 $ 15.75 $ 13.94 $ 10.84 $ 15.52
______________________________________________________________________________________________________________
==============================================================================================================
Total return(c) 4.32% 12.98% 28.60% (30.15)% (26.21)%
______________________________________________________________________________________________________________
==============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $22,860 $29,710 $33,585 $32,558 $59,112
______________________________________________________________________________________________________________
==============================================================================================================
Ratio of expenses to average net assets 2.14%(d) 2.13%(e) 2.22% 2.07% 2.00%
==============================================================================================================
Ratio of net investment income (loss) to
average net assets (0.96)%(d) (1.15)%(b) (1.40)% (1.20)% (1.21)%
______________________________________________________________________________________________________________
==============================================================================================================
Portfolio turnover rate 91% 38% 69% 86% 117%
______________________________________________________________________________________________________________
==============================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2,
2004. Net investment income (loss) per share and the ratio of net
investment income (loss) to average net assets excluding the special
dividend are $(0.19) and (1.26)%, respectively, for the year ended
December 31, 2004.
(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 $25,499,374.
(e) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.15%, for the year ended December 31, 2004.
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. 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.
PENDING LITIGATION AND REGULATORY INQUIRIES
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.
F-18
AIM SELECT EQUITY FUND
NOTE 15--LEGAL PROCEEDINGS--(CONTINUED)
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 October 19, 2005, this lawsuit was transferred for pretrial purposes to the
MDL Court (as defined below). On July 7, 2005, the Supreme Court of West
Virginia ruled in an unrelated lawsuit that is similar to this action that the
WVAG does not have authority 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. Initial research
indicates that these damages could be limited or capped by statute. 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; and
- 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 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 (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits 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.
On August 25, 2005, the MDL Court issued rulings on the common issues of law
presented in motions to dismiss shareholder class action and derivative
complaints that were filed in unrelated lawsuits. On November 3, 2005, the MDL
Court issued short opinions for the most part applying these rulings to the AIM
and IFG lawsuits. The MDL Court dismissed 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"). The Court dismissed all claims asserted in the class
action complaint but three: (i) the securities fraud claims under Section 10(b)
of the Securities Exchange Act of 1934, (ii) the excessive fee claim under
Section 36(b) of the 1940 Act (which survived only insofar as plaintiffs seek
recovery of fees associated with the assets involved in market timing); and
(iii) the MDL Court deferred ruling on the "control person liability" claim
under Section 48 of the 1940 Act. 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.
At the MDL Court's request, the parties submitted proposed orders implementing
these rulings in the AIM and IFG lawsuits. The MDL Court has not entered any
orders on the motions to dismiss in these lawsuits and it is possible the orders
may differ in some respects from the rulings described above. Based on the MDL
Court's opinion and both parties' proposed orders, however, all claims asserted
against the Funds that have been transferred to the MDL Court will be dismissed,
although certain Funds will remain nominal defendants in the derivative lawsuit.
On December 6, 2005, the MDL Court issued rulings on the common issues of law
presented in defendants' omnibus motion to dismiss the ERISA complaints. The
ruling was issued in unrelated lawsuits that are similar to the ERISA lawsuits
brought against AIM and IFG and related entities. The MDL Court: (i) denied the
motion to dismiss on the grounds that the plaintiffs lack standing or that the
defendants' investments in company stock are entitled to a presumption of
prudence; (ii) granted the motion to dismiss as to defendants not named in the
employee benefit plan documents as fiduciaries but gave plaintiffs leave to
replead facts sufficient to show that such defendants acted as de facto
fiduciaries; and (iii) confirmed plaintiffs' withdrawal of their prohibited
transactions and misrepresentations claims.
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, among others, 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
F-19
AIM SELECT EQUITY FUND
NOTE 15--LEGAL PROCEEDINGS--(CONTINUED)
to these inquiries. 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.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries 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-20
AIM SELECT EQUITY FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Funds Group
and Shareholders of AIM Select Equity Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM Select Equity Fund (one of the
funds constituting AIM Funds Group hereafter referred to as the "Fund") at
December 31, 2005, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the five years in the period then ended, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2005 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
February 17, 2006
Houston, Texas
F-21
AIM SELECT EQUITY FUND
TRUSTEES AND OFFICERS
As of December 31, 2005
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1992 Director and Chairman, A I M Management None
Trustee, Vice Chair, Group Inc. (financial services holding
Principal Executive Officer company); Director and Vice Chairman,
and President AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- -------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.;
President Director 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
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,
AIM Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1987 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company (2 portfolios))
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and 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); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company); and Owner, Dos Angelos Ranch,
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company (3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
</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.
TRUSTEES AND OFFICERS--(CONTINUED)
As of December 31, 2005
AIM SELECT EQUITY FUND
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1992 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired None
Trustee
Formerly: Partner, Deloitte & Touche
- -------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc.; Senior Vice President and
Chief 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 -- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President and 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 General Counsel, A I M
Secretary and Chief Legal Management Group Inc. and A I M
Officer 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.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC; 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, Principal Advisors, Inc.
Financial Officer and
Treasurer Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc.
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, and Senior
Investment Officer, A I M Capital
Management, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1992 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street & Frankel LLP P.O. Box 4739 225 Franklin Street
Philadelphia, PA 19103-7599 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Americas
New York, NY 10036-2714
</Table>
U.S. ESTATE TAX FOR NON-RESIDENT ALIEN SHAREHOLDER
The percentage of qualifying assets not subject to the U.S. estate tax for the
fiscal quarters ended March 31, 2005, June 30, 2005, September 30, 2005, and
December 31, 2005, are 5.75%, 5.95%, 6.86% and 9.91%, respectively.
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY AIM FIXED INCOME
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE
AIM Basic Balanced Fund* AIM Developing Markets Fund
AIM Basic Value Fund AIM European Growth Fund AIM Floating Rate Fund
AIM Blue Chip Fund AIM European Small Company Fund(1) AIM High Yield Fund
AIM Capital Development Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Charter Fund AIM Global Equity Fund AIM Intermediate Government Fund
AIM Constellation Fund AIM Global Growth Fund AIM Limited Maturity Treasury Fund
AIM Diversified Dividend Fund AIM Global Value Fund AIM Money Market Fund
AIM Dynamics Fund AIM International Core Equity Fund AIM Short Term Bond Fund
AIM Large Cap Basic Value Fund AIM International Growth Fund AIM Total Return Bond Fund
AIM Large Cap Growth Fund AIM International Small Company Fund(1) Premier Portfolio
AIM Mid Cap Basic Value Fund AIM Trimark Fund Premier U.S. Government Money Portfolio
AIM Mid Cap Core Equity Fund(1)
AIM Mid Cap Growth Fund SECTOR EQUITY TAX-FREE
AIM Opportunities I Fund
AIM Opportunities II Fund AIM Advantage Health Sciences Fund AIM High Income Municipal Fund(1)
AIM Opportunities III Fund AIM Energy Fund AIM Municipal Bond Fund
AIM Premier Equity Fund AIM Financial Services Fund AIM Tax-Exempt Cash Fund
AIM S&P 500 Index Fund AIM Global Health Care Fund AIM Tax-Free Intermediate Fund
AIM Select Equity Fund AIM Global Real Estate Fund Premier Tax-Exempt Portfolio
AIM Small Cap Equity Fund AIM Gold & Precious Metals Fund
AIM Small Cap Growth Fund(1) AIM Leisure Fund AIM ALLOCATION SOLUTIONS
AIM Small Company Growth Fund AIM Multi-Sector Fund
AIM Summit Fund AIM Real Estate Fund(1) AIM Conservative Allocation Fund
AIM Trimark Endeavor Fund AIM Technology Fund AIM Growth Allocation Fund(2)
AIM Trimark Small Companies Fund AIM Utilities Fund AIM Moderate Allocation Fund
AIM Weingarten Fund AIM Moderate Growth Allocation Fund
AIM Moderately Conservative Allocation Fund
DIVERSIFIED PORTFOLIOS
AIM Income Allocation Fund
AIM International Allocation Fund
=======================================================================================
CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY. FOR THIS
AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR FINANCIAL ADVISOR
AND READ IT CAREFULLY BEFORE INVESTING.
=======================================================================================
*Domestic equity and income fund
(1) This Fund has limited public sales of its shares to certain investors. For
more information on who may continue to invest in the Fund, please see the
appropriate prospectus.
(2) Effective April 29, 2005, AIM Aggressive Allocation Fund was renamed AIM
Growth Allocation Fund.
If used after April 20, 2006, 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 $128 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $386 billion in assets under management. Data as of December 31,
2005.
AIMinvestments.com SEQ-AR-1 A I M Distributors, Inc.
YOUR GOALS. OUR SOLUTIONS.--Registered Trademark--
- --------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Management --Registered Trademark--
Plans Accounts
- --------------------------------------------------------------------------------
AIM SMALL CAP EQUITY FUND
Annual Report to Shareholders o December 31, 2005
[COVER IMAGE]
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
AIM SMALL CAP EQUITY FUND SEEKS LONG-TERM GROWTH OF CAPITAL.
<Table>
o Unless otherwise stated, information presented in this report is as of December 31, 2005, and is based on total net assets.
ABOUT SHARE CLASSES ments in initial public offerings Inc. and Standard & Poor's.
(IPOs), there can be no assurance that
o Class B shares are not available as an the Fund will have favorable IPO o The returns shown in the Management's
investment for retirement plans investment opportunities in the future. Discussion of Fund Performance are based
maintained pursuant to Section 401 of on net asset values calculated for
the Internal Revenue Code, including ABOUT INDEXES USED IN THIS REPORT shareholder transactions. Generally
401(k) plans, money purchase pension accepted accounting principles require
plans and profit sharing plans. Plans o The unmanaged Standard & Poor's adjustments to be made to the net assets
that had existing accounts invested in Composite Index of 500 Stocks (the S&P of the fund at period end for financial
Class B shares prior to September 30, 500--Registered Trademark-- Index) is an reporting purposes, and as such, the net
2003, will continue to be allowed to index of common stocks frequently used asset values for shareholder
make additional purchases. as a general measure of U.S. stock transactions and the returns based on
market performance. those net asset values may differ from
o Class R shares are available only to the net asset values and returns
certain retirement plans. Please see the o The unmanaged Russell 2000--Registered reported in the Financial Highlights.
prospectus for more information. Trademark-- Index represents the
performance of the stocks of o The Conference Board is a
PRINCIPAL RISKS OF INVESTING IN THE FUND small-capitalization companies. not-for-profit organization that
conducts research and publishes
o Investing in smaller companies o The unmanaged Lipper Small-Cap Core information and analysis to help
involves greater risk than investing in Fund Index represents an average of the businesses strengthen their performance.
more established companies, such as performance of the 30 largest
business risk, significant stock price small-capitalization core equity funds The Fund provides a complete list of its
fluctuations and illiquidity. tracked by Lipper, Inc., an independent holdings four times in each fiscal year,
mutual fund performance monitor. at the quarter-ends. For the second and
o The Fund may invest a portion of its fourth quarters, the lists appear in the
assets in synthetic instruments, such as o The unmanaged MSCI World Index is a Fund's semiannual and annual reports
warrants, futures, options, exchange group of global securities tracked by to shareholders. For the first and third
traded funds and American Depositary Morgan Stanley Capital International. quarters, the Fund files the lists with
Receipts, the value of which may not the Securities and Exchange Commission
correlate perfectly with the overall o A direct investment cannot be made in (SEC) on Form N-Q. The most recent list
securities market. Risks associated with an index. Unless otherwise indicated, of portfolio holdings is available at
synthetic instruments may include index results include reinvested AIMinvestments.com. From our home page,
counter party risk and sensitivity to dividends, and they do not reflect sales click on Products & Performance, then
interest rate changes and market price charges. Performance of an index of Mutual Funds, then Fund Overview. Select
fluctuations. See the prospectus for funds reflects fund expenses; your Fund from the drop-down menu and
more details. performance of a market index does not. click on Complete Quarterly Holdings.
Shareholders can also look up the Fund's
o The Fund may invest up to 25% of its o The Fund is not managed to track the Forms N-Q on the SEC's Web site at
assets in the securities of non-U.S. performance of any particular index, sec.gov. Copies of the Fund's Forms N-Q
issuers. International investing including the indexes defined here, and may be reviewed and copied at the SEC's
presents certain risks not associated consequently, the performance of the Public Reference Room at 450 Fifth
with investing solely in the United Fund may deviate significantly from the Street, N.W., Washington, D.C.
States. These include risks relating to performance of the indexes. 20549-0102. You can obtain information
fluctuations in the value of the U.S. on the operation of the Public Reference
dollar relative to the values of other OTHER INFORMATION Room, including information about
currencies, the custody arrangements duplicating fee charges, by calling
made for the Fund's foreign holdings, o Industry classifications used in this 202-942-8090 or 800-732-0330, or by
differences in accounting, political report are generally according to the electronic request at the following
risks and the lesser degree of public Global Industry Classification Standard, e-mail address: publicinfo@sec.gov. The
information required to be provided by which was developed by and is the SEC file numbers for the Fund are
non-U.S. companies. exclusive property and a service mark of 811-01540 and 2-27334.
Morgan Stanley Capital International
o Although the Fund's return during A description of the policies and
certain periods was positively impacted procedures that the Fund uses to
by its invest 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's Web site,
sec.gov.
Continued on Page 7
========================================
FUND NASDAQ SYMBOLS
Class A Shares SMEAX
Class B Shares SMEBX
Class C Shares SMECX
Class R Shares SMERX
========================================
==========================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES
CHARGES AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
==========================================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIMinvestments.com
AIM SMALL CAP EQUITY FUND
DEAR FELLOW AIM FUNDS SHAREHOLDERS:
[GRAHAM Although many concerns weighed on investors' minds during
PHOTO] the year covered by this report, stocks posted gains for the
period. Domestically, the broad-based S&P 500 Index returned
4.91%. Internationally, Morgan Stanley's MSCI World Index
rose 9.49%. Concern about the inflationary potential of
rising energy costs was frequently cited as a major cause of
market restraint.
Within the indexes, there was considerable variability
ROBERT H. GRAHAM in the performance of different sectors and markets.
Domestically, energy sector performance far outpaced all
other sectors in the S&P 500 Index, reflecting rising oil
and gas prices. Overseas, emerging markets produced more
attractive results than developed markets, partially because
emerging markets tend to be more closely tied to the
performance of natural resources and commodities.
One could make a strong argument for global
diversification of a stock portfolio using the performance
data for the year ended December 31, 2005. Of course, your
financial advisor is the person most qualified to help you
decide whether such diversification is appropriate for you.
[WILLIAMSON A number of key developments affected markets and the
PHOTO] economy in 2005:
o Hurricane Katrina, which devastated New Orleans in
August, had numerous economic repercussions and dealt
a short-term setback to consumer confidence. However,
consumer confidence rebounded toward the end of the
MARK H. WILLIAMSON year, with the Conference Board crediting the
resiliency of the economy, falling gas prices and job
growth for this trend.
o The nation's gross domestic product (GDP), the
broadest measure of economic activity, increased at a
healthy rate throughout much of the year. The Bureau
of Economic Analysis of the U.S. Department of
Commerce reported that the nation's GDP grew at
annualized rates of 3.8%, 3.3% and 4.1% for the
first, second and third quarters of the year,
respectively.
o For the second straight year, the economy created 2
million new jobs, although job growth was uneven and
sometimes did not meet analysts' expectations on a
monthly basis.
o The Federal Reserve Board (the Fed) continued its
tightening policy, raising the key federal funds
target rate to 4.25% by the end of the year. Many
analysts believed that the central bank was near the
end of its tightening policy as Ben Bernanke
succeeded the retiring Alan Greenspan as Fed chairman
early in 2006.
o Gasoline prices, which soared to a nationwide average
of slightly more than $3.08 per gallon on September 5
following Hurricane Katrina, had dropped by more than
80 cents by mid-December, according to the U.S.
Energy Information Administration.
For a discussion of the specific market conditions that
affected your Fund and how your Fund was managed during the
year, please turn to Page 3.
YOUR FUND
Further information about the markets, your Fund, and
investing in general is always available on our
comprehensive 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 pleased to be of help.
Sincerely,
/s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
Robert H. Graham Mark H. Williamson
President & Vice Chair, President,
AIM Funds A I M Advisors, Inc.
February 9, 2006
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. A I M
Distributors, Inc. is the distributor for the retail funds
represented by AIM Investments.
1
AIM SMALL CAP EQUITY FUND
DEAR FELLOW AIM FUND SHAREHOLDERS:
Having completed a year of transition and change at AIM
Funds--as well as my first full year as your board's
independent chair--I can assure you that shareholder
interests are at the forefront of every decision your board
[CROCKETT makes. While regulators and fund companies debate the value
PHOTO] of an independent board chair, this structure is working for
you.
BRUCE L. CROCKETT An independent chair can help lead to unbiased decisions and
eliminate potential conflicts.
Some highlights of 2005 board activity:
o Board approval of voluntary fee reductions, which are
saving shareholders more than $20 million annually,
based on asset levels of March 31, 2005.
o Board approval for the merger of 14 funds into other
AIM funds with similar investment objectives. Eight
of these mergers were approved by shareholders of the
target funds during 2005. The remaining six are being
voted on by shareholders in early 2006. In each case,
the goal is for the resulting merged fund to benefit
from strengthened management and greater efficiency.
o Board approval for portfolio management changes at 11
funds, consistent with the goal of organizing
management teams around common processes and shared
investment views. Again, we hope that these changes
will improve fund performance and efficiency.
In 2006, your board will continue to focus on reducing
costs and shareholder fees and improving portfolio
performance, which is not yet as strong as we expect to see
it. Eight in-person board meetings and several additional
telephone and committee meetings are scheduled to take place
this year. I'll inform you of our progress in my next
semiannual letter to shareholders.
The AIM Funds board is pleased to welcome our newest
independent member, Raymond Stickel, Jr., a former partner
with the international auditing firm of Deloitte & Touche.
We also send our thanks and best wishes to Gerald J. Lewis,
who retired from your board in December 2005, and to Edward
K. Dunn, Jr., who is retiring this year.
Your board welcomes your views. Please mail them to me
at AIM Investments, AIM Investments Tower, 11 Greenway
Plaza, Suite 100, Houston TX 77046.
Sincerely,
/s/ BRUCE L. CROCKETT
Bruce L. Crockett
Independent Chair
On Behalf of the Board of Trustees
AIM Funds
February 9, 2006
2
AIM SMALL CAP EQUITY FUND
<Table>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE We consider selling or trimming a
stock when:
======================================================================================
o the company's fundamental business
PERFORMANCE SUMMARY ======================================== prospects deteriorate
Careful stock selection helped your Fund FUND VS. INDEXES o a stock hits our target price
record positive returns for the year, as
illustrated by the accompanying table. TOTAL RETURNS, 12/31/04-12/31/05, o the company's technical profile
EXCLUDING APPLICABLE SALES CHARGES. IF deteriorates
The Fund outperformed both the S&P SALES CHARGES WERE INCLUDED, RETURNS
500 Index and the Russell 2000 Index WOULD BE LOWER. MARKET CONDITIONS AND YOUR FUND
largely due to strong returns by
holdings in the consumer discretionary, Class A Shares 6.58% The U.S. economy continued to expand
industrials and financials sectors. throughout the year, with corporate
Positive performance was broad-based, as Class B Shares 5.89 profits generally improving. However,
significant detractors were concentrated rising short-term interest rates, record
in the information technology sector. Class C Shares 5.81 high oil and natural gas prices, two
Gulf Coast hurricanes and other concerns
For long-term performance, see Pages 6 Class R Shares 6.48 restrained stock market performance.
and 7.
S&P 500 Index In this environment, consumer
(Broad Market Index) 4.91 discretionary, energy, industrials and
financials were the top-performing
Russell 2000 Index sectors for the Fund while information
(Style-specific Index) 4.55 technology and materials holdings
generally detracted from Fund
Lipper Small-Cap Core Fund performance during the reporting period.
Index (Peer Group Index) 7.56
Consumer discretionary, which
SOURCE: LIPPER, INC. includes many retailers, was our
best-performing sector. While we were
======================================== generally pleased with the performance
of our consumer discretionary holdings,
====================================================================================== we reduced our exposure to this sector.
We were concerned that rising fuel costs
HOW WE INVEST 1. Fundamental analysis--Building might ultimately affect consumer
financial models and conducting in-depth spending, which was solid for most of
We focus on small-cap companies with interviews with company management. the year. The stock that contributed the
visible and long-term growth most to Fund performance was Guess?, a
opportunities demonstrated by consistent 2. Valuation analysis--Identifying company that markets upscale apparel and
and accelerating earnings growth. We attractively valued stocks given their accessories for men, women and children.
align the Fund with the benchmark we growth potential over a one- to two-year Best known for its designer jeans, the
believe represents the small-cap-core horizon. company reported record third quarter
asset class. earnings, largely because of the
3. Technical analysis--Identifying
We seek to control risk by the "timeliness" of a stock purchase. We (continued)
keeping the Fund's sector weightings in review trading volume characteristics
line with the benchmark by staying fully and trend analysis to make sure there
diversified in all those sectors. are no signs of the stock deterioration.
This also serves as a risk management
We select stocks based on analysis of measure that helps us confirm our high
individual companies. Our three-step conviction candidates.
selection process includes:
======================================= ======================================= =========================================
PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector 1. Regional Banks 6.5% 1. Warren Resources Inc. 1.8%
Financials 20.2% 2. Oil & Gas Exploration & 2. Penn Virginia Corp. 1.7
Production 5.5
Information Technology 19.2 3. Assured Guaranty Ltd. 1.4
3. Health Care Supplies 5.2
Industrials 16.8 4. Jones Lang Lasalle Inc. 1.4
4. Property & Casualty
Health Care 12.3 Insurance 4.8 5. Oceaneering International,
Inc. 1.4
Consumer Discretionary 11.2 5. Apparel Retail 4.3
6. Haemonetics Corp. 1.4
Energy 8.1 TOTAL NET ASSETS $428.0 MILLION
7. Philadelphia Consolidated
Materials 3.6 TOTAL NUMBER OF HOLDINGS* 105 Holding Corp. 1.4
Consumer Staples 3.6 8. Pinnacle Entertainment, Inc. 1.4
Utilities 2.2 9. United Online, Inc. 1.3
Money Market Funds Plus Other 10. UTI Worldwide, Inc. 1.3
Assets Less Liabilities 2.8
The Fund's holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
======================================= ======================================= =========================================
3
AIM SMALL CAP EQUITY FUND
<Table>
success of its European business. The Additionally, several of the Fund's THE VIEWS AND OPINIONS EXPRESSED IN
firm also reported strong sales at its insurance stocks contributed to MANAGEMENT'S DISCUSSION OF FUND
U.S. stores in December. Despite the performance as they benefited from PERFORMANCE ARE THOSE OF A I M ADVISORS,
success, we believe Guess still has improved pricing power in the wake of INC. THESE VIEWS AND OPINIONS ARE
upside potential. MEN'S WEARHOUSE, which the two major hurricanes. SUBJECT TO CHANGE AT ANY TIME BASED ON
sells business clothing at more than 700 FACTORS SUCH AS MARKET AND ECONOMIC
stores in the U.S. and Canada, also Holdings in the information CONDITIONS. THESE VIEWS AND OPINIONS MAY
contributed significantly to our technology sector detracted from Fund NOT BE RELIED UPON AS INVESTMENT ADVICE
performance. The company benefited from performance, largely because many of the OR RECOMMENDATIONS, OR AS AN OFFER FOR A
improved merchandising and increased Fund's technology hardware holdings PARTICULAR SECURITY. THE INFORMATION IS
suit sales, stemming from the trend away underperformed. One of the most NOT A COMPLETE ANALYSIS OF EVERY ASPECT
from a less causal work environment. We significant detractors was PACKETEER, a OF ANY MARKET, COUNTRY, INDUSTRY,
sold the stock when it reached our company that develops bandwidth SECURITY OR THE FUND. STATEMENTS OF FACT
valuation target. management systems. The stock price of ARE FROM SOURCES CONSIDERED RELIABLE,
this holding fell as investors became BUT A I M ADVISORS, INC. MAKES NO
Higher energy prices and improved concerned that Packeteer would face REPRESENTATION OR WARRANTY AS TO THEIR
earnings prospects led to significant competitive pressure and eventually miss COMPLETENESS OR ACCURACY. ALTHOUGH
stock price increases in many of our earnings expectations because a number HISTORICAL PERFORMANCE IS NO GUARANTEE
investments in the energy sector. Our of large technology companies had OF FUTURE RESULTS, THESE INSIGHTS MAY
top holding, WARREN RESOURCES, a leading recently made acquisitions of several HELP YOU UNDERSTAND OUR INVESTMENT
developer of coal bed methane natural competitors. We continue to own the MANAGEMENT PHILOSOPHY.
gas, was an energy stock that boosted holding as we see upside potential based
our performance. We believe the company on our earnings forecast for the See important Fund and index
has a strong management team and solid company. disclosures inside front cover.
business fundamentals. The company
reported a 23% increase in revenue and The Fund's materials holdings, JULIET ELLIS,
43% increase in oil and gas production including WAUSAU PAPER, also detracted [ELLIS Chartered Financial
for the third quarter of 2005 compared from Fund returns. Wausau Paper, which PHOTO] Analyst and senior
to the same period for the previous produces paper for printing and writing portfolio manager, is
year. Other key contributors in the and for disposable towels and tissues, lead portfolio manager
sector included PENN VIRGINIA CORP. and reported second and third quarter of AIM Small Cap Equity
PLAINS EXPLORATION. losses. We subsequently sold the stock Fund. Ms. Ellis joined AIM in 2004. She
due to a weak outlook. At the close of previously served as Senior Portfolio
A number of the Fund's capital goods the year, we further reduced the Fund's Manager of two small-cap funds for
holdings in the industrials sector also weighting in materials by selling two another company and was responsible for
enhanced Fund performance. One example long-term specialty-chemicals holdings, the management of more than $2 billion
is WATSCO, a company that distributes MINERALS TECHNOLOGIES and ALBEMARLE in assets. Ms. Ellis began her
air conditioning and heating units. CORP, as we believe the companies will investment career in 1981 as a financial
Watsco reported record earnings for the be negatively affected by reduced consultant. She is a Cum Laude and Phi
third quarter of 2005, as the company pricing power. Beta Kappa graduate of Indiana
continued to expand its distribution University with a B.A. in economics and
network. While we continue to own IN CLOSING political science.
Watsco, we reduced the Fund's
industrials holdings over the year as we We are pleased to have provided positive MICHAEL CHAPMAN,
were concerned that rising fuel costs returns for our investors. We remain [CHAPMAN Chartered Financial Analyst
might adversely affect corporate profits committed to our bottom-up investment PHOTO] and portfolio manager, is a
in this sector. process of identifying the attractively portfolio manager of AIM
valued stocks of small-cap companies Small Cap Equity Fund. He
The financials sector was another with visible and long-term growth joined AIM in 2001 and was
area of strength for the Fund. For potential while striving to avoid promoted to his current position as
sometime, we have maintained an high-risk stocks. As always, we thank portfolio manager in 2002. Mr. Chapman
underweight position in bank stocks you for your continuing investment in has a B.S. in petroleum engineering and
because a flat or inverted yield curve AIM Small Cap Equity Fund. an M.A. in energy and mineral resources
tends to squeeze profitability margins from The University of Texas.
for banks that derive a large portion of
their revenues from lending activities.
In this environment, we have selected Assisted by the Small Cap Growth/Core
bank stocks that focus on other areas Team
such as investment management. An
example is BOSTON PRIVATE FINANCIAL [RIGHT ARROW GRAPHIC]
HOLDING, a bank stock that has benefited
from strong demand for investment FOR A PRESENTATION OF YOUR FUND'S
management services as well as rapid LONG-TERM PERFORMANCE, PLEASE SEE
geographic expansion. PAGES 6 AND 7.
4
AIM SMALL CAP EQUITY FUND
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE together with the amount you invested, The hypothetical account values and
to estimate the expenses that you paid expenses may not be used to estimate the
As a shareholder of the Fund, you incur over the period. Simply divide your actual ending account balance or
two types of costs: (1) transaction account value by $1,000 (for example, an expenses you paid for the period. You
costs, which may include sales charges $8,600 account value divided by $1,000 = may use this information to compare the
(loads) on purchase payments; contingent 8.6), then multiply the result by the ongoing costs of investing in the Fund
deferred sales charges on redemptions; number in the table under the heading and other funds. To do so, compare this
and redemption fees, if any; and (2) entitled "Actual Expenses Paid During 5% hypothetical example with the 5%
ongoing costs, including management Period" to estimate the expenses you hypothetical examples that appear in the
fees; distribution and/or service fees paid on your account during this period. shareholder reports of the other funds.
(12b-1); and other Fund expenses. This
example is intended to help you HYPOTHETICAL EXAMPLE FOR COMPARISON Please note that the expenses shown
understand your ongoing costs (in PURPOSES in the table are meant to highlight your
dollars) of investing in the Fund and to ongoing costs only and do not reflect
compare these costs with ongoing costs The table below also provides any transactional costs, such as sales
of investing in other mutual funds. The information about hypothetical account charges (loads) on purchase payments,
example is based on an investment of values and hypothetical expenses based contingent deferred sales charges on
$1,000 invested at the beginning of the on the Fund's actual expense ratio and redemptions, and redemption fees, if
period and held for the entire period an assumed rate of return of 5% per year any. Therefore, the hypothetical
July 1, 2005, through December 31, 2005. before expenses, which is not the Fund's information is useful in comparing
actual return. The Fund's actual ongoing costs only, and will not help
ACTUAL EXPENSES cumulative total returns at net asset you determine the relative total costs
value after expenses for the six months of owning different funds. In addition,
The table below provides information ended December 31, 2005, appear in the if these transactional costs were
about actual account values and actual table "Cumulative Total Returns" on Page included, your costs would have been
expenses. You may use the information in 7. higher.
this table,
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/05) (12/31/05)(1) PERIOD(2) (12/31/05) PERIOD(2) RATIO
A $1,000.00 $1,072.50 $ 7.73 $1,017.74 $ 7.53 1.48%
B 1,000.00 1,068.40 11.63 1,013.96 11.32 2.23
C 1,000.00 1,068.50 11.63 1,013.96 11.32 2.23
R 1,000.00 1,071.50 9.03 1,016.48 8.79 1.73
(1) The actual ending account value is based on the actual total return of the Fund for the period July 1, 2005, through December
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 December 31, 2005, appear in the table "Cumulative Total Returns" on Page 7.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year.
====================================================================================================================================
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
</Table>
5
AIM SMALL CAP EQUITY FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
FUND AND INDEX DATA FROM 8/31/00
==================================================================================================================
[MOUNTAIN CHART]
DATE AIM SMALL CAP AIM SMALL CAP AIM SMALL CAP S&P 500 RUSSELL 2000 LIPPER SMALL-CAP
EQUITY FUND- EQUITY FUND- EQUITY FUND- INDEX INDEX CORE FUND INDEX
CLASS A SHARES CLASS B SHARES CLASS C SHARES
8/31/00 $ 9450 $10000 $10000 $10000 $10000 $10000
9/00 9308 9850 9850 9472 9706 9743
10/00 9233 9760 9760 9432 9273 9450
11/00 8193 8660 8660 8689 8321 8509
12/00 8845 9340 9340 8732 9036 9335
1/01 9280 9790 9790 9041 9506 9668
2/01 8410 8870 8870 8217 8882 9054
3/01 7985 8420 8420 7697 8448 8625
4/01 8722 9191 9191 8295 9109 9313
5/01 9251 9740 9740 8350 9333 9652
6/01 9648 10160 10160 8147 9655 9951
7/01 9384 9871 9871 8067 9132 9720
8/01 9072 9541 9541 7562 8837 9448
9/01 7985 8391 8391 6952 7648 8210
10/01 8288 8702 8702 7084 8095 8698
11/01 8883 9322 9322 7628 8722 9344
12/01 9634 10113 10103 7695 9260 10000
1/02 9530 9992 9992 7582 9164 9882
2/02 9426 9883 9883 7436 8913 9618
3/02 10325 10812 10812 7716 9629 10357
4/02 10429 10913 10913 7248 9717 10408
5/02 10211 10683 10683 7195 9286 10020
6/02 9634 10073 10073 6683 8825 9459
7/02 8046 8413 8403 6162 7492 8173
8/02 8140 8503 8503 6202 7473 8217
9/02 7374 7692 7692 5529 6936 7635
10/02 7573 7902 7902 6015 7159 7906
11/02 8036 8383 8383 6369 7798 8490
12/02 7781 8113 8113 5995 7363 8077
1/03 7573 7883 7883 5838 7160 7841
2/03 7299 7593 7592 5750 6943 7596
3/03 7497 7803 7803 5806 7033 7660
4/03 8093 8413 8413 6284 7699 8298
5/03 8783 9133 9133 6615 8526 9027
6/03 9019 9373 9363 6699 8680 9235
7/03 9596 9964 9963 6817 9223 9709
8/03 9964 10345 10334 6950 9646 10129
9/03 9785 10154 10154 6876 9468 9909
10/03 10588 10985 10975 7265 10263 10688
11/03 10928 11335 11325 7329 10627 11073
12/03 11373 11775 11776 7713 10843 11381
1/04 11694 12105 12096 7855 11314 11742
2/04 11979 12395 12386 7964 11415 11946
3/04 12083 12496 12486 7844 11522 12075
4/04 11563 11946 11946 7721 10934 11660
5/04 11724 12106 12096 7827 11108 11762
6/04 12036 12427 12417 7979 11576 12264
7/04 11156 11506 11507 7715 10797 11618
8/04 10702 11026 11027 7746 10741 11516
9/04 11128 11456 11457 7829 11245 12089
10/04 11402 11737 11738 7949 11467 12287
11/04 12205 12557 12547 8271 12461 13257
12/04 12448 12795 12795 8552 12830 13471
1/05 12030 12362 12362 8343 12295 13081
2/05 12390 12733 12723 8519 12503 13386
3/05 12127 12455 12445 8368 12145 13049
4/05 11378 11672 11672 8210 11450 12345
5/05 12088 12393 12383 8471 12199 13006
6/05 12369 12682 12671 8483 12670 13450
7/05 12933 13249 13237 8798 13472 14249
8/05 12748 13053 13052 8718 13223 14117
9/05 12923 13228 13217 8788 13264 14252
10/05 12680 12970 12959 8642 12852 13814
11/05 13351 13649 13639 8968 13476 14446
12/05 13271 13440 13530 8972 13415 14490
==================================================================================================================
SOURCE: LIPPER, INC.
Past performance cannot guarantee This chart, which is a logarithmic
comparable future results. chart, presents the fluctuations in the
value of the Fund and its indexes. We
The data shown in the chart include believe that a logarithmic chart is more
reinvested distributions, applicable effective than other types of charts in
sales charges, Fund expenses and illustrating changes in value during the
management fees. Results for Class B early years shown in the chart. The
shares are calculated as if a vertical axis, the one that indicates
hypothetical shareholder had liquidated the dollar value of an investment, is
his entire investment in the Fund at the constructed with each segment
close of the reporting period and paid representing a percent change in the
the applicable contingent deferred sales value of the investment. In this chart,
charges. Index results include each segment represents a doubling, or
reinvested dividends, but they do not 100% change, in the value of the
reflect sales charges. Performance of an investment. In other words, the space
index of funds reflects fund expenses between $5,000 and $10,000 is the same
and management fees; performance of a size as the space between $10,000 and
market index does not. Performance shown $20,000, and so on.
in the chart and table 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.
6
AIM SMALL CAP EQUITY FUND
======================================= =======================================
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
As of 12/31/05, including applicable 6 months ended 12/31/05, excluding
sales charges applicable sales charges
CLASS A SHARES Class A Shares 7.25%
Inception (8/31/00) 5.45% Class B Shares 6.84
5 Years 7.24 Class C Shares 6.85
1 Year 0.76 Class R Shares 7.15
CLASS B SHARES =======================================
Inception (8/31/00) 5.70%
5 Years 7.41
1 Year 1.15
CLASS C SHARES
Inception (8/31/00) 5.83%
5 Years 7.69
1 Year 4.86
CLASS R SHARES
Inception 6.36%
5 Years 8.23
1 Year 6.48
=======================================
CLASS R SHARES' INCEPTION DATE IS JUNE BE LOWER OR HIGHER. PLEASE VISIT THE CDSC ON CLASS B SHARES DECLINES FROM
3, 2002. RETURNS SINCE THAT DATE ARE AIMinvestments.com FOR THE MOST RECENT 5% BEGINNING AT THE TIME OF PURCHASE
HISTORICAL RETURNS. ALL OTHER RETURNS MONTH-END PERFORMANCE. PERFORMANCE TO 0% AT THE BEGINNING OF THE SEVENTH
ARE BLENDED RETURNS OF HISTORICAL CLASS FIGURES REFLECT REINVESTED YEAR. THE CDSC ON CLASS C SHARES IS 1%
R SHARE PERFORMANCE AND RESTATED CLASS A DISTRIBUTIONS, CHANGES IN NET ASSET FOR THE FIRST YEAR AFTER PURCHASE. CLASS
SHARE PERFORMANCE (FOR PERIODS PRIOR TO VALUE AND THE EFFECT OF THE MAXIMUM R SHARES DO NOT HAVE A FRONT-END SALES
THE INCEPTION DATE OF CLASS R SHARES) AT SALES CHARGE UNLESS OTHERWISE STATED. CHARGE; RETURNS SHOWN ARE AT NET ASSET
NET ASSET VALUE, ADJUSTED TO REFLECT THE INVESTMENT RETURN AND PRINCIPAL VALUE VALUE AND DO NOT REFLECT A 0.75% CDSC
HIGHER RULE 12b-1 FEES APPLICABLE TO WILL FLUCTUATE SO THAT YOU MAY HAVE A THAT MAY BE IMPOSED ON A TOTAL
CLASS R SHARES. CLASS A SHARES' GAIN OR LOSS WHEN YOU SELL SHARES. REDEMPTION OF RETIREMENT PLAN ASSETS
INCEPTION DATE IS AUGUST 31, 2000. WITHIN THE FIRST YEAR.
CLASS A SHARE PERFORMANCE
THE PERFORMANCE DATA QUOTED REFLECTS THE MAXIMUM 5.50% SALES THE PERFORMANCE OF THE FUND'S SHARE
REPRESENT PAST PERFORMANCE AND CHARGE, AND CLASS B AND CLASS C CLASSES WILL DIFFER DUE TO DIFFERENT
CANNOT GUARANTEE COMPARABLE FUTURE SHARE PERFORMANCE REFLECTS THE SALES CHARGE STRUCTURES AND CLASS
RESULTS; CURRENT PERFORMANCE MAY APPLICABLE CONTINGENT DEFERRED EXPENSES.
SALES CHARGE (CDSC) FOR THE PERIOD
INVOLVED.
Continued from inside front cover
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's Web site, sec.gov.
7
AIM SMALL CAP EQUITY FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND SUMMARY OF INDEPENDENT WRITTEN FEE
EVALUATION
<Table>
The Board of Trustees of AIM Funds Group o The quality of services to be provided o Overall performance of AIM. The Board
(the "Board") oversees the management of by AIM. The Board reviewed the considered the overall performance of
AIM Small Cap Equity Fund (the "Fund") credentials and experience of the AIM in providing investment advisory and
and, as required by law, determines officers and employees of AIM who will portfolio administrative services to the
annually whether to approve the provide investment advisory services to Fund and concluded that such performance
continuance of the Fund's advisory the Fund. In reviewing the was satisfactory.
agreement with A I M Advisors, Inc. qualifications of AIM to provide
("AIM"). Based upon the recommendation investment advisory services, the Board o Fees relative to those of clients of
of the Investments Committee of the reviewed the qualifications of AIM's AIM with comparable investment
Board, which is comprised solely of investment personnel and considered such strategies. The Board reviewed the
independent trustees, at a meeting held issues as AIM's portfolio and product advisory fee rate for the Fund under the
on June 30, 2005, the Board, including review process, various back office Advisory Agreement. The Board noted that
all of the independent trustees, support functions provided by AIM and this rate was the same as the advisory
approved the continuance of the advisory AIM's equity and fixed income trading fee rates for a variable insurance fund
agreement (the "Advisory Agreement") operations. Based on the review of these advised by AIM and offered to insurance
between the Fund and AIM for another and other factors, the Board concluded company separate accounts with
year, effective July 1, 2005. that the quality of services to be investment strategies comparable to
provided by AIM was appropriate and that those of the Fund. The Board noted that
The Board considered the factors AIM currently is providing satisfactory AIM has agreed to waive advisory fees of
discussed below in evaluating the services in accordance with the terms of the Fund, as discussed below. Based on
fairness and reasonableness of the the Advisory Agreement. this review, the Board concluded that
Advisory Agreement at the meeting on the advisory fee rate for the Fund under
June 30, 2005 and as part of the Board's o The performance of the Fund relative the Advisory Agreement was fair and
ongoing oversight of the Fund. In their to comparable funds. The Board reviewed reasonable.
deliberations, the Board and the the performance of the Fund during the
independent trustees did not identify past one and three calendar years o Fees relative to those of comparable
any particular factor that was against the performance of funds advised funds with other advisors. The Board
controlling, and each trustee attributed by other advisors with investment reviewed the advisory fee rate for the
different weights to the various strategies comparable to those of the Fund under the Advisory Agreement. The
factors. Fund. The Board noted that the Fund's Board compared effective contractual
performance in such periods was below advisory fee rates at a common asset
One of the responsibilities of the the median performance of such level and noted that the Fund's rate was
Senior Officer of the Fund, who is comparable funds. The Board noted that below the median rate of the funds
independent of AIM and AIM's affiliates, AIM has recently made changes to the advised by other advisors with
is to manage the process by which the Fund's portfolio management team, which investment strategies comparable to
Fund's proposed management fees are appear to be producing encouraging early those of the Fund that the Board
negotiated to ensure that they are results but need more time to be reviewed. The Board noted that AIM has
negotiated in a manner which is at arm's evaluated before a conclusion can be agreed to waive advisory fees of the
length and reasonable. To that end, the made that the changes have addressed the Fund, as discussed below. Based on this
Senior Officer must either supervise a Fund's under-performance. Based on this review, the Board concluded that the
competitive bidding process or prepare review, the Board concluded that no advisory fee rate for the Fund under the
an independent written evaluation. The changes should be made to the Fund and Advisory Agreement was fair and
Senior Officer has recommended an that it was not necessary to change the reasonable.
independent written evaluation in lieu Fund's portfolio management team at this
of a competitive bidding process and, time. o Expense limitations and fee waivers.
upon the direction of the Board, has The Board noted that AIM has
prepared such an independent written o The performance of the Fund relative contractually agreed to waive advisory
evaluation. Such written evaluation also to indices. The Board reviewed the fees of the Fund through June 30, 2006
considered certain of the factors performance of the Fund during the past to the extent necessary so that the
discussed below. In addition, as one and three calendar years against the advisory fees payable by the Fund do not
discussed below, the Senior Officer made performance of the Lipper Small-Cap Core exceed a specified maximum advisory fee
certain recommendations to the Board in Index. The Board noted that the Fund's rate, which maximum rate includes
connection with such written evaluation. performance in such periods was below breakpoints and is based on net asset
the performance of such Index. The Board levels. The Board considered the
The discussion below serves as a noted that AIM has recently made changes contractual nature of this fee waiver
summary of the Senior Officer's to the Fund's portfolio management team, and noted that it remains in effect
independent written evaluation and which appear to be producing encouraging until June 30, 2006. The Board
recommendations to the Board in early results but need more time to be considered the effect this fee waiver
connection therewith, as well as a evaluated before a conclusion can be would have on the Fund's estimated
discussion of the material factors and made that the changes have addressed the expenses and concluded that the levels
the conclusions with respect thereto Fund's under-performance. Based on this of fee waivers/expense limitations for
that formed the basis for the Board's review, the Board concluded that no the Fund were fair and reasonable.
approval of the Advisory Agreement. changes should be made to the Fund and
After consideration of all of the that it was not necessary to change the o Breakpoints and economies of scale.
factors below and based on its informed Fund's portfolio management team at this The Board reviewed the structure of the
business judgment, the Board determined time. Fund's advisory fee under the Advisory
that the Advisory Agreement is in the Agreement, noting that it does not
best interests of the Fund and its o Meeting with the Fund's portfolio include any breakpoints. The Board
shareholders and that the compensation managers and investment personnel. With considered whether it would be
to AIM under the Advisory Agreement is respect to the Fund, the Board is appropriate to add advisory fee
fair and reasonable and would have been meeting periodically with such Fund's breakpoints for the Fund or whether, due
obtained through arm's length portfolio managers and/or other to the nature of the Fund and the
negotiations. investment personnel and believes that advisory fee structures of comparable
such individuals are competent and able funds, it was reasonable to structure
o The nature and extent of the advisory to continue to carry out their the advisory fee without breakpoints.
services to be provided by AIM. The responsibilities under the Advisory Based on this review, the Board
Board reviewed the services to be Agreement. concluded that it was not necessary to
provided by AIM under the Advisory add advisory fee breakpoints to the
Agreement. Based on such review, the Fund's advisory fee schedule. The Board
Board concluded that the range of reviewed the level of the Fund's
services to be provided by AIM under the advisory fees, and noted that such fees,
Advisory Agreement was appropriate and as a percentage of the Fund's net
that AIM currently is providing services assets, would remain constant
in accordance with the terms of the
Advisory Agreement. (continued)
8
AIM SMALL CAP EQUITY FUND
<Table>
under the Advisory Agreement because the o Profitability of AIM and its o Other factors and current trends. In
Advisory Agreement does not include any affiliates. The Board reviewed determining whether to continue the
breakpoints. The Board noted that AIM information concerning the profitability Advisory Agreement for the Fund, the
has contractually agreed to waive of AIM's (and its affiliates') Board considered the fact that AIM,
advisory fees of the Fund through June investment advisory and other activities along with others in the mutual fund
30, 2006 to the extent necessary so that and its financial condition. The Board industry, is subject to regulatory
the advisory fees payable by the Fund do considered the overall profitability of inquiries and litigation related to a
not exceed a specified maximum advisory AIM, as well as the profitability of AIM wide range of issues. The Board also
fee rate, which maximum rate includes in connection with managing the Fund. considered the governance and compliance
breakpoints and is based on net asset The Board noted that AIM's operations reforms being undertaken by AIM and its
levels. The Board concluded that the remain profitable, although increased affiliates, including maintaining an
Fund's fee levels under the Advisory expenses in recent years have reduced internal controls committee and
Agreement therefore would not reflect AIM's profitability. Based on the review retaining an independent compliance
economies of scale, although the of the profitability of AIM's and its consultant, and the fact that AIM has
advisory fee waiver reflects economies affiliates' investment advisory and undertaken to cause the Fund to operate
of scale. other activities and its financial in accordance with certain governance
condition, the Board concluded that the policies and practices. The Board
o Investments in affiliated money market compensation to be paid by the Fund to concluded that these actions indicated a
funds. The Board also took into account AIM under its Advisory Agreement was not good faith effort on the part of AIM to
the fact that uninvested cash and cash excessive. adhere to the highest ethical standards,
collateral from securities lending and determined that the current
arrangements (collectively, "cash o Benefits of soft dollars to AIM. The regulatory and litigation environment to
balances") of the Fund may be invested Board considered the benefits realized which AIM is subject should not prevent
in money market funds advised by AIM by AIM as a result of brokerage the Board from continuing the Advisory
pursuant to the terms of an SEC transactions executed through "soft Agreement for the Fund.
exemptive order. The Board found that dollar" arrangements. Under these
the Fund may realize certain benefits arrangements, brokerage commissions paid
upon investing cash balances in AIM by the Fund and/or other funds advised
advised money market funds, including a by AIM are used to pay for research and
higher net return, increased liquidity, execution services. This research is
increased diversification or decreased used by AIM in making investment
transaction costs. The Board also found decisions for the Fund. The Board
that the Fund will not receive reduced concluded that such arrangements were
services if it invests its cash balances appropriate.
in such money market funds. The Board
noted that, to the extent the Fund o AIM's financial soundness in light of
invests in affiliated money market the Fund's needs. The Board considered
funds, AIM has voluntarily agreed to whether AIM is financially sound and has
waive a portion of the advisory fees it the resources necessary to perform its
receives from the Fund attributable to obligations under the Advisory
such investment. The Board further Agreement, and concluded that AIM has
determined that the proposed securities the financial resources necessary to
lending program and related procedures fulfill its obligations under the
with respect to the lending Fund is in Advisory Agreement.
the best interests of the lending Fund
and its respective shareholders. The o Historical relationship between the
Board therefore concluded that the Fund and AIM. In determining whether to
investment of cash collateral received continue the Advisory Agreement for the
in connection with the securities Fund, the Board also considered the
lending program in the money market prior relationship between AIM and the
funds according to the procedures is in Fund, as well as the Board's knowledge
the best interests of the lending Fund of AIM's operations, and concluded that
and its respective shareholders. it was beneficial to maintain the
current relationship, in part, because
o Independent written evaluation and of such knowledge. The Board also
recommendations of the Fund's Senior reviewed the general nature of the
Officer. The Board noted that, upon non-investment advisory services
their direction, the Senior Officer of currently performed by AIM and its
the Fund, who is independent of AIM and affiliates, such as administrative,
AIM's affiliates, had prepared an transfer agency and distribution
independent written evaluation in order services, and the fees received by AIM
to assist the Board in determining the and its affiliates for performing such
reasonableness of the proposed services. In addition to reviewing such
management fees of the AIM Funds, services, the trustees also considered
including the Fund. The Board noted that the organizational structure employed by
the Senior Officer's written evaluation AIM and its affiliates to provide those
had been relied upon by the Board in services. Based on the review of these
this regard in lieu of a competitive and other factors, the Board concluded
bidding process. In determining whether that AIM and its affiliates were
to continue the Advisory Agreement for qualified to continue to provide
the Fund, the Board considered the non-investment advisory services to the
Senior Officer's written evaluation and Fund, including administrative, transfer
the recommendation made by the Senior agency and distribution services, and
Officer to the Board that the Board that AIM and its affiliates currently
consider implementing a process to are providing satisfactory
assist them in more closely monitoring non-investment advisory services.
the performance of the AIM Funds. The
Board concluded that it would be
advisable to implement such a process as
soon as reasonably practicable.
9
SUPPLEMENT TO ANNUAL REPORT DATED 12/31/05
AIM SMALL CAP EQUITY FUND
========================================
INSTITUTIONAL CLASS SHARES
AVERAGE ANNUAL TOTAL RETURNS
The following information has been For periods ended 12/31/05 PLEASE NOTE THAT PAST PERFORMANCE IS NOT
prepared to provide Institutional Class INDICATIVE OF FUTURE RESULTS. MORE
shareholders with a performance overview Inception 6.69% RECENT RETURNS MAY BE MORE OR LESS THAN
specific to their holdings. 5 Years 8.58 THOSE SHOWN. ALL RETURNS ASSUME
Institutional Class shares are offered 1 Year 7.23 REINVESTMENT OF DISTRIBUTIONS AT NAV.
exclusively to institutional investors, 6 Months* 7.56 INVESTMENT RETURN AND PRINCIPAL VALUE
including defined contribution plans WILL FLUCTUATE SO YOUR SHARES, WHEN
that meet certain criteria. *Cumulative total return that has not REDEEMED, MAY BE WORTH MORE OR LESS THAN
been annualized THEIR ORIGINAL COST. SEE FULL REPORT FOR
INFORMATION ON COMPARATIVE BENCHMARKS.
======================================== PLEASE CONSULT YOUR FUND PROSPECTUS FOR
MORE INFORMATION. FOR THE MOST CURRENT
INSTITUTIONAL CLASS SHARES' INCEPTION MONTH-END PERFORMANCE, PLEASE CALL
DATE IS APRIL 29, 2005. RETURNS SINCE 800-451-4246 OR VISIT
THAT DATE ARE HISTORICAL RETURNS. ALL AIMinvestments.com.
OTHER RETURNS ARE BLENDED RETURNS OF
HISTORICAL INSTITUTIONAL CLASS SHARE
PERFORMANCE AND RESTATED CLASS A SHARE
INCEPTION DATE OF INSTITUTIONAL CLASS
SHARES) AT NET ASSET VALUE AND REFLECT
THE HIGHER RULE 12b-1 FEES APPLICABLE TO
CLASS A SHARES. THE INCEPTION DATE OF
CLASS A SHARES IS AUGUST 31, 2000.
INSTITUTIONAL CLASS SHARES HAVE NO
SALES CHARGE; THEREFORE, PERFORMANCE IS
AT NET ASSET VALUE (NAV). PERFORMANCE OF
INSTITUTIONAL CLASS SHARES WILL DIFFER
FROM PERFORMANCE OF OTHER SHARE CLASSES
DUE TO DIFFERING SALES CHARGES AND CLASS
EXPENSES.
========================================
NASDAQ SYMBOL SMEIX
========================================
Over for information on your Fund's expenses.
================================================================================
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.
================================================================================
FOR INSTITUTIONAL INVESTOR USE ONLY
This material is for institutional investor use only and may not be quoted, reproduced or shown to the public, nor used in written
form as sales literature for public use.
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
</Table>
AIMinvestments.com SCE-INS-1 A I M Distributors, Inc.
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE $1,000 (for example, an $8,600 account THE HYPOTHETICAL ACCOUNT VALUES AND
value divided by $1,000 = 8.6), then EXPENSES MAY NOT BE USED TO ESTIMATE THE
As a shareholder of the Fund, you incur multiply the result by the number in the ACTUAL ENDING ACCOUNT BALANCE OR
ongoing costs, including management fees table under the heading entitled "Actual EXPENSES YOU PAID FOR THE PERIOD. YOU
and other Fund expenses. This example is Expenses Paid During Period" to estimate MAY USE THIS INFORMATION TO COMPARE THE
intended to help you understand your the expenses you paid on your account ONGOING COSTS OF INVESTING IN THE FUND
ongoing costs (in dollars) of investing during this period. AND OTHER FUNDS. TO DO SO, COMPARE THIS
in the Fund and to compare these costs 5% HYPOTHETICAL EXAMPLE WITH THE 5%
with ongoing costs of investing in other HYPOTHETICAL EXAMPLE FOR COMPARISON HYPOTHETICAL EXAMPLES THAT APPEAR IN THE
mutual funds. The example is based on an PURPOSES SHAREHOLDER REPORTS OF THE OTHER FUNDS.
investment of $1,000 invested at the
beginning of the period and held for the The table below also provides Please note that the expenses shown
entire period July 1, 2005, through information about hypothetical account in the table are meant to highlight your
December 31, 2005. values and hypothetical expenses based ongoing costs only. Therefore, the
on the Fund's actual expense ratio and hypothetical information is useful in
ACTUAL EXPENSES an assumed rate of return of 5% per year comparing ongoing costs only, and will
before expenses, which is not the Fund's not help you determine the relative
The table below provides information actual return. The Fund's actual total costs of owning different funds.
about actual account values and actual cumulative total return after expenses
expenses. You may use the information in for the six months ended December 31,
this table, together with the amount you 2005, appears in the table on the front
invested, to estimate the expenses that of this supplement.
you paid over the period. Simply divide
your account value by
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/05) (12/31/05)(1) PERIOD(2) (12/31/05) PERIOD(2) RATIO
Institutional $1,000.00 $1,075.60 $4.55 $1,020.82 $4.43 0.87%
(1) The actual ending account value is based on the actual total return of the Fund for the period July 1, 2005, through December
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 return after expenses for the
six months ended December 31, 2005, appears in the table on the front of this supplement.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the one-half year period.
====================================================================================================================================
AIMinvestments.com SCE-INS-1 A I M Distributors, Inc.
AIM SMALL CAP EQUITY FUND
SCHEDULE OF INVESTMENTS
December 31, 2005
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-97.19%
ADVERTISING-1.01%
R.H. Donnelley Corp.(a) 70,400 $ 4,338,048
=======================================================================
AEROSPACE & DEFENSE-2.07%
Alliant Techsystems Inc.(a) 57,725 4,396,913
- -----------------------------------------------------------------------
Curtiss-Wright Corp. 81,400 4,444,440
=======================================================================
8,841,353
=======================================================================
AIR FREIGHT & LOGISTICS-1.27%
UTI Worldwide, Inc. 58,554 5,436,153
=======================================================================
ALUMINUM-0.55%
Century Aluminum Co.(a) 89,500 2,345,795
=======================================================================
APPAREL RETAIL-4.32%
Dress Barn, Inc. (The)(a) 134,321 5,186,134
- -----------------------------------------------------------------------
Genesco Inc.(a) 90,379 3,505,801
- -----------------------------------------------------------------------
Guess?, Inc.(a) 80,816 2,877,050
- -----------------------------------------------------------------------
Stage Stores, Inc. 118,149 3,518,477
- -----------------------------------------------------------------------
Too Inc.(a) 120,002 3,385,256
=======================================================================
18,472,718
=======================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.86%
Kenneth Cole Productions, Inc.-Class A 143,700 3,664,350
=======================================================================
APPLICATION SOFTWARE-3.94%
Epicor Software Corp.(a) 340,300 4,808,439
- -----------------------------------------------------------------------
FileNET Corp.(a) 120,500 3,114,925
- -----------------------------------------------------------------------
Hyperion Solutions Corp.(a) 132,900 4,760,478
- -----------------------------------------------------------------------
Transaction Systems Architects, Inc.(a) 145,793 4,197,381
=======================================================================
16,881,223
=======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.19%
Affiliated Managers Group, Inc.(a) 63,600 5,103,900
=======================================================================
BIOTECHNOLOGY-2.49%
CV Therapeutics, Inc.(a) 76,059 1,880,939
- -----------------------------------------------------------------------
DOV Pharmaceutical, Inc.(a) 122,400 1,796,832
- -----------------------------------------------------------------------
Neurocrine Biosciences, Inc.(a) 71,000 4,453,830
- -----------------------------------------------------------------------
ViroPharma Inc.(a) 136,651 2,534,876
=======================================================================
10,666,477
=======================================================================
BUILDING PRODUCTS-0.70%
NCI Building Systems, Inc.(a) 70,300 2,986,344
=======================================================================
CASINOS & GAMING-1.35%
Pinnacle Entertainment, Inc.(a) 233,300 5,764,843
=======================================================================
</Table>
<Table>
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
COMMERCIAL PRINTING-0.67%
Banta Corp. 57,700 $ 2,873,460
=======================================================================
COMMUNICATIONS EQUIPMENT-2.32%
CommScope, Inc.(a) 225,400 4,537,302
- -----------------------------------------------------------------------
Packeteer, Inc.(a) 290,200 2,254,854
- -----------------------------------------------------------------------
SpectraLink Corp. 266,100 3,158,607
=======================================================================
9,950,763
=======================================================================
COMPUTER HARDWARE-1.90%
Intergraph Corp.(a) 86,500 4,308,565
- -----------------------------------------------------------------------
Stratasys, Inc.(a) 153,100 3,829,031
=======================================================================
8,137,596
=======================================================================
COMPUTER STORAGE & PERIPHERALS-0.74%
Emulex Corp.(a) 160,830 3,182,826
=======================================================================
CONSTRUCTION & ENGINEERING-0.83%
URS Corp.(a) 94,800 3,565,428
=======================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-2.75%
Manitowoc Co., Inc. (The) 79,383 3,986,614
- -----------------------------------------------------------------------
Wabash National Corp. 182,000 3,467,100
- -----------------------------------------------------------------------
Wabtec Corp. 159,760 4,297,544
=======================================================================
11,751,258
=======================================================================
CONSUMER FINANCE-0.83%
World Acceptance Corp.(a) 125,200 3,568,200
=======================================================================
DATA PROCESSING & OUTSOURCED SERVICES-2.22%
BISYS Group, Inc. (The)(a) 313,000 4,385,130
- -----------------------------------------------------------------------
Wright Express Corp.(a) 233,200 5,130,400
=======================================================================
9,515,530
=======================================================================
DIVERSIFIED CHEMICALS-0.95%
FMC Corp.(a) 76,262 4,054,851
=======================================================================
DIVERSIFIED METALS & MINING-1.05%
Compass Minerals International, Inc. 183,700 4,507,998
=======================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.06%
Genlyte Group Inc. (The)(a) 84,988 4,552,807
=======================================================================
ENVIRONMENTAL & FACILITIES SERVICES-2.23%
Rollins, Inc. 220,228 4,340,694
- -----------------------------------------------------------------------
Waste Connections, Inc.(a) 151,600 5,224,136
=======================================================================
9,564,830
=======================================================================
</Table>
F-1
AIM SMALL CAP EQUITY FUND
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
FOOD RETAIL-0.88%
Ruddick Corp. 176,355 $ 3,752,834
=======================================================================
GAS UTILITIES-1.65%
Energen Corp. 132,200 4,801,504
- -----------------------------------------------------------------------
New Jersey Resources Corp. 53,500 2,241,115
=======================================================================
7,042,619
=======================================================================
HEALTH CARE FACILITIES-1.97%
Kindred Healthcare, Inc.(a) 144,300 3,717,168
- -----------------------------------------------------------------------
VCA Antech, Inc.(a) 167,381 4,720,144
=======================================================================
8,437,312
=======================================================================
HEALTH CARE SERVICES-0.82%
Apria Healthcare Group Inc.(a) 145,100 3,498,361
=======================================================================
HEALTH CARE SUPPLIES-5.23%
Cynosure Inc.-Class A(a) 139,212 2,922,060
- -----------------------------------------------------------------------
DJ Orthopedics Inc.(a) 186,800 5,151,944
- -----------------------------------------------------------------------
Haemonetics Corp.(a) 122,200 5,970,692
- -----------------------------------------------------------------------
ICU Medical, Inc.(a) 110,568 4,335,371
- -----------------------------------------------------------------------
Sybron Dental Specialties, Inc.(a) 100,727 4,009,942
=======================================================================
22,390,009
=======================================================================
HOUSEHOLD APPLIANCES-1.08%
Snap-on Inc. 122,600 4,604,856
=======================================================================
HOUSEHOLD PRODUCTS-0.91%
Central Garden & Pet Co.(a) 84,756 3,893,691
=======================================================================
INDUSTRIAL MACHINERY-1.14%
Middleby Corp. (The)(a) 56,505 4,887,683
=======================================================================
INSURANCE BROKERS-0.91%
Hilb Rogal and Hobbs Co. 100,800 3,881,808
=======================================================================
INTERNET SOFTWARE & SERVICES-1.72%
DealerTrack Holdings Inc.(a) 90,999 1,909,159
- -----------------------------------------------------------------------
United Online, Inc.(a) 383,400 5,451,948
=======================================================================
7,361,107
=======================================================================
INVESTMENT BANKING & BROKERAGE-0.38%
CMET Finance Holdings, Inc. (Acquired
12/08/03; Cost $4,480,000)(a)(b)(c) 44,800 1,636,544
=======================================================================
INVESTMENT COMPANIES-EXCHANGE TRADED
FUNDS-0.59%
iShares Nasdaq Biotechnology Index Fund(a)(d) 32,900 2,543,170
=======================================================================
MANAGED HEALTH CARE-1.06%
Sierra Health Services, Inc.(a) 56,700 4,533,732
=======================================================================
METAL & GLASS CONTAINERS-1.09%
AptarGroup, Inc. 89,107 4,651,385
=======================================================================
MULTI-UTILITIES-0.51%
Avista Corp. 124,300 2,201,353
=======================================================================
</Table>
<Table>
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
OFFICE SERVICES & SUPPLIES-0.81%
Brady Corp.-Class A 95,500 $ 3,455,190
=======================================================================
OIL & GAS EQUIPMENT & SERVICES-2.60%
FMC Technologies, Inc.(a) 118,700 5,094,604
- -----------------------------------------------------------------------
Oceaneering International, Inc.(a) 120,900 6,018,402
=======================================================================
11,113,006
=======================================================================
OIL & GAS EXPLORATION & PRODUCTION-5.49%
Comstock Resources, Inc.(a) 139,300 4,250,043
- -----------------------------------------------------------------------
Penn Virginia Corp. 127,300 7,307,020
- -----------------------------------------------------------------------
Plains Exploration & Production Co.(a) 109,696 4,358,222
- -----------------------------------------------------------------------
Warren Resources Inc.(a)(d) 478,500 7,569,870
=======================================================================
23,485,155
=======================================================================
PACKAGED FOODS & MEATS-1.75%
Flowers Foods, Inc. 177,700 4,897,412
- -----------------------------------------------------------------------
TreeHouse Foods, Inc.(a) 138,500 2,592,720
=======================================================================
7,490,132
=======================================================================
PHARMACEUTICALS-0.75%
Aspreva Pharmaceuticals Corp. (Canada)(a)(d) 203,000 3,191,160
=======================================================================
PROPERTY & CASUALTY INSURANCE-4.83%
Assured Guaranty Ltd. 243,300 6,177,387
- -----------------------------------------------------------------------
FPIC Insurance Group, Inc.(a) 121,150 4,203,905
- -----------------------------------------------------------------------
Ohio Casualty Corp. 159,745 4,523,978
- -----------------------------------------------------------------------
Philadelphia Consolidated Holding Corp.(a) 59,900 5,791,731
=======================================================================
20,697,001
=======================================================================
REAL ESTATE-3.53%
Alexandria Real Estate Equities, Inc.(d) 35,100 2,825,550
- -----------------------------------------------------------------------
Global Signal Inc.(d) 102,500 4,423,900
- -----------------------------------------------------------------------
LaSalle Hotel Properties(d) 139,000 5,104,080
- -----------------------------------------------------------------------
Universal Health Realty Income Trust(d) 88,400 2,770,456
=======================================================================
15,123,986
=======================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-1.43%
Jones Lang LaSalle Inc. 121,550 6,120,043
=======================================================================
REGIONAL BANKS-6.47%
Alabama National BanCorp. 55,300 3,581,228
- -----------------------------------------------------------------------
Boston Private Financial Holdings, Inc. 51,523 1,567,330
- -----------------------------------------------------------------------
Columbia Banking System, Inc. 89,900 2,566,645
- -----------------------------------------------------------------------
CVB Financial Corp. 128,150 2,602,727
- -----------------------------------------------------------------------
Hancock Holding Co. 69,700 2,635,357
- -----------------------------------------------------------------------
MB Financial, Inc. 84,900 3,005,460
- -----------------------------------------------------------------------
Signature Bank(a) 103,500 2,905,245
- -----------------------------------------------------------------------
</Table>
F-2
AIM SMALL CAP EQUITY FUND
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
REGIONAL BANKS-(CONTINUED)
Sterling Bancshares, Inc. 152,900 $ 2,360,776
- -----------------------------------------------------------------------
Sterling Financial Corp. 98,400 2,458,032
- -----------------------------------------------------------------------
United Community Banks, Inc. 149,900 3,996,334
=======================================================================
27,679,134
=======================================================================
RESTAURANTS-2.11%
Papa John's International, Inc.(a) 89,080 5,283,335
- -----------------------------------------------------------------------
Steak n Shake Co. (The)(a) 220,048 3,729,814
=======================================================================
9,013,149
=======================================================================
SEMICONDUCTOR EQUIPMENT-2.18%
ATMI, Inc.(a) 173,600 4,855,592
- -----------------------------------------------------------------------
Varian Semiconductor Equipment Associates,
Inc.(a) 101,700 4,467,681
=======================================================================
9,323,273
=======================================================================
SEMICONDUCTORS-3.23%
DSP Group, Inc.(a) 201,500 5,049,590
- -----------------------------------------------------------------------
Micrel, Inc.(a) 359,200 4,166,720
- -----------------------------------------------------------------------
Semtech Corp.(a) 122,800 2,242,328
- -----------------------------------------------------------------------
Silicon Laboratories Inc.(a) 65,000 2,382,900
=======================================================================
13,841,538
=======================================================================
SYSTEMS SOFTWARE-0.98%
Progress Software Corp.(a) 148,000 4,200,240
=======================================================================
TIRES & RUBBER-0.48%
Bandag, Inc. 48,600 2,073,762
=======================================================================
</Table>
<Table>
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
TRADING COMPANIES & DISTRIBUTORS-2.08%
UAP Holding Corp. 231,413 $ 4,725,453
- -----------------------------------------------------------------------
Watsco, Inc. 69,694 4,168,398
=======================================================================
8,893,851
=======================================================================
TRUCKING-1.23%
Landstar System, Inc. 126,400 5,275,936
=======================================================================
Total Common Stocks & Other Equity
Interests (Cost $332,755,683) 416,019,771
=======================================================================
MONEY MARKET FUNDS-2.11%
Liquid Assets Portfolio-Institutional
Class(e) 4,513,597 4,513,597
- -----------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(e) 4,513,597 4,513,597
=======================================================================
Total Money Market Funds (Cost
$9,027,194) 9,027,194
=======================================================================
TOTAL INVESTMENTS-99.30% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $341,782,877) 425,046,965
=======================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-3.01%
Liquid Assets Portfolio-Institutional
Class(e)(f) 6,440,358 6,440,358
- -----------------------------------------------------------------------
STIC Prime Portfolio-Institutional
Class(e)(f) 6,440,359 6,440,359
=======================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $12,880,717) 12,880,717
=======================================================================
TOTAL INVESTMENTS-102.31% (Cost $354,663,594) 437,927,682
=======================================================================
OTHER ASSETS LESS LIABILITIES-(2.31%) (9,883,661)
=======================================================================
NET ASSETS-100.00% $428,044,021
_______________________________________________________________________
=======================================================================
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The value of this security at December
31, 2005 represented 0.38% of the Fund's Net Assets. See Note 1A.
(c) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction). The security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of this security. The
value of this security at December 31, 2005 represented 0.38% of the Fund's
Net Assets. This security is considered to be illiquid. The Fund is limited
to investing 15% of net assets in illiquid securities at time of purchase.
(d) All or a portion of this security has been pledged as collateral for
securities lending transactions at December 31, 2005.
(e) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(f) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-3
AIM SMALL CAP EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2005
<Table>
ASSETS:
Investments, at value (cost $332,755,683)* $416,019,771
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $21,907,911) 21,907,911
===========================================================
Total investments (cost $354,663,594) 437,927,682
===========================================================
Receivables for:
Investments sold 3,582,282
- -----------------------------------------------------------
Fund shares sold 436,664
- -----------------------------------------------------------
Dividends 182,522
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 29,320
- -----------------------------------------------------------
Other assets 30,354
===========================================================
Total assets 442,188,824
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Fund shares reacquired 741,804
- -----------------------------------------------------------
Trustee deferred compensation and
retirement plans 48,075
- -----------------------------------------------------------
Collateral upon return of securities loaned 12,880,717
- -----------------------------------------------------------
Accrued distribution fees 230,865
- -----------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 139
- -----------------------------------------------------------
Accrued transfer agent fees 172,859
- -----------------------------------------------------------
Accrued operating expenses 70,344
===========================================================
Total liabilities 14,144,803
===========================================================
Net assets applicable to shares outstanding $428,044,021
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $340,515,045
- -----------------------------------------------------------
Undistributed net investment income (loss) (997,583)
- -----------------------------------------------------------
Undistributed net realized gain from
investment securities and foreign
currencies 5,262,471
- -----------------------------------------------------------
Unrealized appreciation of investment
securities 83,264,088
===========================================================
$428,044,021
___________________________________________________________
===========================================================
NET ASSETS:
Class A $218,914,569
___________________________________________________________
===========================================================
Class B $131,547,053
___________________________________________________________
===========================================================
Class C $ 55,008,948
___________________________________________________________
===========================================================
Class R $ 17,861,890
___________________________________________________________
===========================================================
Institutional Class $ 4,711,561
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 17,856,234
___________________________________________________________
===========================================================
Class B 11,177,519
___________________________________________________________
===========================================================
Class C 4,676,522
___________________________________________________________
===========================================================
Class R 1,470,717
___________________________________________________________
===========================================================
Institutional Class 382,224
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 12.26
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $12.26 divided
by 94.50%) $ 12.97
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 11.77
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 11.76
___________________________________________________________
===========================================================
Class R:
Net asset value and offering price per
share $ 12.15
___________________________________________________________
===========================================================
Institutional Class:
Net asset value and offering price per
share $ 12.33
___________________________________________________________
===========================================================
</Table>
* At December 31, 2005, securities with an aggregate value of $12,672,656 were
on loan to brokers.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-4
AIM SMALL CAP EQUITY FUND
STATEMENT OF OPERATIONS
For the year ended December 31, 2005
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $1,373) $ 2,609,962
- --------------------------------------------------------------------------
Dividends from affiliated money market funds (includes
securities lending income of $44,148, after compensation
to counterparties of $319,273) 312,494
==========================================================================
Total investment income 2,922,456
==========================================================================
EXPENSES:
Advisory fees 3,735,906
- --------------------------------------------------------------------------
Administrative services fees 137,856
- --------------------------------------------------------------------------
Custodian fees 42,623
- --------------------------------------------------------------------------
Distribution fees:
Class A 678,339
- --------------------------------------------------------------------------
Class B 1,383,549
- --------------------------------------------------------------------------
Class C 589,989
- --------------------------------------------------------------------------
Class R 75,527
- --------------------------------------------------------------------------
Transfer agent fees -- A, B, C and R 1,579,259
- --------------------------------------------------------------------------
Transfer agent fees -- Institutional 234
- --------------------------------------------------------------------------
Trustees' and officer's fees and benefits 28,215
- --------------------------------------------------------------------------
Other 289,178
==========================================================================
Total expenses 8,540,675
==========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (513,257)
==========================================================================
Net expenses 8,027,418
==========================================================================
Net investment income (loss) (5,104,962)
==========================================================================
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 1,129,348) 52,315,034
- --------------------------------------------------------------------------
Foreign currencies (227)
==========================================================================
52,314,807
==========================================================================
Change in net unrealized appreciation (depreciation) of
investment securities (22,003,409)
==========================================================================
Net gain from investment securities and foreign currencies 30,311,398
==========================================================================
Net increase in net assets resulting from operations $ 25,206,436
__________________________________________________________________________
==========================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-5
AIM SMALL CAP EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2005 and 2004
<Table>
<Caption>
2005 2004
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (5,104,962) $ (5,605,804)
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies and futures contracts 52,314,807 63,214,018
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (22,003,409) (17,288,151)
==========================================================================================
Net increase in net assets resulting from operations 25,206,436 40,320,063
==========================================================================================
Distributions to shareholders from net realized gains:
Class A (22,592,351) (6,812,723)
- ------------------------------------------------------------------------------------------
Class B (14,170,518) (4,459,412)
- ------------------------------------------------------------------------------------------
Class C (5,917,343) (1,866,092)
- ------------------------------------------------------------------------------------------
Class R (1,804,074) (312,412)
- ------------------------------------------------------------------------------------------
Institutional Class (448,570) --
==========================================================================================
Decrease in net assets resulting from distributions (44,932,856) (13,450,639)
==========================================================================================
Share transactions-net:
Class A (19,909,085) (33,241,596)
- ------------------------------------------------------------------------------------------
Class B (17,778,977) (29,808,487)
- ------------------------------------------------------------------------------------------
Class C (7,879,427) (13,451,247)
- ------------------------------------------------------------------------------------------
Class R 6,732,018 8,911,070
- ------------------------------------------------------------------------------------------
Institutional Class 4,966,296 --
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (33,869,175) (67,590,260)
==========================================================================================
Net increase (decrease) in net assets (53,595,595) (40,720,836)
==========================================================================================
NET ASSETS:
Beginning of year 481,639,616 522,360,452
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(997,583) and $(33,759), respectively) $428,044,021 $481,639,616
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-6
AIM SMALL CAP EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Small Cap Equity Fund (the "Fund") is a series portfolio of AIM Funds Group
(the "Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of eight separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is long-term growth of capital.
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. The risk of material loss as a result of such indemnification claims
is considered remote.
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 are 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 recorded at amortized cost which approximates value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs and domestic and foreign index futures.
F-7
AIM SMALL CAP EQUITY FUND
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. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be United States of America unless otherwise noted.
D. 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.
E. 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.
F. 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.
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
F-8
AIM SMALL CAP EQUITY FUND
would continue to be subject to market risk with respect to the value of
the contracts and continue to be required to maintain the margin deposits
on the futures contracts.
J. COLLATERAL -- To the extent the Fund has pledged or segregated a security
as collateral and that security is subsequently sold, it is the Fund's
practice to replace such collateral no later than the next business day.
This practice does not apply to securities pledged as collateral for
securities lending transactions.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.85% of the Fund's
average daily net assets.
Through December 31, 2009, AIM has contractually agreed to waive advisory
fees to the extent necessary so that the advisory fees payable by the Fund based
on the Fund's average daily net assets do not exceed the annual rate of:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- ------------------------------------------------
First $250 million 0.745%
- ------------------------------------------------
Next $250 million 0.73%
- ------------------------------------------------
Next $500 million 0.715%
- ------------------------------------------------
Next $1.5 billion 0.70%
- ------------------------------------------------
Next $2.5 billion 0.685%
- ------------------------------------------------
Next $2.5 billion 0.67%
- ------------------------------------------------
Next $2.5 billion 0.655%
- ------------------------------------------------
Over $10 billion 0.64%
_______________________________________________
================================================
</Table>
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 December 31, 2005, AIM waived fees of $491,753.
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 year ended December 31, 2005, AMVESCAP reimbursed expenses of the Fund in
the amount of $4,269.
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, 2005, AIM was paid $137,856.
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 December 31, 2005, the
Fund paid AISI $1,579,259 for Class A, Class B, Class C and Class R share
classes and $234 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
0.25% of the Fund's average daily net assets of Class A shares, 1.00% of the
average daily net assets of Class B and Class C shares and 0.50% of the average
daily net assets of Class R shares. Prior to July 1, 2005, the Fund paid ADI
0.35% of the average daily 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.
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 December
31, 2005, the Class A, Class B, Class C and Class R shares paid $678,339,
$1,383,549, $589,989 and $75,527, 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, 2005, ADI advised the Fund that it retained $82,687 in
front-end sales commissions from the sale of Class A shares and $0, $41,584,
$3,535 and $0 from Class A, Class B, Class C and Class R shares, respectively,
for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or ADI.
F-9
AIM SMALL CAP EQUITY FUND
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, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 2,284,239 $ 92,882,733 $ (90,653,375) $ -- $ 4,513,597 $133,710 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
Prime
Portfolio-
Institutional
Class 2,284,239 92,882,733 (90,653,375) -- 4,513,597 134,636 --
==================================================================================================================================
Subtotal $ 4,568,478 $185,765,466 $(181,306,750) $ -- $ 9,027,194 $268,346 $ --
==================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME* GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $11,898,095 $ 26,078,189 $ (31,535,926) $ -- $ 6,440,358 $ 21,890 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
Prime
Portfolio-
Institutional
Class 11,898,095 26,069,648 (31,527,384) -- 6,440,359 22,258 --
==================================================================================================================================
Subtotal $23,796,190 $ 52,147,837 $ (63,063,310) $ -- $12,880,717 $ 44,148 $ --
==================================================================================================================================
Total $28,364,668 $237,913,303 $(244,370,060) $ -- $21,907,911 $312,494 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</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 year ended December 31, 2005, the Fund
engaged in securities purchases of $6,650,998 and sales of $4,654,578, which
resulted in net realized gains of $1,129,348.
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, 2005, the Fund received credits from these arrangements,
which resulted in the reduction of the Fund's total expenses of $17,235.
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 December 31, 2005, the Fund paid legal fees of $5,603
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
F-10
AIM SMALL CAP EQUITY FUND
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, 2005, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
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, 2005, securities with an aggregate value of $12,672,656 were
on loan to brokers. The loans were secured by cash collateral of $12,880,717
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended December 31, 2005, the Fund received dividends on cash
collateral of $44,148 for securities lending transactions, which are net of
compensation to counterparties.
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31, 2005
and 2004 was as follows:
<Table>
<Caption>
2005 2004
- ----------------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $ 6,000,021 $ --
- ----------------------------------------------------------------------------------------
Long-term capital gain 38,932,835 13,450,639
- ----------------------------------------------------------------------------------------
Total distributions $44,932,856 $13,450,639
________________________________________________________________________________________
========================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2005
- ----------------------------------------------------------------------------
Undistributed ordinary income $ 1,711,942
- ----------------------------------------------------------------------------
Undistributed long-term gain 3,594,203
- ----------------------------------------------------------------------------
Unrealized appreciation -- investments 82,262,253
- ----------------------------------------------------------------------------
Temporary book/tax differences (39,422)
- ----------------------------------------------------------------------------
Shares of beneficial interest 340,515,045
============================================================================
Total net assets $428,044,021
____________________________________________________________________________
============================================================================
</Table>
F-11
AIM SMALL CAP EQUITY FUND
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, of losses on straddles and the recognition of unrealized gains on
passive foreign investment companies.
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 for the year ended
December 31, 2005.
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, 2005 was $226,315,832 and $318,312,296, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 96,553,268
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (14,291,015)
==============================================================================
Net unrealized appreciation of investment securities $ 82,262,253
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $355,665,429.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions and net operating losses, on December 31, 2005, undistributed net
investment income (loss) was increased by $4,141,138, undistributed net realized
gain was decreased by $8,767,138 and shares of beneficial interest increased by
$4,626,000. This reclassification had no effect on the net assets of the Fund.
NOTE 12--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and Institutional Class shares.
Class A shares are sold with a front-end sales charge. Class B shares and Class
C shares are sold with CDSC. Class R shares and Institutional Class shares are
sold at net asset value. Under certain circumstances, Class A shares and Class R
shares are subject to CDSC. Generally, Class B shares will automatically convert
to Class A shares eight years after the end of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2005 2004
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 3,901,303 $ 49,612,776 4,288,228 $ 52,758,227
- ----------------------------------------------------------------------------------------------------------------------
Class B 1,054,880 12,990,537 1,064,168 12,839,431
- ----------------------------------------------------------------------------------------------------------------------
Class C 673,437 8,227,460 867,391 10,449,258
- ----------------------------------------------------------------------------------------------------------------------
Class R 783,334 9,858,946 823,003 10,162,089
- ----------------------------------------------------------------------------------------------------------------------
Institutional Class(a) 347,363 4,533,352 -- --
======================================================================================================================
Issued as reinvestment of dividends:
Class A 1,730,830 21,427,679 481,426 6,080,413
- ----------------------------------------------------------------------------------------------------------------------
Class B 1,132,537 13,465,872 327,877 4,019,765
- ----------------------------------------------------------------------------------------------------------------------
Class C 468,582 5,566,746 119,514 1,465,238
- ----------------------------------------------------------------------------------------------------------------------
Class R 147,151 1,804,074 24,270 304,591
- ----------------------------------------------------------------------------------------------------------------------
Institutional Class(a) 36,059 448,570 -- --
======================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 468,795 5,954,632 622,034 7,675,039
- ----------------------------------------------------------------------------------------------------------------------
Class B (484,746) (5,954,632) (637,822) (7,675,039)
======================================================================================================================
Reacquired:
Class A (7,592,348) (96,904,172) (8,184,332) (99,755,275)
- ----------------------------------------------------------------------------------------------------------------------
Class B (3,118,759) (38,280,754) (3,263,817) (38,992,644)
- ----------------------------------------------------------------------------------------------------------------------
Class C (1,763,932) (21,673,633) (2,126,834) (25,365,743)
- ----------------------------------------------------------------------------------------------------------------------
Class R (389,299) (4,931,002) (126,430) (1,555,610)
- ----------------------------------------------------------------------------------------------------------------------
Institutional Class(a) (1,198) (15,626) -- --
======================================================================================================================
(2,606,011) $(33,869,175) (5,721,324) $(67,590,260)
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) Institutional Class shares commenced sales on April 29, 2005.
F-12
AIM SMALL CAP EQUITY FUND
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,
--------------------------------------------------------------------
2005 2004 2003 2002 2001
- --------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.80 $ 12.03 $ 8.23 $ 10.19 $ 9.36
- --------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.10) (0.09)(a) (0.09)(a) (0.05)(a) (0.05)(a)
- --------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.96 1.22 3.89 (1.91) 0.88
==============================================================================================================
Total from investment operations 0.86 1.13 3.80 (1.96) 0.83
==============================================================================================================
Less distributions from net realized
gains (1.40) (0.36) -- -- (0.00)
==============================================================================================================
Net asset value, end of period $ 12.26 $ 12.80 $ 12.03 $ 8.23 $ 10.19
______________________________________________________________________________________________________________
==============================================================================================================
Total return(b) 6.58% 9.45% 46.17% (19.23)% 8.92%
______________________________________________________________________________________________________________
==============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $218,915 $247,581 $266,284 $140,652 $105,146
______________________________________________________________________________________________________________
==============================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 1.51%(c) 1.53% 1.77% 1.67% 1.78%
- --------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.62%(c) 1.64% 1.77% 1.67% 1.78%
==============================================================================================================
Ratio of net investment income (loss) to
average net assets (0.84)%(c) (0.77)% (0.89)% (0.54)% (0.57)%
______________________________________________________________________________________________________________
==============================================================================================================
Portfolio turnover rate 52% 124% 112% 117% 123%
______________________________________________________________________________________________________________
==============================================================================================================
</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 $225,723,379.
<Table>
<Caption>
CLASS B
------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
2005 2004 2003 2002 2001
- ------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.42 $ 11.77 $ 8.11 $ 10.11 $ 9.33
- ------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.19) (0.18)(a) (0.15)(a) (0.11)(a) (0.11)(a)
- ------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.94 1.19 3.81 (1.89) 0.89
============================================================================================================
Total from investment operations 0.75 1.01 3.66 (2.00) 0.78
============================================================================================================
Less distributions from net realized
gains (1.40) (0.36) -- -- --
============================================================================================================
Net asset value, end of period $ 11.77 $ 12.42 $ 11.77 $ 8.11 $ 10.11
____________________________________________________________________________________________________________
============================================================================================================
Total return(b) 5.89% 8.64% 45.13% (19.78)% 8.36%
____________________________________________________________________________________________________________
============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $131,547 $156,450 $177,811 $99,551 $64,012
____________________________________________________________________________________________________________
============================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 2.21%(c) 2.27% 2.42% 2.32% 2.44%
- ------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 2.32%(c) 2.29% 2.42% 2.32% 2.44%
============================================================================================================
Ratio of net investment income (loss) to
average net assets (1.54)%(c) (1.51)% (1.54)% (1.19)% (1.23)%
____________________________________________________________________________________________________________
============================================================================================================
Portfolio turnover rate 52% 124% 112% 117% 123%
____________________________________________________________________________________________________________
============================================================================================================
</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 $138,354,957.
F-13
AIM SMALL CAP EQUITY FUND
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS C
---------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.42 $ 11.77 $ 8.11 $ 10.10 $ 9.34
- ---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.19) (0.18)(a) (0.15)(a) (0.11)(a) (0.11)(a)
- ---------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.93 1.19 3.81 (1.88) 0.87
=========================================================================================================
Total from investment operations 0.74 1.01 3.66 (1.99) 0.76
=========================================================================================================
Less distributions from net realized
gains (1.40) (0.36) -- -- --
=========================================================================================================
Net asset value, end of period $ 11.76 $ 12.42 $ 11.77 $ 8.11 $ 10.10
_________________________________________________________________________________________________________
=========================================================================================================
Total return(b) 5.81% 8.64% 45.13% (19.70)% 8.14%
_________________________________________________________________________________________________________
=========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $55,009 $65,792 $75,763 $41,132 $29,548
_________________________________________________________________________________________________________
=========================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 2.21%(c) 2.27% 2.42% 2.32% 2.44%
- ---------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 2.32%(c) 2.29% 2.42% 2.32% 2.44%
=========================================================================================================
Ratio of net investment income (loss) to
average net assets (1.54)%(c) (1.51)% (1.54)% (1.19)% (1.23)%
_________________________________________________________________________________________________________
=========================================================================================================
Portfolio turnover rate 52% 124% 112% 117% 123%
_________________________________________________________________________________________________________
=========================================================================================================
</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 $58,998,908.
<Table>
<Caption>
CLASS R
------------------------------------------------------
JUNE 3, 2002
(DATE SALES
YEAR ENDED DECEMBER 31, COMMENCED) TO
---------------------------------- DECEMBER 31,
2005 2004 2003 2002
- ------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.71 $ 11.99 $ 8.22 $ 10.58
- ------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.10) (0.12)(a) (0.11)(a) (0.04)(a)
- ------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.94 1.20 3.88 (2.32)
================================================================================================
Total from investment operations 0.84 1.08 3.77 (2.36)
================================================================================================
Less distributions from net realized
gains (1.40) (0.36) -- --
================================================================================================
Net asset value, end of period $ 12.15 $ 12.71 $11.99 $ 8.22
________________________________________________________________________________________________
================================================================================================
Total return(b) 6.48% 9.06% 45.86% (22.31)%
________________________________________________________________________________________________
================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $17,862 $11,817 $2,502 $ 55
________________________________________________________________________________________________
================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 1.71%(c) 1.77% 1.92% 1.92%(d)
- ------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.82%(c) 1.79% 1.92% 1.92%(d)
================================================================================================
Ratio of net investment income (loss) to
average net assets (1.04)%(c) (1.01)% (1.04)% (0.78)%(d)
________________________________________________________________________________________________
================================================================================================
Portfolio turnover rate 52% 124% 112% 117%
________________________________________________________________________________________________
================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $15,105,357.
(d) Annualized.
F-14
AIM SMALL CAP EQUITY FUND
<Table>
<Caption>
INSTITUTIONAL CLASS
-------------------
APRIL 29, 2005
(DATE SALES
COMMENCED) TO
DECEMBER 31,
2005
- -----------------------------------------------------------------------------------
Net asset value, beginning of period $11.69
- -----------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01)
- -----------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 2.05
===================================================================================
Total from investment operations 2.04
===================================================================================
Less distributions from net realized gains (1.40)
===================================================================================
Net asset value, end of period $12.33
___________________________________________________________________________________
===================================================================================
Total return(a) 17.31%
___________________________________________________________________________________
===================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $4,712
___________________________________________________________________________________
===================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.87%(b)
- -----------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.98%(b)
===================================================================================
Ratio of net investment income (loss) to average net assets (0.20)%(b)
___________________________________________________________________________________
===================================================================================
Portfolio turnover rate 52%
___________________________________________________________________________________
===================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(b) Ratios are annualized and based on average daily net assets of
$1,973,807.
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), AIM and A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached final settlements with certain
regulators, including the Securities and Exchange Commission ("SEC"), the New
York Attorney General and the Colorado Attorney General, to resolve civil
enforcement actions and/or investigations related to market timing and related
activity in the AIM Funds, including those formerly advised by IFG. As part of
the settlements, a $325 million fair fund ($110 million of which is civil
penalties) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. 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.
PENDING LITIGATION AND REGULATORY INQUIRIES
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.
F-15
AIM SMALL CAP EQUITY FUND
NOTE 14--LEGAL PROCEEDINGS--(CONTINUED)
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 October 19, 2005, this lawsuit was transferred for pretrial purposes to the
MDL Court (as defined below). On July 7, 2005, the Supreme Court of West
Virginia ruled in an unrelated lawsuit that is similar to this action that the
WVAG does not have authority 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. Initial research
indicates that these damages could be limited or capped by statute. 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; and
- 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 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 (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits 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.
On August 25, 2005, the MDL Court issued rulings on the common issues of law
presented in motions to dismiss shareholder class action and derivative
complaints that were filed in unrelated lawsuits. On November 3, 2005, the MDL
Court issued short opinions for the most part applying these rulings to the AIM
and IFG lawsuits. The MDL Court dismissed 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"). The Court dismissed all claims asserted in the class
action complaint but three: (i) the securities fraud claims under Section 10(b)
of the Securities Exchange Act of 1934, (ii) the excessive fee claim under
Section 36(b) of the 1940 Act (which survived only insofar as plaintiffs seek
recovery of fees associated with the assets involved in market timing); and
(iii) the MDL Court deferred ruling on the "control person liability" claim
under Section 48 of the 1940 Act. 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.
At the MDL Court's request, the parties submitted proposed orders implementing
these rulings in the AIM and IFG lawsuits. The MDL Court has not entered any
orders on the motions to dismiss in these lawsuits and it is possible the orders
may differ in some respects from the rulings described above. Based on the MDL
Court's opinion and both parties' proposed orders, however, all claims asserted
against the Funds that have been transferred to the MDL Court will be dismissed,
although certain Funds will remain nominal defendants in the derivative lawsuit.
On December 6, 2005, the MDL Court issued rulings on the common issues of law
presented in defendants' omnibus motion to dismiss the ERISA complaints. The
ruling was issued in unrelated lawsuits that are similar to the ERISA lawsuits
brought against AIM and IFG and related entities. The MDL Court: (i) denied the
motion to dismiss on the grounds that the plaintiffs lack standing or that the
defendants' investments in company stock are entitled to a presumption of
prudence; (ii) granted the motion to dismiss as to defendants not named in the
employee benefit plan documents as fiduciaries but gave plaintiffs leave to
replead facts sufficient to show that such defendants acted as de facto
fiduciaries; and (iii) confirmed plaintiffs' withdrawal of their prohibited
transactions and misrepresentations claims.
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, among others, 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,
F-16
AIM SMALL CAP EQUITY FUND
NOTE 14--LEGAL PROCEEDINGS--(CONTINUED)
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. 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.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries described above may have on AIM, ADI or the Fund.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* * * * * *
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the AIM Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the AIM Funds.
F-17
AIM SMALL CAP EQUITY FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Funds Group
and Shareholders of AIM Small Cap Equity Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM Small Cap Equity Fund (one of
the funds constituting AIM Funds Group hereafter referred to as the "Fund") at
December 31, 2005, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the five years in the period then ended, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2005 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
February 17, 2006
Houston, Texas
F-18
AIM SMALL CAP EQUITY FUND
TRUSTEES AND OFFICERS
As of December 31, 2005
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1992 Director and Chairman, A I M Management None
Trustee, Vice Chair, Group Inc. (financial services holding
Principal Executive Officer company); Director and Vice Chairman,
and President AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- -------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.;
President Director 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
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,
AIM Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1987 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company (2 portfolios))
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and 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); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company); and Owner, Dos Angelos Ranch,
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company (3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
</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.
TRUSTEES AND OFFICERS--(CONTINUED)
As of December 31, 2005
AIM SMALL CAP EQUITY FUND
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1992 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired None
Trustee
Formerly: Partner, Deloitte & Touche
- -------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc.; Senior Vice President and
Chief 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 -- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President and 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 General Counsel, A I M
Secretary and Chief Legal Management Group Inc. and A I M
Officer 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.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC; 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, Principal Advisors, Inc.
Financial Officer and
Treasurer Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc.
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, and Senior
Investment Officer, A I M Capital
Management, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1992 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street & Frankel LLP P.O. Box 4739 225 Franklin Street
Philadelphia, PA 19103-7599 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Americas
New York, NY 10036-2714
</Table>
TAX DISCLOSURES
REQUIRED FEDERAL TAX INFORMATION OF ORDINARY DIVIDENDS PAID
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2005, 61% is eligible for the dividends received deduction for
corporations. The Fund distributed long-term capital gains of $43,558,836 for
the Fund's tax year ended December 31, 2005.
For its tax year ended December 31, 2005, the Fund designates 60%, or the
maximum allowable of its dividend distributions as qualified dividend income.
Your actual amount of qualified dividend income for the calendar year will be
reported in your Form 1099-DIV. You should consult your tax advisor regarding
treatment of the amounts.
TAX INFORMATION FOR NON-RESIDENT ALIEN SHAREHOLDERS
For its tax year ended December 31, 2005, the Fund designates 0%, or the maximum
amount of allowable of its dividend distributions as qualified interest income
exempt from U.S. income tax for non-resident alien shareholders. Your actual
amount of qualified interest income for the calendar year will be reported in
your Form 1042-S mailing. You should consult your tax advisor regarding
treatment of the amounts.
The Fund designates qualified short-term capital gain distributions exempt from
U.S. income tax for non-resident alien shareholders of $3,950,847 for the Fund's
tax year ended December 31, 2005.
The percentage of qualifying assets not subject to the U.S. estate tax for the
fiscal quarters ended March 31, 2005, June 30, 2005, September 30, 2005 and
December 31, 2005 are 4.62%, 1.97%, 1.53% and 2.85%, respectively.
<Table>
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE
AIM Basic Balanced Fund* AIM Developing Markets Fund
AIM Basic Value Fund AIM European Growth Fund AIM Floating Rate Fund
AIM Blue Chip Fund AIM European Small Company Fund(1) AIM High Yield Fund
AIM Capital Development Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Charter Fund AIM Global Equity Fund AIM Intermediate Government Fund
AIM Constellation Fund AIM Global Growth Fund AIM Limited Maturity Treasury Fund
AIM Diversified Dividend Fund AIM Global Value Fund AIM Money Market Fund
AIM Dynamics Fund AIM International Core Equity Fund AIM Short Term Bond Fund
AIM Large Cap Basic Value Fund AIM International Growth Fund AIM Total Return Bond Fund
AIM Large Cap Growth Fund AIM International Small Company Fund(1) Premier Portfolio
AIM Mid Cap Basic Value Fund AIM Trimark Fund Premier U.S. Government Money Portfolio
AIM Mid Cap Core Equity Fund(1)
AIM Mid Cap Growth Fund SECTOR EQUITY TAX-FREE
AIM Opportunities I Fund
AIM Opportunities II Fund AIM Advantage Health Sciences Fund AIM High Income Municipal Fund(1)
AIM Opportunities III Fund AIM Energy Fund AIM Municipal Bond Fund
AIM Premier Equity Fund AIM Financial Services Fund AIM Tax-Exempt Cash Fund
AIM S&P 500 Index Fund AIM Global Health Care Fund AIM Tax-Free Intermediate Fund
AIM Select Equity Fund AIM Global Real Estate Fund Premier Tax-Exempt Portfolio
AIM Small Cap Equity Fund AIM Gold & Precious Metals Fund
AIM Small Cap Growth Fund(1) AIM Leisure Fund AIM ALLOCATION SOLUTIONS
AIM Small Company Growth Fund AIM Multi-Sector Fund
AIM Summit Fund AIM Real Estate Fund(1) AIM Conservative Allocation Fund
AIM Trimark Endeavor Fund AIM Technology Fund AIM Growth Allocation Fund(2)
AIM Trimark Small Companies Fund AIM Utilities Fund AIM Moderate Allocation Fund
AIM Weingarten Fund AIM Moderate Growth Allocation Fund
AIM Moderately Conservative Allocation
Fund
DIVERSIFIED PORTFOLIOS
AIM Income Allocation Fund
AIM International Allocation Fund
================================================================================
CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
FOR THIS AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR
FINANCIAL ADVISOR AND READ IT CAREFULLY BEFORE INVESTING.
================================================================================
*Domestic equity and income fund
(1) This Fund has limited public sales of its shares to certain investors. For
more information on who may continue to invest in the Fund, please see the
appropriate prospectus.
(2) Effective April 29, 2005, AIM Aggressive Allocation Fund was renamed AIM
Growth Allocation Fund.
If used after April 20, 2006, 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 $128 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $386 billion in assets under management. Data as of December 31,
2005.
AIMinvestments.com SCE-AR-1 A I M Distributors, Inc.
<Table>
YOUR GOALS. OUR SOLUTIONS.--Registered Trademark--
- ------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Management --Registered Trademark--
Plans Accounts
- ------------------------------------------------------------------------
</Table>
ITEM 2. CODE OF ETHICS.
As of the end of the period covered by this report, the Registrant had
adopted a code of ethics (the "Code") that applies to the Registrant's
principal executive officer ("PEO") and principal financial officer
("PFO"). There were no amendments to the Code during the period covered
by the report. The Registrant did not grant any waivers, including
implicit waivers, from any provisions of the Code to the PEO or PFO
during the period covered by this report.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees has determined that the Registrant has at least
one audit committee financial expert serving on its Audit Committee.
On the date of the reporting period, October 31, 2005, the Registrant's
audit committee financial expert was Prema Mathai-Davis. Dr.
Mathai-Davis is "independent" within the meaning of that term as used
in Form N-CSR.
On October 27, 2005, the Board of Trustees determined that Raymond
Stickel, Jr. is an audit committee financial expert. Mr. Stickel was
appointed to the Registrant's Audit Committee effective as of October
1, 2005. Mr. Stickel is "independent" within the meaning of that term
as used in Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
FEES BILLED BY PWC RELATED TO THE REGISTRANT
PWC billed the Registrant aggregate fees for services rendered to the
Registrant for the last two fiscal years as follows:
Percentage of Fees Percentage of Fees
Billed Applicable to Billed Applicable to
Non-Audit Services Non-Audit Services
Provided for fiscal Provided for fiscal
Fees Billed for year end 2005 Fees Billed for year end 2004
Services Rendered to Pursuant to Waiver of Services Rendered to Pursuant to Waiver of
the Registrant for Pre-Approval the Registrant for Pre-Approval
fiscal year end 2005 Requirement(1) fiscal year end 2004 Requirement(1)
-------------------- --------------------- -------------------- ---------------------
Audit Fees $298,561 N/A $338,330 N/A
Audit-Related Fees (2) $ 19,250 0% $ 0 0%
Tax Fees(3) $ 76,216 0% $ 67,118 0%
All Other Fees $ 0 0% $ 0 0%
-------------------- --------------------
Total Fees $394,027 0% $405,448 0%
</Table>
PWC billed the Registrant aggregate non-audit fees of $95,466 for the fiscal
year ended 2005, and $67,118 for the fiscal year ended 2004, for non-audit
services rendered to the Registrant.
- --------------------------------------------------------------------------------
(1) With respect to the provision of non-audit services, the pre-approval
requirement is waived pursuant to a de minimis exception if (i) such
services were not recognized as non-audit services by the Registrant at
the time of engagement, (ii) the aggregate amount of all such services
provided is no more than 5% of the aggregate audit and non-audit fees
paid by the Registrant to PWC during a fiscal year; and (iii) such
services are promptly approved by the Registrant's Audit Committee
prior to the completion of the audit by the Audit Committee.
(2) Audit-Related fees for the fiscal year ended December 31, 2005 includes
fees billed for performing agreed upon procedures related to
reorganization transactions.
(3) Tax fees for the fiscal year end December 31, 2005 includes fees billed
for reviewing tax returns and consultation services. Tax fees for the
fiscal year end December 31, 2004 includes fees billed for reviewing
tax returns and consultation services.
FEES BILLED BY PWC RELATED TO AIM AND AIM AFFILIATES
PWC billed AIM Advisors, Inc. ("AIM"), the Registrant's adviser, and
any entity controlling, controlled by or under common control with AIM that
provides ongoing services to the Registrant ("AIM Affiliates") aggregate fees
for pre-approved non-audit services rendered to AIM and AIM Affiliates for the
last two fiscal years as follows:
Fees Billed for Non- Fees Billed for Non-
Audit Services Percentage of Fees Audit Services Percentage of Fees
Rendered to AIM and Billed Applicable to Rendered to AIM and Billed Applicable to
AIM Affiliates for Non-Audit Services AIM Affiliates for Non-Audit Services
fiscal year end 2005 Provided for fiscal year fiscal year end 2004 Provided for fiscal year
That Were Required end 2005 Pursuant to That Were Required end 2004 Pursuant to
to be Pre-Approved Waiver of Pre- to be Pre-Approved Waiver of Pre-
by the Registrant's Approval by the Registrant's Approval
Audit Committee Requirement(1) Audit Committee Requirement(1)
-------------------- ------------------------ -------------------- ------------------------
Audit-Related Fees $0 0% $0 0%
Tax Fees $0 0% $0 0%
All Other Fees $0 0% $0 0%
-------------------- --------------------
Total Fees(2) $0 0% $0 0%
- --------------------------------------------------------------------------------
(1) With respect to the provision of non-audit services, the pre-approval
requirement is waived pursuant to a de minimis exception if (i) such
services were not recognized as non-audit services by the Registrant at
the time of engagement, (ii) the aggregate amount of all such services
provided is no more than 5% of the aggregate audit and non-audit fees
paid by the Registrant, AIM and AIM Affiliates to PWC during a fiscal
year; and (iii) such services are promptly approved by the Registrant's
Audit Committee prior to the completion of the audit by the Audit
Committee.
(2) Including the fees for services not required to be pre-approved by the
registrant's audit committee, PWC billed AIM and AIM Affiliates
aggregate non-audit fees of $0 for the fiscal year ended 2005, and $0
for the fiscal year ended 2004, for non-audit services rendered to AIM
and AIM Affiliates.
The Audit Committee also has considered whether the provision of
non-audit services that were rendered to AIM and AIM Affiliates that
were not required to be pre-approved pursuant to SEC regulations, if
any, is compatible with maintaining PWC's independence. To the extent
that such services were provided, the Audit Committee determined that
the provision of such services is compatible with PWC maintaining
independence with respect to the Registrant.
PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES
POLICIES AND PROCEDURES
As adopted by the Audit Committees of
the AIM Funds (the "Funds")
Last Amended September 13, 2005
I. STATEMENT OF PRINCIPLES
Under the Sarbanes-Oxley Act of 2002 and rules adopted by the Securities and
Exchange Commission ("SEC") ("Rules"), the Audit Committees of the Funds' (the
"Audit Committee") Board of Directors/Trustees (the "Board") are responsible for
the appointment, compensation and oversight of the
work of independent accountants (an "Auditor"). As part of this responsibility
and to assure that the Auditor's independence is not impaired, the Audit
Committees pre-approve the audit and non-audit services provided to the Funds by
each Auditor, as well as all non-audit services provided by the Auditor to the
Funds' investment adviser and to affiliates of the adviser that provide ongoing
services to the Funds ("Service Affiliates") if the services directly impact the
Funds' operations or financial reporting. The SEC Rules also specify the types
of services that an Auditor may not provide to its audit client. The following
policies and procedures comply with the requirements for pre-approval and
provide a mechanism by which management of the Funds may request and secure
pre-approval of audit and non-audit services in an orderly manner with minimal
disruption to normal business operations.
Proposed services either may be pre-approved without consideration of specific
case-by-case services by the Audit Committees ("general pre-approval") or
require the specific pre-approval of the Audit Committees ("specific
pre-approval"). As set forth in these policies and procedures, unless a type of
service has received general pre-approval, it will require specific pre-approval
by the Audit Committees. Additionally, any fees exceeding 110% of estimated
pre-approved fee levels provided at the time the service was pre-approved will
also require specific approval by the Audit Committees before payment is made.
The Audit Committees will also consider the impact of additional fees on the
Auditor's independence when determining whether to approve any additional fees
for previously pre-approved services.
The Audit Committees will annually review and generally pre-approve the services
that may be provided by each Auditor without obtaining specific pre-approval
from the Audit Committee. The term of any general pre-approval runs from the
date of such pre-approval through September 30th of the following year, unless
the Audit Committees consider a different period and state otherwise. The Audit
Committees will add to or subtract from the list of general pre-approved
services from time to time, based on subsequent determinations.
The purpose of these policies and procedures is to set forth the guidelines to
assist the Audit Committees in fulfilling their responsibilities.
II. DELEGATION
The Audit Committees may from time to time delegate pre-approval authority to
one or more of its members who are Independent Directors. All decisions to
pre-approve a service by a delegated member shall be reported to the Audit
Committee at its next quarterly meeting.
III. AUDIT SERVICES
The annual audit services engagement terms will be subject to specific
pre-approval of the Audit Committees. Audit services include the annual
financial statement audit and other procedures such as tax provision work that
is required to be performed by the independent auditor to be able to form an
opinion on the Funds' financial statements. The Audit Committee will obtain,
review and consider sufficient information concerning the proposed Auditor to
make a reasonable evaluation of the Auditor's qualifications and independence.
In addition to the annual Audit services engagement, the Audit Committees may
grant general pre-approval for other audit services, which are those services
that only the independent auditor reasonably can provide. Other Audit services
may include services such as issuing consents for the inclusion of audited
financial statements with SEC registration statements, periodic reports and
other documents filed with the SEC or other documents issued in connection with
securities offerings.
IV. NON-AUDIT SERVICES
The Audit Committees may provide general pre-approval of types of non-audit
services described in this Section IV to the Funds and its Service Affiliates if
the Audit Committees believe that the provision of the service will not impair
the independence of the Auditor, is consistent with the SEC's Rules on auditor
independence, and otherwise conforms to the Audit Committee's general principles
and policies as set forth herein.
The Audit Committees may provide specific pre-approval of any non-audit services
to the Funds and its Service Affiliates if the Audit Committees believe that the
provision of the service will not impair the independence of the auditor, is
consistent with the SEC Rules on auditor independence, and otherwise conforms to
the Audit Committees' general principles and policies as set forth herein.
AUDIT-RELATED SERVICES
"Audit-related services" are assurance and related services that are reasonably
related to the performance of the audit or review of the Fund's financial
statements or that are traditionally performed by the independent auditor.
Audit-related services include, among others, accounting consultations related
to accounting, financial reporting or disclosure matters not classified as
"Audit services"; assistance with understanding and implementing new accounting
and financial reporting guidance from rulemaking authorities; and agreed-upon
procedures related to mergers, compliance with ratings agency requirements and
interfund lending activities.
TAX SERVICES
"Tax services" include, but are not limited to, the review and signing of the
Funds' federal tax returns, the review of required distributions by the Funds
and consultations regarding tax matters such as the tax treatment of new
investments or the impact of new regulations. The Audit Committee will
scrutinize carefully the retention of the Auditor in connection with a
transaction initially recommended by the Auditor, the major business purpose of
which may be tax avoidance or the tax treatment of which may not be supported in
the Internal Revenue Code and related regulations. The Audit Committee will
consult with the Funds' Treasurer (or his or her designee) and may consult with
outside counsel or advisors as necessary to ensure the consistency of Tax
services rendered by the Auditor with the foregoing policy.
No Auditor shall represent any Fund or any Service Provider before a tax court,
district court or federal court of claims.
ALL OTHER AUDITOR SERVICES
The Audit Committees may pre-approve non-audit services classified as "All other
services" that are not categorically prohibited by the SEC, as listed in Exhibit
1 to this policy.
V. PRE-APPROVAL FEE LEVELS OR ESTABLISHED AMOUNTS
Pre-approval of estimated fees or established amounts for services to be
provided by the Auditor under general or specific pre-approval policies will be
set periodically by the Audit Committees. Any proposed fees exceeding 110% of
the maximum estimated pre-approved fees or established amounts for pre-approved
audit and non-audit services will be reported to the Audit Committees at the
quarterly Audit Committees meeting and will require specific approval by the
Audit Committees before payment is made. The Audit Committee will always factor
in the overall relationship of fees for audit and non-audit services in
determining whether to pre-approve any such services and in determining whether
to approve any additional fees exceeding 110% of the maximum pre-approved fees
or established amounts for previously pre-approved services.
VI. PROCEDURES
On an annual basis, A I M Advisors, Inc. ("AIM") will submit to the Audit
Committees for general pre-approval, a list of non-audit services that the Funds
or Service Affiliates of the Funds may request from the Auditor. The list will
describe the non-audit services in reasonable detail and will include an
estimated range of fees and such other information as the Audit Committee may
request.
Each request for services to be provided by the Auditor under the general
pre-approval of the Audit Committees will be submitted to the Funds' Treasurer
(or his or her designee) and must include a detailed description of the services
to be rendered. The Treasurer or his or her designee will ensure that such
services are included within the list of services that have received the general
pre-approval of the Audit Committees. The Audit Committees will be informed at
the next quarterly scheduled Audit Committees meeting of any such services for
which the Auditor rendered an invoice and whether such services and fees had
been pre-approved and if so, by what means.
Each request to provide services that require specific approval by the Audit
Committees shall be submitted to the Audit Committees jointly by the Fund's
Treasurer or his or her designee and the Auditor, and must include a joint
statement that, in their view, such request is consistent with the policies and
procedures and the SEC Rules.
Non-audit services pursuant to the de minimis exception provided by the SEC
Rules will be promptly brought to the attention of the Audit Committees for
approval, including documentation that each of the conditions for this
exception, as set forth in the SEC Rules, has been satisfied.
On at least an annual basis, the Auditor will prepare a summary of all the
services provided to any entity in the investment company complex as defined in
section 2-01(f)(14) of Regulation S-X in sufficient detail as to the nature of
the engagement and the fees associated with those services.
The Audit Committees have designated the Funds' Treasurer to monitor the
performance of all services provided by the Auditor and to ensure such services
are in compliance with these policies and procedures. The Funds' Treasurer will
report to the Audit Committee on a periodic basis as to the results of such
monitoring. Both the Funds' Treasurer and management of AIM will immediately
report to the chairman of the Audit Committee any breach of these policies and
procedures that comes to the attention of the Funds' Treasurer or senior
management of AIM.
EXHIBIT 1 TO PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES POLICIES AND
PROCEDURES
CONDITIONALLY PROHIBITED NON-AUDIT SERVICES (NOT PROHIBITED IF THE FUND CAN
REASONABLY CONCLUDE THAT THE RESULTS OF THE SERVICE WOULD NOT BE SUBJECT TO
AUDIT PROCEDURES IN CONNECTION WITH THE AUDIT OF THE FUND'S FINANCIAL
STATEMENTS)
o Bookkeeping or other services related to the accounting
records or financial statements of the audit client
o Financial information systems design and implementation
o Appraisal or valuation services, fairness opinions, or
contribution-in-kind reports
o Actuarial services
o Internal audit outsourcing services
CATEGORICALLY PROHIBITED NON-AUDIT SERVICES
o Management functions
o Human resources
o Broker-dealer, investment adviser, or investment banking
services
o Legal services
o Expert services unrelated to the audit
o Any other service that the Public Company Oversight Board
determines by regulation is impermissible.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Investments in securities of unaffiliated issuers is included
as part of the reports to stockholders filed under Item 1 of
this Form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 11. CONTROLS AND PROCEDURES.
(a) As of December 15, 2005, an evaluation was performed under the
supervision and with the participation of the officers of the
Registrant, including the PEO and PFO, to assess the effectiveness
of the Registrant's disclosure controls and procedures, as that term
is defined in Rule 30a-3(c) under the Investment Company Act of 1940
(the "Act"), as amended. Based on that evaluation, the Registrant's
officers, including the PEO and PFO, concluded that, as of December
16, 2004, the Registrant's disclosure controls and procedures were
reasonably designed to ensure: (1) that information required to be
disclosed by the Registrant on Form N-CSR is recorded, processed,
summarized and reported within the time periods specified by the
rules and forms of the Securities and Exchange Commission; and (2)
that material information relating to the Registrant is made known
to the PEO and PFO as appropriate to allow timely decisions
regarding required disclosure.
(b) There have been no changes in the Registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act) that
occurred during the second fiscal quarter of the period covered by
the report that have materially affected, or are reasonably likely
to materially affect, the Registrant's internal control over
financial reporting.
ITEM 12. EXHIBITS.
12(a) (1) Code of Ethics.
12(a) (2) Certifications of principal executive officer and principal
financial officer as required by Rule 30a-2(a) under the Investment
Company Act of 1940.
12(a) (3) Not applicable.
12(b) Certifications of principal executive officer and principal
financial officer as required by Rule 30a-2(b) under the Investment
Company Act of 1940.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: AIM Funds Group
By: /s/ ROBERT H. GRAHAM
-----------------------------------------
Robert H. Graham
Principal Executive Officer
Date: March 10, 2006
Pursuant to the requirements of the Securities and Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
By: /s/ ROBERT H. GRAHAM
-----------------------------------------
Robert H. Graham
Principal Executive Officer
Date: March 10, 2006
By: /s/ SIDNEY M. DILGREN
-----------------------------------------
Sidney M. Dilgren
Principal Financial Officer
Date: March 10, 2006
EXHIBIT INDEX
12(a)(1) Code of Ethics.
12(a)(2) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(a) under the Investment Company Act
of 1940.
12(a)(3) Not applicable.
12(b) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(b) under the Investment Company Act
of 1940.