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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)
Philip A. Taylor 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: 12/31/06
Item 1. Reports to Stockholders.
AIM Basic
Balanced Fund
Annual Report to Shareholders - December 31, 2006
[COVER GLOBE IMAGE]
DOMESTIC EQUITY
Large-Cap Value
Table of Contents
Supplemental Information ................................................ 2
Letters to Shareholders ................................................. 3
Performance Summary ..................................................... 5
Management Discussion ................................................... 5
Fund Expenses ........................................................... 7
Long-term Fund Performance .............................................. 8
Approval of Advisory Agreement .......................................... 10
Schedule of Investments ................................................. F-1
Financial Statements .................................................... F-10
Notes to Financial Statements ........................................... F-13
Financial Highlights .................................................... F-22
Auditor's Report ........................................................ F-27
Tax Disclosures ......................................................... F-28
Trustees and Officers ................................................... F-29
[AIM investment solutions]
[Graphic] [Graphic] [Graphic]
[Domestic [International/ [Sector
Equity] Global Equity] Equity]
[Graphic] [Graphic] [Graphic]
[Fixed [Allocation [Diversified
Income] Solutions] Portfolios]
[AIM Investments Logo]
-- REGISTERED TRADEMARK --
AIM Basic Balanced Fund
AIM BASIC BALANCED FUND SEEKS LONG-TERM GROWTH OF CAPITAL AND CURRENT INCOME.
- - Unless otherwise stated, information presented in this report is as of
December 31, 2006, and is based on total net assets.
About share classes
- - Class B shares are not available as an investment for retirement plans
maintained pursuant to Section 401 of the Internal Revenue Code, including
401(k) plans, money purchase pension plans and profit sharing plans. Plans
that had existing accounts invested in Class B shares prior to September
30, 2003, will continue to be allowed to make additional purchases.
- - Class R shares are available only to certain retirement plans. Please see
the prospectus for more information.
- - Investor Class shares are closed to most investors. For more information on
who may continue to invest in Investor Class shares, please see the
prospectus.
Principal risks of investing in the Fund
- - Foreign securities have additional risks, including exchange rate changes,
political and economic upheaval, the relative lack of information about
these companies, relatively low market liquidity and the potential lack of
strict financial and accounting controls and standards.
- - Prices of equity securities change in response to many factors including
the historical and prospective earnings of the issuer, the value of its
assets, general economic conditions, interest rates, investor perceptions
and market liquidity.
- - The value of convertible securities in which the Fund invests may be
affected by market interest rates, the risk that the issuer may default on
interest or principal payments and the value of the underlying common stock
into which these securities may be converted.
- - Debt securities are particularly vulnerable to credit risk and interest
rate fluctuations.
About indexes used in this report
- - The blended index used in this report is composed of 60% RUSSELL 1000
--REGISTERED TRADEMARK-- VALUE INDEX and 40% LEHMAN BROTHERS U.S. AGGREGATE
BOND INDEX (the Lehman Aggregate Index). The unmanaged RUSSELL 1000
--REGISTERED TRADEMARK-- Index represents the performance of the stocks of
large-capitalization companies; the Value segment measures the performance
of Russell 1000 companies with lower price/book ratios and lower forecasted
growth values. The unmanaged Lehman Aggregate Index, which represents the
U.S. investment-grade fixed-rate bond market (including government and
corporate securities, mortgage pass-through securities and asset-backed
securities), is compiled by Lehman Brothers, a global investment bank. The
Russell 1000 Value Index and the Russell 1000 Index are trademarks/service
marks of the Frank Russell Company. Russell --REGISTERED TRADEMARK-- is a
trademark of the Frank Russell Company.
- - The unmanaged LIPPER BALANCED FUNDS INDEX represents an average of the 30
largest balanced funds tracked by Lipper Inc., an independent mutual fund
performance monitor. It is calculated daily, with adjustments for
distributions as of the ex-dividend dates.
- - The unmanaged LIPPER MIXED-ASSET TARGET ALLOCATION MODERATE FUNDS INDEX is
an equally weighted representation of the 10 largest moderate funds that by
portfolio practice maintain a mix of between 40%-60% equity securities,
with the remainder invested in bonds, cash and cash equivalents. Lipper
Inc. is an independent mutual fund performance monitor.
- - The unmanaged STANDARD & POOR'S COMPOSITE INDEX OF 500 STOCKS (THE S&P 500
--REGISTERED TRADEMARK-- Index) is an index of common stocks frequently
used as a general measure of U.S. stock market performance.
- - The Fund is not managed to track the performance of any particular index,
including the indexes defined here, and consequently, the performance of
the Fund may deviate significantly from the performance of the indexes.
- - A direct investment cannot be made in an index. Unless otherwise indicated,
index results include reinvested dividends, and they do not reflect sales
charges. Performance of an index of funds reflects fund expenses;
performance of a market index does not.
Other information
- - The returns shown in the management's discussion of Fund performance are
based on net asset values calculated for shareholder transactions.
Generally accepted accounting principles require adjustments to be made to
the net assets of the Fund at period end for financial reporting purposes,
and as such, the net asset values for shareholder transactions and the
returns based on those net asset values may differ from the net asset
values and returns reported in the Financial Highlights.
- - Industry classifications used in this report are generally according to the
Global Industry Classification Standard, which was developed by and is the
exclusive property and a service mark of Morgan Stanley Capital
International Inc. and Standard & Poor's.
- - The Chartered Financial Analyst --REGISTERED TRADEMARK-- (CFA --REGISTERED
TRADEMARK--) designation is a globally recognized standard for measuring
the competence and integrity of investment professionals.
Continued on page 9
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
Not FDIC Insured May lose value No bank guarantee AIMinvestments.com
FUND NASDAQ SYMBOLS
Class A Shares BBLAX
Class B Shares BBLBX
Class C Shares BBLCX
Class R Shares BBLRX
Investor Class Shares BBLTX
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIMINVESTMENTS.COM
2
AIM Basic Balanced Fund
[TAYLOR PHOTO]
Philip Taylor
Dear Shareholders of The AIM Family of Funds --REGISTERED TRADEMARK--:
I'm pleased to provide you with this report, which includes a discussion of how
your Fund was managed during the year ended December 31, 2006, and what factors
affected its performance. The following pages contain important information that
answers questions you may have about your investment.
In the United States and around the globe, most major stock market indexes
rose in 2006. U.S. stocks benefited from continued economic expansion and a
cessation of interest rate increases by the U.S. Federal Reserve, among other
factors. Global markets also enjoyed a good year, while all major fixed-income
indexes produced positive annual returns.
As I write this letter, the consensus outlook for the economy remains
positive. But we all know that markets are unpredictable and subject to sudden
changes based on geopolitical or economic developments. At AIM Investments
- --REGISTERED TRADEMARK--, we believe investors can do two things to deal with
short-term market fluctuations: maintain a long-term investment horizon and
maintain a diversified portfolio. AIM Investments offers a broad product line
that gives your financial advisor options to build a portfolio that's right for
you regardless of market conditions. Our product line includes a comprehensive
range of mutual funds, including domestic, global and international equity
funds; taxable and tax-exempt fixed-income funds; and a variety of allocation
portfolios--with risk and return characteristics to match your needs. We
maintain this extensive set of product solutions because we believe in the value
of diversified investment portfolios.
To provide you even more investment options, we recently launched AIM
Independence Funds, six new target maturity funds that combine AIM retail mutual
funds and PowerShares --REGISTERED TRADEMARK-- exchange-traded funds (ETFs) as
underlying investment options. ETFs are relatively low cost and potentially
tax-efficient funds that trade like individual stocks. These AIM Independence
Funds are intended to provide broad diversification and risk/reward levels that
change as your target retirement date nears. Your financial advisor can provide
you with more information about the new AIM Independence Funds.
At AIM Investments, we believe in the value of working with a trusted
financial advisor. Your financial advisor can help you build a diversified
investment portfolio, making periodic adjustments as market conditions and your
investment goals change. While there are no guarantees with any investment
program, a long-term plan matched to your financial goals, risk tolerance and
time horizon offers the potential to keep you and your investments on track--and
your financial advisor can provide you with valuable information and advice.
I also invite you to visit us on the Internet at AIMinvestments.com. Our
Web site allows you to access your account information, review fund performance,
learn more about your fund's investment strategies and obtain general investing
information--whenever it's convenient for you.
Our commitment to you
While we're committed to maintaining a comprehensive, easy-to-navigate Web site,
we're even more committed to providing excellent customer service. Our highly
trained, courteous client services representatives are eager to answer your
questions, provide you with product information or assist you with account
transactions. I encourage you to give us an opportunity to serve you by calling
us at 800-959-4246.
All of us at AIM Investments are committed to helping you achieve your
financial goals. We work every day to earn your trust, and are grateful for the
confidence you've placed in us.
Sincerely,
/S/ PHILIP TAYLOR
- -------------------------------------
Philip Taylor
President - AIM Funds
CEO, AIM Investments
February 9, 2007
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 mutual
funds represented by AIM Investments and the PowerShares Exchange-Traded Fund
Trust.
3
AIM Basic Balanced Fund
[CROCKETT PHOTO]
Bruce L. Crockett
Dear Fellow AIM Fund Shareholders:
Your AIM Funds Board started 2007 committed to continue working with management
at A I M Advisors, Inc. (AIM) with the goal of improving performance and
lowering shareholder expenses for the AIM Funds.
The progress made to date is encouraging. Following the general trends of
global equity markets and the U.S. stock market, the asset-weighted absolute
performance for all the equity and fixed-income AIM Funds improved to 15.08% for
the one-year period ended December 31, 2006, as compared to 9.13% for the
one-year period ended December 31, 2005, and 11.20% for the one-year period
ended December 31, 2004.(1) The asset-weighted absolute performance for the AIM
money market funds was 4.84% for the one-year period ended December 31, 2006, as
compared to 3.04% for the one-year period ended December 31, 2005, and 1.23% for
the one-year period ended December 31, 2004.(2)
In November, your Board approved, subject to shareholder vote, four more
AIM Fund consolidations. As always, these decisions were made to benefit
existing shareholders and were driven by a desire to improve the merged funds'
performance, attract new assets and reduce costs. The asset class subcommittees
of your Board's Investments Committee are meeting frequently with portfolio
managers to identify how performance might be further improved.
On the expense side, both AMVESCAP, the parent company of AIM, and AIM
continue to take advantage of opportunities for operational consolidation,
outsourcing and new technologies to improve cost efficiencies for your benefit.
Your Board, for example, takes advantage of effective software solutions that
enable us to save money through electronic information sharing. Additional
cost-saving steps are under way. I'll report more on these steps once they're
completed.
Another major Board initiative for early 2007 is the revision of the AIM
Funds' proxy voting guidelines, a project begun by a special Board task force
late last year. We expect to have new procedures in place for the 2007 spring
proxy season that will improve the ability of the AIM Funds to cast votes that
are in the best interests of all fund shareholders.
While your Board recognizes that additional work lies ahead, we are
gratified that some key external sources have recognized changes at AIM and the
AIM Funds in the past two years. An article in the November 21, 2006, issue of
Morningstar Report (Morningstar Inc. is a leading provider of independent mutual
fund investment research) included a review of AIM's progress, highlighting
lower expenses, stronger investment teams and an improved sales culture, as well
as areas for continued improvement. I'm looking forward to a return visit to
Morningstar this year to review AIM Funds' performance and governance ratings.
Your Board thanks Mark Williamson, former President and CEO of AIM
Investments, who retired from your Board in 2006. He has been succeeded on your
Board by Phil Taylor, President of AIM Funds. We extend a warm welcome to Phil.
I'd like to hear from you. Please write to me at AIM Investments, AIM
Investments Tower, 11 Greenway Plaza, Suite 100, Houston TX 77046. Let me know
your thoughts on how your Board is doing and how we might serve you better.
Sincerely,
/S/ BRUCE L. CROCKETT
- -------------------------------------
Bruce L. Crockett
Independent Chair
AIM Funds Board
February 9, 2007
(1) Past performance is no guarantee of future results. The asset-weighted
absolute performance for the equity and fixed-income AIM Funds is derived
by taking the one-year cumulative total return for each share class of each
AIM Fund in existence as of December 31, 2006, (excluding money market
funds) and weighting the performance by the calendar year average net
assets of that share class. The one-year cumulative total return includes
reinvested distributions, fund expenses and management fees, but excludes
applicable sales charges. If sales charges were included, the one-year
cumulative total return and the asset-weighted performance would be lower.
(2) Past performance is no guarantee of future results. The asset-weighted
absolute performance for the AIM money market funds is derived by taking
the one-year cumulative total return for each share class of each AIM money
market fund in existence as of December 31, 2006, and weighting the
performance by the calendar year average net assets of that share class.
The one-year cumulative total return includes reinvested distributions,
fund expenses and management fees, but excludes applicable sales charges.
If sales charges were included, the one-year cumulative total return and
the asset-weighted performance would be lower.
4
AIM Basic Balanced Fund
Management's discussion of Fund performance
PERFORMANCE SUMMARY
For the year ended December 31, 2006, AIM Basic Balanced Fund, excluding
applicable sales charges, underperformed its broad market, style-specific and
peer group indexes.
We attribute the Fund's underperformance versus its broad market and
style-specific indexes to below-market returns from selected investments in the
information technology (IT), health care and industrials sectors. Top
contributors to performance were selected investments in the financials and
consumer discretionary sectors.
Your Fund's long-term performance appears on pages 8-9.
FUND VS. INDEXES
Total returns, 12/31/05-12/31/06, excluding applicable sales charges. If sales
charges were included, returns would be lower.
Class A Shares 10.67%
Class B Shares 9.86
Class C Shares 9.86
Class R Shares 10.40
Investor Class Shares 10.67
S&P 500 Index (Broad Market Index) 15.78
60% Russell 1000 Value Index / 40% Lehman Brothers U.S.
Aggregate Bond Index (Style-Specific Index) 14.81
Lipper Mixed-Asset Target Allocation Moderate Funds Index
(Peer Group Index)(1) 12.02
Lipper Balanced Funds Index (Former Peer Group Index) 11.60
SOURCE: A I M MANAGEMENT GROUP INC., LIPPER INC.
(1) During the year, Lipper reclassified AIM Basic Balanced Fund from the
Lipper Balanced Funds category to the Lipper Mixed-Asset Target Allocation
Moderate Funds category.
HOW WE INVEST
We seek to create wealth by maintaining a long-term investment horizon and
investing in companies that are selling at a significant discount to their
estimated intrinsic value--a value that is based on the estimated future cash
flows generated by the business. The Fund's philosophy is based on two elements
that we believe have extensive empirical evidence:
- - Companies have a measurable estimated intrinsic value. Importantly, this
estimated fair value is independent of the company's stock price.
- - Market prices are more volatile than business values, partly because
investors regularly overreact to negative news.
Since our application of this strategy is highly disciplined and relatively
unique, it is important to understand the benefits and limitations of our
process. First, the investment strategy is intended to preserve your capital
while growing it at above-market rates over the long term. Second, our
investments have little in common with popular benchmark indexes and most of our
peers. And third, the Fund's short-term relative performance will naturally be
different than the market and peers and have little information value since we
don't own many of the same stocks.
Our fixed income portfolio investment process is accomplished through the
use of top-down strategies involving duration management, yield-curve position
and sector allocation. (Duration is the measure of 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 longest available.) In addition, we use bottom-up strategies
involving credit analysis and selection of specific securities. By combining
perspectives from both the portfolio and the security level, we seek to
consistently add value over time while minimizing portfolio risk.
MARKET CONDITIONS AND YOUR FUND
Equity markets posted healthy gains during the year as favorable economic data
and solid corporate profits overshadowed housing market concerns and investor
uncertainty regarding interest rates and oil prices. The telecommunication
services and energy sectors led the market for the year while IT and health care
stocks generally trailed. Bond markets were up in 2006, with the Lehman
Aggregate Index rising 4.33%.
(continued)
PORTFOLIO COMPOSITION
By security type
Common Stocks & Other Equity Interests 65.7%
Bonds & Notes 23.1
U.S. Mortgage-Backed Securities 11.2
Five Other Security Types,
Each Less Than 3% of Total Net Assets 4.7
Money Market Funds
Plus Other Assets Less Liabilities -4.7
TOP FIVE INDUSTRIES*
1. U.S. Mortgage-Backed Securities 11.2%
2. Other Diversified Financial Services 8.5
3. Pharmaceuticals 5.0
4. Industrial Conglomerates 4.4
5. Advertising 3.9
Total Net Assets $1.61
billion
Total Number of Holdings* 502
TOP 10 EQUITY HOLDINGS*
1. UnitedHealth Group Inc. 2.8%
2. Tyco International Ltd. 2.6
3. JPMorgan Chase & Co. 2.5
4. Cardinal Health, Inc. 2.4
5. Fannie Mae 2.3
6. Citigroup Inc. 2.1
7. Cemex S.A. de C.V.-ADR (Mexico) 2.0
8. Interpublic Group of Cos., Inc. (The) 2.0
9. Omnicom Group Inc. 2.0
10. Target Corp. 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.
5
AIM Basic Balanced Fund
The Fund's largest contributors during the year included financial services
holdings Morgan Stanley, JPMorgan and Merrill Lynch. All benefited from a robust
capital markets environment and rotation to largecap financials as investors
anticipated an end to U.S. Federal Reserve Board interest rate increases. More
important, Morgan Stanley and JPMorgan, under the leadership of new CEOs, showed
signs of improved operating and financial performance.
A modest number of Fund holdings posted price declines during the year.
Among the Fund's largest detractors from performance were CA, Wellpoint and
Cendant.
Enterprise software firm CA's stock price declined during the year as a
result of investor concerns regarding senior management turnover,
weaker-than-expected quarterly earnings and stock options issues. Despite these
short-term headwinds, our estimate of CA's fundamental intrinsic value remained
unchanged.
The fixed income portion of the Fund maintained its defensive to neutral
stance toward duration, which helped performance as interest rates rose during
the year. Offsetting that positive somewhat was a slight overweight position
relative to the Lehman Aggregate Index in shorter maturities, which hurt as
those maturities increased more than longer duration bonds.
PORTFOLIO ASSESSMENT
We believe the single most important indicator of the way AIM Basic Balanced
Fund is positioned for potential success is not our historical investment
results or popular statistical measures, but the portfolio's estimated intrinsic
value--the aggregate business value of the portfolio based on our estimate of
intrinsic value for each individual holding. At the close of the year, and in
our opinion, the difference between the market price and the estimated intrinsic
value of the portfolio was about average by the Fund's historical standards, and
we believed this value content was greater than what was available in the broad
market. While there is no assurance that market value will ever reflect our
estimate of the portfolio's intrinsic value, we believe this provides the best
indication that your Fund is positioned to potentially achieve its objective of
long-term growth of capital.
CONTEXT FOR RESULTS
As managers, we know a long-term investment horizon and attractive potential
upside to our estimate of portfolio intrinsic value are critical to creating
wealth. But we understand maintaining a long-term investment horizon is a
challenge. So when shareholders consider our short-term results, we encourage
them to review our long-term results on pages 8-9. We are long-term investors
who provide a portfolio that in our opinion is distinct from market indexes and
most of our peers.
Several studies have shown short-term results have little information value
and the frequent trading of stocks or mutual funds is a costly
exercise--reducing actual returns by several percentage points per year as
shareholders unknowingly exchange tomorrow's winner for tomorrow's loser. In
addition, a recent Yale University study reveals half of all mutual funds charge
an active management fee for essentially a closet-index portfolio. While this
may create smooth and innocuous short-term relative performance, it typically
leads to long-term underperformance.
Considering these factors, your Fund is doing something different and old
fashioned-- investing for the long term and following a common-sense approach
that has produced a portfolio that is different from common stock market indexes
and more attractively valued, in our opinion.
IN CLOSING
We remain optimistic about AIM Basic Balanced Fund's portfolio. As always, we
are continually searching for opportunities to increase the portfolio's
estimated intrinsic value. We thank you for your investment and for sharing our
long-term horizon.
The views and opinions expressed in management's discussion of Fund performance
are those of A I M Advisors, Inc. These views and opinions are subject to change
at any time based on factors such as market and economic conditions. These views
and opinions may not be relied upon as investment advice or recommendations, or
as an offer for a particular security. The information is not a complete
analysis of every aspect of any market, country, industry, security or the Fund.
Statements of fact are from sources considered reliable, but A I M Advisors,
Inc. makes no representation or warranty as to their completeness or accuracy.
Although historical performance is no guarantee of future results, these
insights may help you understand our investment management philosophy.
See important Fund and index
disclosures on the inside front cover.
FOR A PRESENTATION OF YOUR FUND'S LONG-TERM PERFORMANCE, PLEASE SEE PAGES 8-9.
[STANLEY PHOTO]
Bret W. Stanley
Chartered Financial Analyst, senior portfolio manager, is lead manager of
AIM Basic Balanced Fund. Mr. Stanley earned a B.B.A. in finance from The
University of Texas at Austin and an M.S. in finance from the University of
Houston.
[COLEMAN PHOTO]
R. Canon Coleman II
Chartered Financial Analyst, portfolio manager, is manager of AIM Basic
Balanced Fund. Mr. Coleman earned a B.S. and an M.S. in accounting from the
University of Florida. He also earned an M.B.A. from the Wharton School at the
University of Pennsylvania.
[FRIEDLI PHOTO]
Jan H. Friedli
Senior portfolio manager, is manager of AIM Basic Balanced Fund. Mr.
Friedli graduated cum laude from Villanova University with a B.S. in computer
science before earning an M.B.A. with honors from the University of Chicago.
[GAU PHOTO]
Brendan Gau
Chartered Financial Analyst, portfolio manager, is manager of AIM Basic
Balanced Fund. He earned a B.A. degree in mathematics, physics and economics
from Rice University.
[JOHNSON PHOTO]
Scot W. Johnson
Chartered Financial Analyst, senior portfolio manager, is manager of AIM
Basic Balanced Fund. Mr. Johnson earned both his bachelor's degree in economics
and an M.B.A. in finance from Vanderbilt University.
[SEINSHEIMER PHOTO]
Matthew W. Seinsheimer
Chartered Financial Analyst, senior portfolio manager, is manager of AIM
Basic Balanced Fund. Mr. Seinsheimer earned a B.B.A. from Southern Methodist
University and an M.B.A. from The University of Texas at Austin.
[SIMON PHOTO]
Michael J. Simon
Chartered Financial Analyst, senior portfolio manager, is manager of AIM
Basic Balanced Fund. Mr. Simon earned a B.B.A. in finance from Texas Christian
University and an M.B.A. from the University of Chicago.
Assisted by the Basic Value Team and Taxable Investment Grade Bond Team
6
AIM Basic Balanced Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, which may include sales charges (loads) on purchase payments or
contingent deferred sales charges on redemptions, and redemption fees, if any;
and (2) ongoing costs, including management fees; distribution and/or service
(12b-1) fees; and other Fund expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with ongoing costs of investing in other mutual funds. The
example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period July 1, 2006, through December 31, 2006.
Actual expenses
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return. The Fund's actual cumulative total returns at net asset value after
expenses for the six months ended December 31, 2006, appear in the table
"Cumulative Total Returns" on page 9.
The hypothetical account values and expenses may not be used to estimate
the actual ending account balance or expenses you paid for the period. You may
use this information to compare the ongoing costs of investing in the Fund and
other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight
your ongoing costs only and do not reflect any transaction costs, such as sales
charges (loads) on purchase payments, contingent deferred sales charges on
redemptions, and redemption fees, if any. Therefore, the hypothetical
information is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these transaction costs were included, your costs would have been higher.
HYPOTHETICAL
(5% ANNUAL RETURN BEFORE
ACTUAL EXPENSES)
--------------------------- ---------------------------
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/06) (12/31/06)(1) PERIOD(2) (12/31/06) PERIOD(2) RATIO
----- ------------- ------------- ----------- ------------- ----------- ----------
A $1,000.00 $1,094.10 $6.02 $1,019.46 $5.80 1.14%
B 1,000.00 1,090.20 9.96 1,015.68 9.60 1.89
C 1,000.00 1,090.10 9.96 1,015.68 9.60 1.89
R 1,000.00 1,092.80 7.33 1,018.20 7.07 1.39
Investor 1,000.00 1,094.90 6.02 1,019.46 5.80 1.14
(1) The actual ending account value is based on the actual total return of the
Fund for the period July 1, 2006, through December 31, 2006, 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, 2006, appear in
the table "Cumulative Total Returns" on page 9.
(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.
7
AIM Basic Balanced Fund
Your Fund's long-term performance
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.
This chart, which is a logarithmic chart, presents the fluctuations in the
value of the Fund and its indexes. We believe that a logarithmic chart is more
effective than other types of charts in illustrating changes in value during the
early years shown in the chart. The vertical axis, the one that indicates the
dollar value of an investment, is constructed with each segment representing a
percent change in the value of the investment. In this chart, each segment
represents a doubling, or 100% change, in the value of the investment. In other
words, the space between $5,000 and $10,000 is the same size as the space
between $10,000 and $20,000.
AVERAGE ANNUAL TOTAL RETURN COMPARISON
As of 12/31/06, excluding applicable sales charges
SINCE FUND
1 YEAR 5 YEARS INCEPTION(1)
------ ------- ------------
AIM Basic Balanced Fund, Class A Shares 10.67% 6.20% 7.44%
Lipper Balanced Funds Index 11.60 6.51 7.46
SOURCE: LIPPER INC.
(1) Since Fund Inception on September 28, 2001
8
[MOUNTAIN CHART]
Results of a $10,000 Investment
Fund data from 9/28/01, index data from 9/30/01
AIM AIM AIM Lipper
Basic Basic Basic 60% Russell 1000 Mixed-Asset
Balanced Balanced Balanced Value Index/ Target
Fund Fund Fund 40% Lehman Brothers Allocation Lipper
-Class A -Class B -Class C S&P 500 U.S. Aggregate Moderate Balanced
Date Shares Shares Shares Index Bond Index Funds Index Funds Index
- ---- -------- -------- -------- ------- ------------------- ----------- -----------
9/28/01 $ 9450 $10000 $10000
9/01 9450 10000 10000 $10000 $10000 $10000 $10000
10/01 9620 10180 10180 10191 10032 10173 10167
11/01 10055 10630 10630 10972 10327 10519 10572
12/01 10200 10776 10776 11068 10446 10610 10648
1/02 10133 10706 10706 10907 10432 10498 10555
2/02 10057 10616 10616 10697 10482 10439 10483
3/02 10420 10992 10992 11099 10710 10663 10713
4/02 10268 10822 10822 10426 10573 10467 10455
5/02 10249 10802 10812 10350 10641 10450 10451
6/02 9694 10219 10221 9613 10311 9941 10005
7/02 9084 9566 9568 8864 9786 9498 9492
8/02 9217 9697 9708 8922 9896 9640 9589
9/02 8567 9008 9008 7953 9300 9125 9017
10/02 8921 9380 9381 8652 9696 9442 9393
11/02 9390 9862 9863 9161 10062 9796 9774
12/02 9080 9531 9531 8623 9883 9602 9510
1/03 8916 9359 9360 8398 9743 9512 9368
2/03 8743 9168 9178 8272 9641 9457 9298
3/03 8671 9088 9097 8352 9647 9525 9335
4/03 9190 9632 9642 9039 10189 10042 9841
5/03 9855 10318 10328 9515 10659 10476 10276
6/03 9931 10392 10402 9637 10731 10585 10354
7/03 9980 10443 10443 9807 10682 10532 10378
8/03 10231 10696 10696 9997 10811 10671 10553
9/03 10189 10645 10645 9892 10862 10753 10566
10/03 10459 10927 10938 10451 11220 11047 10915
11/03 10642 11109 11120 10543 11322 11128 11012
12/03 11107 11593 11593 11095 11787 11538 11406
1/04 11251 11735 11745 11299 11949 11685 11577
2/04 11434 11916 11927 11456 12155 11823 11734
3/04 11432 11916 11916 11283 12127 11783 11678
4/04 11229 11684 11695 11106 11823 11554 11433
5/04 11219 11674 11684 11258 11877 11573 11483
6/04 11444 11908 11909 11477 12072 11719 11663
7/04 11008 11444 11455 11097 12018 11571 11443
8/04 11028 11464 11465 11142 12212 11705 11513
9/04 11096 11517 11528 11262 12339 11824 11684
10/04 11174 11598 11609 11435 12503 11967 11810
11/04 11553 11982 11992 11897 12842 12258 12129
12/04 11872 12303 12313 12302 13148 12570 12431
1/05 11761 12178 12189 12002 13041 12426 12271
2/05 11872 12293 12304 12254 13269 12582 12445
3/05 11747 12153 12163 12038 13133 12410 12273
4/05 11667 12059 12070 11809 13063 12282 12126
5/05 11838 12237 12247 12185 13308 12544 12404
6/05 11932 12326 12337 12202 13424 12692 12493
7/05 12114 12503 12514 12656 13609 12980 12771
8/05 12043 12420 12430 12540 13643 12989 12808
9/05 12071 12436 12447 12642 13702 13027 12858
10/05 11919 12279 12290 12431 13449 12791 12657
11/05 12242 12603 12613 12901 13738 13044 12964
12/05 12446 12802 12811 12905 13840 13163 13077
1/06 12741 13095 13104 13247 14163 13474 13390
2/06 12731 13075 13083 13283 14233 13483 13373
3/06 12886 13231 13230 13448 14293 13557 13503
4/06 12957 13295 13304 13629 14501 13677 13650
5/06 12681 13012 13021 13237 14275 13458 13380
6/06 12589 12901 12911 13254 14342 13475 13372
7/06 12671 12975 12985 13336 14628 13607 13434
8/06 12835 13143 13154 13653 14865 13838 13692
9/06 13086 13387 13397 14005 15095 14026 13890
10/06 13375 13684 13693 14461 15431 14356 14213
11/06 13519 13811 13820 14735 15714 14611 14487
12/06 13783 13961 14071 14942 15889 14746 14594
Sources: AIM Management Group Inc., Lipper Inc.
AIM Basic Balanced Fund
AVERAGE ANNUAL TOTAL RETURNS
As of 12/31/06, including applicable sales charges
Class A Shares
Inception (9/28/01) 6.29%
5 Years 5.00
1 Year 4.60
Class B Shares
Inception (9/28/01) 6.55%
5 Years 5.14
1 Year 4.86
Class C Shares
Inception (9/28/01) 6.71%
5 Years 5.48
1 Year 8.86
Class R Shares
Inception 7.23%
5 Years 5.99
1 Year 10.40
Investor Class Shares
Inception 7.44%
5 Years 6.20
1 Year 10.67
CLASS R SHARES' INCEPTION DATE IS APRIL 30, 2004. RETURNS SINCE THAT DATE ARE
HISTORICAL RETURNS. ALL OTHER RETURNS ARE BLENDED RETURNS OF HISTORICAL CLASS R
SHARE PERFORMANCE AND RESTATED CLASS A SHARE PERFORMANCE (FOR PERIODS PRIOR TO
THE INCEPTION DATE OF CLASS R SHARES) AT NET ASSET VALUE, ADJUSTED TO REFLECT
THE HIGHER RULE 12B-1 FEES APPLICABLE TO CLASS R SHARES. CLASS A SHARES'
INCEPTION DATE IS SEPTEMBER 28, 2001.
CUMULATIVE TOTAL RETURNS
6 months ended 12/31/06, excluding applicable sales charges
Class A Shares 9.41%
Class B Shares 9.02
Class C Shares 9.01
Class R Shares 9.28
Investor Class Shares 9.49
INVESTOR CLASS SHARES' INCEPTION DATE IS JULY 15, 2005. RETURNS SINCE THAT
DATE ARE HISTORICAL RETURNS. ALL OTHER RETURNS ARE BLENDED RETURNS OF HISTORICAL
INVESTOR CLASS SHARE PERFORMANCE AND RESTATED CLASS A SHARE PERFORMANCE (FOR
PERIODS PRIOR TO THE INCEPTION DATE OF INVESTOR CLASS SHARES) AT NET ASSET
VALUE, WHICH RESTATED PERFORMANCE WILL REFLECT THE HIGHER RULE 12B-1 FEES
APPLICABLE TO CLASS A SHARES FOR THE PERIOD USING BLENDED RETURNS. CLASS A
SHARES' INCEPTION DATE IS SEPTEMBER 28, 2001.
THE PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE AND CANNOT GUARANTEE
COMPARABLE FUTURE RESULTS; CURRENT PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE
VISIT AIMINVESTMENTS.COM FOR THE MOST RECENT MONTH-END PERFORMANCE. PERFORMANCE
FIGURES REFLECT REINVESTED DISTRIBUTIONS, CHANGES IN NET ASSET VALUE AND THE
EFFECT OF THE MAXIMUM SALES CHARGE UNLESS OTHERWISE STATED. INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU MAY HAVE A GAIN OR LOSS WHEN YOU
SELL SHARES.
CLASS A SHARE PERFORMANCE REFLECTS THE MAXIMUM 5.50% SALES CHARGE, AND
CLASS B AND CLASS C SHARE PERFORMANCE REFLECTS THE APPLICABLE CONTINGENT
DEFERRED SALES CHARGE (CDSC) FOR THE PERIOD INVOLVED. THE CDSC ON CLASS B SHARES
DECLINES FROM 5% BEGINNING AT THE TIME OF PURCHASE TO 0% AT THE BEGINNING OF THE
SEVENTH YEAR. THE CDSC ON CLASS C SHARES IS 1% FOR THE FIRST YEAR AFTER
PURCHASE. CLASS R SHARES DO NOT HAVE A FRONT-END SALES CHARGE; RETURNS SHOWN ARE
AT NET ASSET VALUE AND DO NOT REFLECT A 0.75% CDSC THAT MAY BE IMPOSED ON A
TOTAL REDEMPTION OF RETIREMENT PLAN ASSETS WITHIN THE FIRST YEAR. INVESTOR CLASS
SHARES DO NOT HAVE A FRONT-END SALES CHARGE OR A CDSC; THEREFORE, PERFORMANCE IS
AT NET ASSET VALUE.
THE PERFORMANCE OF THE FUND'S SHARE CLASSES WILL DIFFER PRIMARILY DUE TO
DIFFERENT SALES CHARGE STRUCTURES AND CLASS EXPENSES.
Continued from inside front cover
The Fund provides a complete list of its holdings four times in each fiscal
year, at the quarterends. For the second and fourth quarters, the lists appear
in the Fund's semiannual and annual reports to shareholders. For the first and
third quarters, the Fund files the lists with the Securities and Exchange
Commission (SEC) on Form N-Q. The most recent list of portfolio holdings is
available at AIMinvestments.com. From our home page, click on Products &
Performance, then Mutual Funds, then Fund Overview. Select your Fund from the
drop-down menu and click on Complete Quarterly Holdings. Shareholders can also
look up the Fund's Forms N-Q on the SEC Web site at sec.gov.
Copies of the Fund's Forms N-Q may be reviewed and copied at the SEC Public
Reference Room in Washington, D.C. You can obtain information on the operation
of the Public Reference Room, including information about duplicating fee
charges, by calling 202-942-8090 or 800-732-0330, or by electronic request at
the following e-mail address: publicinfo@sec.gov. The SEC file numbers for the
Fund are 811-01540 and 002-27334.
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.
Information regarding how the Fund voted proxies related to its portfolio
securities during the 12 months ended June 30, 2006, 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.
9
AIM Basic Balanced Fund
Approval of Investment Advisory Agreement
The Board of Trustees of AIM Funds Group (the "Board") oversees the management
of AIM Basic Balanced Fund (the "Fund") and, as required by law, determines
annually whether to approve the continuance of the Fund's advisory agreement
with AIM Advisors, Inc. ("AIM"). Based upon the recommendation of the
Investments Committee of the Board, at a meeting held on June 27, 2006, the
Board, including all of the independent trustees, approved the continuance of
the advisory agreement (the "Advisory Agreement") between the Fund and AIM for
another year, effective July 1, 2006.
The Board considered the factors discussed below in evaluating the fairness
and reasonableness of the Advisory Agreement at the meeting on June 27, 2006 and
as part of the Board's ongoing oversight of the Fund. In their deliberations,
the Board and the independent trustees did not identify any particular factor
that was controlling, and each trustee attributed different weights to the
various factors.
One responsibility of the independent Senior Officer of the Fund is to
manage the process by which the Fund's proposed management fees are negotiated
to ensure that they are negotiated in a manner which is at arms' length and
reasonable. To that end, the Senior Officer must either supervise a competitive
bidding process or prepare an independent written evaluation. The Senior Officer
has recommended an independent written evaluation in lieu of a competitive
bidding process and, upon the direction of the Board, has prepared such an
independent written evaluation. Such written evaluation also considered certain
of the factors discussed below. In addition, as discussed below, the Senior
Officer made a recommendation to the Board in connection with such written
evaluation.
The discussion below serves as a summary of the Senior Officer's
independent written evaluation and recommendation to the Board in connection
therewith, as well as a discussion of the material factors and the conclusions
with respect thereto that formed the basis for the Board's approval of the
Advisory Agreement. After consideration of all of the factors below and based on
its informed business judgment, the Board determined that the Advisory Agreement
is in the best interests of the Fund and its shareholders and that the
compensation to AIM under the Advisory Agreement is fair and reasonable and
would have been obtained through arm's length negotiations.
Unless otherwise stated, information presented below is as of June 27, 2006
and does not reflect any changes that may have occurred since June 27, 2006,
including but not limited to changes to the Fund's performance, advisory fees,
expense limitations and/or fee waivers.
- - The nature and extent of the advisory services to be provided by AIM. The
Board reviewed the services to be provided by AIM under the Advisory
Agreement. Based on such review, the Board concluded that the range of
services to be provided by AIM under the Advisory Agreement was appropriate
and that AIM currently is providing services in accordance with the terms
of the Advisory Agreement.
- - The quality of services to be provided by AIM. The Board reviewed the
credentials and experience of the officers and employees of AIM who will
provide investment advisory services to the Fund. In reviewing the
qualifications of AIM to provide investment advisory services, the Board
considered such issues as AIM's portfolio and product review process,
various back office support functions provided by AIM and AIM's equity and
fixed income trading operations. Based on the review of these and other
factors, the Board concluded that the quality of services to be provided by
AIM was appropriate and that AIM currently is providing satisfactory
services in accordance with the terms of the Advisory Agreement.
- - The performance of the Fund relative to comparable funds. The Board
reviewed the performance of the Fund during the past one and three calendar
years against the performance of funds advised by other advisors with
investment strategies comparable to those of the Fund. The Board noted that
the Fund's performance in such periods was above the median performance of
such comparable funds. Based on this review and after taking account of all
of the other factors that the Board considered in determining whether to
continue the Advisory Agreement for the Fund, the Board concluded that no
changes should be made to the Fund and that it was not necessary to change
the Fund's portfolio management team at this time. Although the independent
written evaluation of the Fund's Senior Officer (discussed below) only
considered Fund performance through the most recent calendar year, the
Board also reviewed more recent Fund performance, which did not change
their conclusions.
- - The performance of the Fund relative to indices. The Board reviewed the
performance of the Fund during the past one and three calendar years
against the performance of the Lipper Balanced Fund Index. The Board noted
that the Fund's performance in such periods was comparable to the
performance of the Index. Based on this review and after taking account of
all of the other factors that the Board considered in determining whether
to continue the Advisory Agreement for the Fund, the Board concluded that
no changes should be made to the Fund and that it was not necessary to
change the Fund's portfolio management team at this time. Although the
independent written evaluation of the Fund's Senior Officer (discussed
below) only considered Fund performance through the most recent calendar
year, the Board also reviewed more recent Fund performance, which did not
change their conclusions.
- - Meetings with the Fund's portfolio managers and investment personnel. With
respect to the Fund, the Board is meeting periodically with such Fund's
portfolio managers and/or other investment personnel and believes that such
individuals are competent and able to continue to carry out their
responsibilities under the Advisory Agreement.
- - Overall performance of AIM. The Board considered the overall performance of
AIM in providing investment advisory and portfolio administrative services
to the Fund and concluded that such performance was satisfactory.
- - Fees relative to those of clients of AIM with comparable investment
strategies. The Board reviewed the effective advisory fee rate (before
waivers) for the Fund under the Advisory Agreement. The Board noted that
this rate was (i) below the effective advisory fee rate (before waivers)
for a variable insurance fund advised by AIM and offered to insurance
company separate accounts with investment strategies comparable to those of
the Fund; (ii) above the effective sub-advisory fee rate for an offshore
fund advised and sub-advised by AIM affiliates with investment strategies
comparable to those of the Fund, although the total advisory fees for such
offshore fund were above those for the Fund; and (iii) above the effective
sub-advisory fee rates for two Canadian mutual funds advised by an AIM
affiliate and sub-advised by AIM with investment strategies comparable to
those of the Fund, although the total advisory fees for such Canadian
mutual funds were above those for the Fund. The Board noted that AIM has
agreed to waive advisory fees of the Fund and to limit the Fund's total
operating expenses, as discussed below. Based on this review, the Board
concluded that the advisory fee rate for the Fund under the Advisory
Agreement was fair and reasonable.
- - Fees relative to those of comparable funds with other advisors. The Board
reviewed the advisory fee rate for the Fund under the Advisory Agreement.
The Board compared effective contractual advisory fee rates at a common
asset level at the end of the past calendar year and noted that the Fund's
rate was comparable to the median rate of the funds advised by other
advisors with investment strategies comparable to those of the Fund that
the Board reviewed. The Board noted that AIM has agreed to waive advisory
fees of the Fund and to limit the Fund's total operating expenses, as
discussed below. Based on this review, the Board concluded that the
advisory fee rate for the Fund under the Advisory Agreement was fair and
reasonable.
- - Expense limitations and fee waivers. The Board noted that AIM has
contractually agreed to waive advisory fees of the Fund through December
31, 2009 to the extent necessary so that the advisory fees payable by the
Fund do not exceed a specified maximum advisory fee rate, which maximum
rate includes breakpoints and is based on net asset levels. The Board
considered the contractual nature of this fee waiver and noted that it
remains in effect until December 31, 2009. The Board also noted that AIM
has voluntarily agreed to waive fees and/or limit expenses of the Fund in
an amount necessary to limit total annual operating expenses to a specified
percentage of average daily net assets for each class of the Fund. The
Board considered the voluntary nature of this fee waiver/expense limitation
and noted that it can be terminated at any time by AIM without further
notice to investors. The Board considered the effect
(continued)
10
AIM Basic Balanced Fund
these fee waivers/expense limitations would have on the Fund's estimated
expenses and concluded that the levels of fee waivers/expense limitations
for the Fund were fair and reasonable.
- - Breakpoints and economies of scale. The Board reviewed the structure of the
Fund's advisory fee under the Advisory Agreement, noting that it includes
five breakpoints. The Board reviewed the level of the Fund's advisory fees,
and noted that such fees, as a percentage of the Fund's net assets, have
decreased as net assets increased because the Advisory Agreement includes
breakpoints. The Board noted that, due to the Fund's asset levels at the
end of the past calendar year and the way in which the advisory fee
breakpoints have been structured, the Fund has yet to fully benefit from
the breakpoints. The Board noted that AIM has contractually agreed to waive
advisory fees of the Fund through December 31, 2009 to the extent necessary
so that the advisory fees payable by the Fund do not exceed a specified
maximum advisory fee rate, which maximum rate includes breakpoints and is
based on net asset levels. The Board concluded that the Fund's fee levels
under the Advisory Agreement therefore reflect economies of scale and that
it was not necessary to change the advisory fee breakpoints in the Fund's
advisory fee schedule.
- - Investments in affiliated money market funds. The Board also took into
account the fact that uninvested cash and cash collateral from securities
lending arrangements, if any (collectively, "cash balances") of the Fund
may be invested in money market funds advised by AIM pursuant to the terms
of an SEC exemptive order. The Board found that the Fund may realize
certain benefits upon investing cash balances in AIM advised money market
funds, including a higher net return, increased liquidity, increased
diversification or decreased transaction costs. The Board also found that
the Fund will not receive reduced services if it invests its cash balances
in such money market funds. The Board noted that, to the extent the Fund
invests uninvested cash in affiliated money market funds, AIM has
voluntarily agreed to waive a portion of the advisory fees it receives from
the Fund attributable to such investment. The Board further determined that
the proposed securities lending program and related procedures with respect
to the lending Fund is in the best interests of the lending Fund and its
respective shareholders. The Board therefore concluded that the investment
of cash collateral received in connection with the securities lending
program in the money market funds according to the procedures is in the
best interests of the lending Fund and its respective shareholders.
- - Independent written evaluation and recommendations of the Fund's Senior
Officer. The Board noted that, upon their direction, the Senior Officer of
the Fund, who is independent of AIM and AIM's affiliates, had prepared an
independent written evaluation in order to assist the Board in determining
the reasonableness of the proposed management fees of the AIM Funds,
including the Fund. The Board noted that the Senior Officer's written
evaluation had been relied upon by the Board in this regard in lieu of a
competitive bidding process. In determining whether to continue the
Advisory Agreement for the Fund, the Board considered the Senior Officer's
written evaluation and the recommendation made by the Senior Officer to the
Board that the Board consider whether the advisory fee waivers for certain
equity AIM Funds, including the Fund, should be simplified. The Board
concluded that it would be advisable to consider this issue and reach a
decision prior to the expiration date of such advisory fee waivers.
- - Profitability of AIM and its affiliates. The Board reviewed information
concerning the profitability of AIM's (and its affiliates') investment
advisory and other activities and its financial condition. The Board
considered the overall profitability of AIM, as well as the profitability
of AIM in connection with managing the Fund. The Board noted that AIM's
operations remain profitable, although increased expenses in recent years
have reduced AIM's profitability. Based on the review of the profitability
of AIM's and its affiliates' investment advisory and other activities and
its financial condition, the Board concluded that the compensation to be
paid by the Fund to AIM under its Advisory Agreement was not excessive.
- - Benefits of soft dollars to AIM. The Board considered the benefits realized
by AIM as a result of brokerage transactions executed through "soft dollar"
arrangements. Under these arrangements, brokerage commissions paid by the
Fund and/or other funds advised by AIM are used to pay for research and
execution services. This research may be used by AIM in making investment
decisions for the Fund. The Board concluded that such arrangements were
appropriate.
- - AIM's financial soundness in light of the Fund's needs. The Board
considered whether AIM is financially sound and has the resources necessary
to perform its obligations under the Advisory Agreement, and concluded that
AIM has the financial resources necessary to fulfill its obligations under
the Advisory Agreement.
- - Historical relationship between the Fund and AIM. In determining whether to
continue the Advisory Agreement for the Fund, the Board also considered the
prior relationship between AIM and the Fund, as well as the Board's
knowledge of AIM's operations, and concluded that it was beneficial to
maintain the current relationship, in part, because of such knowledge. The
Board also reviewed the general nature of the non-investment advisory
services currently performed by AIM and its affiliates, such as
administrative, transfer agency and distribution services, and the fees
received by AIM and its affiliates for performing such services. In
addition to reviewing such services, the trustees also considered the
organizational structure employed by AIM and its affiliates to provide
those services. Based on the review of these and other factors, the Board
concluded that AIM and its affiliates were qualified to continue to provide
non-investment advisory services to the Fund, including administrative,
transfer agency and distribution services, and that AIM and its affiliates
currently are providing satisfactory non-investment advisory services.
- - Other factors and current trends. The Board considered the steps that AIM
and its affiliates have taken over the last several years, and continue to
take, in order to improve the quality and efficiency of the services they
provide to the Funds in the areas of investment performance, product line
diversification, distribution, fund operations, shareholder services and
compliance. The Board concluded that these steps taken by AIM have
improved, and are likely to continue to improve, the quality and efficiency
of the services AIM and its affiliates provide to the Fund in each of these
areas, and support the Board's approval of the continuance of the Advisory
Agreement for the Fund.
11
Supplement to Annual Report dated 12/31/06
AIM Basic Balanced Fund
Institutional Class Shares
The following information has been prepared to provide Institutional Class
shareholders with a performance overview specific to their holdings.
Institutional Class shares are offered exclusively to institutional investors,
including defined contribution plans that meet certain criteria.
AVERAGE ANNUAL TOTAL RETURNS
For periods ended 12/31/06
Inception 7.71%
5 Years 6.48
1 Year 11.22
6 Months* 9.68
* Cumulative total return that has not been annualized
INSTITUTIONAL CLASS SHARES' INCEPTION DATE IS APRIL 30, 2004. RETURNS SINCE THAT
DATE ARE HISTORICAL RETURNS. ALL OTHER RETURNS ARE BLENDED RETURNS OF HISTORICAL
INSTITUTIONAL CLASS SHARE PERFORMANCE AND RESTATED CLASS A SHARE PERFORMANCE
(FOR PERIODS PRIOR TO THE INCEPTION DATE OF INSTITUTIONAL CLASS SHARES) AT NET
ASSET VALUE (NAV) 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
NAV. PERFORMANCE OF INSTITUTIONAL CLASS SHARES WILL DIFFER FROM PERFORMANCE OF
OTHER SHARE CLASSES PRIMARILY DUE TO DIFFERING SALES CHARGES AND CLASS EXPENSES.
PLEASE NOTE THAT PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. MORE
RECENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. ALL RETURNS ASSUME
REINVESTMENT OF DISTRIBUTIONS AT NAV. INVESTMENT RETURN AND PRINCIPAL VALUE WILL
FLUCTUATE SO YOUR SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. SEE THE FULL REPORT FOR INFORMATION ON COMPARATIVE BENCHMARKS.
PLEASE CONSULT YOUR FUND PROSPECTUS FOR MORE INFORMATION. FOR THE MOST CURRENT
MONTH-END PERFORMANCE, PLEASE CALL 800-451-4246 OR VISIT AIMINVESTMENTS.COM.
NASDAQ SYMBOL 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.
[AIM INVESTMENTS LOGO]
-- REGISTERED TRADEMARK --
AIMINVESTMENTS.COM BBA-INS-1 A I M Distributors, Inc.
Information about your Fund's expenses
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees
and other Fund expenses. This example is intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with ongoing costs of investing in other mutual funds. The example is based on
an investment of $1,000 invested at the beginning of the period and held for the
entire period July 1, 2006, through December 31, 2006.
Actual expenses
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return. The Fund's actual cumulative total return after expenses for the six
months ended December 31, 2006 appears in the table on the front of this
supplement.
The hypothetical account values and expenses may not be used to estimate
the actual ending account balance or expenses you paid for the period. You may
use this information to compare the ongoing costs of investing in the Fund and
other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight
your ongoing costs only. Therefore, the hypothetical information is useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds.
HYPOTHETICAL
(5% ANNUAL RETURN
ACTUAL BEFORE EXPENSES)
------------------------- ----------------------
BEGINNING ENDING EXPENSES ENDING EXPENSES
ACCOUNT ACCOUNT PAID ACCOUNT PAID ANNUALIZED
SHARE VALUE VALUE DURING VALUE DURING EXPENSE
CLASS (7/1/06) (12/31/06)(1) PERIOD(2) (12/31/06) PERIOD(2) RATIO
- ----- --------- ------------- --------- ---------- --------- ----------
Institutional $1,000.00 $1,096.80 $3.70 $1,021.68 $3.57 0.70%
(1) The actual ending account value is based on the actual total return of the
Fund for the period July 1, 2006, through December 31, 2006, 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, 2006, 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 BBA-INS-1 A I M Distributors, Inc.
AIM Basic Balanced Fund
SCHEDULE OF INVESTMENTS
December 31, 2006
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-65.67%
ADVERTISING-3.94%
Interpublic Group of Cos., Inc. (The)(a) 2,601,244 $ 31,839,227
- -----------------------------------------------------------------------------
Omnicom Group Inc. 300,797 31,445,318
=============================================================================
63,284,545
=============================================================================
AEROSPACE & DEFENSE-0.82%
Honeywell International Inc. 291,252 13,176,240
=============================================================================
APPAREL RETAIL-1.07%
Gap, Inc. (The) 879,611 17,152,415
=============================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.32%
Bank of New York Co., Inc. (The) 539,966 21,258,461
=============================================================================
BREWERS-1.54%
Molson Coors Brewing Co.-Class B 323,445 24,724,136
=============================================================================
BUILDING PRODUCTS-0.73%
American Standard Cos. Inc. 254,364 11,662,589
=============================================================================
COMPUTER HARDWARE-1.90%
Dell Inc.(a) 1,217,579 30,549,057
=============================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.26%
Deere & Co. 44,427 4,223,675
=============================================================================
CONSTRUCTION MATERIALS-2.05%
Cemex S.A. de C.V.-ADR (Mexico)(a) 972,853 32,960,260
=============================================================================
CONSUMER ELECTRONICS-1.33%
Koninklijke (Royal) Philips Electronics
N.V.-New York Shares (Netherlands) 292,683 10,999,027
- -----------------------------------------------------------------------------
Sony Corp.-ADR (Japan) 241,336 10,336,421
=============================================================================
21,335,448
=============================================================================
DATA PROCESSING & OUTSOURCED SERVICES-3.09%
First Data Corp. 1,212,456 30,941,877
- -----------------------------------------------------------------------------
Western Union Co. 831,060 18,632,365
=============================================================================
49,574,242
=============================================================================
ENVIRONMENTAL & FACILITIES SERVICES-1.64%
Waste Management, Inc. 718,519 26,419,944
=============================================================================
FOOD RETAIL-1.15%
Kroger Co. (The) 416,539 9,609,555
- -----------------------------------------------------------------------------
Safeway Inc. 258,091 8,919,625
=============================================================================
18,529,180
=============================================================================
</Table>
<Table>
SHARES VALUE
- -----------------------------------------------------------------------------
<Caption>
GENERAL MERCHANDISE STORES-1.94%
Target Corp. 547,398 $ 31,229,056
=============================================================================
HEALTH CARE DISTRIBUTORS-2.74%
Cardinal Health, Inc. 604,974 38,978,475
- -----------------------------------------------------------------------------
McKesson Corp. 98,037 4,970,476
=============================================================================
43,948,951
=============================================================================
HEALTH CARE EQUIPMENT-0.94%
Baxter International Inc. 326,882 15,164,056
=============================================================================
HOME IMPROVEMENT RETAIL-1.12%
Home Depot, Inc. (The) 446,570 17,934,251
=============================================================================
INDUSTRIAL CONGLOMERATES-4.32%
General Electric Co. 751,294 27,955,650
- -----------------------------------------------------------------------------
Tyco International Ltd. 1,365,259 41,503,873
=============================================================================
69,459,523
=============================================================================
INDUSTRIAL MACHINERY-1.10%
Illinois Tool Works Inc. 382,418 17,663,887
=============================================================================
INSURANCE BROKERS-0.40%
Marsh & McLennan Cos., Inc. 210,000 6,438,600
=============================================================================
INVESTMENT BANKING & BROKERAGE-3.52%
Merrill Lynch & Co., Inc. 312,991 29,139,462
- -----------------------------------------------------------------------------
Morgan Stanley 336,167 27,374,079
=============================================================================
56,513,541
=============================================================================
MANAGED HEALTH CARE-2.77%
UnitedHealth Group Inc. 829,228 44,554,420
=============================================================================
MOVIES & ENTERTAINMENT-1.66%
Walt Disney Co. (The) 779,102 26,699,826
=============================================================================
MULTI-LINE INSURANCE-1.27%
Hartford Financial Services Group, Inc. (The) 218,400 20,378,904
=============================================================================
OIL & GAS DRILLING-1.71%
Transocean Inc.(a) 339,384 27,452,772
=============================================================================
OIL & GAS EQUIPMENT & SERVICES-3.01%
Halliburton Co. 754,443 23,425,455
- -----------------------------------------------------------------------------
Schlumberger Ltd. 394,028 24,886,809
=============================================================================
48,312,264
=============================================================================
</Table>
F-1
AIM Basic Balanced Fund
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES-4.57%
Citigroup Inc. 601,878 $ 33,524,605
- -----------------------------------------------------------------------------
JPMorgan Chase & Co. 824,861 39,840,786
=============================================================================
73,365,391
=============================================================================
PACKAGED FOODS & MEATS-1.27%
Unilever N.V. (Netherlands)(b) 744,252 20,330,539
=============================================================================
PHARMACEUTICALS-5.03%
Pfizer Inc. 946,428 24,512,485
- -----------------------------------------------------------------------------
Sanofi-Aventis (France)(b) 302,970 27,902,730
- -----------------------------------------------------------------------------
Wyeth 556,790 28,351,747
=============================================================================
80,766,962
=============================================================================
PROPERTY & CASUALTY INSURANCE-1.60%
ACE Ltd. 424,167 25,691,795
=============================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-0.59%
Realogy Corp.(a) 313,132 9,494,162
=============================================================================
SYSTEMS SOFTWARE-2.98%
CA Inc. 1,326,969 30,055,848
- -----------------------------------------------------------------------------
Microsoft Corp. 593,837 17,731,973
=============================================================================
47,787,821
=============================================================================
THRIFTS & MORTGAGE FINANCE-2.29%
Fannie Mae 618,396 36,726,538
=============================================================================
Total Common Stocks & Other Equity
Interests (Cost $784,509,017) 1,054,763,451
=============================================================================
<Caption>
PRINCIPAL
AMOUNT
BONDS & NOTES-23.10%
AEROSPACE & DEFENSE-0.26%
Precision Castparts Corp., Unsec. Notes,
6.75%, 12/15/07(c) $1,000,000 1,009,780
- -----------------------------------------------------------------------------
Systems 2001 Asset Trust LLC (United
Kingdom)- Series 2001, Class G, Pass
Through Ctfs., (INS-MBIA Insurance Corp.)
6.66%, 09/15/13 (Acquired
02/09/05-10/27/05; Cost
$3,345,347)(c)(d)(e) 3,037,391 3,182,138
=============================================================================
4,191,918
=============================================================================
AGRICULTURAL PRODUCTS-0.13%
Corn Products International Inc., Sr. Unsec.
Notes, 8.25%, 07/15/07(c) 2,035,000 2,063,836
=============================================================================
APPAREL RETAIL-0.09%
Gap Inc. (The), Unsec. Notes, 6.90%,
09/15/07(c) 1,430,000 1,444,829
=============================================================================
</Table>
<Table>
- -----------------------------------------------------------------------------
<Caption>
PRINCIPAL
AMOUNT VALUE
ASSET MANAGEMENT & CUSTODY BANKS-0.37%
Bank of New York Co. Inc. (The), Sr. Unsec.
Sub. Notes, 4.25%, 09/04/12(c) $ 610,000 $ 605,407
- -----------------------------------------------------------------------------
GAMCO Investors, Inc., Sr. Unsec. Unsub.
Notes, 5.22%, 02/17/07(c) 1,695,000 1,693,983
- -----------------------------------------------------------------------------
Mellon Capital II-Series B, Jr. Unsec. Gtd.
Sub. Trust Pfd. Bonds, 8.00%, 01/15/27(c) 2,200,000 2,297,394
- -----------------------------------------------------------------------------
Nuveen Investments, Inc., Sr. Unsec. Sub.
Notes, 5.50%, 09/15/15(c) 1,400,000 1,354,542
=============================================================================
5,951,326
=============================================================================
AUTOMOBILE MANUFACTURERS-0.22%
DaimlerChrysler North America Holding Corp.,
Notes, 4.13%, 03/07/07(c) 3,600,000 3,591,648
=============================================================================
BROADCASTING & CABLE TV-2.27%
CBS Corp., Sr. Unsec. Gtd. Global Notes,
5.63%, 05/01/07(c) 7,030,000 7,030,844
- -----------------------------------------------------------------------------
Clear Channel Communications, Inc., Sr.
Unsec. Notes, 3.13%, 02/01/07(c) 5,960,000 5,949,153
- -----------------------------------------------------------------------------
Comcast Cable Communications Holdings Inc.,
Unsec. Gtd. Global Notes, 9.46%,
11/15/22(c) 3,135,000 4,079,701
- -----------------------------------------------------------------------------
Unsec. Unsub. Global Notes, 8.38%,
05/01/07(c) 2,450,000 2,472,785
- -----------------------------------------------------------------------------
Comcast Corp., Sr. Sub. Deb., 10.63%,
07/15/12(c) 2,175,000 2,632,533
- -----------------------------------------------------------------------------
Cox Enterprises, Inc., Notes, 8.00%, 02/15/07
(Acquired 10/03/05-11/14/05; Cost
$10,672,304)(c)(d) 10,280,000 10,304,775
- -----------------------------------------------------------------------------
Hearst-Argyle Television Inc., Sr. Unsec.
Unsub. Notes, 7.00%, 11/15/07(c) 1,560,000 1,576,177
- -----------------------------------------------------------------------------
Time Warner Entertainment Co. L.P., Sr.
Unsec. Deb., 8.38%, 03/15/23(c) 2,050,000 2,404,096
=============================================================================
36,450,064
=============================================================================
BUILDING PRODUCTS-0.08%
Masco Corp., Unsec. Notes, 4.63%, 08/15/07(c) 1,250,000 1,243,700
=============================================================================
CASINOS & GAMING-0.24%
Harrah's Operating Co., Inc., Sr. Unsec. Gtd.
Global Notes, 7.13%, 06/01/07(c) 3,805,000 3,815,464
=============================================================================
CONSUMER FINANCE-0.69%
Capital One Capital I, Sub. Floating Rate
Trust Pfd. Bonds, 6.92%, 02/01/27 (Acquired
09/16/04-04/12/06; Cost
$5,320,680)(c)(d)(f) 5,240,000 5,283,806
- -----------------------------------------------------------------------------
Ford Motor Credit Co., Sr. Unsec. Notes,
4.95%, 01/15/08(c) 5,850,000 5,776,583
=============================================================================
11,060,389
=============================================================================
DEPARTMENT STORES-0.16%
JC Penney Corp. Inc., Unsec. Deb., 8.13%,
04/01/27(c) 2,520,000 2,571,534
=============================================================================
</Table>
F-2
AIM Basic Balanced Fund
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------
DIVERSIFIED BANKS-1.75%
Bangkok Bank PCL (Hong Kong), Unsec. Sub.
Notes, 9.03%, 03/15/29 (Acquired 04/22/05;
Cost $1,471,124)(c)(d) $1,175,000 $ 1,463,639
- -----------------------------------------------------------------------------
BankAmerica Institutional-Series A, Gtd.
Trust Pfd. Bonds, 8.07%, 12/31/26 (Acquired
09/26/06; Cost $1,870,264)(c)(d) 1,790,000 1,858,038
- -----------------------------------------------------------------------------
BankBoston Capital Trust II-Series B, Gtd.
Trust Pfd. Bonds, 7.75%, 12/15/26(c) 3,650,000 3,781,838
- -----------------------------------------------------------------------------
Barclays Bank PLC (United Kingdom), Floating
Rate Global Notes, 4.47%, 08/08/07
(Acquired 04/06/06; Cost
$1,293,253)(c)(d)(f) 1,300,000 1,300,455
- -----------------------------------------------------------------------------
Centura Capital Trust I, Gtd. Trust Pfd.
Notes, 8.85%, 06/01/27 (Acquired 05/22/03;
Cost $1,847,528)(c)(d) 1,460,000 1,543,366
- -----------------------------------------------------------------------------
First Union Institutional Capital I, Gtd.
Trust Pfd. Bonds, 8.04%, 12/01/26(c) 540,000 560,255
- -----------------------------------------------------------------------------
Lloyds Bank PLC (United Kingdom)-Series 1,
Unsec. Sub. Floating Rate Euro Notes,
5.63%(c)(f)(g) 4,010,000 3,528,199
- -----------------------------------------------------------------------------
Mizuho Financial Group Cayman Ltd. (Cayman
Islands), Gtd. Sub. Second Tier Euro Bonds,
8.38%(c)(g) 550,000 581,375
- -----------------------------------------------------------------------------
National Bank of Canada (Canada), Floating
Rate Euro Deb., 5.63%, 08/29/87(c)(f) 1,580,000 1,291,866
- -----------------------------------------------------------------------------
National Westminster Bank PLC (United
Kingdom)-Series B, Unsec. Sub. Floating
Rate Euro Notes, 5.69%(c)(f)(g) 1,150,000 993,908
- -----------------------------------------------------------------------------
NBD Bank N.A. Michigan, Unsec. Sub. Deb.,
8.25%, 11/01/24(c) 915,000 1,140,538
- -----------------------------------------------------------------------------
RBS Capital Trust III, Sub. Trust Pfd. Global
Notes, 5.51%(c)(g) 1,140,000 1,133,844
- -----------------------------------------------------------------------------
Sumitomo Mitsui Banking Corp. (Japan), Sub.
Second Tier Euro Notes, 8.15%(c)(g) 1,675,000 1,737,568
- -----------------------------------------------------------------------------
Svenska Handelsbanken A.B. (Sweden), Unsec.
Sub. Notes, 7.13% (Acquired 07/26/06; Cost
$4,271,037)(c)(d)(g) 4,240,000 4,270,740
- -----------------------------------------------------------------------------
VTB Capital S.A. (Russia), Sr. Floating Rate
Notes, 6.12%, 09/21/07 (Acquired 12/14/05;
Cost $2,850,000)(c)(d)(f) 2,850,000 2,858,194
=============================================================================
28,043,823
=============================================================================
DIVERSIFIED CHEMICALS-0.15%
Bayer Corp., Bonds, 6.20%, 02/15/08 (Acquired
08/01/06; Cost $1,510,545)(c)(d) 1,500,000 1,515,825
- -----------------------------------------------------------------------------
Hercules Inc., Unsec. Putable Deb., 6.60%,
08/01/07(c) 910,000 910,409
=============================================================================
2,426,234
=============================================================================
DIVERSIFIED METALS & MINING-0.10%
Reynolds Metals Co., Medium Term Notes,
7.00%, 05/15/09(c) 1,527,000 1,555,845
=============================================================================
</Table>
<Table>
- -----------------------------------------------------------------------------
<Caption>
PRINCIPAL
AMOUNT VALUE
ELECTRIC UTILITIES-1.01%
Carolina Power & Light Co., First Mortgage
Bonds, 6.80%, 08/15/07(c) $ 530,000 $ 533,885
- -----------------------------------------------------------------------------
Commonwealth Edison Co., Unsec. Notes,
7.63%, 01/15/07(c) 5,550,000 5,552,831
- -----------------------------------------------------------------------------
Pepco Holdings Inc., Unsec. Unsub. Global
Notes, 5.50%, 08/15/07(c) 4,245,000 4,246,698
- -----------------------------------------------------------------------------
Portland General Electric Co.-Series 4, Sec.
First Mortgage Medium Term Notes,
7.15%, 06/15/07(c) 665,000 668,930
- -----------------------------------------------------------------------------
Potomac Electric Power Co.-Series A, Medium
Term Notes, 7.64%, 01/17/07(c) 1,120,000 1,120,694
- -----------------------------------------------------------------------------
PP&L Capital Funding Inc.-Series D, Unsec.
Gtd. Medium Term Notes, 8.38%, 06/15/07(c) 970,000 982,232
- -----------------------------------------------------------------------------
Southern Co. Capital Trust I, Gtd. Trust Pfd.
Notes, 8.19%, 02/01/37(c) 3,070,000 3,198,203
=============================================================================
16,303,473
=============================================================================
FOOD RETAIL-0.68%
Kroger Co. (The), Sr. Unsec. Notes, 7.65%,
04/15/07(c) 2,885,000 2,900,810
- -----------------------------------------------------------------------------
Safeway Inc., Sr. Unsec. Notes, 4.80%,
07/16/07(c) 8,065,000 8,024,836
=============================================================================
10,925,646
=============================================================================
FOREST PRODUCTS-0.25%
Weyerhaeuser Co., Unsec. Unsub. Global Notes,
6.13%, 03/15/07(c) 4,020,000 4,024,824
=============================================================================
HOME IMPROVEMENT RETAIL-0.06%
Sherwin-Williams Co. (The), Sr. Notes,
6.85%, 02/01/07(c) 1,000,000 1,000,970
=============================================================================
HOTELS, RESORTS & CRUISE LINES-0.33%
Carnival Corp., Sr. Unsec. Gtd. Global Notes,
3.75%, 11/15/07(c) 385,000 379,356
- -----------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc.,
Sr. Gtd. Global Notes, 7.38%, 05/01/07(c) 4,852,000 4,870,195
=============================================================================
5,249,551
=============================================================================
HOUSEWARES & SPECIALTIES-0.06%
Newell Rubbermaid Inc.,
Unsec. Notes, 6.00%, 03/15/07(c) 300,000 300,204
- -----------------------------------------------------------------------------
Series A, Unsec. Unsub. Putable Medium Term
Notes, 6.35%, 07/15/08(c) 660,000 667,907
=============================================================================
968,111
=============================================================================
INDUSTRIAL CONGLOMERATES-0.06%
Tyco International Group S.A. Participation
Certificate Trust, Unsec. Notes, 4.44%,
06/15/07 (Acquired 11/29/06; Cost
$994,300)(c)(d) 1,000,000 996,240
=============================================================================
</Table>
F-3
AIM Basic Balanced Fund
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------
INSURANCE BROKERS-0.46%
Aon Corp., Unsec. Notes, 6.95%, 01/15/07(c) $3,110,000 $ 3,111,213
- -----------------------------------------------------------------------------
Marsh & McLennan Cos., Inc., Sr. Unsec.
Global Notes, 5.38%, 03/15/07(c) 4,270,000 4,269,060
=============================================================================
7,380,273
=============================================================================
INTEGRATED OIL & GAS-0.52%
ConocoPhillips, Unsec. Deb., 7.13%,
03/15/28(c) 1,100,000 1,141,624
- -----------------------------------------------------------------------------
Husky Oil Ltd. (Canada), Yankee Bonds,
8.90%, 08/15/28(c) 6,944,000 7,291,200
=============================================================================
8,432,824
=============================================================================
INTEGRATED TELECOMMUNICATION SERVICES-1.05%
TCI Communications Financing III, Gtd. Trust
Pfd. Bonds, 9.65%, 03/31/27(c) 5,100,000 5,400,390
- -----------------------------------------------------------------------------
TELUS Corp. (Canada), Yankee Notes, 7.50%,
06/01/07(c) 3,805,000 3,835,212
- -----------------------------------------------------------------------------
Verizon Communications Inc., Unsec. Deb.,
8.75%, 11/01/21(c) 1,435,000 1,710,520
- -----------------------------------------------------------------------------
7.90%, 02/01/27(c) 1,000,000 1,035,300
- -----------------------------------------------------------------------------
Verizon New York Inc., Unsec. Deb., 7.00%,
12/01/33(c) 2,070,000 2,120,135
- -----------------------------------------------------------------------------
Verizon Virginia Inc.-Series A, Unsec. Global
Deb., 4.63%, 03/15/13(c) 2,870,000 2,707,558
=============================================================================
16,809,115
=============================================================================
INTERNET RETAIL-0.09%
Expedia, Inc., Putable Bonds, 7.46%, 08/15/13
(Acquired 08/16/06; Cost $1,415,000)(c)(d) 1,415,000 1,477,798
=============================================================================
INVESTMENT BANKING & BROKERAGE-0.03%
Jefferies Group, Inc.-Series B, Sr. Unsec.
Notes, 7.50%, 08/15/07(c) 555,000 561,499
=============================================================================
LIFE & HEALTH INSURANCE-0.78%
Prudential Holdings, LLC Series B, Bonds,
(INS-Financial Security Assurance Inc.)
7.25%, 12/18/23 (Acquired
01/22/04-02/17/06; Cost
$6,129,407)(c)(d)(e) 5,220,000 6,043,612
- -----------------------------------------------------------------------------
Sun Life Canada (U.S.) Capital Trust, Gtd.
Trust Pfd. Notes, 8.53% (Acquired
02/13/06-11/15/06; Cost
$6,527,618)(c)(d)(g) 6,140,000 6,465,972
=============================================================================
12,509,584
=============================================================================
MANAGED HEALTH CARE-0.08%
Cigna Corp., Unsec. Notes, 7.40%, 05/15/07(c) 1,230,000 1,238,794
=============================================================================
METAL & GLASS CONTAINERS-0.02%
Pactiv Corp., Unsec. Notes, 8.00%,
04/15/07(c) 365,000 367,402
=============================================================================
</Table>
<Table>
- -----------------------------------------------------------------------------
<Caption>
PRINCIPAL
AMOUNT VALUE
MOVIES & ENTERTAINMENT-0.88%
News America Holdings Inc., Sr. Unsec. Gtd.
Deb., 7.75%, 12/01/45(c) $2,200,000 $ 2,505,074
- -----------------------------------------------------------------------------
Time Warner Cos., Inc.,
Notes, 8.18%, 08/15/07(c) 2,230,000 2,264,587
- -----------------------------------------------------------------------------
Unsec. Deb., 9.15%, 02/01/23(c) 2,783,000 3,463,472
- -----------------------------------------------------------------------------
Time Warner Inc., Sr. Unsec. Gtd. Global
Notes, 6.15%, 05/01/07(c) 5,930,000 5,942,453
=============================================================================
14,175,586
=============================================================================
MULTI-LINE INSURANCE-0.15%
Liberty Mutual Insurance Co., Notes,
8.20%, 05/04/07 (Acquired 08/31/06; Cost
$508,175)(c)(d) 500,000 504,335
- -----------------------------------------------------------------------------
Unitrin Inc., Sr. Unsec. Notes, 5.75%,
07/01/07(c) 1,900,000 1,903,154
=============================================================================
2,407,489
=============================================================================
MULTI-UTILITIES-0.94%
Ameren Corp., Bonds, 4.26%, 05/15/07(c) 2,485,000 2,474,364
- -----------------------------------------------------------------------------
Dominion Capital Trust I, Jr. Unsec. Gtd.
Trust Pfd. Bonds, 7.83%, 12/01/27(c) 2,490,000 2,600,705
- -----------------------------------------------------------------------------
PSI Energy, Inc., Unsec. Deb., 7.85%,
10/15/07(c) 685,000 697,275
- -----------------------------------------------------------------------------
Sempra Energy, Sr. Notes, 4.62%, 05/17/07(c) 760,000 757,682
- -----------------------------------------------------------------------------
Tampa Electric Co., Unsec. Unsub. Notes,
5.38%, 08/15/07(c) 3,850,000 3,848,152
- -----------------------------------------------------------------------------
TE Products Pipeline Co., Sr. Unsec. Notes,
6.45%, 01/15/08(c) 510,000 509,388
- -----------------------------------------------------------------------------
Virginia Electric and Power Co.-Series A, Sr.
Unsec. Unsub. Notes, 5.38%, 02/01/07(c) 4,275,000 4,274,402
=============================================================================
15,161,968
=============================================================================
OFFICE REIT'S-0.03%
EOP Operating L.P., Sr. Unsec. Notes,
6.76%, 06/15/07(c) 420,000 422,768
=============================================================================
OIL & GAS EXPLORATION & PRODUCTION-0.46%
Pemex Project Funding Master Trust,
Unsec. Gtd. Unsub. Global Notes,
5.75%, 12/15/15(c) 3,075,000 3,069,772
- -----------------------------------------------------------------------------
8.63%, 02/01/22(c) 2,600,000 3,221,530
- -----------------------------------------------------------------------------
Talisman Energy Inc. (Canada), Unsec. Unsub.
Yankee Deb., 7.13%, 06/01/07(c) 400,000 402,016
- -----------------------------------------------------------------------------
Varco International Inc., Sr. Unsec. Gtd.
Notes, 7.50%, 02/15/08(c) 750,000 764,835
=============================================================================
7,458,153
=============================================================================
OIL & GAS REFINING & MARKETING-0.06%
Western Power Distribution Holdings Ltd.
(United Kingdom), Unsec. Unsub. Notes,
7.38%, 12/15/28 (Acquired 01/25/05; Cost
$1,008,342)(c)(d) 900,000 993,789
=============================================================================
</Table>
F-4
AIM Basic Balanced Fund
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES-2.87%
BankAmerica Capital II-Series 2, Jr. Unsec.
Gtd. Sub. Trust Pfd. Notes, 8.00%,
12/15/26(c) $1,420,000 $ 1,472,867
- -----------------------------------------------------------------------------
Barnett Capital II, Gtd. Trust Pfd. Bonds,
7.95%, 12/01/26(c) 500,000 518,610
- -----------------------------------------------------------------------------
General Electric Capital Corp., Unsec.
Floating Rate Putable Deb., 5.11%,
09/01/07(c)(f) 1,000,000 995,093
- -----------------------------------------------------------------------------
JPM Capital Trust I, Gtd. Trust Pfd. Notes,
7.54%, 01/15/27(c) 7,440,000 7,749,430
- -----------------------------------------------------------------------------
Mantis Reef Ltd. (Australia), Notes,
4.69%, 11/14/08 (Acquired
08/11/06-08/31/06; Cost $3,822,017)(c)(d) 3,900,000 3,837,171
- -----------------------------------------------------------------------------
Mizuho JGB Investment LLC-Series A, Sub.
Bonds, 9.87% (Acquired 06/16/04-07/28/05;
Cost $6,664,804)(c)(d)(g) 5,890,000 6,254,473
- -----------------------------------------------------------------------------
NB Capital Trust IV, Gtd. Trust Pfd. Bonds,
8.25%, 04/15/27(c) 3,140,000 3,288,020
- -----------------------------------------------------------------------------
Pemex Finance Ltd. (Mexico),
Sr. Unsec. Global Notes, 8.02%, 05/15/07(c) 910,000 915,487
- -----------------------------------------------------------------------------
Series 1999-2, Class A1, Global Bonds,
9.69%, 08/15/09(c) 5,687,000 5,993,473
- -----------------------------------------------------------------------------
Regional Diversified Funding (Cayman
Islands), Sr. Notes, 9.25%, 03/15/30
(Acquired 09/22/04; Cost $3,504,605)(c)(d) 2,962,222 3,364,966
- -----------------------------------------------------------------------------
Class A-1a, Sr. Floating Rate Notes,
5.71%, 01/25/36 (Acquired 03/21/05; Cost
$789,284)(c)(d)(f)(h) 789,284 768,976
- -----------------------------------------------------------------------------
Residential Capital LLC,
Sr. Unsec. Floating Rate Global Notes,
6.74%, 06/29/07(c)(f) 2,650,000 2,662,837
- -----------------------------------------------------------------------------
Sr. Unsec. Gtd. Floating Rate Notes,
5.85%, 06/09/08(c)(f) 2,375,000 2,372,756
- -----------------------------------------------------------------------------
Twin Reefs Pass-Through Trust, Floating Rate
Pass Through Ctfs., 6.35% (Acquired
12/07/04-10/23/06; Cost
$2,099,000)(c)(d)(f)(g) 2,100,000 2,103,994
- -----------------------------------------------------------------------------
Two-Rock Pass Through Trust (Bermuda),
Floating Rate Pass Through Ctfs., 6.32%
(Acquired 11/10/06; Cost
$1,596,882)(c)(d)(f)(g) 1,595,000 1,571,426
- -----------------------------------------------------------------------------
UFJ Finance Aruba AEC (Aruba), Gtd. Sub.
Second Tier Euro Bonds, 8.75%(c)(g) 1,020,000 1,077,036
- -----------------------------------------------------------------------------
Windsor Financing LLC, Sr. Gtd. Notes,
5.88%, 07/15/17 (Acquired 02/07/06; Cost
$1,084,690)(c)(d) 1,084,690 1,079,765
=============================================================================
46,026,380
=============================================================================
PACKAGED FOODS & MEATS-0.02%
Kraft Foods Inc., Global Notes, 5.25%,
06/01/07(c) 278,000 277,766
=============================================================================
PAPER PRODUCTS-0.05%
Union Camp Corp., Notes, 6.50%, 11/15/07(c) 800,000 807,392
=============================================================================
</Table>
<Table>
- -----------------------------------------------------------------------------
<Caption>
PRINCIPAL
AMOUNT VALUE
PROPERTY & CASUALTY INSURANCE-1.36%
ACE Ltd., Sr. Unsec. Yankee Notes, 6.00%,
04/01/07(c) $ 510,000 $ 510,286
- -----------------------------------------------------------------------------
CNA Financial Corp., Sr. Unsec. Notes,
6.45%, 01/15/08(c) 3,275,000 3,303,722
- -----------------------------------------------------------------------------
Executive Risk Capital Trust-Series B, Gtd.
Trust Pfd. Bonds, 8.68%, 02/01/27(c) 2,805,000 2,938,378
- -----------------------------------------------------------------------------
First American Capital Trust I, Gtd. Trust
Pfd. Notes, 8.50%, 04/15/12(c) 4,705,000 4,992,522
- -----------------------------------------------------------------------------
Oil Casualty Insurance Ltd. (Bermuda), Unsec.
Sub. Deb., 8.00%, 09/15/34 (Acquired
04/29/05-06/09/05; Cost $3,737,949)(c)(d) 3,495,000 3,482,802
- -----------------------------------------------------------------------------
Oil Insurance Ltd., Notes, 7.56% (Acquired
06/15/06; Cost $6,280,000)(c)(d)(g) 6,280,000 6,557,513
=============================================================================
21,785,223
=============================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-0.20%
Realogy Corp.,
Sr. Floating Rate Notes, 6.07%, 10/20/09
(Acquired 10/13/06; Cost $495,000)(c)(d)(f) 495,000 495,307
- -----------------------------------------------------------------------------
Sr. Notes, 6.50%, 10/15/16 (Acquired
10/13/06-10/16/06; Cost $1,666,731)(c)(d) 1,665,000 1,678,886
- -----------------------------------------------------------------------------
Southern Investments UK PLC (United Kingdom),
Gtd. Trust Pfd. Yankee Notes,
8.23%, 02/01/27(c) 1,070,000 1,086,050
=============================================================================
3,260,243
=============================================================================
REGIONAL BANKS-1.23%
Cullen/Frost Capital Trust I, Unsec. Sub.
Floating Rate Notes, 6.92%, 03/01/34(c)(f) 4,050,000 4,140,072
- -----------------------------------------------------------------------------
PNC Capital Trust C, Gtd. Floating Rate Trust
Pfd. Bonds, 5.94%, 06/01/28(c)(f) 1,175,000 1,135,379
- -----------------------------------------------------------------------------
Popular North America Inc.-Series F, Medium
Term Notes, 5.20%, 12/12/07(c) 4,060,000 4,033,326
- -----------------------------------------------------------------------------
Summit Capital Trust I-Series B, Gtd. Trust
Pfd. Bonds, 8.40%, 03/15/27(c) 500,000 524,500
- -----------------------------------------------------------------------------
TCF National Bank, Sub. Notes, 5.00%,
06/15/14(c) 1,500,000 1,474,050
- -----------------------------------------------------------------------------
Western Financial Bank, Unsec. Sub. Deb.,
9.63%, 05/15/12(c) 7,615,000 8,447,319
=============================================================================
19,754,646
=============================================================================
REINSURANCE-0.29%
Reinsurance Group of America, Inc., Jr.
Unsec. Sub. Deb., 6.75%, 12/15/65(c) 1,995,000 2,004,995
- -----------------------------------------------------------------------------
Stingray Pass-Through Trust, Pass Through
Ctfs., 5.90%, 01/12/15 (Acquired
01/07/05-11/03/05; Cost $2,747,640)(c)(d) 2,800,000 2,618,392
=============================================================================
4,623,387
=============================================================================
</Table>
F-5
AIM Basic Balanced Fund
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------
RETAIL REIT'S-0.36%
Developers Diversified Realty Corp., Sr.
Medium Term Notes, 7.00%, 03/19/07(c) $2,680,000 $ 2,688,362
- -----------------------------------------------------------------------------
JDN Realty Corp., Unsec. Sub. Notes,
6.95%, 08/01/07(c) 3,120,000 3,145,584
=============================================================================
5,833,946
=============================================================================
SOVEREIGN DEBT-0.12%
Russian Federation (Russia)-REGS, Unsec.
Unsub. Euro Bonds, 10.00%, 06/26/07
(Acquired 05/14/04-05/18/04; Cost
$2,050,181)(c)(d) 1,820,000 1,863,134
=============================================================================
SPECIALIZED CONSUMER SERVICES-0.12%
Block Financial Corp., Sr. Unsec. Gtd. Unsub.
Notes, 8.50%, 04/15/07(c) 1,868,000 1,882,458
=============================================================================
SPECIALIZED REIT'S-0.40%
Health Care Property Investors, Inc.,
Floating Rate Medium Term Notes, 5.81%,
09/15/08(c)(f) 2,540,000 2,547,391
- -----------------------------------------------------------------------------
Sr. Medium Term Notes, 6.30%, 09/15/16(c) 2,020,000 2,058,946
- -----------------------------------------------------------------------------
Health Care REIT, Inc., Sr. Notes, 5.88%,
05/15/15(c) 1,905,000 1,884,140
=============================================================================
6,490,477
=============================================================================
SPECIALTY CHEMICALS-0.06%
ICI Wilmington Inc., Gtd. Notes, 7.05%,
09/15/07(c) 880,000 888,589
=============================================================================
STEEL-0.10%
Commercial Metals Co., Unsec. Unsub. Notes,
6.80%, 08/01/07(c) 1,560,000 1,570,608
=============================================================================
THRIFTS & MORTGAGE FINANCE-0.52%
Countrywide Home Loans, Inc.-Series E, Gtd.
Medium Term Notes, 6.94%, 07/16/07(c) 1,580,000 1,592,561
- -----------------------------------------------------------------------------
Dime Capital Trust I-Series A, Gtd. Trust
Pfd. Notes, 9.33%, 05/06/27(c) 1,170,000 1,237,907
- -----------------------------------------------------------------------------
Great Western Financial Trust II-Series A,
Jr. Gtd. Sub. Trust Pfd. Notes, 8.21%,
02/01/27(c) 1,355,000 1,416,233
- -----------------------------------------------------------------------------
Greenpoint Capital Trust I, Gtd. Sub. Trust
Pfd. Notes, 9.10%, 06/01/27(c) 2,935,000 3,108,282
- -----------------------------------------------------------------------------
Washington Mutual Capital I, Gtd. Sub. Trust
Pfd. Notes, 8.38%, 06/01/27(c) 1,000,000 1,052,000
=============================================================================
8,406,983
=============================================================================
TOBACCO-0.26%
Altria Group, Inc., Unsec. Notes, 7.20%,
02/01/07(c) 4,130,000 4,134,915
=============================================================================
TRUCKING-0.18%
Roadway Corp., Sr. Sec. Gtd. Global Notes,
8.25%, 12/01/08(c) 2,805,000 2,926,541
=============================================================================
</Table>
<Table>
- -----------------------------------------------------------------------------
<Caption>
PRINCIPAL
AMOUNT VALUE
WIRELESS TELECOMMUNICATION SERVICES-0.45%
Alamosa Delaware Inc., Sr. Gtd. Global Notes,
8.50%, 01/31/12(c) $3,550,000 $ 3,775,993
- -----------------------------------------------------------------------------
Sprint Nextel Corp., Deb., 9.25%, 04/15/22(c) 2,900,000 3,487,888
=============================================================================
7,263,881
=============================================================================
Total Bonds & Notes (Cost $373,345,045) 371,073,036
=============================================================================
U.S. MORTGAGE-BACKED SECURITIES-11.16%
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-3.31%
Federal Home Loan Mortgage Corp.,
Pass Through Ctfs.,
5.50%, 05/01/13 to 12/01/33(c) 2,546,068 2,539,847
- -----------------------------------------------------------------------------
7.00%, 06/01/15 to 06/01/32(c) 2,533,725 2,606,609
- -----------------------------------------------------------------------------
6.50%, 01/01/16 to 01/01/35(c) 2,779,534 2,833,196
- -----------------------------------------------------------------------------
6.00%, 03/01/17 to 01/01/34(c) 5,183,342 5,251,880
- -----------------------------------------------------------------------------
4.50%, 10/01/18(c) 271,729 262,606
- -----------------------------------------------------------------------------
8.00%, 01/01/27(c) 843,916 889,257
- -----------------------------------------------------------------------------
7.50%, 11/01/30 to 03/01/32(c) 391,823 407,776
- -----------------------------------------------------------------------------
5.00%, 10/01/33(c) 270,084 261,144
- -----------------------------------------------------------------------------
Pass Through Ctfs., TBA,
4.50%, 01/01/22(c)(i) 2,664,000 2,567,430
- -----------------------------------------------------------------------------
5.00%, 01/01/37(c)(i) 16,270,000 15,700,550
- -----------------------------------------------------------------------------
5.50%, 01/01/37(c)(i) 19,148,618 18,939,180
- -----------------------------------------------------------------------------
6.00%, 02/01/37(c)(i) 1,000,000 1,007,188
=============================================================================
53,266,663
=============================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-6.77%
Federal National Mortgage Association,
Pass Through Ctfs.,
8.50%, 03/01/10 to 01/01/23(c) 128,868 136,397
- -----------------------------------------------------------------------------
6.50%, 04/01/14 to 10/01/35(c) 2,939,076 3,012,179
- -----------------------------------------------------------------------------
7.50%, 11/01/15 to 05/01/32(c) 826,192 859,610
- -----------------------------------------------------------------------------
7.00%, 12/01/15 to 09/01/32(c) 2,631,198 2,708,115
- -----------------------------------------------------------------------------
5.00%, 11/01/17 to 02/01/19(c) 5,945,537 5,859,787
- -----------------------------------------------------------------------------
5.50%, 07/01/19 to 10/01/34(c) 10,299,795 10,230,253
- -----------------------------------------------------------------------------
8.00%, 08/01/21 to 10/01/30(c) 560,620 592,290
- -----------------------------------------------------------------------------
6.00%, 03/01/22(c) 181,830 182,986
- -----------------------------------------------------------------------------
8.50%, 10/01/28(c) 1,173,288(j) 1,257,270
- -----------------------------------------------------------------------------
Pass Through Ctfs., TBA,
5.00%, 01/01/22(c)(i) 11,156,740 10,968,470
- -----------------------------------------------------------------------------
5.50%, 01/01/22 to 01/01/37(c)(i) 48,637,190 48,246,377
- -----------------------------------------------------------------------------
6.00%, 01/01/37(c)(i) 23,814,992 23,978,720
- -----------------------------------------------------------------------------
6.50%, 01/01/37(c)(i) 682,282 695,288
=============================================================================
108,727,742
=============================================================================
</Table>
F-6
AIM Basic Balanced Fund
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-1.08%
Government National Mortgage Association,
Pass Through Ctfs., 6.50%, 10/15/08 to
12/15/33(c) $2,070,807 $ 2,128,029
- -----------------------------------------------------------------------------
7.00%, 10/15/08 to 05/15/32(c) 931,266 962,137
- -----------------------------------------------------------------------------
6.00%, 11/15/08 to 10/15/33(c) 6,889,943 7,000,818
- -----------------------------------------------------------------------------
5.00%, 03/15/18(c) 1,603,037 1,585,327
- -----------------------------------------------------------------------------
8.00%, 08/15/22 to 01/20/31(c) 416,223 441,241
- -----------------------------------------------------------------------------
7.50%, 06/15/23 to 05/15/32(c) 1,042,841 1,088,726
- -----------------------------------------------------------------------------
8.50%, 11/15/24 to 02/15/25(c) 108,938 117,738
- -----------------------------------------------------------------------------
5.50%, 12/15/31 to 05/15/35(c) 3,981,685 3,969,356
=============================================================================
17,293,372
=============================================================================
Total U.S. Mortgage-Backed Securities
(Cost $179,555,978) 179,287,777
=============================================================================
ASSET-BACKED SECURITIES-2.90%
COLLATERALIZED MORTGAGE OBLIGATIONS-1.69%
Accredited Mortgage Loan Trust-Series 2003-3,
Class A3, Floating Rate Pass Through Ctfs.,
5.73%, 01/25/34(c)(f) 457,705 458,901
- -----------------------------------------------------------------------------
Banc of America Mortgage Securities Inc.-
Series 2003-D, Class 2AI, Floating Rate
Pass Through Ctfs., 4.18%, 05/25/33(c)(f) 1,147,915 1,127,716
- -----------------------------------------------------------------------------
Capital One Multi-Asset Execution Trust-
Series 2003-B4, Class B4, Floating Rate
Pass Through Ctfs., 6.15%, 07/15/11(c)(f) 2,230,000 2,254,658
- -----------------------------------------------------------------------------
Countrywide Asset-Backed Ctfs.-Series 2004-6,
Class 2A5, Floating Rate Pass Through
Ctfs., 5.74%, 11/25/34(c)(f) 687,893 690,365
- -----------------------------------------------------------------------------
Countrywide Home Loans-Series 2004-HYB7,
Class 1A2, Pass Through Ctfs., 4.71%,
11/20/34(c) 1,192,756 1,180,222
- -----------------------------------------------------------------------------
Credit Suisse First Boston Mortgage
Securities Corp.,
-Series 2004-AR3, Class 5A1, Pass Through
Ctfs., 4.73%, 04/25/34(c) 1,165,966 1,158,632
- -----------------------------------------------------------------------------
-Series 2004-AR7, Class 2A1, Pass Through
Ctfs., 4.67%, 11/25/34(c) 1,333,493 1,316,180
- -----------------------------------------------------------------------------
-Series 2004-C4, Class A6, Pass Through
Ctfs.,
4.69%, 10/15/39(c) 2,850,000 2,738,567
- -----------------------------------------------------------------------------
Federal Home Loan Bank-Series TQ-2015, Class
A, Pass Through Ctfs., 5.07%, 10/20/15(c) 2,455,849 2,427,582
- -----------------------------------------------------------------------------
GSR Mortgage Loan Trust-Series 2004-5, Class
2A1, Pass Through Ctfs., 4.51%, 05/25/34(c) 750,831 739,017
- -----------------------------------------------------------------------------
Impac CMB Trust,
-Series 2003-12, Class A1, Floating Rate
Pass Through Ctfs., 6.11%, 12/25/33(c)(f) 132,441 132,574
- -----------------------------------------------------------------------------
-Series 2004-1, Class A1, Floating Rate
Pass Through Ctfs., 6.01%, 03/25/34(c)(f) 413,095 415,502
- -----------------------------------------------------------------------------
</Table>
<Table>
- -----------------------------------------------------------------------------
<Caption>
PRINCIPAL
AMOUNT VALUE
COLLATERALIZED MORTGAGE OBLIGATIONS-(CONTINUED)
Master Asset Securitization Trust-Series
2003-8, Class 1A1, Pass Through Ctfs.,
5.50%, 09/25/33(c) $2,825,362 $ 2,775,919
- -----------------------------------------------------------------------------
MLCC Mortgage Investors, Inc.-Series 2003-G,
Class A1, Floating Rate Pass Through Ctfs.,
5.67%, 01/25/29(c)(f) 1,204,638 1,206,057
- -----------------------------------------------------------------------------
Morgan Stanley Mortgage Loan Trust- Series
2004-6AR, Class 2A2, Pass Through Ctfs.,
4.06%, 08/25/34(c) 1,339,033 1,337,253
- -----------------------------------------------------------------------------
Nomura Asset Acceptance Corp.-Series
2005-AR1, Class 2A1, Floating Rate Pass
Through Ctfs., 5.63%, 02/25/35(c)(f) 422,743 423,269
- -----------------------------------------------------------------------------
Residential Asset Mortgage Products, Inc.-
Series 2003-RS2, Class AII, Floating Rate
Pass Through Ctfs., 5.69%, 03/25/33(c)(f) 314,736 314,951
- -----------------------------------------------------------------------------
Specialty Underwriting & Residential Finance
Trust-Series 2003-BC3, Class A, Floating
Rate Pass Through Ctfs., 5.70%,
08/25/34(c)(f) 8,370 8,387
- -----------------------------------------------------------------------------
Structured Adjustable Rate Mortgage Loan
Trust,
-Series 2004-3AC, Class A1, Floating Rate
Pass Through Ctfs., 4.94%, 03/25/34(c)(f) 1,242,024 1,237,499
- -----------------------------------------------------------------------------
-Series 2005-1, Class 1A1, Pass Through
Ctfs., 5.14%, 02/25/35(c) 849,332 870,370
- -----------------------------------------------------------------------------
Structured Asset Securities Corp.,
-Series 2003-37A, Class 7A, Pass Through
Ctfs., 6.96%, 12/25/33(c) 837,565 844,397
- -----------------------------------------------------------------------------
-Series 2004-2AC, Class A1, Floating Rate
Pass Through Ctfs., 5.00%, 02/25/34(c)(f) 2,279,784 2,285,374
- -----------------------------------------------------------------------------
Vanderbilt Mortgage and Finance, Inc.- Series
2002-B, Class A4, Pass Through Ctfs.,
5.84%, 02/07/26(c) 1,175,000 1,186,823
=============================================================================
27,130,215
=============================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.07%
Citicorp Lease Pass-Through Trust-Series
1999-1, Class A2, Pass Through Ctfs.,
8.04%, 12/15/19 (Acquired
06/01/00-01/26/06; Cost $6,733,854)(c)(d) 6,085,000 7,171,093
- -----------------------------------------------------------------------------
LILACS Repackaging 2005-I-Series A, Sr. Sec.
Notes, 5.14%, 04/15/15 (Acquired 07/14/05;
Cost $4,406,005)(d)(h) 4,406,005 4,279,641
- -----------------------------------------------------------------------------
Patrons' Legacy,-
2004-I-Series A, Ctfs., 6.67%, 05/04/18
(Acquired 04/30/04-07/14/05; Cost
$3,445,376)(d)(h) 3,402,778 3,404,037
- -----------------------------------------------------------------------------
2003-III-Series A, Ctfs.,
5.65%, 04/17/18 (Acquired 11/04/04; Cost
$2,436,069)(d)(h) 2,375,703 2,354,487
=============================================================================
17,209,258
=============================================================================
</Table>
F-7
AIM Basic Balanced Fund
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------
PROPERTY & CASUALTY INSURANCE-0.14%
North Front Pass-Through Trust, Pass Through
Ctfs. Bonds, 5.81%, 12/15/24 (Acquired
12/08/04; Cost $2,369,940)(c)(d) $2,350,000 $ 2,320,954
=============================================================================
Total Asset-Backed Securities (Cost
$46,932,949) 46,660,427
=============================================================================
<Caption>
SHARES
PREFERRED STOCKS-0.69%
LIFE & HEALTH INSURANCE-0.13%
Aegon N.V., 6.38% Pfd. (Netherlands) 79,800 2,072,406
=============================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-0.05%
Auction Pass-Through Trust-Series 2001-1,
Class A, 5.80%, Floating Rate Pfd.
(Acquired 10/03/06; Cost
$750,000)(d)(f)(h)(k)(l) 3 759,787
=============================================================================
THRIFTS & MORTGAGE FINANCE-0.36%
Fannie Mae,
Series J, 6.45% Floating Rate Pfd.,(f) 56,850 2,853,870
- -----------------------------------------------------------------------------
Series K, 5.40% Floating Rate Pfd.,(f) 59,850 2,995,492
=============================================================================
5,849,362
=============================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.15%
Telephone & Data Systems, Inc.-Series A,
7.60% Pfd. 93,000 2,331,510
=============================================================================
Total Preferred Stocks (Cost $11,000,677) 11,013,065
=============================================================================
<Caption>
PRINCIPAL
AMOUNT
MUNICIPAL OBLIGATIONS-0.64%
Detroit (City of), Michigan;
Series 2005 A-1, Taxable Capital
Improvement Limited Tax GO (INS-Ambac
Assurance Corp.),
4.96%, 04/01/20(c)(e) $1,550,000 1,456,116
- -----------------------------------------------------------------------------
Series 2005, Taxable COP (INS-Financial
Guaranty Insurance Co.),
4.95%, 06/15/25(c)(e) 1,920,000 1,769,933
- -----------------------------------------------------------------------------
Indianapolis (City of), Indiana Local Public
Improvement Bond Bank; Series 2005 A,
Taxable RB,
4.87%, 07/15/16(c) 925,000 889,499
- -----------------------------------------------------------------------------
5.22%, 07/15/20(c) 1,100,000 1,072,896
- -----------------------------------------------------------------------------
5.28%, 01/15/22(c) 600,000 584,214
- -----------------------------------------------------------------------------
</Table>
<Table>
- -----------------------------------------------------------------------------
<Caption>
PRINCIPAL
AMOUNT VALUE
MUNICIPAL OBLIGATIONS-(CONTINUED)
Industry (City of), California Urban
Development Agency (Project 3); Series
2003, Taxable Allocation RB, (INS-MBIA
Insurance Corp.)
6.10%, 05/01/24(c)(e) $2,060,000 $ 2,112,942
- -----------------------------------------------------------------------------
Phoenix (City of), Arizona Civic Improvement
Corp.; Series 2004, Taxable Rental Car
Facility Charge RB (INS-Financial Guaranty
Insurance Co.),
3.69%, 07/01/07(c)(e) 1,080,000 1,071,457
- -----------------------------------------------------------------------------
4.21%, 07/01/08(c)(e) 1,285,000 1,266,059
=============================================================================
Total Municipal Obligations (Cost
$10,568,408) 10,223,116
=============================================================================
COMMERCIAL PAPER-0.31%
BROADCASTING & CABLE TV-0.31%
Cox Communications Inc., Floating Rate
Commercial Paper,
5.62%, 08/15/07 (Acquired 11/03/06; Cost
$280,000) (Cost $5,030,000)(c)(d)(f) 5,030,000 5,030,860
=============================================================================
U.S. GOVERNMENT AGENCY SECURITIES-0.23%
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-0.23%
Unsec. Floating Rate Global Notes, 3.20%,
02/17/09 (Cost $3,860,000)(c)(f) 3,860,000 3,775,968
=============================================================================
<Caption>
SHARES
MONEY MARKET FUNDS-2.73%
Liquid Assets Portfolio-Institutional
Class(m) 21,896,097 21,896,097
- -----------------------------------------------------------------------------
Premier Portfolio-Institutional Class(m) 21,896,097 21,896,097
=============================================================================
Total Money Market Funds (Cost
$43,792,194) 43,792,194
=============================================================================
TOTAL INVESTMENTS-107.43% (Cost
$1,458,594,268) 1,725,619,894
=============================================================================
OTHER ASSETS LESS LIABILITIES-(7.43)% (119,368,484)
=============================================================================
NET ASSETS-100.00% $1,606,251,410
_____________________________________________________________________________
=============================================================================
</Table>
F-8
AIM Basic Balanced Fund
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
COP - Certificates of Participation
Ctfs. - Certificates
Deb. - Debentures
GO - General Obligation Bonds
Gtd. - Guaranteed
INS - Insurer
Jr. - Junior
LILACS - Life Insurance and Life Annuities Backed Certificate
Pfd. - Preferred
RB - Revenue Bonds
REGS - Regulation S
REIT - Real Estate Investment Trust
Sec. - Secured
Sr. - Senior
Sub. - Subordinated
TBA - To Be Announced
Unsec. - Unsecured
Unsub. - Unsubordinated
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
aggregate value of these securities at December 31, 2006 was $48,233,269,
which represented 3.00% of the Fund's Net Assets. See Note 1A.
(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,
2006 was $606,013,019, which represented 37.73% of the Fund's Net Assets.
See Note 1A.
(d) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction). The security may be resold 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, 2006 was
$111,060,386, which represented 6.91% of the Fund's Net Assets. Unless
otherwise indicated, these securities are not considered to be illiquid.
(e) Principal and/or interest payments are secured by the bond insurance company
listed.
(f) Interest or dividend rate is redetermined periodically. Rate shown is the
rate in effect on December 31, 2006.
(g) Perpetual bond with no specified maturity date.
(h) 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, 2006 was
$11,566,928, which represented 0.72% of the Fund's Net Assets.
(i) Security purchased on forward commitment basis. This security is subject to
dollar roll transactions. See Note 1I.
(j) All or a portion of the principal balance was pledged as collateral to cover
margin requirements for open futures contracts. See Note 1N and Note 8.
(k) Affiliated company. The Investment Company Act of 1940 defines affiliates as
those issuances 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 value of this security as of
December 31, 2006 represented 0.05% of the Fund's Net Assets. See Note 3.
(l) 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, 2006 represented 0.05% of the Fund's Net Assets. See Note 1A.
(m) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
F-9
AIM Basic Balanced Fund
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2006
<Table>
ASSETS:
Investments, at value (cost $1,414,052,074) $1,681,067,913
- ------------------------------------------------------------
Investments in affiliates (cost $44,542,194) 44,551,981
============================================================
Total investments (Cost $1,458,594,268) 1,725,619,894
============================================================
Foreign currencies, at value (cost $48,729) 49,124
- ------------------------------------------------------------
Cash 458,011
- ------------------------------------------------------------
Receivables for:
Investments sold 34,595,493
- ------------------------------------------------------------
Fund shares sold 1,784,675
- ------------------------------------------------------------
Dividends and Interest 8,918,928
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 474,828
- ------------------------------------------------------------
Other assets 152,771
============================================================
Total assets 1,772,053,724
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 157,647,898
- ------------------------------------------------------------
Fund shares reacquired 5,350,830
- ------------------------------------------------------------
Dividends 1,500
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 673,013
- ------------------------------------------------------------
Unrealized depreciation on credit default
swap agreements 19,925
- ------------------------------------------------------------
Variation margin 86,687
- ------------------------------------------------------------
Accrued distribution fees 679,743
- ------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 8,169
- ------------------------------------------------------------
Accrued transfer agent fees 1,098,377
- ------------------------------------------------------------
Accrued operating expenses 236,172
============================================================
Total liabilities 165,802,314
============================================================
Net assets applicable to shares outstanding $1,606,251,410
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,942,171,504
- ------------------------------------------------------------
Undistributed net investment income (2,057,713)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies,
futures contracts, option contracts and
credit default swap agreements (599,964,595)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies, futures
contracts and credit default swap
agreements 266,102,214
============================================================
$1,606,251,410
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 788,002,519
____________________________________________________________
============================================================
Class B $ 358,655,247
____________________________________________________________
============================================================
Class C $ 163,629,828
____________________________________________________________
============================================================
Class R $ 7,292,864
____________________________________________________________
============================================================
Investor Class $ 288,521,669
____________________________________________________________
============================================================
Institutional Class $ 149,283
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 59,432,973
____________________________________________________________
============================================================
Class B 27,115,556
____________________________________________________________
============================================================
Class C 12,361,145
____________________________________________________________
============================================================
Class R 550,482
____________________________________________________________
============================================================
Investor Class 21,765,504
____________________________________________________________
============================================================
Institutional Class 11,189
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 13.26
- ------------------------------------------------------------
Offering price per share
(Net asset value of $13.26 divided by
94.50% $ 14.03
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 13.23
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 13.24
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 13.25
____________________________________________________________
============================================================
Investor Class:
Net asset value and offering price per
share $ 13.26
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 13.25
____________________________________________________________
============================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-10
AIM Basic Balanced Fund
STATEMENT OF OPERATIONS
For the year ended December 31, 2006
<Table>
INVESTMENT INCOME:
Interest $ 31,763,442
- --------------------------------------------------------------------------
Dividends (net of foreign withholding taxes of $303,530) 18,067,044
- --------------------------------------------------------------------------
Dividends from affiliates 2,276,820
==========================================================================
Total investment income 52,107,306
==========================================================================
EXPENSES:
Advisory fees 8,724,288
- --------------------------------------------------------------------------
Administrative services fees 420,982
- --------------------------------------------------------------------------
Custodian fees 209,986
- --------------------------------------------------------------------------
Distribution fees:
Class A 1,953,111
- --------------------------------------------------------------------------
Class B 4,301,392
- --------------------------------------------------------------------------
Class C 1,767,870
- --------------------------------------------------------------------------
Class R 33,308
- --------------------------------------------------------------------------
Investor Class 762,327
- --------------------------------------------------------------------------
Transfer agent fees -- A, B, C, R and Investor 5,208,383
- --------------------------------------------------------------------------
Transfer agent fees -- Institutional 94
- --------------------------------------------------------------------------
Trustees' and officer's fees and benefits 46,566
- --------------------------------------------------------------------------
Other 508,299
==========================================================================
Total expenses 23,936,606
==========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (132,489)
==========================================================================
Net expenses 23,804,117
==========================================================================
Net investment income 28,303,189
==========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES, FUTURES CONTRACTS, OPTION
CONTRACTS AND CREDIT DEFAULT SWAP AGREEMENTS:
Net realized gain (loss) from:
Investment securities (includes net gains (losses) from
securities sold to affiliates of $(32,116)) 94,815,262
- --------------------------------------------------------------------------
Foreign currencies 17,617
- --------------------------------------------------------------------------
Futures contracts 33,845
- --------------------------------------------------------------------------
Option contracts written 109,658
- --------------------------------------------------------------------------
Credit default swap agreements (9,047)
==========================================================================
94,967,335
==========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities 42,294,497
- --------------------------------------------------------------------------
Foreign currencies 2,612
- --------------------------------------------------------------------------
Futures contracts (1,123,851)
- --------------------------------------------------------------------------
Credit default swap agreements (19,925)
==========================================================================
41,153,333
==========================================================================
Net gain from investment securities, foreign currencies,
futures contracts, option contracts and credit default
swap agreements 136,120,668
==========================================================================
Net increase in net assets resulting from operations $164,423,857
__________________________________________________________________________
==========================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-11
AIM Basic Balanced Fund
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2006 and 2005
<Table>
<Caption>
2006 2005
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 28,303,189 $ 13,469,892
- ----------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies, futures contracts, option contracts and
credit default swap agreements 94,967,335 21,611,309
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities, foreign currencies, futures contracts and
credit default swap agreements 41,153,333 27,276,794
==============================================================================================
Net increase in net assets resulting from operations 164,423,857 62,357,995
==============================================================================================
Distributions to shareholders from net investment income:
Class A (17,077,479) (8,595,883)
- ----------------------------------------------------------------------------------------------
Class B (6,054,999) (3,119,462)
- ----------------------------------------------------------------------------------------------
Class C (2,530,825) (1,137,561)
- ----------------------------------------------------------------------------------------------
Class R (131,080) (51,437)
- ----------------------------------------------------------------------------------------------
Investor Class (6,589,651) (3,351,057)
- ----------------------------------------------------------------------------------------------
Institutional Class (2,846) (470)
==============================================================================================
Decrease in net assets resulting from distributions (32,386,880) (16,255,870)
==============================================================================================
Share transactions-net:
Class A (91,768,660) 726,493,380
- ----------------------------------------------------------------------------------------------
Class B (190,334,691) 425,784,791
- ----------------------------------------------------------------------------------------------
Class C (43,939,203) 162,166,535
- ----------------------------------------------------------------------------------------------
Class R 51,923 6,518,889
- ----------------------------------------------------------------------------------------------
Investor Class (79,282,144) 335,615,063
- ----------------------------------------------------------------------------------------------
Institutional Class 106,661 22,337
==============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (405,166,114) 1,656,600,995
==============================================================================================
Net increase (decrease) in net assets (273,129,137) 1,702,703,120
==============================================================================================
NET ASSETS:
Beginning of year 1,879,380,547 176,677,427
==============================================================================================
End of year (including undistributed net investment income
of $(2,057,713) and $(3,900,957), respectively) $1,606,251,410 $1,879,380,547
______________________________________________________________________________________________
==============================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-12
AIM Basic Balanced Fund
NOTES TO FINANCIAL STATEMENTS
December 31, 2006
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 seven 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 primary investment objective is long-term growth of capital and
current income.
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.
Debt obligations (including convertible bonds) and unlisted equities 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.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price or official closing price as of the close of
the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on that
day. Securities traded in the over-the-counter market are valued based on
the prices furnished by independent pricing services, in which case the
securities may be considered fair valued, or by market makers. 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 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 open-end and closed-end registered
investment companies that trade on an exchange are valued at the last sales
price or official closing price as of the close of the customary trading
session on the exchange where the security is principally traded.
Swap agreements are fair valued using an evaluated quote provided by an
independent pricing service. Evaluated quotes provided by the pricing
service are valued based on a model which may include end of day net
present values, spreads, ratings, industry, and company performance.
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. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued at
the market quotations. Because trading hours for certain foreign securities
end before the close of the NYSE, closing market quotations may become
unreliable. If between the time trading ends on a particular security and
the close of the customary trading session on the NYSE, events occur that
are significant and may make the closing price unreliable, the Fund may
fair value the security. If 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 prices are not provided by any of the above
methods may be 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.
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
F-13
AIM Basic Balanced Fund
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 the 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 treat 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 to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that 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. ACCOUNTING ESTIMATES -- 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.
H. INDEMNIFICATIONS -- 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.
I. 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, the dollar roll transactions are accounted for as
financing transactions in which the Fund receives compensation as either a
"fee" or a "drop". "Fee" income which is agreed upon amongst the parties at
the commencement of the dollar roll and the "drop" which is the difference
between the selling price and the repurchase price of the mortgage-backed
securities are amortized to income. 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
the return on the securities sold.
J. 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-14
AIM Basic Balanced Fund
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.
The Fund may invest in foreign securities which may be subject to foreign
taxes on income, gains on investments or currency repatriation, a portion
of which may be recoverable. Taxes are accrued based on the Fund's current
interpretation of tax regulations and rates that exist in the foreign
markets in which the Fund invests.
K. 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.
Fluctuations in the value of these contracts are recorded as unrealized
appreciation (depreciation) until the contracts are closed. When these
contracts are closed, realized gains (losses) are recorded. Realized and
unrealized gains and losses on these contracts are included in the
Statement of Operations. The Fund could be exposed to risk, which may be in
excess of the amount reflected in the Statement of Assets and Liabilities,
if counterparties to the contracts are unable to meet the terms of their
contracts or if the value of the foreign currency changes unfavorably.
L. COVERED CALL OPTIONS -- The Fund may write call options. A call option
gives the purchaser of such option the right to buy, and the writer (the
Fund) the obligation to sell, the underlying security at the stated
exercise price during the option period. Written call options are recorded
as a liability in the Statement of Assets and Liabilities. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. 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. Realized gains and losses on these contracts
are included in the Statement of Operations. 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.
M. PUT OPTIONS PURCHASED AND WRITTEN -- The Fund may purchase and write put
options including options on securities indexes and/or futures contracts.
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, securities index, 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 underlying portfolio securities. The Fund may
write put options to earn additional income in the form of option premiums
if it expects the price of the underlying instrument to remain stable or
rise during the option period so that the option will not be exercised. The
risk in this strategy is that the price of the underlying securities may
decline by an amount greater than the premium received. Put options written
are reported as a liability in the Statement of Assets and Liabilities.
Realized and unrealized gains and losses on these contracts are included in
the Statement of Operations. 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.
N. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts.
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. Risks may exceed
amounts recognized in the Statement of Assets and Liabilities.
O. SWAP AGREEMENTS -- The Fund may enter into various swap transactions,
including interest rate, index, currency exchange rate and credit default
swap contracts ("CDS") for investment purposes or to manage interest rate,
currency or credit risk.
Interest rate, index, and currency exchange rate swap agreements are
two-party contracts entered into primarily to exchange the returns (or
differentials in rates of returns) earned or realized on particular
predetermined investments or instruments. The gross returns to be exchanged
or "swapped" between the parties are calculated with respect to a notional
amount, i.e., the return on or increase in value of a particular dollar
amount invested at a particular interest rate, in a particular foreign
currency, or in a "basket" of securities representing a particular index.
A CDS is an agreement between two parties ("Counterparties") to exchange
the credit risk of an issuer. A buyer of a CDS is said to buy protection by
paying a fixed payment over the life of the agreement to the seller of the
CDS. If a defined credit event occurs (such as payment default or
bankruptcy), the Fund as a protection buyer would cease paying its fixed
payment, the Fund would deliver the corresponding bonds, or other similar
F-15
AIM Basic Balanced Fund
bonds issued by the same reference entity to the seller, and the seller
would pay the full notional value, or the "par value", of the referenced
obligation to the Fund. A seller of a CDS is said to sell protection and
thus would receive the fixed payment stream. If a credit event occurs, the
Fund as a protection seller would cease to receive the fixed payment
stream, the Fund would pay the buyer the full notional value of the
referenced obligation, and the Fund would receive the corresponding bonds
or similar bonds issued by the same reference entity. If no credit event
occurs, the Fund receives the fixed payment over the life of the agreement.
As the seller, the Fund would effectively add leverage to its portfolio
because, in addition to its total net assets, the Fund would be subject to
investment exposure on the notional amount of the CDS. Because the CDS is a
bilateral agreement between Counterparties, the transaction can
alternatively be settled by a cash payment in the case of a credit event.
Changes in the value of swap agreements are recognized as unrealized
gains (losses) in the Statement of Operations by "marking to market" on a
daily basis to reflect the value of the swap agreement at the end of each
trading day. The Fund accrues for the fixed payments on swap agreements on
a daily basis with the net amount accrued recorded as a component of
realized gain (loss) on the Statement of Operations. A liquidation payment
received or made at the termination of a swap agreement is recorded as
realized gain (loss) on the Statement of Operations. The Fund segregates
liquid securities having a value at least equal to the amount of the
potential obligation of the Fund under any swap transaction. Entering into
these agreements involves, to varying degrees, lack of liquidity and
elements of credit, market, and counterparty risk in excess of amounts
recognized on the Statement of Assets and Liabilities.
P. 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 $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>
AIM has voluntarily agreed to waive advisory fees of the Fund in the amount
of 25% of the advisory fee AIM receives from the affiliated money market funds
on investments by the Fund in such affiliated money market funds. Voluntary fee
waivers or reimbursements may be modified or discontinued at any time upon
consultation with the Board of Trustees without further notice to investors.
For the year ended December 31, 2006, AIM waived advisory fees of $9,318.
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, 2006, AMVESCAP reimbursed expenses of the Fund in
the amount of $2,861.
The Trust has entered into a master administrative services agreement with
AIM pursuant to which the Fund has agreed to pay AIM for certain administrative
costs incurred in providing accounting services, to the Fund. For the year ended
December 31, 2006, expenses incurred under the agreement are shown in the
Statement of Operations as administrative services fees.
The Trust has entered into a transfer agency and service agreement with AIM
Investment Services, Inc. ("AIS") pursuant to which the Fund has agreed to pay
AIS a fee for providing transfer agency and shareholder services to the Fund and
reimburse AIS for certain expenses incurred by AIS in the course of providing
such services. AIS may make payments to intermediaries that provide omnibus
account services, sub-accounting services and/or networking services. All fees
payable by AIS to intermediaries that provide omnibus account services or
sub-accounting are charged back to the Fund, subject to certain limitations
approved by the Trust's Board of Trustees. For the year ended December 31, 2006,
expenses incurred under the agreement are shown in the Statement of Operations
as transfer agent fees.
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, 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 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. The Fund,
pursuant to the Investor Class Plan, reimburses 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 Investor Class
shares. Of the Plan payments, up to 0.25% of the average daily net assets of
each class of 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
F-16
AIM Basic Balanced Fund
asset-based sales charges that may be paid by any class of shares of the Fund.
For the year ended December 31, 2006, expenses incurred under the Plans are
shown in the Statement of Operations as distribution fees.
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, 2006, ADI advised the Fund that it retained $118,551 in
front-end sales commissions from the sale of Class A shares and $605, $235,115,
$9,914 and $0 from Class A, Class B, Class C and Class R shares, respectively,
for CDSC imposed on redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS and/or ADI.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to procedures approved 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, 2006.
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 12/31/06 INCOME GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $17,648,250 $344,744,841 $(340,496,994) $ -- $21,896,097 $1,000,804 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-
Institutional
Class -- 178,171,774 (156,275,677) -- 21,896,097 509,029 --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 17,648,250 187,986,810 (205,635,060) -- -- 493,514 --
===================================================================================================================================
Subtotal $35,296,500 $710,903,425 $(702,407,731) $ -- $43,792,194 $2,003,347 $ --
===================================================================================================================================
</Table>
INVESTMENTS IN OTHER AFFILIATES:
The Investment Company Act of 1940 defines affiliates as those issuances 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, 2006.
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
12/31/05 AT COST FROM SALES (DEPRECIATION) 12/31/06 INCOME GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Auction Pass
Through
Trust-Series
2001-1, Class
A, Floating
Rate Pfd.
(Cost
$750,000) $ 5,500,000 $ 750,000 $ (5,500,000) $9,787 $ 759,787 $ 150,807 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
Auction Pass
Through
Trust-Series
2001-4, Class
A, Floating
Rate Pfd. -- 8,009,333 (8,000,000) -- -- 122,666 (9,333)
===================================================================================================================================
Subtotal $ 5,500,000 $ 8,759,333 $ (13,500,000) $9,787 $ 759,787 $ 273,473 $(9,333)
===================================================================================================================================
Total
Investments
in
Affiliates $40,796,500 $719,662,758 $(715,907,731) $9,787 $44,551,981 $2,276,820 $(9,333)
___________________________________________________________________________________________________________________________________
===================================================================================================================================
</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, for the year ended December 31, 2006, the Fund
engaged in securities sales of $2,547,493, which resulted in net realized gains
(losses) of $(32,116), and securities purchases of $20,017,085.
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, (ii) custodian credits which result
from periodic overnight cash balances at the custodian and (iii) a one time
custodian fee credit to be used to offset future custodian fees. For the year
ended December 31, 2006, the Fund received credits from these arrangements,
which resulted in the reduction of the Fund's total expenses of $120,310.
F-17
AIM Basic Balanced Fund
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, 2006, the Fund paid legal fees of $10,128
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 Securities and Exchange Commission, 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, 2006, 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 bank 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 contractually agreed upon rate.
NOTE 8--FUTURES CONTRACTS
On December 31, 2006, $1,173,288 principal amount of U.S. mortgage-backed
obligations were pledged as collateral to cover margin requirements for open
futures contracts.
<Table>
<Caption>
OPEN FUTURES CONTRACTS AT PERIOD END
- ----------------------------------------------------------------------------------------------------------------------------
UNREALIZED
NUMBER OF MONTH/ VALUE APPRECIATION
CONTRACT CONTRACTS COMMITMENT 12/31/06 (DEPRECIATION)
- ----------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 2 Year Notes 24 Mar-07/Long $ 4,896,750 $ (18,732)
- ----------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 10 Year Notes 989 Mar-07/Long 106,286,594 (1,244,342)
- ----------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 30 Year Bonds 4 Mar-07/Long 445,750 (9,244)
============================================================================================================================
$ 111,629,094 $(1,272,318)
============================================================================================================================
Eurodollar GLOBEX2 etrading 320 Dec-07/Short $ (76,040,000) $ 289,525
- ----------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 5 Year Notes 371 Mar-07/Short (38,978,188) 77,326
============================================================================================================================
$(115,018,188) $ 366,851
============================================================================================================================
$ (3,389,094) $ (905,467)
____________________________________________________________________________________________________________________________
============================================================================================================================
</Table>
NOTE 9--CREDIT DEFAULT SWAP AGREEMENTS
<Table>
<Caption>
OPEN CREDIT DEFAULT SWAP AGREEMENTS AT PERIOD-END
- ---------------------------------------------------------------------------------------------------------------------------------
NOTIONAL UNREALIZED
REFERENCE BUY/SELL PAY/RECEIVE EXPIRATION AMOUNT APPRECIATION
COUNTERPARTY ENTITY PROTECTION FIXED RATE DATE (000) (DEPRECIATION)
- ---------------------------------------------------------------------------------------------------------------------------------
Leman Brothers Inc. Dow Jones CDX.NA.IG Buy 0.40% 12/20/2011 $11,250 $(19,925)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
F-18
AIM Basic Balanced Fund
NOTE 10--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- ------------------------------------------------------------------------------------------------------------
CALL OPTION CONTRACTS PUT OPTION CONTRACTS
--------------------- ---------------------
NUMBER OF PREMIUMS NUMBER OF PREMIUMS
CONTRACTS RECEIVED CONTRACTS RECEIVED
- ------------------------------------------------------------------------------------------------------------
Beginning of period -- $ -- -- $ --
- ------------------------------------------------------------------------------------------------------------
Written 222 37,703 466 74,982
- ------------------------------------------------------------------------------------------------------------
Closed -- -- (285) (43,559)
- ------------------------------------------------------------------------------------------------------------
Expired (222) (37,703) (181) (31,423)
============================================================================================================
End of period -- $ -- -- $ --
____________________________________________________________________________________________________________
============================================================================================================
</Table>
NOTE 11--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31, 2006
and 2005 was as follows:
<Table>
<Caption>
2006 2005
- ----------------------------------------------------------------------------------------
Distributions paid from ordinary income $32,386,880 $16,255,870
________________________________________________________________________________________
========================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2006, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2006
- ------------------------------------------------------------------------------
Undistributed ordinary income $ 932,097
- ------------------------------------------------------------------------------
Unrealized appreciation-investments 253,578,436
- ------------------------------------------------------------------------------
Temporary book/tax differences (500,153)
- ------------------------------------------------------------------------------
Capital loss carryforward (589,930,474)
- ------------------------------------------------------------------------------
Shares of beneficial interest 1,942,171,504
==============================================================================
Total net assets $1,606,251,410
______________________________________________________________________________
==============================================================================
</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 net unrealized
appreciation difference is attributable primarily to losses on wash sales,
treatment of partnerships and bond premium amortization, the recognition of
gains (losses) on dollar roll transactions, the realization for tax purposes of
unrealized gains (losses) on certain future contracts and credit default swap
agreements. The tax-basis net unrealized appreciation on investments amount
includes appreciation (depreciation) on foreign currencies of $1,980 and credit
default swap agreements of $(5,810).
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 benefits.
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, 2006 to utilizing $588,093,284 of capital loss carryforward in the fiscal
year ended December 31, 2007.
The Fund utilized $70,880,094 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, 2006 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
December 31, 2007 $ 20,533,696
- -----------------------------------------------------------------------------
December 31, 2008 35,503,936
- -----------------------------------------------------------------------------
December 31, 2009 533,892,842
=============================================================================
Total capital loss carryforward $589,930,474
_____________________________________________________________________________
=============================================================================
</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.
F-19
AIM Basic Balanced Fund
NOTE 12--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the year ended December 31, 2006 was $600,630,308 and
$1,050,270,774, respectively. During the same period, purchases and sales of
U.S. Treasury obligations were $37,045,411 and $52,875,866.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $280,760,288
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (27,178,022)
==============================================================================
Net unrealized appreciation of investment securities $253,582,266
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $1,472,037,628.
</Table>
NOTE 13--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of defaulted bonds,
capital loss carryforward limitations, bond premium amortization, paydowns on
mortgage-backed securities, foreign currency and credit default swap agreements,
on December 31, 2006, undistributed net investment income was increased by
$5,926,935, undistributed net realized gain (loss) was decreased by $7,402,594
and shares of beneficial interest increased by $1,475,659. This reclassification
had no effect on the net assets of the Fund.
F-20
AIM Basic Balanced Fund
NOTE 14--SHARE INFORMATION
The Fund currently consists of six different classes of shares: Class A, Class
B, Class C, Class R, Investor Class and Institutional Class. Investor Class
shares of the Fund are offered only to certain grandfathered investors.
Class A shares are sold with a front-end sales charge unless certain waiver
criteria are met. Class B shares and Class C shares are sold with CDSC. Class R
shares, Investor Class 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 on or about the month-end which is at least eight years after the date of
purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
2006(a) 2005
---------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 5,554,775 $ 69,877,462 3,574,831 $ 41,159,315
- ---------------------------------------------------------------------------------------------------------------------------
Class B 1,642,616 20,562,209 1,555,755 19,622,389
- ---------------------------------------------------------------------------------------------------------------------------
Class C 1,035,649 12,980,241 692,392 8,691,991
- ---------------------------------------------------------------------------------------------------------------------------
Class R 174,775 2,202,980 86,849 1,041,093
- ---------------------------------------------------------------------------------------------------------------------------
Investor Class(b) 2,076,711 26,090,526 1,113,552 13,282,200
- ---------------------------------------------------------------------------------------------------------------------------
Institutional Class 8,219 104,034 -- --
===========================================================================================================================
Issued as reinvestment of dividends:
Class A 1,288,017 16,206,328 676,892 8,200,834
- ---------------------------------------------------------------------------------------------------------------------------
Class B 452,214 5,660,842 239,524 2,896,797
- ---------------------------------------------------------------------------------------------------------------------------
Class C 186,996 2,344,394 86,923 1,052,344
- ---------------------------------------------------------------------------------------------------------------------------
Class R 10,412 131,078 4,242 51,436
- ---------------------------------------------------------------------------------------------------------------------------
Investor Class(b) 508,154 6,386,710 270,718 3,281,489
- ---------------------------------------------------------------------------------------------------------------------------
Institutional Class 224 2,846 39 441
===========================================================================================================================
Issued in connection with acquisitions:(c)
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 6,798,647 85,418,117 2,568,566 30,758,935
- ---------------------------------------------------------------------------------------------------------------------------
Class B (6,818,504) (85,418,117) (2,575,119) (30,758,935)
===========================================================================================================================
Reacquired:
Class A (20,956,438) (263,270,567) (23,065,739) (277,611,286)
- ---------------------------------------------------------------------------------------------------------------------------
Class B (10,471,166) (131,139,625) (6,979,708) (83,148,180)
- ---------------------------------------------------------------------------------------------------------------------------
Class C (4,726,936) (59,263,838) (2,891,817) (34,430,584)
- ---------------------------------------------------------------------------------------------------------------------------
Class R (180,764) (2,282,135) (86,644) (1,033,275)
- ---------------------------------------------------------------------------------------------------------------------------
Investor Class(b) (8,910,860) (111,759,380) (9,806,444) (117,968,385)
- ---------------------------------------------------------------------------------------------------------------------------
Institutional Class (17) (219) -- --
===========================================================================================================================
(32,327,276) $(405,166,114) 138,650,882 $1,656,600,995
___________________________________________________________________________________________________________________________
===========================================================================================================================
</Table>
(a) There are two entities that are each record owners of more than 5% of
the outstanding shares of the Fund and they own 14% 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 entities are owned beneficially.
(b) Investor Class shares commenced sales on July 15, 2005.
(c) 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. Each class of
shares of AIM Total Return Fund and AIM Balanced Fund was exchanged for
the like class of shares of Fund based on the relative net asset value
of AIM Total Return Fund and AIM Balanced Fund to net asset value of the
Fund on the close of business, July 15, 2005. AIM Total Return Fund's
net assets at the close of business on July 15, 2005 of $446,220,459
including $10,821,724 of unrealized appreciation and AIM Balanced Fund's
net assets at the close of business on July 15, 2005 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. The combined aggregate net
assets of the Fund subsequent to the reorganization were $2,238,366,136.
F-21
AIM Basic Balanced Fund
NOTE 15--NEW ACCOUNTING STANDARD
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement for a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The provisions for FIN 48 are effective for
fiscal years beginning after December 15, 2006. Management is currently
assessing the impact of FIN 48, if any, on the Fund's financial statements and
currently intends for the Fund to adopt FIN 48 provisions during the fiscal year
ending December 31, 2007.
NOTE 16--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,
--------------------------------------------------------
2006 2005 2004 2003 2002
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.25 $ 11.86 $ 11.50 $ 9.46 $ 10.75
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.24(a) 0.16 0.08 0.05 0.11(a)
- ----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.05 0.41 0.71 2.05 (1.28)
======================================================================================================================
Total from investment operations 1.29 0.57 0.79 2.10 (1.17)
======================================================================================================================
Less distributions:
Dividends from net investment income (0.28) (0.18) (0.10) (0.06) (0.12)
- ----------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- (0.33) -- --
======================================================================================================================
Total distributions (0.28) (0.18) (0.43) (0.06) (0.12)
======================================================================================================================
Net asset value, end of period $ 13.26 $ 12.25 $ 11.86 $ 11.50 $ 9.46
______________________________________________________________________________________________________________________
======================================================================================================================
Total return(b) 10.67% 4.85% 6.89% 22.35% (10.97)%
______________________________________________________________________________________________________________________
======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $788,003 $817,588 $68,951 $53,675 $32,414
______________________________________________________________________________________________________________________
======================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.14%(c) 1.14% 1.47% 1.50% 1.48%
- ----------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.14%(c) 1.14% 1.49% 1.57% 1.67%
======================================================================================================================
Ratio of net investment income to average net assets 1.93%(c) 1.59% 0.73% 0.46% 1.15%
______________________________________________________________________________________________________________________
======================================================================================================================
Portfolio turnover rate 38% 90% 64% 51% 42%
______________________________________________________________________________________________________________________
======================================================================================================================
</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 $781,244,521.
F-22
AIM Basic Balanced Fund
NOTE 16--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS B
--------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2006 2005 2004 2003 2002
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.22 $ 11.84 $ 11.49 $ 9.46 $ 10.75
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.15(a) 0.08 0.01 (0.02) 0.05(a)
- ----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.04 0.40 0.69 2.06 (1.29)
======================================================================================================================
Total from investment operations 1.19 0.48 0.70 2.04 (1.24)
======================================================================================================================
Less distributions:
Dividends from net investment income (0.18) (0.10) (0.02) (0.01) (0.05)
- ----------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- (0.33) -- --
======================================================================================================================
Total distributions (0.18) (0.10) (0.35) (0.01) (0.05)
======================================================================================================================
Net asset value, end of period $ 13.23 $ 12.22 $ 11.84 $ 11.49 $ 9.46
______________________________________________________________________________________________________________________
======================================================================================================================
Total return(b) 9.86% 4.04% 6.12% 21.64% (11.56)%
______________________________________________________________________________________________________________________
======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $358,655 $517,032 $79,968 $76,304 $47,597
______________________________________________________________________________________________________________________
======================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.89%(c) 1.88% 2.12% 2.15% 2.13%
- ----------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.89%(c) 1.88% 2.14% 2.22% 2.32%
======================================================================================================================
Ratio of net investment income (loss) to average net assets 1.18%(c) 0.85% 0.08% (0.19)% 0.50%
______________________________________________________________________________________________________________________
======================================================================================================================
Portfolio turnover rate 38% 90% 64% 51% 42%
______________________________________________________________________________________________________________________
======================================================================================================================
</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 $430,139,237.
<Table>
<Caption>
CLASS C
--------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2006 2005 2004 2003 2002
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.23 $ 11.85 $ 11.49 $ 9.46 $ 10.75
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.15(a) 0.08 0.01 (0.02) 0.05(a)
- ----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.04 0.40 0.70 2.06 (1.29)
======================================================================================================================
Total from investment operations 1.19 0.48 0.71 2.04 (1.24)
======================================================================================================================
Less distributions:
Dividends from net investment income (0.18) (0.10) (0.02) (0.01) (0.05)
- ----------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- (0.33) -- --
======================================================================================================================
Total distributions (0.18) (0.10) (0.35) (0.01) (0.05)
======================================================================================================================
Net asset value, end of period $ 13.24 $ 12.23 $ 11.85 $ 11.49 $ 9.46
______________________________________________________________________________________________________________________
======================================================================================================================
Total return(b) 9.86% 4.04% 6.21% 21.64% (11.57)%
______________________________________________________________________________________________________________________
======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $163,630 $194,027 $27,729 $24,790 $15,727
______________________________________________________________________________________________________________________
======================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.89%(c) 1.88% 2.12% 2.15% 2.13%
- ----------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.89%(c) 1.88% 2.14% 2.22% 2.32%
======================================================================================================================
Ratio of net investment income (loss) to average net assets 1.18%(c) 0.85% 0.08% (0.19)% 0.50%
______________________________________________________________________________________________________________________
======================================================================================================================
Portfolio turnover rate 38% 90% 64% 51% 42%
______________________________________________________________________________________________________________________
======================================================================================================================
</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 $176,787,011.
F-23
AIM Basic Balanced Fund
NOTE 16--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS R
-------------------------------------
APRIL 30, 2004
YEAR ENDED (DATE SALES
DECEMBER 31, COMMENCED) TO
------------------- DECEMBER 31,
2006 2005 2004
- ---------------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.24 $11.87 $11.61
- ---------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.21(a) 0.13 0.05
- ---------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 1.05 0.40 0.60
===================================================================================================
Total from investment operations 1.26 0.53 0.65
===================================================================================================
Less distributions:
Dividends from net investment income (0.25) (0.16) (0.06)
- ---------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- (0.33)
===================================================================================================
Total distributions (0.25) (0.16) (0.39)
===================================================================================================
Net asset value, end of period $13.25 $12.24 $11.87
___________________________________________________________________________________________________
===================================================================================================
Total return(b) 10.40% 4.47% 5.68%
___________________________________________________________________________________________________
===================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $7,293 $6,684 $ 19
___________________________________________________________________________________________________
===================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.39%(c) 1.38% 1.62%(d)
- ---------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.39%(c) 1.38% 1.64%(d)
===================================================================================================
Ratio of net investment income to average net assets 1.68%(c) 1.35% 0.58%(d)
___________________________________________________________________________________________________
===================================================================================================
Portfolio turnover rate(e) 38% 90% 64%
___________________________________________________________________________________________________
===================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the 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 $6,661,520.
(d) Annualized.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
<Table>
<Caption>
INVESTOR CLASS
-----------------------------------
JULY 15, 2005
(DATE SALES
YEAR ENDED COMMENCED) TO
DECEMBER 31, DECEMBER 31,
2006 2005
- -------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.25 $ 11.97
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.24(a) 0.09
- -------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 1.05 0.30
=================================================================================================
Total from investment operations 1.29 0.39
=================================================================================================
Less dividends from net investment income (0.28) (0.11)
=================================================================================================
Net asset value, end of period $ 13.26 $ 12.25
_________________________________________________________________________________________________
=================================================================================================
Total return(b) 10.67% 3.28%
_________________________________________________________________________________________________
=================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $288,522 $344,015
_________________________________________________________________________________________________
=================================================================================================
Ratio of expenses to average net assets 1.14%(c) 1.10%(d)
=================================================================================================
Ratio of net investment income to average net assets 1.93%(c) 1.63%(d)
_________________________________________________________________________________________________
=================================================================================================
Portfolio turnover rate(e) 38% 90%
_________________________________________________________________________________________________
=================================================================================================
</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 $304,930,884.
(d) Annualized.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
F-24
AIM Basic Balanced Fund
NOTE 16--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
--------------------------------------
APRIL 30 , 2004
YEAR ENDED (DATE SALES
DECEMBER 31, COMMENCED) TO
------------------- DECEMBER 31,
2006 2005 2004
- ----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.24 $11.86 $11.61
- ----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.30(a) 0.22 0.10
- ----------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 1.05 0.40 0.61
====================================================================================================
Total from investment operations 1.35 0.62 0.71
====================================================================================================
Less distributions:
Dividends from net investment income (0.34) (0.24) (0.13)
- ----------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- (0.33)
====================================================================================================
Total distributions (0.34) (0.24) (0.46)
====================================================================================================
Net asset value, end of period $13.25 $12.24 $11.86
____________________________________________________________________________________________________
====================================================================================================
Total return(b) 11.22% 5.28% 6.15%
____________________________________________________________________________________________________
====================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 149 $ 34 $ 11
____________________________________________________________________________________________________
====================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.68%(c) 0.67% 0.93%(d)
- ----------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.68%(c) 0.67% 0.95%(d)
====================================================================================================
Ratio of net investment income to average net assets 2.39%(c) 2.06% 1.27%(d)
____________________________________________________________________________________________________
====================================================================================================
Portfolio turnover rate(e) 38% 90% 64%
____________________________________________________________________________________________________
====================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the 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 $94,392.
(d) Annualized.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
NOTE 17--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. 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 August 30, 2005, the West Virginia Office of the State
Auditor -- Securities Commission ("WVASC") issued a Summary Order to Cease and
Desist and Notice of Right to Hearing to AIM and ADI (Order No. 05-1318). The
WVASC makes findings of fact that AIM and ADI entered into certain arrangements
permitting market timing of the AIM Funds and failed to disclose these
arrangements in the prospectuses for such Funds, and conclusions of law to the
effect that AIM and ADI violated the West Virginia securities laws. The WVASC
orders AIM and ADI to cease any further violations and seeks to impose monetary
sanctions, including restitution to affected investors, disgorgement of fees,
reimbursement of investigatory, administrative and legal costs
F-25
AIM Basic Balanced Fund
NOTE 17--LEGAL PROCEEDINGS--(CONTINUED)
and an "administrative assessment," to be determined by the Commissioner.
Initial research indicates that these damages could be limited or capped by
statute.
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; 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
issues 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. Based on orders issued by the MDL Court,
all claims asserted against the AIM Funds that have been transferred to the MDL
Court have been dismissed, although certain Funds remain nominal defendants in
the Consolidated Amended Fund Derivative Complaint. On September 15, 2006, the
MDL Court granted the AMVESCAP defendants' motion to dismiss the Amended Class
Action Complaint for Violations of ERISA and dismissed such Complaint. The
plaintiff has commenced an appeal from that decision.
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 security
holders. IFG, AIM and ADI have advised the Fund that they 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.
F-26
AIM Basic Balanced Fund
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, 2006, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the periods indicated, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PRICEWATERHOUSECOOPERS LLP
February 20, 2007
Houston, Texas
F-27
AIM Basic Balanced Fund
TAX INFORMATION
Form 1099-DIV, Form 1042-S and other year-end tax information provide
shareholders with actual calendar year amounts that should be included in their
tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the
Internal Revenue Code or to meet a specific state's requirement.
The Fund designates the following amounts or, if subsequently determined to be
different, the maximum amount allowable for its fiscal year ended December 31,
2006:
<Table>
FEDERAL AND STATE INCOME TAX
Qualified Dividend Income* 51.00%
Corporate Dividends Received Deduction* 42.42%
U.S. Treasury Obligations* 0.27%
</Table>
* The above percentages are based on ordinary income dividends paid to
shareholders during the Fund's fiscal year.
<Table>
NON-RESIDENT ALIEN SHAREHOLDERS
Qualified Interest Income** 53.92%
</Table>
** The above percentage is based on income dividends paid to shareholders
during the Fund's fiscal year.
ADDITIONAL NON-RESIDENT ALIEN SHAREHOLDER INFORMATION
The percentages of qualifying assets not subject to the U.S. estate tax for the
fiscal quarters ended March 31, 2006, June 30, 2006, September 30, 2006 and
December 31, 2006 are 45.68%, 45.85%, 45.63%, and 43.59%, respectively.
F-28
AIM Basic Balanced Fund
TRUSTEES AND OFFICERS
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 110
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
NAME, YEAR OF BIRTH AND AND/ OTHER
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- --------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- --------------------------------------------------------------------------------------------------------------------------
Martin L. Flanagan(1) -- 1960 2007 Director, Chief Executive Officer and None
Trustee President, AMVESCAP PLC (parent of AIM
and a global investment management
firm); Chairman, A I M Advisors, Inc.
(registered investment advisor); and
Director, Chairman, Chief Executive
Officer and President, AVZ Inc. (holding
company); INVESCO North American
Holdings, Inc. (holding company);
Chairman and President, AMVESCAP Group
Services, Inc. (service provider);
Trustee, The AIM Family of Funds(R);
Chairman, Investment Company Institute;
and Member of Executive Board, SMU Cox
School of Business
Formerly: President, Co-Chief Executive
Officer, Co-President, Chief Operating
Officer and Chief Financial Officer,
Franklin Resources, Inc. (global
investment management organization)
- --------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(2) -- 1946 1992 Director and Chairman, A I M Management None
Trustee and Vice Chair Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC; Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm) and
Trustee and Vice Chair of The AIM Family
of Funds--Registered Trademark--
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);
Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and President
and Principal Executive Officer of The
AIM Family of Funds--Registered
Trademark--
- --------------------------------------------------------------------------------------------------------------------------
Philip A. Taylor(3) -- 1954 2006 Director, Chief Executive Officer and None
Trustee, President and President, A I M Management Group Inc.,
Principal AIM Mutual Fund Dealer Inc. (registered
Executive Officer broker dealer), AIM Funds Management
Inc. (registered investment advisor) and
1371 Preferred Inc. (holding company);
Director and President, A I M Advisors,
Inc., INVESCO Funds Group, Inc.
(registered investment advisor and
register transfer agent) and AIM GP
Canada Inc. (general partner for a
limited partnership); 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); Director, President and
Chairman, AVZ Callco Inc. (holding
company); AMVESCAP Inc. (holding
company) and AIM Canada Holdings Inc.
(holding company); Director and Chief
Executive Officer, AIM Trimark Corporate
Class Inc. (formerly AIM Trimark Global
Fund Inc.) (corporate mutual fund
company) and AIM Trimark Canada Fund
Inc. (corporate mutual fund company);
Trustee, President and Principal
Executive Officer of The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); Trustee and
Executive Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); and Manager,
Powershares Capital Management LLC
Formerly: President and Principal
Executive Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); Chairman, AIM
Canada Holdings, Inc.; Executive Vice
President and Chief Operations Officer,
AIM Funds Management Inc.; President,
AIM Trimark Global Fund Inc. and AIM
Trimark Canada Fund Inc.; and Director,
Trimark Trust (federally regulated
Canadian Trust Company)
- --------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- --------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- --------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
- --------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company
Formerly: Partner, law firm of Baker & (2 portfolios))
McKenzie
- --------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Founder, Green, Manning & Bunch Ltd., None
Trustee (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 (property casualty company)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and Director of various
affiliated Volvo companies; and
Director, Magellan Insurance Company
- --------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund
company); and Owner, Dos Angelos Ranch, (non-profit)
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
- --------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- --------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- --------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired Director, Mainstay VP Series
Trustee Formerly: Partner, Deloitte & Touche Funds, Inc. (21 portfolios)
- --------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Flanagan was appointed as Trustee of the Trust on February 24, 2007. Mr.
Flanagan is considered an interested person of the Trust because he is an
officer of the advisor to the Trust, and an officer and a director of
AMVESCAP PLC, parent of the advisor to the Trust.
(2) 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.
(3) Mr. Taylor 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.
F-29
TRUSTEES AND OFFICERS--(CONTINUED)
AIM Basic Balanced Fund
<Table>
<Caption>
TRUSTEE
NAME, YEAR OF BIRTH AND AND/ OTHER
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- --------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- --------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer N/A
Senior Vice President and of The AIM Family of Funds--Registered
Senior Officer Trademark--
Formerly: Director of Compliance and
Assistant General Counsel, ICON
Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- --------------------------------------------------------------------------------------------------------------------------
John M. Zerr -- 1962 2006 Director, Senior Vice President, N/A
Senior Vice President, Chief Secretary and General Counsel, A I M
Legal Officer and Secretary Management Group Inc. and A I M
Advisors, Inc.; Director, Vice President
and Secretary, INVESCO Distributors,
Inc.; Vice President and Secretary,
A I M Capital Management, Inc., AIM
Investment Services, Inc., and Fund
Management Company; Senior Vice
President and Secretary, A I M
Distributors, Inc.; Director and Vice
President, INVESCO Funds Group Inc.;
Senior Vice President, Chief Legal
Officer and Secretary of The AIM Family
of Funds--Registered Trademark--; and
Manager, Powershares Capital Management
LLC
Formerly: Chief Operating Officer,
Senior Vice President, General Counsel,
and Secretary, Liberty Ridge Capital,
Inc. (an investment adviser); Vice
President and Secretary, PBHG Funds (an
investment company); Vice President and
Secretary, PBHG Insurance Series Fund
(an investment company); General Counsel
and Secretary, Pilgrim Baxter Value
Investors (an investment adviser); Chief
Operating Officer, General Counsel and
Secretary, Old Mutual Investment
Partners (a broker-dealer); General
Counsel and Secretary, Old Mutual Fund
Services (an administrator); General
Counsel and Secretary, Old Mutual
Shareholder Services (a shareholder
servicing center); Executive Vice
President, General Counsel and
Secretary, Old Mutual Capital, Inc. (an
investment adviser); and Vice President
and Secretary, Old Mutual Advisors Funds
(an investment company)
- --------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Global Compliance Director, AMVESCAP N/A
Vice President PLC; and Vice President of The AIM
Family of Funds--Registered Trademark--
Formerly: Senior Vice President, A I M
Management Group Inc. (financial
services holding company); Senior Vice
President and Chief Compliance Officer,
A I M Advisors, Inc. and The AIM Family
of Funds--Registered Trademark--; Vice
President and Chief Compliance Officer,
A I M Capital Management, Inc. and A I M
Distributors, Inc.; Vice President, AIM
Investment Services, Inc. and Fund
Management Company; Senior Vice
President and Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; and Senior Vice President
and Compliance Director, Delaware
Investments Family of Funds
- --------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Senior Vice President and General
Vice President Counsel, AMVESCAP PLC; Director, INVESCO
Funds Group, Inc.; and Vice President of
The AIM Family of Funds--Registered
Trademark--
Formerly: Director, Vice President and N/A
General Counsel, Fund Management
Company; Director, Senior Vice
President, Secretary and General
Counsel, A I M Management Group Inc. and
A I M Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Senior Vice President, A I M
Distributors, Inc.; Vice President,
A I M Capital Management, Inc. and AIM
Investment Services, Inc.; Senior Vice
President, Chief Legal Officer and
Secretary of The AIM Family of
Funds--Registered Trademark--; Chief
Executive Officer and President, INVESCO
Funds Group, Inc.; and Senior Vice
President, and General Counsel, Liberty
Financial Companies, Inc. and Senior
Vice President and General Counsel
Liberty Funds Group, LLC
- --------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.; and Vice President,
Financial Officer and Treasurer and Principal Officer of The
Treasurer AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- --------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1992 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc. and The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); and
President and Principal Executive
Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust Only)
Formerly: Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only)
- --------------------------------------------------------------------------------------------------------------------------
Lance A. Rejsek -- 1967 2005 Anti-Money Laundering Compliance N/A
Anti-Money Laundering Officer, A I M Advisors, Inc., A I M
Compliance Officer Capital Management, Inc., A I M
Distributors, Inc., AIM Investment
Services, Inc., AIM Private Asset
Management, Inc., Fund Management
Company and The AIM Family of
Funds--Registered Trademark--
Formerly: Manager of the Fraud
Prevention Department, AIM Investment
Services, Inc.
- --------------------------------------------------------------------------------------------------------------------------
Todd L. Spillane -- 1958 2006 Senior Vice President, A I M Management N/A
Chief Compliance Officer Group Inc.; Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; 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: Global Head of Product
Development, AIG-Global Investment
Group, Inc.; Chief Compliance Officer
and Deputy General Counsel,
AIG-SunAmerica Asset Management; and
Chief Compliance Officer, Chief
Operating Officer and Deputy General
Counsel, American General Investment
Management
- --------------------------------------------------------------------------------------------------------------------------
</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, 51st & Frankel LLP P.O. Box 4739 225 Franklin Street
Floor 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Philadelphia, PA 19103-7599 Americas
New York, NY 10036-2714
</Table>
F-30
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If used after April 20, 2007, 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 and exchange-traded funds distributed by A I M
Distributors, Inc.
A I M Management Group Inc. has provided leadership in the investment management
industry since 1976. AIM Investment Services, Inc. is the transfer agent for the
products and services represented by AIM Investments. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $463 billion in assets under management as of December 31, 2006.
CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
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-- REGISTERED TRADEMARK --
AIM European Small Company Fund
Annual Report to Shareholders - December 31, 2006
[COVER GLOBE IMAGE]
INTERNATIONAL/ GLOBAL EQUITY
International/Global Growth
Table of Contents
Supplemental Information ............................................... 2
Letters to Shareholders ................................................ 3
Performance Summary .................................................... 5
Management Discussion .................................................. 5
Fund Expenses .......................................................... 7
Long-term Fund Performance ............................................. 8
Approval of Advisory Agreement ......................................... 10
Schedule of Investments ................................................ F-1
Financial Statements ................................................... F-4
Notes to Financial Statements .......................................... F7
Financial Highlights ................................................... F-13
Auditor's Report ....................................................... F-16
Tax Disclosures ........................................................ F-17
Trustees and Officers .................................................. F-18
[AIM INVESTMENT SOLUTIONS]
[GRAPHIC] [GRAPHIC] [GRAPHIC]
[DOMESTIC EQUITY] [INTERNATIONAL/GLOBAL EQUITY] [SECTOR EQUITY]
[GRAPHIC] [GRAPHIC] [GRAPHIC]
[FIXED INCOME] [ALLOCATION SOLUTIONS] [DIVERSIFIED PORTFOLIOS]
[AIM INVESTMENTS LOGO]
- REGISTERED TRADEMARK -
AIM European Small Company Fund
AIM EUROPEAN SMALL COMPANY FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL.
- - Unless otherwise stated, information presented in this report is as of
December 31, 2006, and is based on total net assets.
About share classes
- - Class B shares are not available as an investment for retirement plans
maintained pursuant to Section 401 of the Internal Revenue Code, including
401(k) plans, money purchase pension plans and profit sharing plans. Plans
that had existing accounts invested in Class B shares prior to September
30, 2003, will continue to be allowed to make additional purchases.
- - The Fund has limited public sales of its shares to certain investors. For
information on who may continue to invest in the Fund, please see the
prospectus.
Principal risks of investing in the Fund
- - Foreign securities have additional risks, including exchange rate changes,
political and economic upheaval, the relative lack of information about
these companies, relatively low market liquidity and the potential lack of
strict financial and accounting controls and standards.
- - Investing in a fund that invests in smaller companies involves risks not
associated with investing in more established companies, such as business
risk, stock price fluctuations and illiquidity.
- - Investing in emerging markets involves greater risks than investing in more
established markets. Risks for emerging markets include risks relating to
the relatively smaller size and lesser liquidity of these markets, high
inflation rates, adverse political developments and lack of timely
information.
- - Prices of equity securities change in response to many factors including
the historical and prospective earnings of the issuer, the value of its
assets, general economic conditions, interest rates, investor perceptions
and market liquidity.
- - The value of convertible securities in which the Fund invests may be
affected by market interest rates, the risk that the issuer may default on
interest or principal payments and the value of the underlying common stock
into which these securities may be converted.
- - Because a large percentage of the Fund's assets may be invested in a
limited number of securities, a change in the value of these securities
could significantly affect the value of your investment in the Fund.
- - The Fund has limited public sales of its shares to certain investors. For
information on who may continue to invest in the Fund, please see the
prospectus.
About indexes used in this report
- - The unmanaged MSCI Europe, Australasia and the Far East Index (the MSCI
EAFE --REGISTERED TRADEMARK--) is a group of foreign securities tracked by
Morgan Stanley Capital International.
- - The unmanaged MSCI Europe Small Cap Index is a group of European small-cap
securities tracked by Morgan Stanley Capital International.
- - The unmanaged Lipper European Funds Index represents an average of the
performance of the 10 largest European equity funds tracked by Lipper Inc.,
an independent mutual fund performance monitor.
- - The unmanaged MSCI Europe Index is a group of European securities tracked
by Morgan Stanley Capital International.
- - The Fund is not managed to track the performance of any particular index,
including the indexes defined here, and consequently, the performance of
the Fund may deviate significantly from the performance of the index.
- - A direct investment cannot be made in an index. Unless otherwise indicated,
index results include reinvested dividends, and they do not reflect sales
charges. Performance of an index of funds reflects fund expenses;
performance of a market index does not.
Other information
- - The returns shown in the management's discussion of Fund performance are
based on net asset values calculated for shareholder transactions.
Generally accepted accounting principles require adjustments to be made to
the net assets of the Fund at period end for financial reporting purposes,
and as such, the net asset values for shareholder transactions and the
returns based on those net asset values may differ from the net asset
values and returns reported in the Financial Highlights.
- - Industry classifications used in this report are generally according to the
Global Industry Classification Standard, which was developed by and is the
exclusive property and a service mark of Morgan Stanley Capital
International Inc. and Standard & Poor's.
- - The Chartered Financial Analyst --REGISTERED TRADEMARK-- (CFA --REGISTERED
TRADEMARK--) designation is a globally recognized standard for measuring
the competence and integrity of investment professionals.
The Fund provides a complete list of its holdings four times in each fiscal
year, at the quarter-ends. For the second and fourth quarters, the lists appear
in the Fund's semiannual and annual reports to shareholders. For the first and
third quarters, the Fund files the lists with the Securities and Exchange
Commission (SEC) on Form N-Q. The most recent list of portfolio holdings is
available at AIMinvestments.com. From our home page, click on Products &
Performance, then Mutual Funds, then Fund Overview. Select your Fund from the
drop-down menu and click on Complete Quarterly Holdings. Shareholders can also
look up the Fund's Forms N-Q on the SEC Web site at sec.gov. Copies of the
Fund's Forms N-Q may be reviewed and copied at the SEC Public Reference Room in
Washington, D.C. You can obtain information on the operation of the Public
Reference Room, including information about duplicating fee charges, by calling
202-942-8090 or 800-732-0330, or by electronic request at the following e-mail
address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-01540 and
002-27334.
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.
Information regarding how the Fund voted proxies related to its portfolio
securities during the 12 months ended June 30, 2006, 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
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
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FUND NASDAQ SYMBOLS
Class A Shares ESMAX
Class B Shares ESMBX
Class C Shares ESMCX
2
AIM European Small Company Fund
[TAYLOR PHOTO]
Philip Taylor
Dear Shareholders of The AIM Family of Funds --REGISTERED TRADEMARK--:
I'm pleased to provide you with this report, which includes a discussion of how
your Fund was managed during the year ended December 31, 2006, and what factors
affected its performance. The following pages contain important information that
answers questions you may have about your investment.
In the United States and around the globe, most major stock market indexes
rose in 2006. U.S. stocks benefited from continued economic expansion and a
cessation of interest rate increases by the U.S. Federal Reserve, among other
factors. Global markets also enjoyed a good year, while all major fixed-income
indexes produced positive annual returns.
As I write this letter, the consensus outlook for the economy remains
positive. But we all know that markets are unpredictable and subject to sudden
changes based on geopolitical or economic developments. At AIM Investments
- --REGISTERED TRADEMARK--, we believe investors can do two things to deal with
short-term market fluctuations: maintain a long-term investment horizon and
maintain a diversified portfolio. AIM Investments offers a broad product line
that gives your financial advisor options to build a portfolio that's right for
you regardless of market conditions. Our product line includes a comprehensive
range of mutual funds, including domestic, global and international equity
funds; taxable and tax-exempt fixed-income funds; and a variety of allocation
portfolios--with risk and return characteristics to match your needs. We
maintain this extensive set of product solutions because we believe in the value
of diversified investment portfolios.
To provide you even more investment options, we recently launched AIM
Independence Funds, six new target maturity funds that combine AIM retail mutual
funds and PowerShares --REGISTERED TRADEMARK-- exchange-traded funds (ETFs) as
underlying investment options. ETFs are relatively low cost and potentially
tax-efficient funds that trade like individual stocks. These AIM Independence
Funds are intended to provide broad diversification and risk/reward levels that
change as your target retirement date nears. Your financial advisor can provide
you with more information about the new AIM Independence Funds.
At AIM Investments, we believe in the value of working with a trusted
financial advisor. Your financial advisor can help you build a diversified
investment portfolio, making periodic adjustments as market conditions and your
investment goals change. While there are no guarantees with any investment
program, a long-term plan matched to your financial goals, risk tolerance and
time horizon offers the potential to keep you and your investments on track--and
your financial advisor can provide you with valuable information and advice.
I also invite you to visit us on the Internet at AIMinvestments.com. Our
Web site allows you to access your account information, review fund performance,
learn more about your fund's investment strategies and obtain general investing
information--whenever it's convenient for you.
Our commitment to you
While we're committed to maintaining a comprehensive, easy-to-navigate Web site,
we're even more committed to providing excellent customer service. Our highly
trained, courteous client services representatives are eager to answer your
questions, provide you with product information or assist you with account
transactions. I encourage you to give us an opportunity to serve you by calling
us at 800-959-4246.
All of us at AIM Investments are committed to helping you achieve your
financial goals. We work every day to earn your trust, and are grateful for the
confidence you've placed in us.
Sincerely,
/S/ PHILIP TAYLOR
- -------------------------------------
Philip Taylor
President- AIM Funds
CEO, AIM Investments
February 9, 2007
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 mutual funds
represented by AIM Investments and the PowerShares Exchange-Traded Fund Trust.
3
AIM European Small Company Fund
[CROCKETT PHOTO]
Bruce L. Crockett
Dear Fellow AIM Fund Shareholders:
Your AIM Funds Board started 2007 committed to continue working with management
at AIM Advisors, Inc. (AIM) with the goal of improving performance and
lowering shareholder expenses for the AIM Funds.
The progress made to date is encouraging. Following the general trends of
global equity markets and the U.S. stock market, the asset-weighted absolute
performance for all the equity and fixed-income AIM Funds improved to 15.08% for
the one-year period ended December 31, 2006, as compared to 9.13% for the
one-year period ended December 31, 2005, and 11.20% for the one-year period
ended December 31, 2004.(1) The asset-weighted absolute performance for the AIM
money market funds was 4.84% for the one-year period ended December 31, 2006, as
compared to 3.04% for the one-year period ended December 31, 2005, and 1.23% for
the one-year period ended December 31, 2004.(2)
In November, your Board approved, subject to shareholder vote, four more
AIM Fund consolidations. As always, these decisions were made to benefit
existing shareholders and were driven by a desire to improve the merged funds'
performance, attract new assets and reduce costs. The asset class subcommittees
of your Board's Investments Committee are meeting frequently with portfolio
managers to identify how performance might be further improved.
On the expense side, both AMVESCAP, the parent company of AIM, and AIM
continue to take advantage of opportunities for operational consolidation,
outsourcing and new technologies to improve cost efficiencies for your benefit.
Your Board, for example, takes advantage of effective software solutions that
enable us to save money through electronic information sharing. Additional
cost-saving steps are under way. I'll report more on these steps once they're
completed.
Another major Board initiative for early 2007 is the revision of the AIM
Funds' proxy voting guidelines, a project begun by a special Board task force
late last year. We expect to have new procedures in place for the 2007 spring
proxy season that will improve the ability of the AIM Funds to cast votes that
are in the best interests of all fund shareholders.
While your Board recognizes that additional work lies ahead, we are
gratified that some key external sources have recognized changes at AIM and the
AIM Funds in the past two years. An article in the November 21, 2006, issue of
Morningstar Report (Morningstar Inc. is a leading provider of independent mutual
fund investment research) included a review of AIM's progress, highlighting
lower expenses, stronger investment teams and an improved sales culture, as well
as areas for continued improvement. I'm looking forward to a return visit to
Morningstar this year to review AIM Funds' performance and governance ratings.
Your Board thanks Mark Williamson, former President and CEO of AIM
Investments, who retired from your Board in 2006. He has been succeeded on your
Board by Phil Taylor, President of AIM Funds. We extend a warm welcome to Phil.
I'd like to hear from you. Please write to me at AIM Investments, AIM
Investments Tower, 11 Greenway Plaza, Suite 100, Houston TX 77046. Let me know
your thoughts on how your Board is doing and how we might serve you better.
Sincerely,
/S/ BRUCE L. CROCKETT
- -------------------------------------
Bruce L. Crockett
Independent Chair
AIM Funds Board
February 9, 2007
(1) Past performance is no guarantee of future results. The asset-weighted
absolute performance for the equity and fixed-income AIM Funds is derived
by taking the one-year cumulative total return for each share class of each
AIM Fund in existence as of December 31, 2006, (excluding money market
funds) and weighting the performance by the calendar year average net
assets of that share class. The one-year cumulative total return includes
reinvested distributions, fund expenses and management fees, but excludes
applicable sales charges. If sales charges were included, the one-year
cumulative total return and the asset-weighted performance would be lower.
(2) Past performance is no guarantee of future results. The asset-weighted
absolute performance for the AIM money market funds is derived by taking
the one-year cumulative total return for each share class of each AIM money
market fund in existence as of December 31, 2006, and weighting the
performance by the calendar year average net assets of that share class.
The one-year cumulative total return includes reinvested distributions,
fund expenses and management fees, but excludes applicable sales charges.
If sales charges were included, the one-year cumulative total return and
the asset-weighted performance would be lower.
4
AIM European Small Company Fund
Management's discussion of Fund performance
PERFORMANCE SUMMARY
Foreign equity markets posted strong positive returns over the year, ending 2006
with a fourth consecutive year of double-digit gains. Following a trend of
recent years, foreign equities continued to outperform U.S equities.
Within this environment, we are pleased to have provided shareholders with
double-digit Fund performance. As the table illustrates, your Fund--excluding
applicable sales charges--outperformed both its broad market and style-specific
benchmarks. We attribute our results to the outperformance of European small-cap
stocks, strong stock selection and our willingness and ability to identify and
purchase attractive stocks that are not followed by many analysts.
Your Fund's long-term performance appears on pages 8-9.
FUND VS. INDEXES
Total returns, 12/31/05-12/31/06, excluding applicable sales charges. If sales
charges were included, returns would be lower.
Class A Shares 48.06%
Class B Shares 46.98
Class C Shares 46.96
MSCI EAFE (Broad Market Index) 26.34
MSCI Europe Small Cap Index (Style-Specific Index) 45.24
Lipper European Funds Index (Peer Group Index) 34.97
SOURCE: LIPPER INC.
How we invest
When selecting stocks for your Fund, we employ a disciplined investment strategy
that emphasizes fundamental research, supported by both quantitative analysis
and portfolio construction techniques. Our "EQV" (Earnings, Quality, Valuation)
strategy focuses primarily on identifying quality small-cap companies that have
experienced, or exhibit the potential for, accelerated or above-average earnings
growth but whose prices do not fully reflect these attributes. We construct the
Fund using a "bottom-up" investment approach, focusing on strengths of
individual companies rather than sector or country economic trends.
We believe disciplined sell decisions are key to successful investing. We
consider selling a stock for several reasons including when:
- - A company's fundamentals deteriorate, or it posts disappointing earnings.
- - A stock's price seems overvalued.
- - A more attractive opportunity becomes available.
MARKET CONDITIONS AND YOUR FUND
European equities continued to lead global equity market performance, producing
a 33.7% return for the 12 months ending in December, as represented by the MSCI
Europe Index. Within this environment, European small-cap stocks continued to
outperform their large-cap peers. Across Europe, a significant pickup in capital
expenditures and industrial production was supported by low interest rates,
healthy corporate cash flows and improving business sentiment. This prevailing
climate, bolstered by substantial availability of private equity capital, also
led to one of the largest periods of merger and acquisition activity on record.
In France, consumption remained the key driver of growth, and corporate results
in the United Kingdom remained generally strong. In emerging markets like
Russia, rising wages and employment levels ensured that stocks with exposure to
the consumer sector benefited.
The overall quality of the portfolio and the attractiveness of individual
securities largely explained the Fund's strong absolute and relative
performance. During the period, Fund performance was broad based with
investments in all major markets producing double-digit positive returns. While
holdings in Norway proved
(continued)
PORTFOLIO COMPOSITION
By sector
Industrials 39.7%
Consumer Discretionary 22.8
Energy 11.2
Materials 6.5
Financials 5.4
Information Technology 5.1
Consumer Staples 3.1
Health Care 1.6
Money Market Funds Plus
Other Assets Less Liabilities 4.6
TOP FIVE COUNTRIES*
1. Norway 20.6%
2. United Kingdom 15.4
3. Netherlands 13.8
4. Greece 9.3
5. Switzerland 7.8
Total Net Assets $503.09 million
Total Number of Holdings* 78
TOP 10 EQUITY HOLDINGS*
1. Jumbo S.A. (Greece) 2.8%
2. Prosafe A.S.A. (Norway) 2.6
3. Intralot S.A. (Greece) 2.6
4. Fuchs Petrolub A.G.-Pfd. (Germany) 2.6
5. USG People N.V. (Netherlands) 2.5
6. Petroleum Geo-Services A.S.A. (Norway) 2.3
7. Aalberts Industries N.V. (Netherlands) 2.2
8. Biesse S.P.A. (Italy) 2.2
9. Homeserve PLC (United Kingdom) 2.1
10. TGS Nopec Geophysical Co. A.S.A. (Norway) 2.0
The Fund's holdings are subject to change, and there is no assurance that the
Fund will continue to hold any particular security.
* Excluding money market fund holdings.
5
AIM European Small Company Fund
to be the largest contributor to Fund outperformance, holdings in Greece, Italy,
Belgium and Switzerland contributed significantly as well.
EVS BROADCAST EQUIPMENT S.A., the Belgium-based provider of professional
broadcast equipment with a leading position in the outdoor sports coverage
market, was one of the Fund's top contributors for the year. This company is a
prime beneficiary of growth in high-definition television coverage. Solid fiscal
results and an impressive order book across the globe drove strong stock
performance.
Although consumer holdings produced good results for your Fund, industrials
proved the top contributing sector during the reporting period. We believe there
are good investment opportunities in this sector as many European companies are
emerging from a multiyear period of cost cutting and have strong balance sheets
and pent-up demand for capital investments.
After industrials, consumer discretionary continued to be one of the Fund's
largest sector weights. A top contributor over the year from this sector was the
strong-performing but relatively under- followed INTRALOT S.A. (Greece), the
world's third-largest gaming/lottery vendor/operator. We initially invested in
Intralot at a time when we judged the market's opinion of the company's growth
prospects to be excessively negative. We were therefore able to purchase the
stock at attractive price levels. Significant increase and diversification of
market share outside Greece, a robust pipeline of contract tenders and strong
positive cash flow have since helped expand investor awareness of this stock.
Although all sectors the Fund was invested in contributed positively to
outperformance, select holdings in consumer discretionary (BIJOU
BRIGITTE/Germany), energy (DET NORSKE OLJESELSKAP [DNO]/Norway) and industrials
(BAM GROEP NV/Netherlands) detracted from relative returns. Bijou Brigitte, one
of the best performing stocks in the portfolio over the last several years, was
negatively affected by investors' overreaction to declining same-store sales
growth. We trimmed our exposure but continue to hold the stock due to the
company's strong fundamentals. Oil and gas exploration is by nature a relatively
risky business, but at the time of our initial investment in DNO, extremely low
valuations provided us with significant downside protection. Although it lagged
during this recent period, DNO was a very successful investment for the Fund.
Dutch construction company Bam, another strong past performer, was negatively
affected by delayed infrastructure deals and problems in its German subsidiary.
Over the period, we sold DNO and trimmed back our Bam position.
In closing
Over the past 12 months, the Fund and European markets in general have
experienced strong double-digit returns. It would be imprudent for us to suggest
that such a level of performance is sustainable over the long term. Regardless
of macroeconomic trends, we remain committed to our disciplined "EQV" strategy.
We thank you for your continued participation in the AIM European Small
Company Fund.
THE VIEWS AND OPINIONS EXPRESSED IN MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
ARE THOSE OF A I M ADVISORS, INC. THESE VIEWS AND OPINIONS ARE SUBJECT TO CHANGE
AT ANY TIME BASED ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE VIEWS
AND OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR RECOMMENDATIONS, OR
AS AN OFFER FOR A PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE
ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR THE FUND.
STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE, BUT A I M ADVISORS,
INC. MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY.
ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THESE
INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT PHILOSOPHY.
See important Fund and index disclosures on the inside front cover.
[HOLZER PHOTO]
Jason T. Holzer
Chartered Financial Analyst, senior portfolio manager, is lead
manager of AIM European Small Company Fund with respect to the Fund's small and
mid-cap investments. Mr. Holzer joined AIM in 1996. He earned a B.A. in
quantitative economics and an M.S. in engineering-economic systems from Stanford
University.
[ENDRESEN PHOTO]
Borge Endresen
Chartered Financial Analyst, portfolio manager, is manager of AIM
European Small Company Fund. He joined AIM in 1999 and graduated summa cum laude
from the University of Oregon with a B.S. in finance. He also earned an M.B.A
from The University of Texas at Austin.
Assisted by the Europe/Canada Team
FOR A PRESENTATION OF YOUR FUND'S LONG-TERM PERFORMANCE, PLEASE SEE PAGES 8-9.
6
AIM European Small Company Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, which may include sales charges (loads) on purchase payments or
contingent deferred sales charges on redemptions, and redemption fees, if any;
and (2) ongoing costs, including management fees; distribution and/or service
(12b-1) fees; and other Fund expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with ongoing costs of investing in other mutual funds. The
example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period July 1, 2006, through December 31, 2006.
Actual expenses
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return. The Fund's actual cumulative total returns at net asset value after
expenses for the six months ended December 31, 2006, appear in the table
"Cumulative Total Returns" on page 9.
The hypothetical account values and expenses may not be used to estimate
the actual ending account balance or expenses you paid for the period. You may
use this information to compare the ongoing costs of investing in the Fund and
other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight
your ongoing costs only and do not reflect any transaction costs, such as sales
charges (loads) on purchase payments, contingent deferred sales charges on
redemptions, and redemption fees, if any. Therefore, the hypothetical
information is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these transaction costs were included, your costs would have been higher.
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 (7/1/06) (12/31/06)(1) PERIOD(2) (12/31/06) PERIOD(2) RATIO
- ----- ------------- ------------- ----------- ------------- ----------- ----------
A $1,000.00 $1,185.80 $ 8.37 $1,017.54 $ 7.73 1.52%
B 1,000.00 1,181.40 12.48 1,013.76 11.52 2.27
C 1,000.00 1,181.30 12.48 1,013.76 11.52 2.27
(1) The actual ending account value is based on the actual total return of the
Fund for the period July 1, 2006, through December 31, 2006, 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, 2006, appear in
the table "Cumulative Total Returns" on page 9.
(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.
7
AIM European Small Company Fund
Your Fund's long-term performance
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.
This chart, which is a logarithmic chart, presents the fluctuations in the
value of the Fund and its indexes. We believe that a logarithmic chart is more
effective than other types of charts in illustrating changes in value during the
early years shown in the chart. The vertical axis, the one that indicates the
dollar value of an investment, is constructed with each segment representing a
percent change in the value of the investment. In this chart, each segment
represents a doubling, or 100% change, in the value of the investment. In other
words, the space between $5,000 and $10,000 is the same size as the space
between $10,000 and $20,000, and so on.
8
[MOUNTAIN CHART]
RESULTS OF A $10,000 INVESTMENT
Fund data from 8/31/00, index data from 8/31/00
AIM EUROPEAN AIM EUROPEAN AIM EUROPEAN
SMALL COMPANY FUND SMALL COMPANY FUND SMALL COMPANY FUND MSCI EUROPE LIPPER
DATE -CLASS A SHARES -CLASS B SHARES -CLASS C SHARES MSCI EAFE INDEX SMALL CAP INDEX EUROPEAN FUNDS INDEX
- ------- ------------------ ------------------ ------------------ --------------- --------------- --------------------
8/31/00 $ 9450 $10000 $10000 $10000 $10000 $10000
9/00 9223 9760 9760 9513 9759 9484
10/00 8722 9230 9220 9288 9285 9196
11/00 8118 8580 8570 8940 9075 8704
12/00 8710 9212 9202 9258 9593 9357
1/01 8890 9392 9392 9253 10107 9328
2/01 8149 8600 8600 8559 9716 8542
3/01 7048 7435 7435 7989 8827 7792
4/01 7332 7726 7726 8544 9355 8308
5/01 7209 7595 7595 8242 9333 7988
6/01 6877 7244 7244 7905 8895 7662
7/01 6753 7104 7104 7761 8752 7585
8/01 6839 7194 7194 7565 8823 7390
9/01 5851 6141 6141 6799 7341 6561
10/01 6336 6652 6652 6973 7815 6791
11/01 6611 6933 6933 7230 8452 7085
12/01 6830 7174 7164 7273 8598 7236
1/02 6820 7154 7154 6886 8451 6918
2/02 7001 7334 7324 6935 8479 6923
3/02 7323 7675 7666 7343 9051 7270
4/02 7675 8036 8037 7358 9328 7250
5/02 7855 8217 8217 7451 9401 7254
6/02 7903 8267 8268 7155 9076 7060
7/02 7257 7585 7576 6448 8100 6323
8/02 7276 7605 7595 6434 7973 6280
9/02 6573 6863 6852 5743 7105 5502
10/02 6782 7073 7073 6051 7398 5924
11/02 7019 7325 7314 6326 7721 6204
12/02 7000 7295 7294 6113 7528 5975
1/03 6820 7104 7104 5858 7292 5714
2/03 6687 6964 6963 5724 7001 5496
3/03 6858 7134 7133 5611 6987 5429
4/03 7466 7766 7765 6161 7988 6111
5/03 8206 8529 8518 6535 8880 6561
6/03 8349 8679 8669 6693 9065 6614
7/03 8738 9070 9060 6855 9473 6740
8/03 8947 9281 9281 7020 9806 6791
9/03 9659 10023 10013 7236 10260 6943
10/03 10380 10766 10755 7687 11109 7382
11/03 10808 11198 11196 7858 11532 7707
12/03 11477 11880 11878 8472 12150 8254
1/04 12286 12712 12710 8592 12898 8495
2/04 12858 13295 13292 8790 13477 8759
3/04 12544 12964 12961 8840 13152 8477
4/04 12411 12824 12822 8640 12858 8342
5/04 12582 12984 12982 8658 12870 8428
6/04 13030 13446 13434 8859 13338 8591
7/04 12639 13035 13032 8571 12778 8290
8/04 12858 13255 13252 8609 12747 8313
9/04 13506 13907 13904 8834 13363 8678
10/04 14211 14629 14626 9136 13911 8985
11/04 15535 15984 15980 9760 15320 9630
12/04 16489 16949 16955 10188 16125 10077
1/05 17025 17493 17499 10001 16367 9962
2/05 18447 18940 18946 10433 17261 10527
3/05 18174 18652 18649 10171 16893 10222
4/05 17834 18294 18291 9932 16309 9959
5/05 17814 18263 18260 9937 16420 9953
6/05 18758 19218 19215 10068 16862 10175
7/05 20062 20542 20548 10377 17822 10672
8/05 21144 21639 21635 10639 18431 11019
9/05 21738 22223 22230 11113 18890 11259
10/05 20405 20858 20856 10789 17789 10780
11/05 20893 21340 21338 11052 18204 10997
12/05 22508 22966 22975 11567 19178 11477
1/06 24646 25141 25137 12277 21143 12359
2/06 25809 26310 26316 12250 21663 12481
3/06 27678 28200 28195 12653 22784 13013
4/06 29859 30396 30402 13258 24284 13757
5/06 28987 29490 29484 12743 23232 13182
6/06 28106 28573 28579 12742 22814 13084
7/06 27743 28190 28184 12868 22589 13217
8/06 28190 28627 28621 13222 23215 13603
9/06 27618 28026 28020 13242 23608 13682
10/06 29695 30114 30116 13758 24902 14288
11/06 31699 32123 32125 14169 26601 14904
12/06 33327 33757 33767 14613 27853 15491
Source: Lipper Inc.
AIM European Small Company Fund
AVERAGE ANNUAL TOTAL RETURNS
As of 12/31/06, including applicable sales charges
CLASS A SHARES
Inception (8/31/00) 20.93%
5 Years 35.75
1 Year 39.93
CLASS B SHARES
Inception (8/31/00) 21.18%
5 Years 36.19
1 Year 41.98
CLASS C SHARES
Inception (8/31/00) 21.18%
5 Years 36.35
1 Year 45.96
CUMULATIVE TOTAL RETURNS
6 months ended 12/31/06, excluding applicable sales charges
Class A Shares 18.58%
Class B Shares 18.14
Class C Shares 18.13
THE PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE AND CANNOT GUARANTEE
COMPARABLE FUTURE RESULTS; CURRENT PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE
VISIT AIMINVESTMENTS.COM FOR THE MOST RECENT MONTH-END PERFORMANCE. PERFORMANCE
FIGURES REFLECT REINVESTED DISTRIBUTIONS, CHANGES IN NET ASSET VALUE AND THE
EFFECT OF THE MAXIMUM SALES CHARGE UNLESS OTHERWISE STATED. INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU MAY HAVE A GAIN OR LOSS WHEN YOU
SELL SHARES.
CLASS A SHARE PERFORMANCE REFLECTS THE MAXIMUM 5.50% SALES CHARGE, AND
CLASS B AND CLASS C SHARE PERFORMANCE REFLECTS THE APPLICABLE CONTINGENT
DEFERRED SALES CHARGE (CDSC) FOR THE PERIOD INVOLVED. THE CDSC ON CLASS B SHARES
DECLINES FROM 5% BEGINNING AT THE TIME OF PURCHASE TO 0% AT THE BEGINNING OF THE
SEVENTH YEAR. THE CDSC ON CLASS C SHARES IS 1% FOR THE FIRST YEAR AFTER
PURCHASE.
THE PERFORMANCE OF THE FUND'S SHARE CLASSES WILL DIFFER PRIMARILY DUE TO
DIFFERENT SALES CHARGE STRUCTURES AND CLASS EXPENSES.
A REDEMPTION FEE OF 2% WILL BE IMPOSED ON CERTAIN REDEMPTIONS OR EXCHANGES
OUT OF THE FUND WITHIN 30 DAYS OF PURCHASE. EXCEPTIONS TO THE REDEMPTION FEE ARE
LISTED IN THE FUND'S PROSPECTUS.
HAD THE ADVISOR NOT WAIVED FEES AND/OR REIMBURSED EXPENSES IN THE PAST,
PERFORMANCE WOULD HAVE BEEN LOWER.
9
AIM European Small Company Fund
Approval of Investment Advisory Agreement
The Board of Trustees of AIM Funds Group (the "Board") oversees the management
of AIM European Small Company Fund (the "Fund") and, as required by law,
determines annually whether to approve the continuance of the Fund's advisory
agreement with A I M Advisors, Inc. ("AIM"). Based upon the recommendation of
the Investments Committee of the Board, at a meeting held on June 27, 2006, the
Board, including all of the independent trustees, approved the continuance of
the advisory agreement (the "Advisory Agreement") between the Fund and AIM for
another year, effective July 1, 2006.
The Board considered the factors discussed below in evaluating the fairness
and reasonableness of the Advisory Agreement at the meeting on June 27, 2006 and
as part of the Board's ongoing oversight of the Fund. In their deliberations,
the Board and the independent trustees did not identify any particular factor
that was controlling, and each trustee attributed different weights to the
various factors.
One responsibility of the independent Senior Officer of the Fund is to
manage the process by which the Fund's proposed management fees are negotiated
to ensure that they are negotiated in a manner which is at arms' length and
reasonable. To that end, the Senior Officer must either supervise a competitive
bidding process or prepare an independent written evaluation. The Senior Officer
has recommended an independent written evaluation in lieu of a competitive
bidding process and, upon the direction of the Board, has prepared such an
independent written evaluation. Such written evaluation also considered certain
of the factors discussed below. In addition, as discussed below, the Senior
Officer made a recommendation to the Board in connection with such written
evaluation.
The discussion below serves as a summary of the Senior Officer's
independent written evaluation and recommendation to the Board in connection
therewith, as well as a discussion of the material factors and the conclusions
with respect thereto that formed the basis for the Board's approval of the
Advisory Agreement. After consideration of all of the factors below and based on
its informed business judgment, the Board determined that the Advisory Agreement
is in the best interests of the Fund and its shareholders and that the
compensation to AIM under the Advisory Agreement is fair and reasonable and
would have been obtained through arm's length negotiations.
Unless otherwise stated, information presented below is as of June 27, 2006
and does not reflect any changes that may have occurred since June 27, 2006,
including but not limited to changes to the Fund's performance, advisory fees,
expense limitations and/or fee waivers.
- - The nature and extent of the advisory services to be provided by AIM. The
Board reviewed the services to be provided by AIM under the Advisory
Agreement. Based on such review, the Board concluded that the range of
services to be provided by AIM under the Advisory Agreement was appropriate
and that AIM currently is providing services in accordance with the terms
of the Advisory Agreement.
- - The quality of services to be provided by AIM. The Board reviewed the
credentials and experience of the officers and employees of AIM who will
provide investment advisory services to the Fund. In reviewing the
qualifications of AIM to provide investment advisory services, the Board
considered such issues as AIM's portfolio and product review process,
various back office support functions provided by AIM and AIM's equity and
fixed income trading operations. Based on the review of these and other
factors, the Board concluded that the quality of services to be provided by
AIM was appropriate and that AIM currently is providing satisfactory
services in accordance with the terms of the Advisory Agreement.
- - The performance of the Fund relative to comparable funds. The Board
reviewed the performance of the Fund during the past one and three calendar
years against the performance of funds advised by other advisors with
investment strategies comparable to those of the Fund. The Board noted that
the Fund's performance in such periods was above the median performance of
such comparable funds. Based on this review and after taking account of all
of the other factors that the Board considered in determining whether to
continue the Advisory Agreement for the Fund, the Board concluded that no
changes should be made to the Fund and that it was not necessary to change
the Fund's portfolio management team at this time. Although the independent
written evaluation of the Fund's Senior Officer (discussed below) only
considered Fund performance through the most recent calendar year, the
Board also reviewed more recent Fund performance, which did not change
their conclusions.
- - The performance of the Fund relative to indices. The Board reviewed the
performance of the Fund during the past one and three calendar years
against the performance of the Lipper European Fund Index. The Board noted
that the Fund's performance in such periods was above the performance of
such Index. Based on this review and after taking account of all of the
other factors that the Board considered in determining whether to continue
the Advisory Agreement for the Fund, the Board concluded that no changes
should be made to the Fund and that it was not necessary to change the
Fund's portfolio management team at this time. Although the independent
written evaluation of the Fund's Senior Officer (discussed below) only
considered Fund performance through the most recent calendar year, the
Board also reviewed more recent Fund performance, which did not change
their conclusions.
- - Meetings with the Fund's portfolio managers and investment personnel. With
respect to the Fund, the Board is meeting periodically with such Fund's
portfolio managers and/or other investment personnel and believes that such
individuals are competent and able to continue to carry out their
responsibilities under the Advisory Agreement.
- - Overall performance of AIM. The Board considered the overall performance of
AIM in providing investment advisory and portfolio administrative services
to the Fund and concluded that such performance was satisfactory.
- - Fees relative to those of clients of AIM with comparable investment
strategies. The Board reviewed the effective advisory fee rate (before
waivers) for the Fund under the Advisory Agreement. The Board noted that
this rate was (i) comparable to the effective advisory fee rate (before
waivers) for a mutual fund advised by AIM with investment strategies
comparable to those of the Fund; (ii) above the effective advisory and
sub-advisory fee rates for one offshore fund advised and sub-advised by AIM
affiliates with investment strategies comparable to those of the Fund; and
(iii) above the effective sub-advisory fee rates for two Canadian mutual
funds advised by an AIM affiliate and sub-advised by AIM with investment
strategies comparable to those of the Fund, although the total advisory
fees for such Canadian mutual funds were comparable to or above those for
the Fund. The Board noted that AIM has agreed to waive advisory fees of the
Fund and to limit the Fund's total operating expenses, as discussed below.
Based on this review, the Board concluded that the advisory fee rate for
the Fund under the Advisory Agreement was fair and reasonable.
- - Fees relative to those of comparable funds with other advisors. The Board
reviewed the advisory fee rate for the Fund under the Advisory Agreement.
The Board compared effective contractual advisory fee rates at a common
asset level at the end of the past calendar year and noted that the Fund's
rate was comparable to the median rate of the funds advised by other
advisors with investment strategies comparable to those of the Fund that
the Board reviewed. The Board noted that AIM has agreed to waive advisory
fees of the Fund and to limit the Fund's total operating expenses, as
discussed below. Based on this review, the Board concluded that the
advisory fee rate for the Fund under the Advisory Agreement was fair and
reasonable.
- - Expense limitations and fee waivers. The Board noted that AIM has
contractually agreed to waive advisory fees of the Fund through June 30,
2007 to the extent necessary so that the advisory fees payable by the Fund
do not exceed a specified maximum advisory fee rate, which maximum rate
includes breakpoints and is based on net asset levels. The Board considered
the contractual nature of this fee waiver and noted that it remains in
effect until June 30, 2007. The Board noted that AIM has contractually
agreed to waive fees and/or limit expenses of the Fund through June 30,
2007 in an amount necessary to limit total annual operating expenses to a
specified percentage of average daily net assets for each class of the
Fund. The Board considered the contractual nature of this fee
waiver/expense limitation and noted that it remains in effect until June
30, 2007. The Board considered the effect these fee waivers/expense
limitations would have on the Fund's estimated expenses and concluded that
the levels of fee waivers/expense limitations for the Fund were fair and
reasonable.
(continued)
10
AIM European Small Company Fund
- - Breakpoints and economies of scale. The Board reviewed the structure of the
Fund's advisory fee under the Advisory Agreement, noting that it does not
include any breakpoints. The Board considered whether it would be
appropriate to add advisory fee breakpoints for the Fund or whether, due to
the nature of the Fund and the advisory fee structures of comparable funds,
it was reasonable to structure the advisory fee without breakpoints. Based
on this review, the Board concluded that it was not necessary to add
advisory fee breakpoints to the Fund's advisory fee schedule. The Board
reviewed the level of the Fund's advisory fees, and noted that such fees,
as a percentage of the Fund's net assets, would remain constant under the
Advisory Agreement because the Advisory Agreement does not include any
breakpoints. The Board noted that AIM has contractually agreed to waive
advisory fees of the Fund through June 30, 2007 to the extent necessary so
that the advisory fees payable by the Fund do not exceed a specified
maximum advisory fee rate, which maximum rate includes breakpoints and is
based on net asset levels. The Board concluded that the Fund's fee levels
under the Advisory Agreement therefore would not reflect economies of
scale, although the advisory fee waiver reflects economies of scale.
- - Investments in affiliated money market funds. The Board also took into
account the fact that uninvested cash and cash collateral from securities
lending arrangements, if any (collectively, "cash balances") of the Fund
may be invested in money market funds advised by AIM pursuant to the terms
of an SEC exemptive order. The Board found that the Fund may realize
certain benefits upon investing cash balances in AIM advised money market
funds, including a higher net return, increased liquidity, increased
diversification or decreased transaction costs. The Board also found that
the Fund will not receive reduced services if it invests its cash balances
in such money market funds. The Board noted that, to the extent the Fund
invests uninvested cash in affiliated money market funds, AIM has
voluntarily agreed to waive a portion of the advisory fees it receives from
the Fund attributable to such investment. The Board further determined that
the proposed securities lending program and related procedures with respect
to the lending Fund is in the best interests of the lending Fund and its
respective shareholders. The Board therefore concluded that the investment
of cash collateral received in connection with the securities lending
program in the money market funds according to the procedures is in the
best interests of the lending Fund and its respective shareholders.
- - Independent written evaluation and recommendations of the Fund's Senior
Officer. The Board noted that, upon their direction, the Senior Officer of
the Fund, who is independent of AIM and AIM's affiliates, had prepared an
independent written evaluation in order to assist the Board in determining
the reasonableness of the proposed management fees of the AIM Funds,
including the Fund. The Board noted that the Senior Officer's written
evaluation had been relied upon by the Board in this regard in lieu of a
competitive bidding process. In determining whether to continue the
Advisory Agreement for the Fund, the Board considered the Senior Officer's
written evaluation and the recommendation made by the Senior Officer to the
Board that the Board consider whether the advisory fee waivers for certain
equity AIM Funds, including the Fund, should be simplified. The Board
concluded that it would be advisable to consider this issue and reach a
decision prior to the expiration date of such advisory fee waivers.
- - Profitability of AIM and its affiliates. The Board reviewed information
concerning the profitability of AIM's (and its affiliates') investment
advisory and other activities and its financial condition. The Board
considered the overall profitability of AIM, as well as the profitability
of AIM in connection with managing the Fund. The Board noted that AIM's
operations remain profitable, although increased expenses in recent years
have reduced AIM's profitability. Based on the review of the profitability
of AIM's and its affiliates' investment advisory and other activities and
its financial condition, the Board concluded that the compensation to be
paid by the Fund to AIM under its Advisory Agreement was not excessive.
- - Benefits of soft dollars to AIM. The Board considered the benefits realized
by AIM as a result of brokerage transactions executed through "soft dollar"
arrangements. Under these arrangements, brokerage commissions paid by the
Fund and/or other funds advised by AIM are used to pay for research and
execution services. This research may be used by AIM in making investment
decisions for the Fund. The Board concluded that such arrangements were
appropriate.
- - AIM's financial soundness in light of the Fund's needs. The Board
considered whether AIM is financially sound and has the resources necessary
to perform its obligations under the Advisory Agreement, and concluded that
AIM has the financial resources necessary to fulfill its obligations under
the Advisory Agreement.
- - Historical relationship between the Fund and AIM. In determining whether to
continue the Advisory Agreement for the Fund, the Board also considered the
prior relationship between AIM and the Fund, as well as the Board's
knowledge of AIM's operations, and concluded that it was beneficial to
maintain the current relationship, in part, because of such knowledge. The
Board also reviewed the general nature of the non-investment advisory
services currently performed by AIM and its affiliates, such as
administrative, transfer agency and distribution services, and the fees
received by AIM and its affiliates for performing such services. In
addition to reviewing such services, the trustees also considered the
organizational structure employed by AIM and its affiliates to provide
those services. Based on the review of these and other factors, the Board
concluded that AIM and its affiliates were qualified to continue to provide
non-investment advisory services to the Fund, including administrative,
transfer agency and distribution services, and that AIM and its affiliates
currently are providing satisfactory non-investment advisory services.
- - Other factors and current trends. The Board considered the steps that AIM
and its affiliates have taken over the last several years, and continue to
take, in order to improve the quality and efficiency of the services they
provide to the Funds in the areas of investment performance, product line
diversification, distribution, fund operations, shareholder services and
compliance. The Board concluded that these steps taken by AIM have
improved, and are likely to continue to improve, the quality and efficiency
of the services AIM and its affiliates provide to the Fund in each of these
areas, and support the Board's approval of the continuance of the Advisory
Agreement for the Fund.
11
AIM European Small Company Fund
SCHEDULE OF INVESTMENTS
December 31, 2006
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
FOREIGN COMMON STOCKS & OTHER EQUITY
INTERESTS-92.84%
AUSTRIA-1.80%
Andritz A.G. (Industrial Machinery) 41,760 $ 9,058,457
========================================================================
BELGIUM-2.15%
EVS Broadcast Equipment S.A. (Communications
Equipment)(a) 115,500 6,673,543
- ------------------------------------------------------------------------
Van De Velde N.V. (Apparel, Accessories &
Luxury Goods) 80,000 4,150,866
========================================================================
10,824,409
========================================================================
FINLAND-0.98%
Nokian Renkaat Oyj (Tires & Rubber)(b) 239,600 4,909,471
========================================================================
FRANCE-1.52%
April Group (Insurance Brokers) 82,700 3,973,230
- ------------------------------------------------------------------------
Sword Group (Systems Software)(a) 78,300 3,696,091
========================================================================
7,669,321
========================================================================
GERMANY-5.10%
Bijou Brigitte Modische Accessoires A.G.
(Apparel, Accessories & Luxury Goods)(a) 22,692 4,476,884
- ------------------------------------------------------------------------
CTS Eventim A.G. (Movies & Entertainment)(a) 149,200 5,762,756
- ------------------------------------------------------------------------
Elexis A.G. (Industrial Machinery)(a)(b) 165,500 4,737,487
- ------------------------------------------------------------------------
ElringKlinger A.G. (Auto Parts &
Equipment)(a) 106,900 6,838,441
- ------------------------------------------------------------------------
Takkt A.G. (Catalog Retail) 221,800 3,850,734
========================================================================
25,666,302
========================================================================
GREECE-9.27%
Attica Holdings S.A. (Marine)(a) 497,700 2,627,108
- ------------------------------------------------------------------------
Blue Star Maritime S.A. (Marine) 541,600 2,216,647
- ------------------------------------------------------------------------
Gr. Sarantis S.A. (Personal Products) 276,867 2,938,890
- ------------------------------------------------------------------------
Intralot S.A. (Casinos & Gaming)(a) 370,846 12,972,704
- ------------------------------------------------------------------------
Jumbo S.A. (Leisure Products) 633,100 13,858,397
- ------------------------------------------------------------------------
Mytilineos Holdings S.A. (Diversified Metals
& Mining)(a) 136,000 5,385,419
- ------------------------------------------------------------------------
Titan Cement Co. S.A. (Construction
Materials)(a) 122,271 6,653,068
========================================================================
46,652,233
========================================================================
HUNGARY-0.85%
Egis Nyrt. (Pharmaceuticals)(a) 31,133 4,297,583
========================================================================
IRELAND-2.54%
CPL Resources PLC (Human Resource &
Employment Services)(a) 540,000 4,277,272
- ------------------------------------------------------------------------
FBD Holdings PLC (Multi-Line Insurance)(a) 87,600 4,767,565
- ------------------------------------------------------------------------
</Table>
<Table>
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
IRELAND-(CONTINUED)
Paddy Power PLC (Casinos & Gaming)(a) 187,000 $ 3,715,259
========================================================================
12,760,096
========================================================================
ISRAEL-0.50%
Advanced Vision Technology Ltd. (Electronic
Equipment Manufacturers)(a)(c) 160,000 2,489,977
========================================================================
ITALY-6.09%
Antichi Pellettieri S.p.A. (Apparel,
Accessories & Luxury Goods)(a)(c) 324,828 4,069,932
- ------------------------------------------------------------------------
Biesse S.p.A. (Industrial Machinery)(a) 548,200 11,162,255
- ------------------------------------------------------------------------
Cementir S.p.A. Cementerie del Tirreno
(Construction Materials)(a) 890,900 7,975,872
- ------------------------------------------------------------------------
Prima Industrie S.p.A. (Industrial Machinery) 93,300 2,766,607
- ------------------------------------------------------------------------
Valentino Fashion Group S.p.A. (Apparel,
Accessories & Luxury Goods)(a) 114,100 4,658,256
========================================================================
30,632,922
========================================================================
NETHERLANDS-13.84%
Aalberts Industries N.V. (Industrial
Machinery)(a) 129,834 11,225,575
- ------------------------------------------------------------------------
Accell Group N.V. (Leisure Products) 141,675 4,863,207
- ------------------------------------------------------------------------
Bateman Litwin N.V. (Construction &
Engineering)(a)(c) 1,100,000 3,418,456
- ------------------------------------------------------------------------
Beter Bed Holding N.V. (Homefurnishing
Retail)(a)(b) 323,125 8,226,938
- ------------------------------------------------------------------------
Eriks Group N.V. (Trading Companies &
Distributors)(a) 76,376 5,530,662
- ------------------------------------------------------------------------
Koninklijke BAM Groep N.V. (Construction &
Engineering) (Acquired 12/10/2004; Cost
$303,940)(a)(d) 35,000 677,749
- ------------------------------------------------------------------------
Koninklijke BAM Groep N.V. (Construction &
Engineering)(a) 290,594 5,627,136
- ------------------------------------------------------------------------
Smit Internationale N.V. (Marine Ports &
Services)(a) 175,614 9,449,307
- ------------------------------------------------------------------------
Univar N.V. (Trading Companies &
Distributors)(a) 143,310 8,029,074
- ------------------------------------------------------------------------
USG People N.V. (Human Resource & Employment
Services)(a) 289,782 12,594,605
========================================================================
69,642,709
========================================================================
NORWAY-20.62%
Acta Holding A.S.A. (Diversified Capital
Markets)(a) 1,650,500 8,703,973
- ------------------------------------------------------------------------
Arrow Seismic A.S.A. (Oil & Gas Equipment &
Services) (Acquired 02/13/06; Cost
$2,153,007)(c)(d) 410,000 4,866,508
- ------------------------------------------------------------------------
Cermaq A.S.A. (Packaged Foods & Meats) 388,600 5,672,128
- ------------------------------------------------------------------------
</Table>
F-1
AIM European Small Company Fund
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
NORWAY-(CONTINUED)
Expert A.S.A. (Computer & Electronics
Retail)(a)(b) 199,640 $ 3,196,549
- ------------------------------------------------------------------------
Geo A.S.A. (Construction & Engineering)
(Acquired 06/21/05; Cost $897,913)(b)(c)(d) 291,000 2,683,877
- ------------------------------------------------------------------------
Geo A.S.A. (Construction & Engineering)(b)(c) 574,600 5,299,505
- ------------------------------------------------------------------------
ODIM A.S.A. (Industrial Machinery)(a)(c) 177,650 5,056,165
- ------------------------------------------------------------------------
Pan Fish A.S.A. (Packaged Foods & Meats)
(Acquired 03/07/06; Cost
$5,031,680)(a)(c)(d) 7,653,000 6,994,425
- ------------------------------------------------------------------------
Petroleum Geo-Services A.S.A. (Oil & Gas
Equipment & Services)(a)(c) 483,900 11,323,809
- ------------------------------------------------------------------------
Prosafe A.S.A. (Oil & Gas Equipment &
Services)(b) 933,135 13,246,148
- ------------------------------------------------------------------------
Revus Energy A.S.A. (Oil & Gas Exploration &
Production) (Acquired 06/27/05; Cost
$953,210)(a)(b)(c)(d) 149,200 1,283,022
- ------------------------------------------------------------------------
Revus Energy A.S.A. (Oil & Gas Exploration &
Production)(a)(b)(c) 85,200 732,664
- ------------------------------------------------------------------------
Sinvest A.S.A. (Oil & Gas Drilling)(a)(b)(c) 433,500 9,289,544
- ------------------------------------------------------------------------
Songa Offshore A.S.A. (Oil & Gas
Drilling)(a)(b)(c) 524,100 5,481,026
- ------------------------------------------------------------------------
TGS Nopec Geophysical Co. A.S.A. (Oil & Gas
Equipment & Services)(c) 498,484 10,314,372
- ------------------------------------------------------------------------
Veidekke A.S.A. (Construction &
Engineering)(a) 251,200 9,579,018
========================================================================
103,722,733
========================================================================
PORTUGAL-1.55%
Mota-Engil, SGPS, S.A. (Construction &
Engineering)(a) 1,147,500 7,779,837
========================================================================
SWEDEN-2.88%
Hexagon A.B.-Class B (Industrial
Machinery)(a) 178,670 7,605,591
- ------------------------------------------------------------------------
Indutrade A.B. (Trading Companies &
Distributors) (Acquired 10/05/05; Cost
$1,265,296)(d) 152,000 2,997,217
- ------------------------------------------------------------------------
Poolia A.B.-Class B (Human Resource &
Employment Services)(b) 396,300 3,892,757
========================================================================
14,495,565
========================================================================
SWITZERLAND-7.78%
Banque Cantonale Vaudoise (Diversified Banks) 12,700 6,118,096
- ------------------------------------------------------------------------
Conzzeta Holding A.G. (Industrial Machinery) 1,300 2,309,807
- ------------------------------------------------------------------------
Daetwyler Holding A.G. (Industrial
Conglomerates) 1,180 6,681,986
- ------------------------------------------------------------------------
Interroll Holding A.G. (Industrial
Machinery)(a)(c) 15,500 5,518,045
- ------------------------------------------------------------------------
Lem Holding S.A. (Electronic Equipment
Manufacturers) 23,065 4,153,025
- ------------------------------------------------------------------------
Mobilezone Holding A.G. (Computer &
Electronics Retail) 1,111,003 7,020,700
- ------------------------------------------------------------------------
Rieter Holding A.G. (Auto Parts &
Equipment)(a) 8,900 4,653,215
- ------------------------------------------------------------------------
Schweiter A.G. (Industrial Machinery)(a) 9,000 2,696,833
========================================================================
39,151,707
========================================================================
</Table>
<Table>
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
UNITED KINGDOM-15.37%
Amlin PLC (Multi-Line Insurance)(a) 953,000 $ 6,032,691
- ------------------------------------------------------------------------
Catlin Group Ltd. (Property & Casualty
Insurance) 366,000 3,684,503
- ------------------------------------------------------------------------
Findel PLC (Catalog Retail)(a) 229,400 3,205,588
- ------------------------------------------------------------------------
Homeserve PLC (Diversified Commercial &
Professional Services)(a) 281,500 10,392,423
- ------------------------------------------------------------------------
Inchcape PLC (Distributors)(a) 282,420 2,783,202
- ------------------------------------------------------------------------
Informa PLC (Publishing)(a) 450,919 5,255,466
- ------------------------------------------------------------------------
Kier Group PLC (Construction &
Engineering)(a) 193,671 8,207,539
- ------------------------------------------------------------------------
Mears Group PLC (Diversified Commercial &
Professional Services)(a) 1,030,000 7,309,343
- ------------------------------------------------------------------------
Mitie Group PLC (Diversified Commercial &
Professional Services)(a) 1,405,000 6,832,005
- ------------------------------------------------------------------------
Morgan Sindall PLC (Construction &
Engineering)(a) 228,000 5,915,611
- ------------------------------------------------------------------------
NDS Group PLC-ADR (Application Software)(c) 47,300 2,284,117
- ------------------------------------------------------------------------
Premier Research Group PLC (Life Sciences
Tools & Services)(a)(c) 848,763 3,736,882
- ------------------------------------------------------------------------
SCi Entertainment Group PLC (Home
Entertainment Software)(a)(c) 637,242 6,156,368
- ------------------------------------------------------------------------
Ultra Electronics Holdings PLC (Aerospace &
Defense)(a) 260,650 5,518,938
========================================================================
77,314,676
========================================================================
Total Foreign Common Stocks & Other
Equity Interests (Cost $254,084,022) 467,067,998
========================================================================
FOREIGN PREFERRED STOCKS-2.57%
GERMANY-2.57%
Fuchs Petrolub A.G. -Pfd. (Commodity
Chemicals)(a)(b) 168,512 12,899,335
========================================================================
Total Foreign Preferred Stocks (Cost
$7,012,435) 12,899,335
========================================================================
MONEY MARKET FUNDS-4.36%
Liquid Assets Portfolio-Institutional
Class(e) 10,962,757 10,962,757
- ------------------------------------------------------------------------
Premier Portfolio-Institutional Class(e) 10,962,757 10,962,757
========================================================================
Total Money Market Funds (Cost
$21,925,514) 21,925,514
========================================================================
TOTAL INVESTMENTS (excluding investments
purchased with cash collateral from
securities loaned)-99.77% (Cost
$283,021,971) 501,892,847
========================================================================
</Table>
F-2
AIM European Small Company Fund
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-6.29%
Liquid Assets Portfolio-Institutional
Class(e)(f) 31,663,353 $ 31,663,353
========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $31,663,353) 31,663,353
========================================================================
TOTAL INVESTMENTS-106.06% (Cost $314,685,324) 533,556,200
========================================================================
OTHER ASSETS LESS LIABILITIES-(6.06)% (30,464,292)
========================================================================
NET ASSETS-100.00% $503,091,908
________________________________________________________________________
========================================================================
</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, 2006 was $346,156,081,
which represented 68.81% of the Fund's Net Assets. See Note 1A.
(b) All or a portion of this security was out on loan at December 31, 2006.
(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 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, 2006 was
$19,502,798, which represented 3.88% 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 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, 2006
<Table>
ASSETS:
Investments, at value (cost $261,096,457)* $479,967,333
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $53,588,867) 53,588,867
===========================================================
Total investments (cost $314,685,324) 533,556,200
===========================================================
Foreign currencies, at value (cost $108,871) 109,219
- -----------------------------------------------------------
Receivables for:
Fund shares sold 964,322
- -----------------------------------------------------------
Dividends 1,003,690
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 26,273
- -----------------------------------------------------------
Other assets 19,695
===========================================================
Total assets 535,679,399
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Fund shares reacquired 463,822
- -----------------------------------------------------------
Trustee deferred compensation and
retirement plans 39,586
- -----------------------------------------------------------
Collateral upon return of securities loaned 31,663,353
- -----------------------------------------------------------
Accrued distribution fees 190,753
- -----------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 4,570
- -----------------------------------------------------------
Accrued transfer agent fees 95,426
- -----------------------------------------------------------
Accrued operating expenses 129,981
===========================================================
Total liabilities 32,587,491
===========================================================
Net assets applicable to shares outstanding $503,091,908
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $273,337,077
- -----------------------------------------------------------
Undistributed net investment income (866,552)
- -----------------------------------------------------------
Undistributed net realized gain from
investment securities and foreign
currencies 11,744,162
- -----------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 218,877,221
===========================================================
$503,091,908
___________________________________________________________
===========================================================
NET ASSETS:
Class A $360,688,113
___________________________________________________________
===========================================================
Class B $ 64,827,389
___________________________________________________________
===========================================================
Class C $ 77,576,406
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 13,013,122
___________________________________________________________
===========================================================
Class B 2,425,451
___________________________________________________________
===========================================================
Class C 2,901,760
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 27.72
- -----------------------------------------------------------
Offering price per share
(Net asset value of $27.72 divided by
94.50%) $ 29.33
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 26.73
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 26.73
___________________________________________________________
===========================================================
</Table>
* At December 31, 2006, securities with an aggregate value of $30,468,362 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, 2006
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $1,018,778) $ 8,641,565
- --------------------------------------------------------------------------
Dividends from affiliated money market funds (includes
securities lending income of $267,992) 1,477,239
- --------------------------------------------------------------------------
Interest 10,581
==========================================================================
Total investment income 10,129,385
==========================================================================
EXPENSES:
Advisory fees 4,378,213
- --------------------------------------------------------------------------
Administrative services fees 125,999
- --------------------------------------------------------------------------
Custodian fees 539,748
- --------------------------------------------------------------------------
Distribution fees:
Class A 833,898
- --------------------------------------------------------------------------
Class B 585,774
- --------------------------------------------------------------------------
Class C 687,277
- --------------------------------------------------------------------------
Transfer agent fees 756,275
- --------------------------------------------------------------------------
Trustees' and officer's fees and benefits 28,101
- --------------------------------------------------------------------------
Other 242,436
==========================================================================
Total expenses 8,177,721
==========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (197,616)
==========================================================================
Net expenses 7,980,105
==========================================================================
Net investment income 2,149,280
==========================================================================
REALIZED AND UNREALIZED GAINS FROM INVESTMENT SECURITIES,
FOREIGN CURRENCIES AND FOREIGN CURRENCY CONTRACTS:
Net realized gain from:
Investment securities 71,477,307
- --------------------------------------------------------------------------
Foreign currencies 613,451
==========================================================================
72,090,758
==========================================================================
Change in net unrealized appreciation of:
Investment securities 100,202,764
- --------------------------------------------------------------------------
Foreign currencies 14,955
- --------------------------------------------------------------------------
Foreign currency contracts 71
==========================================================================
100,217,790
==========================================================================
Net gain from investment securities, foreign currencies and
foreign currency contracts 172,308,548
==========================================================================
Net increase in net assets resulting from operations $174,457,828
__________________________________________________________________________
==========================================================================
</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, 2006 and 2005
<Table>
<Caption>
2006 2005
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 2,149,280 $ 1,467,038
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 72,090,758 33,406,458
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities, foreign currencies and foreign currency
contracts 100,217,790 68,926,402
==========================================================================================
Net increase in net assets resulting from operations 174,457,828 103,799,898
==========================================================================================
Distributions to shareholders from net investment income:
Class A (3,050,109) (901,232)
- ------------------------------------------------------------------------------------------
Class B (124,315) --
- ------------------------------------------------------------------------------------------
Class C (145,695) --
==========================================================================================
Total distributions from net investment income (3,320,119) (901,232)
==========================================================================================
Distributions to shareholders from net realized gains:
Class A (45,569,603) (16,797,743)
- ------------------------------------------------------------------------------------------
Class B (8,443,431) (3,063,883)
- ------------------------------------------------------------------------------------------
Class C (9,895,549) (3,585,745)
==========================================================================================
Total distributions from net realized gains (63,908,583) (23,447,371)
==========================================================================================
Decrease in net assets resulting from distributions (67,228,702) (24,348,603)
==========================================================================================
Share transactions-net:
Class A (3,868,173) 67,440,115
- ------------------------------------------------------------------------------------------
Class B 3,608 14,892,613
- ------------------------------------------------------------------------------------------
Class C 1,807,324 20,598,304
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (2,057,241) 102,931,032
==========================================================================================
Net increase in net assets 105,171,885 182,382,327
==========================================================================================
NET ASSETS:
Beginning of year 397,920,023 215,537,696
==========================================================================================
End of year (including undistributed net investment income
of $(866,552) and $(309,165), respectively) $503,091,908 $397,920,023
__________________________________________________________________________________________
==========================================================================================
</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, 2006
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 seven 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 long-term growth of capital.
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 or official closing price as of the close of
the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on that
day. Securities traded in the over-the-counter market are valued based on
the prices furnished by independent pricing services, in which case the
securities may be considered fair valued, or by market makers. 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 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 open-end and closed-end registered
investment companies that trade on an exchange are valued at the last sales
price or official closing price as of the close of the customary trading
session on the exchange where the security is principally traded.
Debt obligations (including convertible bonds) and unlisted equities 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.
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. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued at
the market quotations. Because trading hours for certain foreign securities
end before the close of the NYSE, closing market quotations may become
unreliable. If between the time trading ends on a particular security and
the close of the customary trading session on the NYSE, events occur that
are significant and may make the closing price unreliable, the Fund may
fair value the security. If 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 prices are not provided by any of the above
methods may be 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.
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
F-7
AIM European Small Company Fund
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 the 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 treat 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 to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that 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. ACCOUNTING ESTIMATES -- 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.
H. INDEMNIFICATIONS -- 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.
I. 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.
J. 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.
The Fund may invest in foreign securities which may be subject to foreign
taxes on income, gains on investments or currency repatriation, a portion
of which may be recoverable. Taxes are accrued based on the Fund's current
interpretation of tax regulations and rates that exist in the foreign
markets in which the Fund invests.
K. 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.
Fluctuations in the value of these contracts are recorded as unrealized
appreciation (depreciation) until the contracts are closed. When these
contracts are closed, realized gains (losses) are recorded. Realized and
unrealized gains and losses on these contracts are included in the
Statement of Operations. The Fund could be exposed to risk, which may be in
excess of the amount reflected in the Statement of Assets and Liabilities,
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-8
AIM European 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 June 30, 2007, 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 at
least June 30, 2007. 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 net annual operating expenses to exceed the numbers
reflected above: (i) interest; (ii) taxes; (iii) dividend expense on short
sales; (iv) extraordinary items; (v) expenses related to a merger or
reorganization, as approved by the Fund's Board of Trustees; and (vi) expenses
that the Fund has incurred but did not actually pay because of an expense offset
arrangement. Currently, in addition to the expense reimbursement arrangement
with AMVESCAP PLC ("AMVESCAP") described more fully below, the expense offset
arrangements from which the Fund may benefit are in the form of credits that the
Fund receives from banks where the Fund or its transfer agent has deposit
accounts in which it holds uninvested cash. In addition, the Fund may also
benefit from a one time credit to be used to offset future custodian expenses.
These credits are used to pay certain expenses incurred by the Fund. AIM did not
waive fees and/or reimburse expenses during the period under this expense
limitation.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the fund). Voluntary fee waivers or
reimbursements may be modified or discontinued at any time upon consultation
with the Board of Trustees without further notice to investors.
For the year ended December 31, 2006, AIM waived advisory fees of $127,716.
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, 2006, AMVESCAP reimbursed expenses of the Fund in the amount of
$2,634.
The Trust has entered into a master administrative services agreement with
AIM pursuant to which the Fund has agreed to pay AIM for certain administrative
costs incurred in providing accounting services, to the Fund. For the year ended
December 31, 2006, expenses incurred under the agreement are shown in the
Statement of Operations as administrative services fees.
The Trust has entered into a transfer agency and service agreement with AIM
Investment Services, Inc. ("AIS") pursuant to which the Fund has agreed to pay
AIS a fee for providing transfer agency and shareholder services to the Fund and
reimburse AIS for certain expenses incurred by AIS in the course of providing
such services. AIS may make payments to intermediaries that provide omnibus
account services, sub-accounting services and/or networking services. All fees
payable by AIS to intermediaries that provide omnibus account services or
sub-accounting are charged back to the Fund, subject to certain limitations
approved by the Trust's Board of Trustees. For the year ended December 31, 2006,
the expenses incurred under the agreement are shown in the Statement of
Operations as transfer agent fees.
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 each class of
Class B and Class C shares. Of the Plan payments, up to 0.25% of the average
daily net assets of each class of 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. For the year ended
December 31, 2006, expenses incurred under the Plans are shown in the Statement
of Operations as distribution fees.
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, 2006, ADI advised the Fund that it
F-9
AIM European Small Company Fund
retained $73,764 in front-end sales commissions from the sale of Class A shares
and $32,320, $77,288 and $30,044 from Class A, Class B and Class C shares,
respectively, for CDSC imposed on redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS and/or ADI.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to procedures approved by the Board of Trustees,
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, 2006.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 12/31/06 INCOME GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 9,211,535 $ 93,539,764 $ (91,788,542) $ -- $10,962,757 $ 604,105 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-
Institutional
Class -- 56,311,309 (45,348,552) -- 10,962,757 295,449 --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 9,211,535 43,341,968 (52,553,503) -- -- 309,693 --
===================================================================================================================================
Subtotal $18,423,070 $193,193,041 $(189,690,597) $ -- $21,925,514 $1,209,247 $ --
===================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 12/31/06 INCOME* GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $27,254,135 $210,722,993 $(206,313,775) $ -- $31,663,353 $ 267,992 $ --
===================================================================================================================================
Total
Investments
in
Affiliates $45,677,205 $403,916,034 $(396,004,372) $ -- $53,588,867 $1,477,239 $ --
___________________________________________________________________________________________________________________________________
===================================================================================================================================
</Table>
* Net of compensation to counterparties.
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions, (ii) custodian credits which result
from periodic overnight cash balances at the custodian and (iii) a one time
custodian fee credit to be used to offset future custodian fees. For the year
ended December 31, 2006, the Fund received credits from these arrangements,
which resulted in the reduction of the Fund's total expenses of $67,266.
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, 2006, the Fund paid legal fees of $5,349
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 Securities and Exchange Commission, 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.
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, 2006, 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 bank 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 contractually agreed upon rate.
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 any loss on
the collateral invested.
At December 31, 2006, securities with an aggregate value of $30,468,362 were
on loan to brokers. The loans were secured by cash collateral of $31,663,353
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended December 31, 2006, the Fund received dividends on cash
collateral investments of $267,992 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 December 31, 2006 and
2005 was as follows:
<Table>
<Caption>
2006 2005
- ----------------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $ 3,320,119 $15,535,676
- ----------------------------------------------------------------------------------------
Long-term capital gain 63,908,583 8,812,927
========================================================================================
Total distributions $67,228,702 $24,348,603
________________________________________________________________________________________
========================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2006, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2006
- ----------------------------------------------------------------------------
Undistributed ordinary income $ 1,882,618
- ----------------------------------------------------------------------------
Undistributed long-term gain 11,790,813
- ----------------------------------------------------------------------------
Net unrealized appreciation -- investments 216,117,070
- ----------------------------------------------------------------------------
Temporary book/tax differences (35,670)
- ----------------------------------------------------------------------------
Shares of beneficial interest 273,337,077
============================================================================
Total net assets $503,091,908
____________________________________________________________________________
============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales and the recognition for tax purposes of unrealized gains on passive
foreign investment companies. The tax-basis net unrealized appreciation on
investments amount includes appreciation on foreign currencies of $6,345.
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 benefits.
The Fund does not have a capital loss carryforward as of December 31, 2006.
F-11
AIM European Small Company Fund
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the year ended December 31, 2006 was $151,999,083 and
$222,136,581, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $216,231,173
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (120,448)
==============================================================================
Net unrealized appreciation of investment securities $216,110,725
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $317,445,475.
</Table>
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, on December 31, 2006, undistributed net investment income was
increased by $613,452 and undistributed net realized gain was decreased by
$613,452. 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, Class B
and Class C. Class A shares are sold with a front-end sales charge unless
certain waiver criteria are met. Class B shares and Class C shares are sold with
CDSC. Generally, Class B shares will automatically convert to Class A shares on
or about the month-end which is at least eight years after the date 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,
----------------------------------------------------------
2006(a) 2005
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 3,659,317 $ 98,234,691 14,485,984 $272,504,324
- ------------------------------------------------------------------------------------------------------------------------
Class B 540,886 13,961,512 1,526,090 27,962,424
- ------------------------------------------------------------------------------------------------------------------------
Class C 731,439 18,872,761 2,629,303 48,187,651
========================================================================================================================
Issued as reinvestment of dividends:
Class A 1,549,860 41,644,721 693,170 14,681,245
- ------------------------------------------------------------------------------------------------------------------------
Class B 311,291 8,068,658 140,121 2,878,093
- ------------------------------------------------------------------------------------------------------------------------
Class C 356,203 9,236,342 159,160 3,270,748
========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 123,953 3,342,766 79,637 1,527,081
- ------------------------------------------------------------------------------------------------------------------------
Class B (128,336) (3,342,766) (79,144) (1,527,081)
========================================================================================================================
Reacquired:(b)
Class A (5,553,554) (147,090,351) (11,530,830) (221,272,535)
- ------------------------------------------------------------------------------------------------------------------------
Class B (729,529) (18,683,796) (762,028) (14,420,823)
- ------------------------------------------------------------------------------------------------------------------------
Class C (1,036,086) (26,301,779) (1,631,614) (30,860,095)
========================================================================================================================
(174,556) $ (2,057,241) 5,709,849 $102,931,032
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) There are two entities that is a record owner of more than 5% of the
outstanding shares of the Fund and own 20% 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 entities are
also owned beneficially.
(b) Amount is net of redemption fees of $35,459, $6,004 and $7,352 for Class
A, Class B and Class C shares, respectively, for the year ended December
31, 2006 and $69,663, $10,817, and $13,218 for Class A, Class B and
Class C shares, respectively, for the year ended December 31, 2005.
F-12
AIM European Small Company Fund
NOTE 12--NEW ACCOUNTING STANDARD
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement for a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The provisions for FIN 48 are effective for
fiscal years beginning after December 15, 2006. Management is currently
assessing the impact of FIN 48, if any, on the Fund's financial statements and
currently intends for the Fund to adopt FIN 48 provisions during the fiscal year
ending December 31, 2007.
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,
------------------------------------------------------------------
2006 2005 2004 2003 2002
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 21.68 $ 16.94 $ 12.05 $ 7.37 $ 7.19
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.21 0.11(a) (0.05)(a) (0.03)(a) (0.04)(a)
- --------------------------------------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 10.08 6.03 5.30 4.74 0.22
================================================================================================================================
Total from investment operations 10.29 6.14 5.25 4.71 0.18
================================================================================================================================
Less distributions:
Dividends from net investment income (0.27) (0.07) -- (0.03) --
- --------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (3.98) (1.33) (0.36) -- --
================================================================================================================================
Total distributions (4.25) (1.40) (0.36) (0.03) --
================================================================================================================================
Redemption fees added to shares of beneficial interest 0.00 0.00 0.00 -- --
================================================================================================================================
Net asset value, end of period $ 27.72 $ 21.68 $ 16.94 $ 12.05 $ 7.37
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(b) 48.07% 36.48% 43.67% 63.96% 2.50%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $360,688 $286,882 $161,014 $42,103 $13,597
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.54%(c) 1.63% 2.00% 2.00% 2.01%
- --------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.57%(c) 1.68% 2.03% 2.68% 3.05%
================================================================================================================================
Ratio of net investment income (loss) to average net assets 0.67%(c) 0.57% (0.38)% (0.28)% (0.51)%
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate 35% 72% 71% 130% 119%
________________________________________________________________________________________________________________________________
================================================================================================================================
</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 $333,559,402.
F-13
AIM European Small Company Fund
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS B
-------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
2006 2005 2004 2003 2002
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 21.02 $ 16.52 $ 11.84 $ 7.27 $ 7.15
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01) (0.03)(a) (0.14)(a) (0.08)(a) (0.09)(a)
- ---------------------------------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 9.76 5.86 5.18 4.65 0.21
===========================================================================================================================
Total from investment operations 9.75 5.83 5.04 4.57 0.12
===========================================================================================================================
Less distributions:
Dividends from net investment income (0.06) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (3.98) (1.33) (0.36) -- --
===========================================================================================================================
Total distributions (4.04) (1.33) (0.36) -- --
===========================================================================================================================
Redemption fees added to shares of beneficial interest 0.00 0.00 0.00 -- --
===========================================================================================================================
Net asset value, end of period $ 26.73 $ 21.02 $ 16.52 $11.84 $ 7.27
___________________________________________________________________________________________________________________________
===========================================================================================================================
Total return(b) 46.98% 35.51% 42.67% 62.86% 1.68%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $64,827 $51,108 $26,540 $9,415 $5,689
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.29%(c) 2.35% 2.65% 2.65% 2.66%
- ---------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.32%(c) 2.38% 2.68% 3.33% 3.70%
===========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.08)%(c) (0.15)% (1.03)% (0.93)% (1.16)%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Portfolio turnover rate 35% 72% 71% 130% 119%
___________________________________________________________________________________________________________________________
===========================================================================================================================
</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 $58,577,419.
<Table>
<Caption>
CLASS C
-------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
2006 2005 2004 2003 2002
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 21.03 $ 16.53 $ 11.84 $ 7.27 $ 7.14
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01) (0.03)(a) (0.14)(a) (0.09)(a) (0.09)(a)
- ---------------------------------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 9.75 5.86 5.19 4.66 0.22
===========================================================================================================================
Total from investment operations 9.74 5.83 5.05 4.57 0.13
===========================================================================================================================
Less distributions:
Dividends from net investment income (0.06) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (3.98) (1.33) (0.36) -- --
===========================================================================================================================
Total distributions (4.04) (1.33) (0.36) -- --
===========================================================================================================================
Redemption fees added to shares of beneficial interest 0.00 0.00 0.00 -- --
===========================================================================================================================
Net asset value, end of period $ 26.73 $ 21.03 $ 16.53 $11.84 $ 7.27
___________________________________________________________________________________________________________________________
===========================================================================================================================
Total return(b) 46.90% 35.49% 42.75% 62.86% 1.82%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $77,576 $59,930 $27,983 $6,346 $2,057
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.29%(c) 2.35% 2.65% 2.65% 2.66%
- ---------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.32%(c) 2.38% 2.68% 3.33% 3.70%
===========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.08)%(c) (0.15)% (1.03)% (0.93)% (1.16)%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Portfolio turnover rate 35% 72% 71% 130% 119%
___________________________________________________________________________________________________________________________
===========================================================================================================================
</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 $68,727,707.
F-14
AIM European Small Company Fund
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. 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 August 30, 2005, the West Virginia Office of the State Auditor
- -Securities Commission ("WVASC") issued a Summary Order to Cease and Desist and
Notice of Right to Hearing to AIM and ADI (Order No. 05-1318). The WVASC makes
findings of fact that AIM and ADI entered into certain arrangements permitting
market timing of the AIM Funds and failed to disclose these arrangements in the
prospectuses for such Funds, and conclusions of law to the effect that AIM and
ADI violated the West Virginia securities laws. The WVASC orders AIM and ADI to
cease any further violations and seeks to impose monetary sanctions, including
restitution to affected investors, disgorgement of fees, reimbursement of
investigatory, administrative and legal costs and an "administrative
assessment," to be determined by the Commissioner. Initial research indicates
that these damages could be limited or capped by statute.
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; 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
issues 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. Based on orders issued by the MDL Court,
all claims asserted against the AIM Funds that have been transferred to the MDL
Court have been dismissed, although certain Funds remain nominal defendants in
the Consolidated Amended Fund Derivative Complaint. On September 15, 2006, the
MDL Court granted the AMVESCAP defendants' motion to dismiss the Amended Class
Action Complaint for Violations of ERISA and dismissed such Complaint. The
plaintiff has commenced an appeal from that decision.
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 security
holders. IFG, AIM and ADI have advised the Fund that they 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.
F-15
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, 2006, 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, 2006 by correspondence with the custodian, provide a reasonable
basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
February 20, 2007
Houston, Texas
F-16
AIM European Small Company Fund
TAX INFORMATION
Form 1099-DIV, Form 1042-S and other year-end tax information provide
shareholders with actual calendar year amounts that should be included in their
tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the
Internal Revenue Code or to meet a specific state's requirement.
The Fund designates the following amounts or, if subsequently determined to be
different, the maximum amount allowable for its fiscal year ended December 31,
2006:
<Table>
<Caption>
FEDERAL AND STATE INCOME TAX
----------------------------
Long-Term Capital Gain Dividends $63,908,583
Qualified Dividend Income* 99.00%
Corporate Dividends Received Deduction* 0.00%
</Table>
* The above percentages are based on ordinary income dividends paid to
shareholders during the Fund's fiscal year.
For the fiscal year ended December 14, 2006, the amount of income received by
the Fund from sources within foreign countries and possessions of the United
States was $0.5758 per share (representing a total of $9,245,337. Of the foreign
source income, $0.4041 per share is considered qualified dividend income.
Foreign source income with the required adjustments for qualified dividends is
$0.3455 per share. The amount of taxes paid by the fund to such countries for
the fiscal year end December 14, 2006 was $0.0316 per share (representing a
total of $507,174). The following table provides a breakdown by country of
ordinary income received and foreign taxes paid by the Fund during the fiscal
year ended December 14, 2006. The per share amount is based on shareholders of
record on December 14, 2006.
<Table>
<Caption>
FOREIGN ADJUSTED
FOREIGN SOURCE FOREIGN TAX QUALIFIED FOREIGN SOURCE
COUNTRY INCOME % PAID % DIVIDEND % INCOME %
- ---------------------------------------------------------------------------------------------------------------------
Austria.................................................. 1.61% 1.52% 0.91% 2.06%
Belgium.................................................. 4.49% 5.55% 3.33% 5.19%
Denmark.................................................. 0.58% 1.14% 0.68% 0.51%
France................................................... 4.74% 9.06% 5.43% 4.23%
Germany.................................................. 8.60% 9.56% 5.26% 10.69%
Greece................................................... 6.57% 0.00% 9.37% 4.65%
Hungary.................................................. 0.25% 0.00% 0.36% 0.18%
Ireland.................................................. 2.79% 0.00% 3.98% 1.98%
Italy.................................................... 3.86% 3.63% 2.18% 4.92%
The Netherlands.......................................... 30.10% 52.82% 39.79% 23.29%
Norway................................................... 14.16% 2.75% 1.65% 22.21%
Portugal................................................. 1.77% 4.22% 2.53% 1.26%
Spain.................................................... 0.52% 1.24% 0.74% 0.37%
Sweden................................................... 3.78% 5.37% 3.22% 4.11%
Switzerland.............................................. 3.88% 3.14% 3.04% 4.38%
United Kingdom........................................... 12.30% 0.00% 17.53% 8.71%
=====================================================================================================================
TOTAL 100.00% 100.00% 100.00% 100.00%
_____________________________________________________________________________________________________________________
=====================================================================================================================
</Table>
<Table>
<Caption>
NON-RESIDENT ALIEN SHAREHOLDERS
-------------------------------
Qualified Interest Income** 7.98%
</Table>
** The above percentage is based on income dividends paid to shareholders
during the Fund's fiscal year.
ADDITIONAL NON-RESIDENT ALIEN SHAREHOLDER INFORMATION
The percentages of qualifying assets not subject to the U.S. estate tax for
the fiscal quarters ended March 31, 2006, June 30, 2006, September 30, 2006 and
December 31, 2006 were 99.59%, 99.88%, 99.93%, and 99.83%, respectively.
F-17
AIM European Small Company Fund
TRUSTEES AND OFFICERS
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 110
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
NAME, YEAR OF BIRTH AND AND/ OTHER
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- --------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- --------------------------------------------------------------------------------------------------------------------------
Martin L. Flanagan(1) -- 1960 2007 Director, Chief Executive Officer and None
Trustee President, AMVESCAP PLC (parent of AIM
and a global investment management
firm); Chairman, A I M Advisors, Inc.
(registered investment advisor); and
Director, Chairman, Chief Executive
Officer and President, AVZ Inc. (holding
company); INVESCO North American
Holdings, Inc. (holding company);
Chairman and President, AMVESCAP Group
Services, Inc. (service provider);
Trustee, The AIM Family of Funds(R);
Chairman, Investment Company Institute;
and Member of Executive Board, SMU Cox
School of Business
Formerly: President, Co-Chief Executive
Officer, Co-President, Chief Operating
Officer and Chief Financial Officer,
Franklin Resources, Inc. (global
investment management organization)
- --------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(2) -- 1946 1992 Director and Chairman, A I M Management None
Trustee and Vice Chair Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC; Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm) and
Trustee and Vice Chair of The AIM Family
of Funds--Registered Trademark--
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);
Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and President
and Principal Executive Officer of The
AIM Family of Funds--Registered
Trademark--
- --------------------------------------------------------------------------------------------------------------------------
Philip A. Taylor(3) -- 1954 2006 Director, Chief Executive Officer and None
Trustee, President and President, A I M Management Group Inc.,
Principal AIM Mutual Fund Dealer Inc. (registered
Executive Officer broker dealer), AIM Funds Management
Inc. (registered investment advisor) and
1371 Preferred Inc. (holding company);
Director and President, A I M Advisors,
Inc., INVESCO Funds Group, Inc.
(registered investment advisor and
register transfer agent) and AIM GP
Canada Inc. (general partner for a
limited partnership); 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); Director, President and
Chairman, AVZ Callco Inc. (holding
company); AMVESCAP Inc. (holding
company) and AIM Canada Holdings Inc.
(holding company); Director and Chief
Executive Officer, AIM Trimark Corporate
Class Inc. (formerly AIM Trimark Global
Fund Inc.) (corporate mutual fund
company) and AIM Trimark Canada Fund
Inc. (corporate mutual fund company);
Trustee, President and Principal
Executive Officer of The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); Trustee and
Executive Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); and Manager,
Powershares Capital Management LLC
Formerly: President and Principal
Executive Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); Chairman, AIM
Canada Holdings, Inc.; Executive Vice
President and Chief Operations Officer,
AIM Funds Management Inc.; President,
AIM Trimark Global Fund Inc. and AIM
Trimark Canada Fund Inc.; and Director,
Trimark Trust (federally regulated
Canadian Trust Company)
- --------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- --------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- --------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
- --------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company
Formerly: Partner, law firm of Baker & (2 portfolios))
McKenzie
- --------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Founder, Green, Manning & Bunch Ltd., None
Trustee (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 (property casualty company)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and Director of various
affiliated Volvo companies; and
Director, Magellan Insurance Company
- --------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund
company); and Owner, Dos Angelos Ranch, (non-profit)
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
- --------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- --------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- --------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired Director, Mainstay VP Series
Trustee Formerly: Partner, Deloitte & Touche Funds, Inc. (21 portfolios)
- --------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Flanagan was appointed as Trustee of the Trust on February 24, 2007. Mr.
Flanagan is considered an interested person of the Trust because he is an
officer of the advisor to the Trust, and an officer and a director of
AMVESCAP PLC, parent of the advisor to the Trust.
(2) 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.
(3) Mr. Taylor 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.
F-18
TRUSTEES AND OFFICERS--(CONTINUED)
AIM European Small Company Fund
<Table>
<Caption>
TRUSTEE
NAME, YEAR OF BIRTH AND AND/ OTHER
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- --------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- --------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer N/A
Senior Vice President and of The AIM Family of Funds--Registered
Senior Officer Trademark--
Formerly: Director of Compliance and
Assistant General Counsel, ICON
Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- --------------------------------------------------------------------------------------------------------------------------
John M. Zerr -- 1962 2006 Director, Senior Vice President, N/A
Senior Vice President, Chief Secretary and General Counsel, A I M
Legal Officer and Secretary Management Group Inc. and A I M
Advisors, Inc.; Director, Vice President
and Secretary, INVESCO Distributors,
Inc.; Vice President and Secretary,
A I M Capital Management, Inc., AIM
Investment Services, Inc., and Fund
Management Company; Senior Vice
President and Secretary, A I M
Distributors, Inc.; Director and Vice
President, INVESCO Funds Group Inc.;
Senior Vice President, Chief Legal
Officer and Secretary of The AIM Family
of Funds--Registered Trademark--; and
Manager, Powershares Capital Management
LLC
Formerly: Chief Operating Officer,
Senior Vice President, General Counsel,
and Secretary, Liberty Ridge Capital,
Inc. (an investment adviser); Vice
President and Secretary, PBHG Funds (an
investment company); Vice President and
Secretary, PBHG Insurance Series Fund
(an investment company); General Counsel
and Secretary, Pilgrim Baxter Value
Investors (an investment adviser); Chief
Operating Officer, General Counsel and
Secretary, Old Mutual Investment
Partners (a broker-dealer); General
Counsel and Secretary, Old Mutual Fund
Services (an administrator); General
Counsel and Secretary, Old Mutual
Shareholder Services (a shareholder
servicing center); Executive Vice
President, General Counsel and
Secretary, Old Mutual Capital, Inc. (an
investment adviser); and Vice President
and Secretary, Old Mutual Advisors Funds
(an investment company)
- --------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Global Compliance Director, AMVESCAP N/A
Vice President PLC; and Vice President of The AIM
Family of Funds--Registered Trademark--
Formerly: Senior Vice President, A I M
Management Group Inc. (financial
services holding company); Senior Vice
President and Chief Compliance Officer,
A I M Advisors, Inc. and The AIM Family
of Funds--Registered Trademark--; Vice
President and Chief Compliance Officer,
A I M Capital Management, Inc. and A I M
Distributors, Inc.; Vice President, AIM
Investment Services, Inc. and Fund
Management Company; Senior Vice
President and Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; and Senior Vice President
and Compliance Director, Delaware
Investments Family of Funds
- --------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Senior Vice President and General
Vice President Counsel, AMVESCAP PLC; Director, INVESCO
Funds Group, Inc.; and Vice President of
The AIM Family of Funds--Registered
Trademark--
Formerly: Director, Vice President and N/A
General Counsel, Fund Management
Company; Director, Senior Vice
President, Secretary and General
Counsel, A I M Management Group Inc. and
A I M Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Senior Vice President, A I M
Distributors, Inc.; Vice President,
A I M Capital Management, Inc. and AIM
Investment Services, Inc.; Senior Vice
President, Chief Legal Officer and
Secretary of The AIM Family of
Funds--Registered Trademark--; Chief
Executive Officer and President, INVESCO
Funds Group, Inc.; and Senior Vice
President, and General Counsel, Liberty
Financial Companies, Inc. and Senior
Vice President and General Counsel
Liberty Funds Group, LLC
- --------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.; and Vice President,
Financial Officer and Treasurer and Principal Officer of The
Treasurer AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- --------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1992 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc. and The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); and
President and Principal Executive
Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust Only)
Formerly: Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only)
- --------------------------------------------------------------------------------------------------------------------------
Lance A. Rejsek -- 1967 2005 Anti-Money Laundering Compliance N/A
Anti-Money Laundering Officer, A I M Advisors, Inc., A I M
Compliance Officer Capital Management, Inc., A I M
Distributors, Inc., AIM Investment
Services, Inc., AIM Private Asset
Management, Inc., Fund Management
Company and The AIM Family of
Funds--Registered Trademark--
Formerly: Manager of the Fraud
Prevention Department, AIM Investment
Services, Inc.
- --------------------------------------------------------------------------------------------------------------------------
Todd L. Spillane -- 1958 2006 Senior Vice President, A I M Management N/A
Chief Compliance Officer Group Inc.; Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; 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: Global Head of Product
Development, AIG-Global Investment
Group, Inc.; Chief Compliance Officer
and Deputy General Counsel,
AIG-SunAmerica Asset Management; and
Chief Compliance Officer, Chief
Operating Officer and Deputy General
Counsel, American General Investment
Management
- --------------------------------------------------------------------------------------------------------------------------
</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, 51st & Frankel LLP P.O. Box 4739 225 Franklin Street
Floor 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Philadelphia, PA 19103-7599 Americas
New York, NY 10036-2714
</Table>
F-19
[EDELIVERY GO PAPERLESS AIMINVESTMENTS.COM/EDELIVERY GRAPHIC]
REGISTER FOR EDELIVERY
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e-mail. Once your quarterly statements, tax forms, fund reports, and
prospectuses are available, we will send you an e-mail notification containing
links to these documents. For security purposes, you will need to log in to your
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This AIM service is provided by AIM Investment Services, Inc.
If used after April 20, 2007, 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 and exchange-traded funds distributed by A I M
Distributors, Inc.
A I M Management Group Inc. has provided leadership in the investment management
industry since 1976. AIM Investment Services, Inc. is the transfer agent for the
products and services represented by AIM Investments. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $463 billion in assets under management as of December 31, 2006.
CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
FOR THIS AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR
FINANCIAL ADVISOR AND READ IT CAREFULLY BEFORE INVESTING.
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-REGISTERED TRADEMARK-
Exchange- College Separately
Mutual Traded Retirement Savings Managed Offshore Cash
Funds Funds Products Annuities Plans Accounts Products Management
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[AIM INVESTMENTS LOGO]
-REGISTERED TRADEMARK -
AIM Global Value Fund
Annual Report to Shareholders - December 31, 2006
[COVER GLOBE IMAGE]
INTERNATIONAL/GLOBAL EQUITY
International/Global Value
Table of Contents
Supplemental Information ................................................ 2
Letters to Shareholders ................................................. 3
Performance Summary ..................................................... 5
Management Discussion ................................................... 5
Fund Expenses ........................................................... 7
Long-term Fund Performance .............................................. 8
Approval of Advisory Agreement .......................................... 10
Schedule of Investments ................................................. F-1
Financial Statements .................................................... F-3
Notes to Financial Statements ........................................... F-5
Financial Highlights .................................................... F-12
Auditor's Report ........................................................ F-17
Tax Disclosures ......................................................... F-18
Trustees and Officers ................................................... F-19
[AIM INVESTMENT SOLUTIONS]
[GRAPHIC] [GRAPHIC] [GRAPHIC]
[DOMESTIC [INTERNATIONAL/ [SECTOR
EQUITY] GLOBAL EQUITY] EQUITY]
[GRAPHIC] [GRAPHIC] [GRAPHIC]
[FIXED [ALLOCATION [DIVERSIFIED
INCOME] SOLUTIONS] PORTFOLIOS]
[AIM INVESTMENTS LOGO]
-- REGISTERED TRADEMARK --
AIM Global Value Fund
AIM GLOBAL VALUE FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL.
- - Unless otherwise stated, information presented in this report is as of
December 31, 2006, and is based on total net assets.
About share classes
- - Class B shares are not available as an investment for retirement plans
maintained pursuant to Section 401 of the Internal Revenue Code, including
401(k) plans, money purchase pension plans and profit sharing plans. Plans
that had existing accounts invested in Class B shares prior to September
30, 2003, will continue to be allowed to make additional purchases.
Principal risks of investing in the Fund
- - Foreign securities have additional risks, including exchange rate changes,
political and economic upheaval, the relative lack of information about
these companies, relatively low market liquidity and the potential lack of
strict financial and accounting controls and standards.
- - Investing in a fund that invests in smaller companies involves risks not
associated with investing in more established companies, such as business
risk, stock price fluctuations and illiquidity.
- - Investing in emerging markets involves greater risks than investing in more
established markets. Risks for emerging markets include risks relating to
the relatively smaller size and lesser liquidity of these markets, high
inflation rates, adverse political developments and lack of timely
information.
- - Prices of equity securities change in response to many factors including
the historical and prospective earnings of the issuer, the value of its
assets, general economic conditions, interest rates, investor perceptions
and market liquidity.
- - The value of convertible securities in which the Fund invests may be
affected by market interest rates, the risk that the issuer may default on
interest or principal payments and the value of the underlying common stock
into which these securities may be converted.
- - To the extent the Fund holds cash or cash equivalents rather than equity
securities for risk management purposes, the Fund may not achieve its
investment objective.
- - The Fund may invest in lower quality debt securities, commonly known as
"junk bonds." Compared to higher quality debt securities, junk bonds
involve greater risk of default or price changes due to changes in credit
quality of the issuer, because they are generally unsecured and because
they may be subordinated to other creditors' claims. Credit ratings of junk
bonds do not necessarily reflect their actual market risk.
- - Because a large percentage of the Fund's assets may be invested in a
limited number of securities, a change in the value of these securities
could significantly affect the value of your investment in the Fund.
- - The Fund may use enhanced investment techniques such as short sales. Short
sales carry the risk of buying a security back at a higher price at which
the Fund's exposure is unlimited.
About indexes used in this report
- - The unmanaged MSCI WORLD INDEX --SERVICE MARK-- is a group of global
securities tracked by Morgan Stanley Capital International.
- - The unmanaged MSCI WORLD VALUE INDEX is a subset of the MSCI World Index, a
group of global securities tracked by Morgan Stanley Capital International;
the Value subset measures performance of companies with lower
price/earnings ratios and lower forecasted growth values. The index
represents investable opportunities for global investors, taking into
account the local market restrictions on share ownership by foreign
investors.
- - The unmanaged LIPPER GLOBAL MULTI-CAP VALUE FUNDS INDEX represents an
average of the performance of the 30 largest global multi-capitalization
value funds tracked by Lipper Inc., an independent mutual fund performance
monitor.
- - The Fund is not managed to track the performance of any particular index,
including the indexes defined here, and consequently, the performance of
the Fund may deviate significantly from the performance of the index.
- - A direct investment cannot be made in an index. Unless otherwise indicated,
index results include reinvested dividends, and they do not reflect sales
charges. Performance of an index of funds reflects fund expenses;
performance of a market index does not.
Other information
- - The returns shown in the management's discussion of Fund performance are
based on net asset values calculated for shareholder transactions.
Generally accepted accounting principles require adjustments to be made to
the net assets of the Fund at period end for financial reporting purposes,
and as such, the net asset values for shareholder transactions and the
returns based on those net asset values may differ from the net asset
values and returns reported in the Financial Highlights.
- - Industry classifications used in this report are generally according to the
Global Industry Classification Standard, which was developed by and is the
exclusive property and a service mark of Morgan Stanley Capital
International Inc. and Standard & Poor's.
The Fund provides a complete list of its holdings four times in each fiscal
year, at the quarter ends. For the second and fourth quarters, the lists appear
in the Fund's semiannual and annual reports to shareholders. For the first and
third quarters, the Fund files the lists with the Securities and Exchange
Commission (SEC)
Continued on page 9
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.
FUND NASDAQ SYMBOLS
Class A Shares AWSAX
Class B Shares AWSBX
Class C Shares AWSCX
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIMINVESTMENTS.COM
2
AIM Global Value Fund
[TAYLOR PHOTO]
Philip Taylor
Dear Shareholders of The AIM Family of Funds --REGISTERED TRADEMARK--:
I'm pleased to provide you with this report, which includes a discussion of how
your Fund was managed during the year ended December 31, 2006, and what factors
affected its performance. The following pages contain important information that
answers questions you may have about your investment.
In the United States and around the globe, most major stock market indexes
rose in 2006. U.S. stocks benefited from continued economic expansion and a
cessation of interest rate increases by the U.S. Federal Reserve, among other
factors. Global markets also enjoyed a good year, while all major fixed-income
indexes produced positive annual returns.
As I write this letter, the consensus outlook for the economy remains
positive. But we all know that markets are unpredictable and subject to sudden
changes based on geopolitical or economic developments. At AIM Investments
- --REGISTERED TRADEMARK--, we believe investors can do two things to deal with
short-term market fluctuations: maintain a long-term investment horizon and
maintain a diversified portfolio. AIM Investments offers a broad product line
that gives your financial advisor options to build a portfolio that's right for
you regardless of market conditions. Our product line includes a comprehensive
range of mutual funds, including domestic, global and international equity
funds; taxable and tax-exempt fixed-income funds; and a variety of allocation
portfolios--with risk and return characteristics to match your needs. We
maintain this extensive set of product solutions because we believe in the value
of diversified investment portfolios.
To provide you even more investment options, we recently launched AIM
Independence Funds, six new target maturity funds that combine AIM retail mutual
funds and PowerShares --REGISTERED TRADEMARK-- exchange-traded funds (ETFs) as
underlying investment options. ETFs are relatively low cost and potentially
tax-efficient funds that trade like individual stocks. These AIM Independence
Funds are intended to provide broad diversification and risk/reward levels that
change as your target retirement date nears. Your financial advisor can provide
you with more information about the new AIM Independence Funds.
At AIM Investments, we believe in the value of working with a trusted
financial advisor. Your financial advisor can help you build a diversified
investment portfolio, making periodic adjustments as market conditions and your
investment goals change. While there are no guarantees with any investment
program, a long-term plan matched to your financial goals, risk tolerance and
time horizon offers the potential to keep you and your investments on track--and
your financial advisor can provide you with valuable information and advice.
I also invite you to visit us on the Internet at AIMinvestments.com. Our
Web site allows you to access your account information, review fund performance,
learn more about your fund's investment strategies and obtain general investing
information--whenever it's convenient for you.
Our commitment to you
While we're committed to maintaining a comprehensive, easy-to-navigate Web site,
we're even more committed to providing excellent customer service. Our highly
trained, courteous client services representatives are eager to answer your
questions, provide you with product information or assist you with account
transactions. I encourage you to give us an opportunity to serve you by calling
us at 800-959-4246.
All of us at AIM Investments are committed to helping you achieve your
financial goals. We work every day to earn your trust, and are grateful for the
confidence you've placed in us.
Sincerely,
/s/ PHILIP TAYLOR
- -------------------------------------
Philip Taylor
President - AIM Funds
CEO, AIM Investments
February 9, 2007
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 mutual funds
represented by AIM Investments and the PowerShares Exchange-Traded Fund Trust.
3
AIM Global Value Fund
[CROCKETT PHOTO]
Bruce L. Crockett
Dear Fellow AIM Fund Shareholders:
Your AIM Funds Board started 2007 committed to continue working with management
at A I M Advisors, Inc. (AIM) with the goal of improving performance and
lowering shareholder expenses for the AIM Funds.
The progress made to date is encouraging. Following the general trends of
global equity markets and the U.S. stock market, the asset-weighted absolute
performance for all the equity and fixed-income AIM Funds improved to 15.08% for
the one-year period ended December 31, 2006, as compared to 9.13% for the
one-year period ended December 31, 2005, and 11.20% for the one-year period
ended December 31, 2004.(1) The asset-weighted absolute performance for the AIM
money market funds was 4.84% for the one-year period ended December 31, 2006, as
compared to 3.04% for the one year period ended December 31, 2005, and 1.23% for
the one-year period ended December 31, 2004.(2)
In November, your Board approved, subject to shareholder vote, four more
AIM Fund consolidations. As always, these decisions were made to benefit
existing shareholders and were driven by a desire to improve the merged funds'
performance, attract new assets and reduce costs. The asset class subcommittees
of your Board's Investments Committee are meeting frequently with portfolio
managers to identify how performance might be further improved.
On the expense side, both AMVESCAP, the parent company of AIM, and AIM
continue to take advantage of opportunities for operational consolidation,
outsourcing and new technologies to improve cost efficiencies for your benefit.
Your Board, for example, takes advantage of effective software solutions that
enable us to save money through electronic information sharing. Additional
cost-saving steps are under way. I'll report more on these steps once they're
completed.
Another major Board initiative for early 2007 is the revision of the AIM
Funds' proxy voting guidelines, a project begun by a special Board task force
late last year. We expect to have new procedures in place for the 2007 spring
proxy season that will improve the ability of the AIM Funds to cast votes that
are in the best interests of all fund shareholders.
While your Board recognizes that additional work lies ahead, we are
gratified that some key external sources have recognized changes at AIM and the
AIM Funds in the past two years. An article in the November 21, 2006, issue of
Morningstar Report (Morningstar Inc. is a leading provider of independent mutual
fund investment research) included a review of AIM's progress, highlighting
lower expenses, stronger investment teams and an improved sales culture, as well
as areas for continued improvement. I'm looking forward to a return visit to
Morningstar this year to review AIM Funds' performance and governance ratings.
Your Board thanks Mark Williamson, former President and CEO of AIM
Investments, who retired from your Board in 2006. He has been succeeded on your
Board by Phil Taylor, President of AIM Funds. We extend a warm welcome to Phil.
I'd like to hear from you. Please write to me at AIM Investments, AIM
Investments Tower, 11 Greenway Plaza, Suite 100, Houston TX 77046. Let me know
your thoughts on how your Board is doing and how we might serve you better.
Sincerely,
/s/ BRUCE L. CROCKETT
- -------------------------------------
Bruce L. Crockett
Independent Chair
AIM Funds Board
February 9, 2007
(1) Past performance is no guarantee of future results. The asset-weighted
absolute performance for the equity and fixed-income AIM Funds is derived
by taking the one-year cumulative total return for each share class of each
AIM Fund in existence as of December 31, 2006, (excluding money market
funds) and weighting the performance by the calendar year average net
assets of that share class. The one-year cumulative total return includes
reinvested distributions, fund expenses and management fees, but excludes
applicable sales charges. If sales charges were included, the one-year
cumulative total return and the asset-weighted performance would be lower.
(2) Past performance is no guarantee of future results. The asset-weighted
absolute performance for the AIM money market funds is derived by taking
the one-year cumulative total return for each share class of each AIM money
market fund in existence as of December 31, 2006, and weighting the
performance by the calendar year average net assets of that share class.
The one-year cumulative total return includes reinvested distributions,
fund expenses and management fees, but excludes applicable sales charges.
If sales charges were included, the one-year cumulative total return and
the asset-weighted performance would be lower.
4
AIM Global Value Fund
Management's discussion of Fund performance
PERFORMANCE SUMMARY
For the year ended December 31, 2006, Class A shares of AIM Global Value Fund,
excluding applicable sales charges, posted double-digit gains, outperforming the
MSCI World Index. Your Fund performed in line with the Lipper Global Multi-Cap
Value Funds Index and underperformed the MSCI World Value Index. We attribute
our success versus the MSCI World Index to strong stock selection driven by a
defensive investment process that generally outperforms in more volatile market
environments.
We attribute the Fund's underperformance versus the MSCI World Value Index
mainly to an underweight position in the financials sector. Top contributors to
performance were selected investments in the information technology (IT), energy
and consumer staples sectors.
Your Fund's long-term performance information appears on pages 8-9.
FUND VS. INDEXES
Total returns, 12/31/05-12/31/06, excluding applicable sales charges. If sales
charges were included, returns would be lower.
Class A Shares 21.08%
Class B Shares 20.10
Class C Shares 20.16
MSCI World Index (Broad Market Index) 20.07
MSCI World Value Index (Style-Specific Index) 25.08
Lipper Global Multi-Cap Value Funds Index (Peer Group Index) 21.24
Source: Lipper Inc.
How we invest
When selecting stocks for your Fund, we look for undervalued companies with
strong defensive qualities such as:
- - Solid management teams.
- - Good balance sheets with no or very little debt.
- - Flexibility to implement shareholder-friendly strategies, such as paying
dividends, buying back stock or a combination of both.
We also look for businesses that are easy to understand. With our global
mandate, we can look for the best opportunities worldwide, with no regional
restrictions.
Our first concern when looking at a potential investment is capital
preservation. We have to be comfortable with the downside risk of an investment.
We begin with an estimate of the business's true (intrinsic) value and then try
to pay a fraction of that price--for example, 60-70 cents on the dollar. This
discount creates two benefits:
- - It identifies the potential upside.
- - It provides potential downside protection. In other words, if our
assessment of the company's future is incorrect and the stock decreases in
price, the impact should be tempered since we originally acquired the stock
at less-than-estimated true value.
Once comfortable with the downside risk of an investment, we look for
catalysts that can generate positive returns--events such as corporate
restructuring, management change or share buybacks that may unlock the addition-
al 30-40 cents we discounted earlier.
Finally, we consider selling a stock if:
- - The catalyst that caused the security's value to rise has been realized.
- - Unforeseen negative developments lead to a lower appraisal of what we feel
a company is worth, or we feel the company will not realize its full market
value.
- - The stock's value exceeds our estimate of its intrinsic worth.
Market conditions and your Fund
International stocks generally outperformed their U.S. counterparts during the
year, which aided your Fund's absolute returns. However, most major U.S. equity
markets also posted healthy gains, as favorable economic data and solid
corporate profits overshadowed volatility
(continued)
Portfolio Composition
By sector
Financials 18.9%
Information Technology 18.0
Consumer Discretionary 12.8
Consumer Staples 12.0
Telecommunication Services 7.9
Industrials 6.8
Health Care 5.9
Energy 2.6
Materials 1.0
Utilities 0.6
Money Market Funds Plus
Other Assets Less Liabilities 13.5
Top Five Countries*
1. United States 33.4%
2. Japan 19.4
3. Canada 6.9
4. United Kingdom 6.4
5. Netherlands 5.1
Total Net Assets $309.89 million
Total Number of Holdings* 56
Top 10 Equity Holdings*
1. Microsoft Corp. 3.5%
2. Dell Inc. 3.2
3. NTT DoCoMo, Inc. (Japan) 2.9
4. Tyco International Ltd. 2.9
5. Washington Mutual, Inc. 2.6
6. Meitec Corp. (Japan) 2.4
7. Nokia Oyj-ADR (Finland) 2.4
8. Toyota Industries Corp. (Japan) 2.0
9. Lancaster Colony Corp. 2.0
10. Liberty Media Holding Corp.-
Interactive-Series A 2.0
The Fund's holdings are subject to change, and there is no assurance that the
Fund will continue to hold any particular security.
* Excluding money market fund holdings.
5
AIM Global Value Fund
arising from housing market concerns and investor uncertainty about interest
rates and oil prices. Within the MSCI World Index, utilities and
telecommunication services stocks led for the year, while IT and health care
issues generally trailed.
Although Fund performance was broadly based across both regions and
countries, stock selection was the key driver of performance. The defensive
nature of our investment philosophy led us to maintain exposure to stocks that
we believed were better suited to withstand macroeconomic volatility.
Collectively, holdings in the United States, Japan, Canada and the Netherlands
contributed most to Fund performance. Given high oil and commodity prices, the
Fund's energy holdings produced the highest sector returns, and stock selection
within the sector benefited Fund performance versus the style-specific index.
Our IT holdings also performed very well, while an underweight position in
financials versus the style-specific index detracted the most from performance,
as this sector posted gains during the year.
Top contributors over the reporting period included Nintendo, the leading
Japanese video game console maker. We purchased the stock in mid-2005, when it
was trading significantly below our estimate of the company's value. An uptick
in the company's business during the first quarter of 2006, aided by an overall
run in the Japanese markets, boosted returns for this already strong stock.
Although the Fund delivered positive returns in all sectors but utilities,
there were a few detractors, including drilling and exploration company JAPAN
PETROLEUM EXPLORATION. We invested in this company as an inexpensive way to gain
exposure to the Canadian Oil Sands, crude oil reserves in Alberta. The stock
sold off in unison with the decline in oil prices during the fourth quarter of
2006. We believed there is significant long-term value in Japan Petroleum, as
the market assigns virtually zero value to the highly prized oil-sands assets.
Given the Fund's exposure to foreign securities, we attempt to partially
limit our exposure to currency fluctuations by using currency hedges--the
purchase or sale of a foreign security denominated or quoted in that currency.
Over the long-term, this technique has allowed us to lock in current exchange
rates so the returns of our foreign stocks are representative of their local
currency returns. While our foreign holdings performed well, our currency hedges
detracted from the Fund's overall performance during the year. However, the
detraction from the Fund's performance due to the hedges was more than offset by
the positive contribution of the underlying securities.
Our focus remains on protecting shareholder capital. We take a conservative
approach to investing by first analyzing the downside risk of a stock before
considering its upside potential. This defensive approach, we believe, helps
protect our portfolio by maintaining the gains it has earned and increasing our
absolute fund returns. We remain committed to following our disciplined
investment strategy and holding our course through the market's fluctuations.
In closing
We welcome new investors who have joined the Fund during the reporting period
and thank all of our shareholders for your continued investment in AIM Global
Value Fund.
THE VIEWS AND OPINIONS EXPRESSED IN MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
ARE THOSE OF A I M ADVISORS, INC. THESE VIEWS AND OPINIONS ARE SUBJECT TO CHANGE
AT ANY TIME BASED ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE VIEWS
AND OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR RECOMMENDATIONS, OR
AS AN OFFER FOR A PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE
ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR THE FUND.
STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE, BUT A I M ADVISORS,
INC. MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY.
ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THESE
INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT PHILOSOPHY.
See important Fund and index disclosures on the inside front cover.
[HILTON PHOTO]
Glen Hilton
Portfolio manager, is manager of AIM Global Value Fund. He began his career in
investments in 1995. He joined AIM in 2002. Mr. Hilton earned a B.A. in
economics from Loyola University.
FOR A PRESENTATION OF YOUR FUND'S LONG-TERM PERFORMANCE, PLEASE SEE PAGES 8-9.
6
AIM Global Value Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, which may include sales charges (loads) on purchase payments or
contingent deferred sales charges on redemptions, and redemption fees, if any;
and (2) ongoing costs, including management fees; distribution and/or service
(12b-1) fees; and other Fund expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with ongoing costs of investing in other mutual funds. The
example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period July 1, 2006, through December 31, 2006.
Actual expenses
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return. The Fund's actual cumulative total returns at net asset value after
expenses for the six months ended December 31, 2006, appear in the table
"Cumulative Total Returns" on page 9.
The hypothetical account values and expenses may not be used to estimate
the actual ending account balance or expenses you paid for the period. You may
use this information to compare the ongoing costs of investing in the Fund and
other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight
your ongoing costs only and do not reflect any transaction costs, such as sales
charges (loads) on purchase payments, contingent deferred sales charges on
redemptions, and redemption fees, if any. Therefore, the hypothetical
information is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these transaction costs were included, your costs would have been higher.
HYPOTHETICAL
(5% ANNUAL RETURN BEFORE
ACTUAL EXPENSES)
-------------------------- --------------------------
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/06) (12/31/06)(1) PERIOD(2) (12/31/06) PERIOD(2) RATIO
- ----- ------------- ------------- ----------- ------------- ----------- ----------
A $1,000.00 $1,126.20 $ 8.15 $1,017.54 $ 7.73 1.52%
B 1,000.00 1,121.40 12.14 1,013.76 11.52 2.27
C 1,000.00 1,122.00 12.14 1,013.76 11.52 2.27
(1) The actual ending account value is based on the actual total return of the
Fund for the period July 1, 2006, through December 31, 2006, 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, 2006, appear in
the table "Cumulative Total Returns" on page 9.
(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.
7
AIM Global Value Fund
Your Fund's long-term performance
Past performance cannot guarantee comparable future results.
The data shown in the chart include reinvested distributions, applicable
sales charges. 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.
This chart, which is a logarithmic chart, presents the fluctuations in the
value of the Fund and its indexes. We believe that a logarithmic chart is more
effective than other types of charts in illustrating changes in value during the
early years shown in the chart. The vertical axis, the one that indicates the
dollar value of an investment, is constructed with each segment representing a
percent change in the value of the investment. In this chart, each segment
represents a doubling, or 100% change, in the value of the investment. In other
words, the space between $5,000 and $10,000 is the same size as the space
between $10,000 and $20,000.
8
[MOUNTAIN CHART]
RESULTS OF A $10,000 INVESTMENT
Fund data from 12/29/00, index data from 12/31/00
AIM AIM AIM UPPER
GLOBAL VALUE FUND GLOBAL VALUE FUND GLOBAL VALUE FUND GLOBAL MULTI-CAP
DATE -CLASS A SHARES -CLASS B SHARES -CLASS C SHARES MSCI WORLD INDEX MSCI WORLD VALUE INDEX VALUE FUNDS INDEX
- ---- ----------------- ----------------- ----------------- ---------------- ---------------------- -----------------
12/29/00 $ 9450 $10000 $10000
12/00 9450 10000 10000 $10000 $10000 $10000
1/01 10026 10600 10610 10193 10100 10121
2/01 8873 9380 9390 9330 9605 9811
3/01 8184 8640 8650 8716 9112 9313
4/01 9204 9720 9730 9358 9726 9778
5/01 9223 9740 9751 9236 9664 9780
6/01 8930 9420 9431 8945 9392 9565
7/01 8740 9220 9231 8826 9279 9398
8/01 8466 8930 8931 8401 8949 9171
9/01 8116 8560 8561 7660 8117 8305
10/01 8655 9120 9121 7806 8098 8415
11/01 9241 9730 9731 8266 8445 8735
12/01 9308 9791 9793 8318 8507 8892
1/02 9062 9531 9532 8065 8267 8677
2/02 8987 9451 9452 7994 8105 8663
3/02 9478 9961 9963 8362 8647 9117
4/02 9383 9851 9863 8062 8393 9077
5/02 9355 9822 9822 8076 8462 9174
6/02 9034 9472 9473 7584 7923 8655
7/02 8316 8722 8723 6944 7148 7845
8/02 8279 8682 8682 6956 7174 7913
9/02 7891 8262 8262 6190 6307 7154
10/02 8619 9022 9022 6647 6745 7423
11/02 8884 9292 9302 7004 7229 7802
12/02 8557 8941 8942 6664 6811 7630
1/03 8472 8851 8852 6460 6640 7453
2/03 8377 8741 8752 6347 6482 7266
3/03 8330 8691 8691 6326 6387 7128
4/03 8689 9062 9071 6887 7060 7786
5/03 9218 9602 9611 7279 7568 8306
6/03 9351 9752 9751 7404 7721 8439
7/03 9294 9681 9681 7554 7884 8676
8/03 9672 10062 10071 7716 8065 8992
9/03 9823 10222 10221 7762 8116 9044
10/03 10504 10922 10921 8222 8595 9568
11/03 10608 11022 11022 8347 8733 9776
12/03 11307 11737 11747 8870 9407 10334
1/04 11625 12071 12071 9012 9518 10592
2/04 11807 12253 12253 9163 9720 10837
3/04 11701 12132 12142 9102 9688 10762
4/04 11316 11727 11725 8916 9485 10533
5/04 11344 11747 11756 8990 9550 10550
6/04 11479 11878 11888 9182 9826 10802
7/04 11325 11716 11725 8882 9652 10495
8/04 11528 11918 11928 8921 9763 10531
9/04 12251 12659 12668 9090 9937 10776
10/04 12453 12851 12861 9312 10180 11026
11/04 13157 13571 13581 9801 10733 11676
12/04 13286 13702 13713 10175 11149 12128
1/05 13135 13545 13555 9946 10946 11972
2/05 13896 14323 14335 10261 11359 12391
3/05 13765 14176 14187 10063 11138 12160
4/05 13355 13745 13756 9843 10895 11850
5/05 13535 13924 13934 10018 11002 12079
6/05 13775 14166 14177 10104 11141 12276
7/05 14115 14503 14503 10457 11458 12743
8/05 14186 14567 14577 10536 11529 12866
9/05 14416 14798 14809 10810 11873 13234
10/05 14065 14430 14430 10548 11550 12933
11/05 14535 14893 14903 10899 11945 13396
12/05 14803 15166 15176 11141 12214 13840
1/06 15629 15998 16007 11638 12741 14495
2/06 15565 15920 15929 11621 12835 14510
3/06 15988 16342 16351 11876 13080 14932
4/06 16263 16620 16629 12237 13572 15403
5/06 15977 16320 16330 11819 13167 14796
6/06 15913 16242 16251 11815 13181 14766
7/06 16145 16465 16472 11889 13447 14813
8/06 16621 16942 16950 12198 13788 15165
9/06 16876 17198 17206 12343 13993 15350
10/06 17141 17453 17460 12796 14521 16830
11/06 17511 17819 17827 13109 14867 16312
12/06 17927 18213 18234 13376 15277 16780
Source: Lipper Inc.
AIM Global Value Fund
AVERAGE ANNUAL TOTAL RETURNS
As of 12/31/06, including applicable sales charges
CLASS A SHARES
Inception (12/29/00) 10.21%
5 Years 12.72
1 Year 14.45
CLASS B SHARES
Inception (12/29/00) 10.50%
5 Years 12.97
1 Year 15.10
CLASS C SHARES
Inception (12/29/00) 10.52%
5 Years 13.24
1Year 19.16
CUMULATIVE TOTAL RETURNS
6 months ended 12/31/06, excluding applicable sales charges
Class A Shares 12.62%
Class B Shares 12.14
Class C Shares 12.20
THE PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE AND CANNOT GUARANTEE
COMPARABLE FUTURE RESULTS; CURRENT PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE
VISIT AIMINVESTMENTS.COM FOR THE MOST RECENT MONTH-END PERFORMANCE. PERFORMANCE
FIGURES REFLECT REINVESTED DISTRIBUTIONS, CHANGES IN NET ASSET VALUE AND THE
EFFECT OF THE MAXIMUM SALES CHARGE UNLESS OTHERWISE STATED. INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU MAY HAVE A GAIN OR LOSS WHEN YOU
SELL SHARES.
CLASS A SHARE PERFORMANCE REFLECTS THE MAXIMUM 5.50% SALES CHARGE, AND
CLASS B AND CLASS C SHARE PERFORMANCE REFLECTS THE APPLICABLE CONTINGENT
DEFERRED SALES CHARGE (CDSC) FOR THE PERIOD INVOLVED. THE CDSC ON CLASS B SHARES
DECLINES FROM 5% BEGINNING AT THE TIME OF PURCHASE TO 0% AT THE BEGINNING OF THE
SEVENTH YEAR. THE CDSC ON CLASS C SHARES IS 1% FOR THE FIRST YEAR AFTER
PURCHASE.
THE PERFORMANCE OF THE FUND'S SHARE CLASSES WILL DIFFER PRIMARILY DUE TO
DIFFERENT SALES CHARGE STRUCTURES AND CLASS EXPENSES.
A REDEMPTION FEE OF 2% WILL BE IMPOSED ON CERTAIN REDEMPTIONS OR EXCHANGES
OUT OF THE FUND WITHIN 30 DAYS OF PURCHASE. EXCEPTIONS TO THE REDEMPTION FEE ARE
LISTED IN THE FUND'S PROSPECTUS.
HAD THE ADVISOR NOT WAIVED FEES AND/OR REIMBURSED EXPENSES IN THE PAST,
PERFORMANCE WOULD HAVE BEEN LOWER.
Continued from inside front cover
on Form N-Q. The most recent list of portfolio holdings is available at
AIMinvestments.com. From our home page, click on Products & Performance, then
Mutual Funds, then Fund Overview. Select your Fund from the drop-down menu and
click on Complete Quarterly Holdings. Shareholders can also look up the Fund's
Forms N-Q on the SEC Web site at sec.gov. Copies of the Fund's Forms N-Q may be
reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can
obtain information on the operation of the Public Reference Room, including
information about duplicating fee charges, by calling 202-942-8090 or
800-732-0330, or by electronic request at the following e-mail address:
publicinfo@sec.gov. The SEC file numbers for the Fund are 811-01540 and
002-27334.
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.
Information regarding how the Fund voted proxies related to its portfolio
securities during the 12 months ended June 30, 2006, 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.
9
AIM Global Value Fund
Approval of Investment Advisory Agreement
The Board of Trustees of AIM Funds Group (the "Board") oversees the management
of AIM Global Value Fund (the "Fund") and, as required by law, determines
annually whether to approve the continuance of the Fund's advisory agreement
with A I M Advisors, Inc. ("AIM"). Based upon the recommendation of the
Investments Committee of the Board, at a meeting held on June 27, 2006, the
Board, including all of the independent trustees, approved the continuance of
the advisory agreement (the "Advisory Agreement") between the Fund and AIM for
another year, effective July 1, 2006.
The Board considered the factors discussed below in evaluating the fairness
and reasonableness of the Advisory Agreement at the meeting on June 27, 2006 and
as part of the Board's ongoing oversight of the Fund. In their deliberations,
the Board and the independent trustees did not identify any particular factor
that was controlling, and each trustee attributed different weights to the
various factors.
One responsibility of the independent Senior Officer of the Fund is to
manage the process by which the Fund's proposed management fees are negotiated
to ensure that they are negotiated in a manner which is at arms' length and
reasonable. To that end, the Senior Officer must either supervise a competitive
bidding process or prepare an independent written evaluation. The Senior Officer
has recommended an independent written evaluation in lieu of a competitive
bidding process and, upon the direction of the Board, has prepared such an
independent written evaluation. Such written evaluation also considered certain
of the factors discussed below. In addition, as discussed below, the Senior
Officer made a recommendation to the Board in connection with such written
evaluation.
The discussion below serves as a summary of the Senior Officer's
independent written evaluation and recommendation to the Board in connection
therewith, as well as a discussion of the material factors and the conclusions
with respect thereto that formed the basis for the Board's approval of the
Advisory Agreement. After consideration of all of the factors below and based on
its informed business judgment, the Board determined that the Advisory Agreement
is in the best interests of the Fund and its shareholders and that the
compensation to AIM under the Advisory Agreement is fair and reasonable and
would have been obtained through arm's length negotiations.
Unless otherwise stated, information presented below is as of June 27, 2006
and does not reflect any changes that may have occurred since June 27, 2006,
including but not limited to changes to the Fund's performance, advisory fees,
expense limitations and/or fee waivers.
- - The nature and extent of the advisory services to be provided by AIM. The
Board reviewed the services to be provided by AIM under the Advisory
Agreement. Based on such review, the Board concluded that the range of
services to be provided by AIM under the Advisory Agreement was appropriate
and that AIM currently is providing services in accordance with the terms
of the Advisory Agreement.
- - The quality of services to be provided by AIM. The Board reviewed the
credentials and experience of the officers and employees of AIM who will
provide investment advisory services to the Fund. In reviewing the
qualifications of AIM to provide investment advisory services, the Board
considered such issues as AIM's portfolio and product review process,
various back office support functions provided by AIM and AIM's equity and
fixed income trading operations. Based on the review of these and other
factors, the Board concluded that the quality of services to be provided by
AIM was appropriate and that AIM currently is providing satisfactory
services in accordance with the terms of the Advisory Agreement.
- - The performance of the Fund relative to comparable funds. The Board
reviewed the performance of the Fund during the past one, three and five
calendar years against the performance of funds advised by other advisors
with investment strategies comparable to those of the Fund. The Board noted
that the Fund's performance was below the median performance of such com-
parable funds for the one and three year periods and above such median
performance for the five year period. Based on this review and after
taking account of all of the other factors that the Board considered in
determining whether to continue the Advisory Agreement for the Fund, the
Board concluded that no changes should be made to the Fund and that it was
not necessary to change the Fund's portfolio management team at this time.
However, due to the Fund's under-performance, the Board also concluded that
it would be appropriate for the Board to continue to closely monitor and
review the performance of the Fund. Although the independent written
evaluation of the Fund's Senior Officer (discussed below) only considered
Fund performance through the most recent calendar year, the Board also
reviewed more recent Fund performance, which did not change their
conclusions.
- - The performance of the Fund relative to indices. The Board reviewed the
performance of the Fund during the past one, three and five calendar years
against the performance of the Lipper Global Multi-Cap Value Index. The
Board noted that the Fund's performance was below the performance of such
Index for the one year period, comparable to such Index for the three year
period, and above such Index for the five year period. Based on this review
and after taking account of all of the other factors that the Board
considered in determining whether to continue the Advisory Agreement for
the Fund, the Board concluded that no changes should be made to the Fund
and that it was not necessary to change the Fund's portfolio management
team at this time. However, due to the Fund's under-performance, the Board
also concluded that it would be appropriate for the Board to continue to
closely monitor and review the performance of the Fund. Although the
independent written evaluation of the Fund's Senior Officer (discussed
below) only considered Fund performance through the most recent calendar
year, the Board also reviewed more recent Fund performance, which did not
change their conclusions.
- - Meetings with the Fund's portfolio managers and investment personnel. With
respect to the Fund, the Board is meeting periodically with such Fund's
portfolio managers and/or other investment personnel and believes that
such individuals are competent and able to continue to carry out their
responsibilities under the Advisory Agreement.
- - Overall performance of AIM. The Board considered the overall performance of
AIM in providing investment advisory and portfolio administrative
services to the Fund and concluded that such performance was satisfactory.
- - Fees relative to those of clients of AIM with comparable investment
strategies. The Board noted that AIM does not serve as an advisor to other
mutual funds or other clients with investment strategies comparable to
those of the Fund.
- - Fees relative to those of comparable funds with other advisors. The Board
reviewed the advisory fee rate for the Fund under the Advisory Agreement.
The Board compared effective contractual advisory fee rates at a common
asset level at the end of the past calendar year and noted that the Fund's
rate was comparable to the median rate of the funds advised by other
advisors with investment strategies comparable to those of the Fund that
the Board reviewed. The Board noted that AIM has agreed to waive advisory
fees of the Fund and to limit the Fund's total annual operating expenses,
as discussed below. Based on this review, the Board concluded that the
advisory fee rate for the Fund under the Advisory Agreement was fair and
reasonable.
- - Expense limitations and fee waivers. The Board noted that AIM has
contractually agreed to waive advisory fees of the Fund through June 30,
2007 to the extent necessary so that the advisory fees payable by the Fund
do not exceed a specified maximum advisory fee rate, which maximum rate
includes breakpoints and is based on net asset levels. The Board considered
the contractual nature of this fee waiver and noted that it remains in
effect until June 30, 2007. The Board noted that AIM has contractually
agreed to waive fees and/or limit expenses of the Fund through June 30,
2007 in an amount necessary to limit total annual operating expenses to a
specified percentage of average daily net assets for each class of the
Fund. The Board considered the contractual nature of this fee
waiver/expense limitation and noted that it remains in effect until June
30, 2007. The Board considered the effect these fee waivers/expense
limitations would have on the Fund's estimated expenses and concluded that
the levels of fee waivers/expense limitations for the Fund were fair and
reasonable.
- - Breakpoints and economies of scale. The Board reviewed the structure of the
Fund's advisory fee under the Advisory Agreement, noting that it includes
one breakpoint. The Board reviewed the level of the Fund's advisory fees,
and noted that such fees, as a percentage of the Fund's net assets, would
decrease as net assets increase because the Advisory Agreement includes a
breakpoint. The Board noted that, due to
(continued)
10
AIM Global Value Fund
the Fund's asset levels at the end of the past calendar year and the way in
which the advisory fee breakpoint has been structured, the Fund has yet to
benefit from the breakpoint. The Board noted that AIM has contractually agreed
to waive advisory fees of the Fund through June 30, 2007 to the extent necessary
so that the advisory fees payable by the Fund do not exceed a specified maximum
advisory fee rate, which maximum rate includes breakpoints and is based on net
asset levels. The Board concluded that the Fund's fee levels under the Advisory
Agreement therefore would reflect economies of scale at higher asset levels and
that it was not necessary to change the advisory fee breakpoints in the Fund's
advisory fee schedule.
- - Investments in affiliated money market funds. The Board also took into
account the fact that uninvested cash and cash collateral from securities
lending arrangements, if any (collectively, "cash balances") of the Fund
may be invested in money market funds advised by AIM pursuant to the terms
of an SEC exemptive order. The Board found that the Fund may realize
certain benefits upon investing cash balances in AIM advised money market
funds, including a higher net return, increased liquidity, increased
diversification or decreased transaction costs. The Board also found that
the Fund will not receive reduced services if it invests its cash balances
in such money market funds. The Board noted that, to the extent the Fund
invests uninvested cash in affiliated money market funds, AIM has
voluntarily agreed to waive a portion of the advisory fees it receives from
the Fund attributable to such investment. The Board further determined that
the proposed securities lending program and related procedures with respect
to the lending Fund is in the best interests of the lending Fund and its
respective shareholders. The Board therefore concluded that the investment
of cash collateral received in connection with the securities lending
program in the money market funds according to the procedures is in the
best interests of the lending Fund and its respective shareholders.
- - Independent written evaluation and recommendations of the Fund's Senior
Officer. The Board noted that, upon their direction, the Senior Officer of
the Fund, who is independent of AIM and AIM's affiliates, had prepared an
independent written evaluation in order to assist the Board in determining
the reasonableness of the proposed management fees of the AIM Funds,
including the Fund. The Board noted that the Senior Officer's written
evaluation had been relied upon by the Board in this regard in lieu of a
competitive bidding process. In determining whether to continue the
Advisory Agreement for the Fund, the Board considered the Senior Officer's
written evaluation and the recommendation made by the Senior Officer to the
Board that the Board consider whether the advisory fee waivers for
certain equity AIM Funds, including the Fund, should be simplified. The
Board concluded that it would be advisable to consider this issue and reach
a decision prior to the expiration date of such advisory fee waivers.
- - Profitability of AIM and its affiliates. The Board reviewed information
concerning the profitability of AIM's (and its affiliates') investment
advisory and other activities and its financial condition. The Board
considered the overall profitability of AIM, as well as the profitability
of AIM in connection with managing the Fund. The Board noted that AIM's
operations remain profitable, although increased expenses in recent years
have reduced AIM's profitability. Based on the review of the profitability
of AIM's and its affiliates' investment advisory and other activities and
its financial condition, the Board concluded that the compensation to be
paid by the Fund to AIM under its Advisory Agreement was not excessive.
- - Benefits of soft dollars to AIM. The Board considered the benefits realized
by AIM as a result of brokerage transactions executed through "soft dollar"
arrangements. Under these arrangements, brokerage commissions paid by the
Fund and/or other funds advised by AIM are used to pay for research and
execution services. This research may be used by AIM in making investment
decisions for the Fund. The Board concluded that such arrangements were
appropriate.
- - AIM's financial soundness in light of the Fund's needs. The Board
considered whether AIM is financially sound and has the resources necessary
to perform its obligations under the Advisory Agreement, and concluded that
AIM has the financial resources necessary to fulfill its obligations under
the Advisory Agreement.
- - Historical relationship between the Fund and AIM. In determining whether to
continue the Advisory Agreement for the Fund, the Board also considered the
prior relationship between AIM and the Fund, as well as the Board's
knowledge of AIM's operations, and concluded that it was beneficial to
maintain the current relationship, in part, because of such knowledge.
The Board also reviewed the general nature of the non-investment advisory
services currently performed by AIM and its affiliates, such as
administrative, transfer agency and distribution services, and the fees
received by AIM and its affiliates for performing such services. In
addition to reviewing such services, the trustees also considered the
organizational structure employed by AIM and its affiliates to provide
those services. Based on the review of these and other factors, the Board
concluded that AIM and its affiliates were qualified to continue to provide
non-investment advisory services to the Fund, including administrative,
transfer agency and distribution services, and that AIM and its affiliates
currently are providing satisfactory non-investment advisory services.
- - Other factors and current trends. The Board considered the steps that AIM
and its affiliates have taken over the last several years, and continue to
take, in order to improve the quality and efficiency of the services they
provide to the Funds in the areas of investment performance, product line
diversification, distribution, fund operations, shareholder services and
compliance. The Board concluded that these steps taken by AIM have
improved, and are likely to continue to improve, the quality and efficiency
of the services AIM and its affiliates provide to the Fund in each of these
areas, and support the Board's approval of the continuance of the Advisory
Agreement for the Fund.
11
Supplement to Annual Report dated 12/31/06
AIM Global Value Fund
Institutional Class Shares
The following information has been prepared to provide Institutional Class
shareholders with a performance overview specific to their holdings.
Institutional Class shares are offered exclusively to institutional investors,
including defined contribution plans that meet certain criteria.
AVERAGE ANNUAL TOTAL RETURNS
For periods ended 12/31/06
Inception 11.36
5 Years 14.14
1 Year 21.72
6 Months* 12.92
* Cumulative total return that has not been annualized
INSTITUTIONAL CLASS SHARES' INCEPTION DATE IS OCTOBER 25, 2005. RETURNS SINCE
THAT DATE ARE HISTORICAL RETURNS. ALL OTHER RETURNS ARE BLENDED RETURNS OF
HISTORICAL INSTITUTIONAL CLASS SHARE PERFORMANCE AND RESTATED CLASS A SHARE
PERFORMANCE (FOR PERIODS PRIOR TO THE INCEPTION DATE OF INSTITUTIONAL CLASS
SHARES) AT NET ASSET VALUE (NAV) AND REFLECT THE HIGHER RULE 12B-1 FEES
APPLICABLE TO CLASS A SHARES. CLASS A SHARES' INCEPTION DATE IS DECEMBER 29,
2000.
INSTITUTIONAL CLASS SHARES HAVE NO SALES CHARGE; THEREFORE, PERFORMANCE IS
AT NAV. PERFORMANCE OF INSTITUTIONAL CLASS SHARES WILL DIFFER FROM PERFORMANCE
OF OTHER SHARE CLASSES PRIMARILY DUE TO DIFFERING SALES CHARGES AND CLASS
EXPENSES.
A REDEMPTION FEE OF 2% WILL BE IMPOSED ON CERTAIN REDEMPTIONS OR EXCHANGES
OUT OF THE FUND WITHIN 30 DAYS OF PURCHASE. EXCEPTIONS TO THE REDEMPTION FEE ARE
LISTED IN THE FUND'S PROSPECTUS.
HAD THE ADVISOR NOT WAIVED FEES AND/OR REIMBURSED EXPENSES IN THE PAST,
PERFORMANCE WOULD HAVE BEEN LOWER.
PLEASE NOTE THAT PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. MORE
RECENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. ALL RETURNS ASSUME
REINVESTMENT OF DISTRIBUTIONS AT NAV. INVESTMENT RETURN AND PRINCIPAL VALUE WILL
FLUCTUATE SO YOUR SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. SEE THE FULL REPORT FOR INFORMATION ON COMPARATIVE BENCHMARKS.
PLEASE CONSULT YOUR FUND PROSPECTUS FOR MORE INFORMATION. FOR THE MOST CURRENT
MONTH-END PERFORMANCE, PLEASE CALL 800-451-4246 OR VISIT AIMINVESTMENTS.COM.
NASDAQ SYMBOL 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.
AIMINVESTMENTS.COM GLV-INS-1 A I M Distributors, Inc.
[AIM INVESTMENTS LOGO]
- REGISTERED TRADEMARK -
Information about your Fund's expenses
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees
and other Fund expenses. This example is intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with ongoing costs of investing in other mutual funds. The example is based on
an investment of $1,000 invested at the beginning of the period and held for the
entire period July 1, 2006, through December 31, 2006.
Actual expenses
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return. The Fund's actual cumulative total return after expenses for the six
months ended December 31, 2006 appears in the table on the front of this
supplement.
The hypothetical account values and expenses may not be used to estimate
the actual ending account balance or expenses you paid for the period. You may
use this information to compare the ongoing costs of investing in the Fund and
other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight
your ongoing costs only. Therefore, the hypothetical information is useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds.
HYPOTHETICAL
(5% ANNUAL RETURN BEFORE
ACTUAL EXPENSES)
-------------------------- --------------------------
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/06) (12/31/06)(1) PERIOD(2) (12/31/06) PERIOD(2) RATIO
- ----- ------------- ------------- ----------- ------------- ----------- ----------
Institutional $1,000.00 $1,129.20 $5.21 $1,020.32 $4.94 0.97%
(1) The actual ending account value is based on the actual total return of the
Fund for the period July 1, 2006, through December 31, 2006, 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, 2006, 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 GLV-INS-1 A I M Distributors, Inc.
AIM Global Value Fund
SCHEDULE OF INVESTMENTS
December 31, 2006
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
FOREIGN COMMON STOCKS & OTHER EQUITY
INTERESTS-53.03%
CANADA-6.88%
E-L Financial Corp. Ltd. (Multi-Line
Insurance) 10,228 $ 5,526,797
- ------------------------------------------------------------------------
Energy Savings Income Fund (Gas Utilities) 166,600 1,922,335
- ------------------------------------------------------------------------
Open Text Corp. (Internet Software &
Services)(a) 219,700 4,508,406
- ------------------------------------------------------------------------
Rothmans, Inc. (Tobacco) 113,200 2,112,212
- ------------------------------------------------------------------------
Saskatchewan Wheat Pool, Inc.
(Agricultural Products)(a) 406,500 3,093,257
- ------------------------------------------------------------------------
Suncor Energy, Inc. (Integrated Oil & Gas) 47,400 3,732,549
- ------------------------------------------------------------------------
Westaim Corp. (The) (Pharmaceuticals)(a) 256,500 396,088
- ------------------------------------------------------------------------
Westaim Corp. (The) (Pharmaceuticals)
(Acquired 07/14/04; Cost $49,481)(a)(b) 19,200 29,649
========================================================================
21,321,293
========================================================================
FINLAND-2.36%
Nokia Oyj-ADR (Communications Equipment) 359,700 7,309,104
========================================================================
FRANCE-3.31%
Business Objects S.A. (Application
Software)(a)(c) 142,700 5,619,427
- ------------------------------------------------------------------------
Renault S.A. (Automobile Manufacturers) 38,500 4,625,496
========================================================================
10,244,923
========================================================================
GERMANY-1.51%
Bayerische Motoren Werke A.G. (Automobile
Manufacturers)(c) 81,500 4,665,704
========================================================================
HONG KONG-2.13%
Cheung Kong (Holdings) Ltd. (Real Estate
Management & Development)(c) 325,000 3,986,470
- ------------------------------------------------------------------------
Henderson Land Development Co. Ltd. (Real
Estate Management & Development)(c) 471,000 2,620,055
========================================================================
6,606,525
========================================================================
IRELAND-1.45%
Bank of Ireland (Diversified Banks)(c) 195,200 4,497,441
========================================================================
JAPAN-19.38%
Brother Industries, Ltd. (Office
Electronics)(c) 212,000 2,872,915
- ------------------------------------------------------------------------
Japan Petroleum Exploration Co., Ltd. (Oil &
Gas Exploration & Production)(c) 71,800 4,275,984
- ------------------------------------------------------------------------
Meitec Corp. (Diversified Commercial &
Professional Services)(c) 243,200 7,360,175
- ------------------------------------------------------------------------
Nintendo Co., Ltd. (Home Entertainment Software)(c) 19,200 4,977,665
- ------------------------------------------------------------------------
NIPPONKOA Insurance Co., Ltd. (Property &
Casualty Insurance)(c) 454,000 3,686,518
- ------------------------------------------------------------------------
NTT DoCoMo, Inc. (Wireless Telecommunication
Services)(c) 5,719 9,044,879
- ------------------------------------------------------------------------
Olympus Corp. (Health Care Equipment)(c) 130,000 4,092,230
- ------------------------------------------------------------------------
Sega Sammy Holdings Inc. (Leisure
Products)(c) 142,600 3,850,736
- ------------------------------------------------------------------------
</Table>
<Table>
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
JAPAN-(CONTINUED)
Shinsei Bank, Ltd. (Regional Banks)(c) 990,000 $ 5,800,086
- ------------------------------------------------------------------------
Sony Corp. (Consumer Electronics)(c) 105,600 4,526,963
- ------------------------------------------------------------------------
Takeda Pharmaceutical Co. Ltd.
(Pharmaceuticals)(c) 47,300 3,250,007
- ------------------------------------------------------------------------
Toyota Industries Corp. (Auto Parts
& Equipment)(c) 136,900 6,303,703
========================================================================
60,041,861
========================================================================
NETHERLANDS-5.08%
ABN AMRO Holding N.V. (Diversified Banks)(c) 142,800 4,581,878
- ------------------------------------------------------------------------
Akzo Nobel N.V. (Diversified Chemicals)(c) 52,600 3,208,797
- ------------------------------------------------------------------------
Heineken N.V. (Brewers)(c) 91,300 4,338,827
- ------------------------------------------------------------------------
Hunter Douglas N.V. (Home Furnishings)(c) 45,100 3,627,937
========================================================================
15,757,439
========================================================================
NEW ZEALAND-0.81%
Telecom Corp. of New Zealand Ltd. (Integrated
Telecommunication Services)(c) 742,100 2,518,202
========================================================================
SINGAPORE-1.51%
Singapore Airport Terminal Services Ltd.
(Airport Services)(c) 2,873,000 4,680,198
========================================================================
SOUTH KOREA-1.50%
SK Telecom Co., Ltd.-ADR (Wireless
Telecommunication Services) 175,600 4,649,888
========================================================================
SWITZERLAND-0.76%
Nestle S.A. (Packaged Foods & Meats)(c) 6,650 2,358,299
========================================================================
UNITED KINGDOM-6.35%
Diageo PLC (Distillers & Vintners)(c) 194,454 3,817,458
- ------------------------------------------------------------------------
GlaxoSmithKline PLC-ADR (Pharmaceuticals) 102,700 5,418,452
- ------------------------------------------------------------------------
Royal Bank of Scotland Group PLC (Diversified
Banks)(c) 141,900 5,516,389
- ------------------------------------------------------------------------
Vodafone Group PLC (Wireless
Telecommunication Services)(c) 1,790,237 4,939,754
========================================================================
19,692,053
========================================================================
Total Foreign Common Stocks & Other
Equity Interests (Cost $134,759,661) 164,342,930
========================================================================
DOMESTIC COMMON STOCKS-33.49%
BREWERS-1.47%
Anheuser-Busch Cos., Inc. 92,700 4,560,840
========================================================================
BROADCASTING & CABLE TV-1.94%
Liberty Media Holding Corp.-Capital-Series
A(a) 61,500 6,025,770
========================================================================
CATALOG RETAIL-1.97%
Liberty Media Holding
Corp.-Interactive-Series A(a) 283,000 6,104,310
========================================================================
</Table>
F-1
AIM Global Value Fund
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
@x
COMMUNICATIONS EQUIPMENT-1.64%
Motorola, Inc. 247,100 $ 5,080,376
========================================================================
COMPUTER HARDWARE-3.19%
Dell Inc.(a) 394,150 9,889,224
========================================================================
COMPUTER STORAGE & PERIPHERALS-1.53%
Lexmark International, Inc.-Class A(a) 64,800 4,743,360
========================================================================
HEALTH CARE FACILITIES-0.59%
HealthSouth Corp.(a) 80,020 1,812,453
========================================================================
HYPERMARKETS & SUPER CENTERS-1.72%
Wal-Mart Stores, Inc. 115,299 5,324,508
========================================================================
INDUSTRIAL CONGLOMERATES-2.87%
Tyco International Ltd. 292,100 8,879,840
========================================================================
PACKAGED FOODS & MEATS-2.02%
Lancaster Colony Corp. 141,600 6,274,296
========================================================================
PERSONAL PRODUCTS-1.69%
Avon Products, Inc. 158,400 5,233,536
========================================================================
PHARMACEUTICALS-1.08%
Merck & Co. Inc. 76,600 3,339,760
========================================================================
</Table>
<Table>
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
PROPERTY & CASUALTY INSURANCE-1.49%
Berkshire Hathaway Inc.-Class A(a) 42 $ 4,619,580
========================================================================
SYSTEMS SOFTWARE-3.50%
Microsoft Corp. 363,100 10,842,166
========================================================================
THRIFTS & MORTGAGE FINANCE-5.69%
Brookline Bancorp, Inc. 431,300 5,680,221
- ------------------------------------------------------------------------
NewAlliance Bancshares, Inc. 241,406 3,959,058
- ------------------------------------------------------------------------
Washington Mutual, Inc. 175,700 7,992,593
========================================================================
17,631,872
========================================================================
WIRELESS TELECOMMUNICATION SERVICES-1.10%
ALLTEL Corp. 56,300 3,405,024
========================================================================
Total Domestic Common Stocks (Cost
$92,698,644) 103,766,915
========================================================================
MONEY MARKET FUNDS-13.20%
Liquid Assets Portfolio-Institutional
Class(d) 20,450,076 20,450,076
- ------------------------------------------------------------------------
Premier Portfolio-Institutional Class(d) 20,450,076 20,450,076
========================================================================
Total Money Market Funds (Cost
$40,900,152) 40,900,152
========================================================================
TOTAL INVESTMENTS-99.72% (Cost $268,358,457) 309,009,997
========================================================================
OTHER ASSETS LESS LIABILITIES-0.28% 877,463
========================================================================
NET ASSETS-100.00% $309,887,460
________________________________________________________________________
========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
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 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 value of this security at December 31, 2006 represented 0.01% of the
Fund's Net Assets. Unless otherwise indicated, this security is not
considered to be illiquid.
(c) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
aggregate value of these securities at December 31, 2006 was $121,018,697,
which represented 39.05% of the Fund's Net Assets. See Note 1A.
(d) 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
AIM Global Value Fund
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2006
<Table>
ASSETS:
Investments, at value (cost $227,458,305) $268,109,845
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $40,900,152) 40,900,152
===========================================================
Total investments (cost $268,358,457) 309,009,997
===========================================================
Foreign currencies, at value (cost $266,446) 260,777
- -----------------------------------------------------------
Receivables for:
Fund shares sold 909,435
- -----------------------------------------------------------
Dividends 461,629
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 21,362
- -----------------------------------------------------------
Other assets 61,210
===========================================================
Total assets 310,724,410
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Fund shares reacquired 221,170
- -----------------------------------------------------------
Dividends 314
- -----------------------------------------------------------
Foreign currency contracts outstanding 313,573
- -----------------------------------------------------------
Trustee deferred compensation and
retirement plans 26,237
- -----------------------------------------------------------
Accrued distribution fees 123,119
- -----------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 4,067
- -----------------------------------------------------------
Accrued transfer agent fees 92,286
- -----------------------------------------------------------
Accrued operating expenses 56,184
===========================================================
Total liabilities 836,950
===========================================================
Net assets applicable to shares outstanding $309,887,460
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $268,394,144
- -----------------------------------------------------------
Undistributed net investment income (loss) (1,819,781)
- -----------------------------------------------------------
Undistributed net realized gain from
investment securities, foreign currencies
and foreign currency contracts 2,976,421
- -----------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies and foreign
currency contracts 40,336,676
===========================================================
$309,887,460
___________________________________________________________
===========================================================
NET ASSETS:
Class A $149,282,992
___________________________________________________________
===========================================================
Class B $ 65,012,999
___________________________________________________________
===========================================================
Class C $ 44,586,741
___________________________________________________________
===========================================================
Institutional Class $ 51,004,728
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 9,250,004
___________________________________________________________
===========================================================
Class B 4,132,397
___________________________________________________________
===========================================================
Class C 2,832,005
___________________________________________________________
===========================================================
Institutional Class 3,154,233
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 16.14
- -----------------------------------------------------------
Offering price per share
(Net asset value of $16.14 divided by
94.50%) $ 17.08
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 15.73
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 15.74
___________________________________________________________
===========================================================
Institutional Class:
Net asset value and offering price per
share $ 16.17
___________________________________________________________
===========================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-3
AIM Global Value Fund
STATEMENT OF OPERATIONS
For the year ended December 31, 2006
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $223,664) $ 4,194,926
- -------------------------------------------------------------------------
Dividends from affiliated money market funds 1,311,057
=========================================================================
Total investment income 5,505,983
=========================================================================
EXPENSES:
Advisory fees 1,955,059
- -------------------------------------------------------------------------
Administrative services fees 82,902
- -------------------------------------------------------------------------
Custodian fees 65,178
- -------------------------------------------------------------------------
Distribution fees:
Class A 290,313
- -------------------------------------------------------------------------
Class B 562,485
- -------------------------------------------------------------------------
Class C 328,563
- -------------------------------------------------------------------------
Transfer agent fees -- A, B and C 616,026
- -------------------------------------------------------------------------
Transfer agent fees -- Institutional 931
- -------------------------------------------------------------------------
Trustees' and officer's fees and benefits 21,111
- -------------------------------------------------------------------------
Other 246,693
=========================================================================
Total expenses 4,169,261
=========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (142,055)
=========================================================================
Net expenses 4,027,206
=========================================================================
Net investment income 1,478,777
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND FOREIGN CURRENCY
CONTRACTS:
Net realized gain (loss) from:
Investment securities 14,174,294
- -------------------------------------------------------------------------
Foreign currencies 54,113
- -------------------------------------------------------------------------
Foreign currency contracts (338,288)
=========================================================================
13,890,119
=========================================================================
Change in net unrealized appreciation of:
Investment securities 28,329,775
- -------------------------------------------------------------------------
Foreign currencies 6,382
- -------------------------------------------------------------------------
Foreign currency contracts 35,403
=========================================================================
28,371,560
=========================================================================
Net gain from investment securities, foreign currencies and
foreign currency contracts 42,261,679
=========================================================================
Net increase in net assets resulting from operations $43,740,456
_________________________________________________________________________
=========================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-4
AIM Global Value Fund
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2006 and 2005
<Table>
<Caption>
2006 2005
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 1,478,777 $ 736,424
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies, foreign currency contracts and option
contracts 13,890,119 8,667,505
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities, foreign currencies, foreign currency
contracts and option contracts 28,371,560 4,093,835
==========================================================================================
Net increase in net assets resulting from operations 43,740,456 13,497,764
==========================================================================================
Distributions to shareholders from net investment income:
Class A (1,475,108) (991,871)
- ------------------------------------------------------------------------------------------
Class B (276,442) (274,677)
- ------------------------------------------------------------------------------------------
Class C (186,792) (132,989)
- ------------------------------------------------------------------------------------------
Institutional Class (690,111) (19,788)
==========================================================================================
Total distributions from net investment income (2,628,453) (1,419,325)
==========================================================================================
Distributions to shareholders from net realized gains:
Class A (5,411,350) (4,164,278)
- ------------------------------------------------------------------------------------------
Class B (2,453,912) (2,297,671)
- ------------------------------------------------------------------------------------------
Class C (1,658,114) (1,112,363)
- ------------------------------------------------------------------------------------------
Institutional Class (1,774,244) (81,019)
==========================================================================================
Total distributions from net realized gains (11,297,620) (7,655,331)
==========================================================================================
Decrease in net assets resulting from distributions (13,926,073) (9,074,656)
==========================================================================================
Share transactions-net:
Class A 40,366,491 54,843,290
- ------------------------------------------------------------------------------------------
Class B 7,521,135 23,688,469
- ------------------------------------------------------------------------------------------
Class C 15,899,124 13,691,530
- ------------------------------------------------------------------------------------------
Institutional Class 46,238,377 2,613,498
==========================================================================================
Net increase in net assets resulting from share
transactions 110,025,127 94,836,787
==========================================================================================
Net increase in net assets 139,839,510 99,259,895
==========================================================================================
NET ASSETS:
Beginning of year 170,047,950 70,788,055
==========================================================================================
End of year (including undistributed net investment income
of $(1,819,781) and $(724,755), respectively) $309,887,460 $170,047,950
__________________________________________________________________________________________
==========================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
December 31, 2006
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 seven 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 long-term growth of capital.
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 or official closing price as of the close of
the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on that
day. Securities traded in the over-the-counter market are valued based on
the prices furnished by independent pricing services, in which case the
securities may be considered fair valued, or by market makers. 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").
F-5
AIM Global Value Fund
Investments in open-end 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 open-end and closed-end registered
investment companies that trade on an exchange are valued at the last sales
price or official closing price as of the close of the customary trading
session on the exchange where the security is principally traded.
Debt obligations (including convertible bonds) and unlisted equities 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.
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. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued at
the market quotations. Because trading hours for certain foreign securities
end before the close of the NYSE, closing market quotations may become
unreliable. If between the time trading ends on a particular security and
the close of the customary trading session on the NYSE, events occur that
are significant and may make the closing price unreliable, the Fund may
fair value the security. If 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 prices are not provided by any of the above
methods may be 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.
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 the 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 treat 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 to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that 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.
F-6
AIM Global Value Fund
G. ACCOUNTING ESTIMATES -- 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.
H. INDEMNIFICATIONS -- 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.
I. 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.
J. 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.
The Fund may invest in foreign securities which may be subject to foreign
taxes on income, gains on investments or currency repatriation, a portion
of which may be recoverable. Taxes are accrued based on the Fund's current
interpretation of tax regulations and rates that exist in the foreign
markets in which the Fund invests.
K. 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.
Fluctuations in the value of these contracts are recorded as unrealized
appreciation (depreciation) until the contracts are closed. When these
contracts are closed, realized gains (losses) are recorded. Realized and
unrealized gains and losses on these contracts are included in the
Statement of Operations. The Fund could be exposed to risk, which may be in
excess of the amount reflected in the Statement of Assets and Liabilities,
if counterparties to the contracts are unable to meet the terms of their
contracts or if the value of the foreign currency changes unfavorably.
L. COVERED CALL OPTIONS -- The Fund may write call options. A call option
gives the purchaser of such option the right to buy, and the writer (the
Fund) the obligation to sell, the underlying security at the stated
exercise price during the option period. Written call options are recorded
as a liability in the Statement of Assets and Liabilities. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. 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. Realized gains and losses on these contracts
are included in the Statement of Operations. 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.
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>
F-7
AIM Global Value Fund
Through June 30, 2007, 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 at least June 30, 2007. 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 net annual
operating expenses to exceed the numbers reflected above: (i) interest; (ii)
taxes; (iii) dividend expense on short sales; (iv) extraordinary items; (v)
expenses related to a merger or reorganization, as approved by the Fund's Board
of Trustees; and (vi) expenses that the Fund has incurred but did not actually
pay because of an expense offset arrangement. Currently, in addition to the
expense reimbursement arrangement with AMVESCAP PLC ("AMVESCAP") described more
fully below, the expense offset arrangements from which the Fund may benefit are
in the form of credits that the Fund receives from banks where the Fund or its
transfer agent has deposit accounts in which it holds uninvested cash. In
addition, the Fund may also benefit from a one time credit to be used to offset
future custodian expenses. These credits are used to pay certain expenses
incurred by the Fund. AIM did not waive fees and/or reimburse expenses during
the period under this expense limitation.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds.
Voluntary fee waivers or reimbursements may be modified or discontinued at any
time upon consultation with the Board of Trustees without further notice to
investors.
For the year ended December 31, 2006, AIM waived advisory fees of $121,431.
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, 2006, AMVESCAP reimbursed expenses of the Fund in the amount of
$2,549.
The Trust has entered into a master administrative services agreement with
AIM pursuant to which the Fund has agreed to pay AIM for certain administrative
costs incurred in providing accounting services, to the Fund. For the year ended
December 31, 2006, expenses incurred under the agreement are shown in the
Statement of Operations as administrative services fees.
The Trust has entered into a transfer agency and service agreement with AIM
Investment Services, Inc. ("AIS") pursuant to which the Fund has agreed to pay
AIS a fee for providing transfer agency and shareholder services to the Fund and
reimburse AIS for certain expenses incurred by AIS in the course of providing
such services. AIS may make payments to intermediaries that provide omnibus
account services, sub-accounting services and/or networking services. All fees
payable by AIS to intermediaries that provide omnibus account services or
sub-accounting are charged back to the Fund, subject to certain limitations
approved by the Trust's Board of Trustees. For the year ended December 31, 2006,
expenses incurred under the agreement are shown in the Statement of Operations
as transfer agent fees.
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. Of the Plan payments, up to 0.25% of the average
daily net assets of each class of 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. For the year ended
December 31, 2006, expenses incurred under the Plans are shown in the Statement
of Operations as distribution fees.
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, 2006, ADI advised the Fund that it retained $72,857 in
front-end sales commissions from the sale of Class A shares and $1,856, $41,746
and $4,381 from Class A, Class B and Class C shares, respectively, for CDSC
imposed on redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS and/or ADI.
F-8
AIM Global Value Fund
NOTE 3--INVESTMENT IN AFFILIATES
The Fund is permitted, pursuant to procedures approved 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, 2006.
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 12/31/06 INCOME GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $10,167,269 $ 55,666,933 $(45,384,126) $ -- $20,450,076 $ 655,592 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-
Institutional
Class -- 45,475,455 (25,025,379) -- 20,450,076 436,422 --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 10,167,269 18,703,260 (28,870,529) -- -- 219,043 --
===================================================================================================================================
Total
Investments
in
Affiliates $20,334,538 $119,845,648 $(99,280,034) $ -- $40,900,152 $1,311,057 $ --
___________________________________________________________________________________________________________________________________
===================================================================================================================================
</Table>
NOTE 4--SECURITIES TRANSACTIONS WITH AFFILIATES
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, for the year ended December 31, 2006, the Fund
engaged in securities purchases of $2,623,432.
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, (ii) custodian credits which result
from periodic overnight cash balances at the custodian and (iii) a one time
custodian fee credit to be used to offset future custodian fees. For the year
ended December 31, 2006, the Fund received credits from these arrangements,
which resulted in the reduction of the Fund's total expenses of $18,075.
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, 2006, the Fund paid legal fees of $4,498
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 Securities and Exchange Commission, 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, 2006, 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 bank 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 contractually agreed upon rate.
F-9
AIM Global Value Fund
NOTE 8--FOREIGN CURRENCY CONTRACTS
<Table>
<Caption>
OPEN FOREIGN CURRENCY CONTRACTS AT PERIOD END
- ---------------------------------------------------------------------------------------------------------------------------------
CONTRACT TO
SETTLEMENT --------------------------------------- VALUE UNREALIZED
DATE DELIVER RECEIVE 12/31/06 APPRECIATION
- ---------------------------------------------------------------------------------------------------------------------------------
02/22/07 JPY 555,000,000 USD 4,794,402 $ 4,697,271 $ 97,131
- ---------------------------------------------------------------------------------------------------------------------------------
02/22/07 JPY 3,950,000,000 USD 33,853,274 33,431,026 422,248
- ---------------------------------------------------------------------------------------------------------------------------------
03/15/07 CAD 15,990,000 USD 13,847,753 13,748,213 99,540
- ---------------------------------------------------------------------------------------------------------------------------------
03/19/07 KRW 2,718,000,000 USD 2,951,140 2,927,460 23,680
=================================================================================================================================
$642,599
=================================================================================================================================
</Table>
<Table>
<Caption>
CONTRACT TO UNREALIZED
SETTLEMENT ------------------------------------ VALUE APPRECIATION
DATE DELIVER RECEIVE 12/31/06 (DEPRECIATION)
- ---------------------------------------------------------------------------------------------------------------------------------
01/23/07 NZD 275,000 USD 189,195 $ 193,512 $ (4,317)
- ---------------------------------------------------------------------------------------------------------------------------------
01/23/07 NZD 2,050,000 USD 1,351,770 1,442,542 (90,772)
- ---------------------------------------------------------------------------------------------------------------------------------
02/22/07 EUR 16,300,000 USD 20,996,845 21,572,720 (578,875)
- ---------------------------------------------------------------------------------------------------------------------------------
02/22/07 GBP 4,620,000 USD 8,768,667 9,050,875 (282,208)
=================================================================================================================================
$(956,172)
=================================================================================================================================
Total open foreign currency contracts $(313,573)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
Currency Abbreviations:
<Table>
CAD - Canadian Dollar
EUR - Euro
GBP - British Pound Sterling
JPY - Japanese Yen
KRW - South Korean Won
NZD - New Zealand Dollar
USD - U.S. Dollar
</Table>
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years December 31, 2006 and
2005 was as follows:
<Table>
<Caption>
2006 2005
- ---------------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $ 4,448,174 $6,000,969
- ---------------------------------------------------------------------------------------
Long-term capital gain 9,477,899 3,073,687
=======================================================================================
Total distributions $13,926,073 $9,074,656
_______________________________________________________________________________________
=======================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2006, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2006
- --------------------------------------------------------------------------
Undistributed ordinary income $ 724,253
- --------------------------------------------------------------------------
Undistributed long-term gain 2,301,632
- --------------------------------------------------------------------------
Net unrealized appreciation -- investments 38,490,484
- --------------------------------------------------------------------------
Temporary book/tax differences (23,053)
- --------------------------------------------------------------------------
Shares of beneficial interest 268,394,144
==========================================================================
Total net assets $309,887,460
__________________________________________________________________________
==========================================================================
</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 net unrealized
appreciation difference is attributable primarily to the recognition of income
for tax purposes on certain passive foreign investment companies and deferral of
losses on certain straddles. The tax-basis unrealized appreciation
(depreciation) on investments amount includes appreciation (depreciation) on
foreign currencies of $(1,291).
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan benefits.
The Fund does not have a capital loss carryforward as of December 31, 2006.
F-10
AIM Global Value Fund
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the year ended December 31, 2006 was $125,594,500 and
$49,742,768, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $41,670,527
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (3,178,752)
===============================================================================
Net unrealized appreciation of investment securities $38,491,775
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $270,518,222.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions and partnership interests, on December 31, 2006, undistributed net
investment income (loss) was increased by $54,650, undistributed net realized
gain was decreased by $27,315 and shares of beneficial interest decreased by
$27,335. 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, Class B,
Class C and Institutional Class. 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 on or about the month-end which is at least eight years after
the date of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2006(A) 2005
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 3,614,347 $ 56,150,941 4,628,084 $ 64,043,288
- ----------------------------------------------------------------------------------------------------------------------
Class B 1,313,022 19,755,798 2,219,043 29,989,281
- ----------------------------------------------------------------------------------------------------------------------
Class C 1,410,203 21,146,739 1,244,394 16,870,899
- ----------------------------------------------------------------------------------------------------------------------
Institutional Class(b) 2,874,565 44,573,859 174,838 2,516,045
======================================================================================================================
Issued as reinvestment of dividends:
Class A 403,499 6,528,600 350,754 4,903,550
- ----------------------------------------------------------------------------------------------------------------------
Class B 159,889 2,523,056 172,250 2,354,649
- ----------------------------------------------------------------------------------------------------------------------
Class C 111,881 1,766,601 85,511 1,169,800
- ----------------------------------------------------------------------------------------------------------------------
Institutional Class(b) 152,027 2,464,355 7,206 100,807
======================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 260,143 4,002,670 150,162 2,088,244
- ----------------------------------------------------------------------------------------------------------------------
Class B (267,099) (4,002,670) (153,761) (2,088,237)
======================================================================================================================
Reacquired(c):
Class A (1,710,987) (26,315,720) (1,162,810) (16,191,792)
- ----------------------------------------------------------------------------------------------------------------------
Class B (722,448) (10,755,049) (483,219) (6,567,224)
- ----------------------------------------------------------------------------------------------------------------------
Class C (469,541) (7,014,216) (319,351) (4,349,169
- ----------------------------------------------------------------------------------------------------------------------
Institutional Class(b) (54,166) (799,837) (237) (3,354)
======================================================================================================================
7,075,335 $110,025,127 6,912,864 $ 94,836,787
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) There are three entities that are each record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate they own 23% 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 entities
are also owned beneficially. In addition, 16% 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) Institutional Class shares commenced sales on October 25, 2005.
(c) Amount is net of redemption fees of $2,469, $1,191, $700 and $554 for Class
A, Class B, Class C and Institutional Class shares, respectively, for the
year ended December 31, 2006 and $5,414, $3,133, $1,376 and $3 for Class A,
Class B, Class C and Institutional Class shares respectively, for the year
ended December 31, 2005.
F-11
AIM Global Value Fund
NOTE 13--NEW ACCOUNTING STANDARD
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement for a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The provisions for FIN 48 are effective for
fiscal years beginning after December 15, 2006. Management is currently
assessing the impact of FIN 48, if any, on the Fund's financial statements and
currently intends for the Fund to adopt FIN 48 provisions during the fiscal year
ending December 31, 2007.
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,
-----------------------------------------------------
2006 2005 2004 2003 2002
- -------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.97 $ 13.28 $11.74 $ 9.05 $ 9.85
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss)(a) 0.14 0.13 0.01(b) 0.01 (0.11)
- -------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.82 1.38 2.04 2.89 (0.69)
===================================================================================================================
Total from investment operations 2.96 1.51 2.05 2.90 (0.80)
===================================================================================================================
Less distributions:
Dividends from net investment income (0.17) (0.16) (0.03) (0.09) (0.00)
- -------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.62) (0.66) (0.48) (0.12) --
===================================================================================================================
Total distributions (0.79) (0.82) (0.51) (0.21) (0.00)
===================================================================================================================
Redemption fees added to shares of beneficial interest 0.00 0.00 0.00 -- --
===================================================================================================================
Net asset value, end of period $ 16.14 $ 13.97 $13.28 $11.74 $ 9.05
___________________________________________________________________________________________________________________
===================================================================================================================
Total return(c) 21.16% 11.35% 17.50% 32.15% (8.08)%
___________________________________________________________________________________________________________________
===================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $149,283 $93,363 $36,092 $9,270 $6,321
___________________________________________________________________________________________________________________
===================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.53%(d) 1.62% 2.00% 2.00% 2.00%
- -------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.58%(d) 1.67% 2.20% 3.12% 2.75%
===================================================================================================================
Ratio of net investment income (loss) to average net assets 0.88%(d) 0.91% 0.10%(b) 0.14% (1.16)%
___________________________________________________________________________________________________________________
===================================================================================================================
Portfolio turnover rate 24% 51% 129% 372% 101%
___________________________________________________________________________________________________________________
===================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income (loss) 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 (loss) per share and the ratio of net investment
income 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 $116,125,060.
F-12
AIM Global Value Fund
NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS B
-------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
2006 2005 2004 2003 2002
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.65 $ 13.02 $ 11.57 $ 8.94 $ 9.79
- ---------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss)(a) 0.02 0.03 (0.07)(b) (0.05) (0.17)
- ---------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.75 1.34 2.00 2.83 (0.68)
=====================================================================================================================
Total from investment operations 2.77 1.37 1.93 2.78 (0.85)
=====================================================================================================================
Less distributions:
Dividends from net investment income (0.07) (0.08) (0.00) (0.03) --
- ---------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.62) (0.66) (0.48) (0.12) --
=====================================================================================================================
Total distributions (0.69) (0.74) (0.48) (0.15) --
=====================================================================================================================
Redemption fees added to shares of beneficial interest 0.00 0.00 0.00 -- --
=====================================================================================================================
Net asset value, end of period $ 15.73 $ 13.65 $ 13.02 $11.57 $ 8.94
_____________________________________________________________________________________________________________________
=====================================================================================================================
Total return(c) 20.27% 10.51% 16.77% 31.26% (8.68)%
_____________________________________________________________________________________________________________________
=====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $65,013 $49,827 $24,675 $7,075 $4,624
_____________________________________________________________________________________________________________________
=====================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.28%(d) 2.33% 2.65% 2.65% 2.65%
- ---------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.33%(d) 2.38% 2.85% 3.77% 3.40%
=====================================================================================================================
Ratio of net investment income (loss) to average net assets 0.13%(d) 0.20% (0.55)%(b) (0.51)% (1.81)%
_____________________________________________________________________________________________________________________
=====================================================================================================================
Portfolio turnover rate 24% 51% 129% 372% 101%
_____________________________________________________________________________________________________________________
=====================================================================================================================
</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 $(0.10) 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 $56,248,541.
F-13
AIM Global Value Fund
NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS C
-------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
2006 2005 2004 2003 2002
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.66 $ 13.03 $ 11.58 $ 8.94 $ 9.79
- ---------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss)(a) 0.02 0.03 (0.07)(b) (0.05) (0.17)
- ---------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.75 1.34 2.00 2.84 (0.68)
=====================================================================================================================
Total from investment operations 2.77 1.37 1.93 2.79 (0.85)
=====================================================================================================================
Less distributions:
Dividends from net investment income (0.07) (0.08) (0.00) (0.03) --
- ---------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.62) (0.66) (0.48) (0.12) --
=====================================================================================================================
Total distributions (0.69) (0.74) (0.48) (0.15) --
=====================================================================================================================
Redemption fees added to shares of beneficial interest 0.00 0.00 0.00 -- --
=====================================================================================================================
Net asset value, end of period $ 15.74 $ 13.66 $ 13.03 $11.58 $ 8.94
_____________________________________________________________________________________________________________________
=====================================================================================================================
Total return(c) 20.26% 10.50% 16.75% 31.37% (8.68)%
_____________________________________________________________________________________________________________________
=====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $44,587 $24,316 $10,021 $2,853 $1,850
_____________________________________________________________________________________________________________________
=====================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.28%(d) 2.33% 2.65% 2.65% 2.65%
- ---------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.33%(d) 2.38% 2.85% 3.77% 3.40%
=====================================================================================================================
Ratio of net investment income (loss) to average net assets 0.13%(d) 0.20% (0.55)%(b) (0.51)% (1.81)%
_____________________________________________________________________________________________________________________
=====================================================================================================================
Portfolio turnover rate 24% 51% 129% 372% 101%
_____________________________________________________________________________________________________________________
=====================================================================================================================
</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 $(0.10) 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 $32,856,344.
F-14
AIM Global Value Fund
NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
-----------------------------------
OCTOBER 25, 2005
(DATE SALES
YEAR ENDED COMMENCED) TO
DECEMBER 31, DECEMBER 31,
2006 2005
- -------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.98 $13.90
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) 0.22 0.04
- -------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 2.83 0.86
=================================================================================================
Total from investment operations 3.05 0.90
=================================================================================================
Less distributions:
Dividends from net investment income (0.24) (0.16)
- -------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.62) (0.66)
=================================================================================================
Total distributions (0.86) (0.82)
=================================================================================================
Redemption fees added to shares of beneficial interest 0.00 0.00
=================================================================================================
Net asset value, end of period $ 16.17 $13.98
_________________________________________________________________________________________________
=================================================================================================
Total return(b) 21.81% 6.48%
_________________________________________________________________________________________________
=================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $51,005 $2,542
_________________________________________________________________________________________________
=================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.98%(c) 1.09%(d)
- -------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.03%(c) 1.14%(d)
=================================================================================================
Ratio of net investment income to average net assets 1.43%(c) 1.44%(d)
_________________________________________________________________________________________________
=================================================================================================
Portfolio turnover rate(e) 24% 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 less than one year.
(c) Ratios are based on average daily net assets of $24,776,994.
(d) Annualized.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
NOTE 15--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), 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. 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 August 30, 2005, the West Virginia Office of the State
Auditor -- Securities Commission ("WVASC") issued a Summary Order to Cease and
Desist and Notice of Right to Hearing to AIM and ADI (Order No. 05-1318). The
WVASC makes findings of fact that AIM and ADI entered into certain arrangements
permitting market timing of the AIM Funds and failed to disclose these
arrangements in the prospectuses for such Funds, 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
F-15
AIM Global Value Fund
NOTE 15--LEGAL PROCEEDINGS--(CONTINUED)
impose monetary sanctions, including restitution to affected investors,
disgorgement of fees, reimbursement of investigatory, administrative and legal
costs and an "administrative assessment," to be determined by the Commissioner.
Initial research indicates that these damages could be limited or capped by
statute.
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; 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
issues 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. Based on orders issued by the MDL Court,
all claims asserted against the AIM Funds that have been transferred to the MDL
Court have been dismissed, although certain Funds remain nominal defendants in
the Consolidated Amended Fund Derivative Complaint. On September 15, 2006, the
MDL Court granted the AMVESCAP defendants' motion to dismiss the Amended Class
Action Complaint for Violations of ERISA and dismissed such Complaint. The
plaintiff has commenced an appeal from that decision.
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 security
holders. IFG, AIM and ADI have advised the Fund that they 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.
F-16
AIM Global Value Fund
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, 2006, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the periods indicated, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PRICEWATERHOUSECOOPERS LLP
February 20, 2007
Houston, Texas
F-17
AIM Global Value Fund
TAX INFORMATION
Form 1099-DIV, Form 1042-S and other year-end tax information provide
shareholders with actual calendar year amounts that should be included in their
tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the
Internal Revenue Code or to meet a specific state's requirement.
The Fund designates the following amounts or, if subsequently determined to be
different, the maximum amount allowable for its fiscal year ended December 31,
2006:
FEDERAL AND STATE INCOME TAX
<Table>
Long-Term Capital Gain Distributions $9,477,899
Qualified Dividend Income* 70.00%
Corporate Dividends Received Deduction* 28.85%
U.S. Treasury Obligations* 0.00%
</Table>
* The above percentages are based on ordinary income dividends paid to
shareholders during the fund's fiscal year.
NON-RESIDENT ALIEN SHAREHOLDERS
<Table>
Qualified Short-Term Gains $1,819,722
Qualified Interest Income** 12.19%
</Table>
** The above percentage is based on income dividends paid to shareholders
during the fund's fiscal year.
ADDITIONAL NON-RESIDENT ALIEN SHAREHOLDER INFORMATION
The percentages of qualifying assets not subject to the U.S. estate tax for the
fiscal quarters ended March 31, 2006, June 30, 2006, September 30, 2006 and
December 31, 2006 were 63.84%, 60.75%, 63.52%, and 66.32%, respectively.
F-18
AIM Global Value Fund
TRUSTEES AND OFFICERS
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 110
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
NAME, YEAR OF BIRTH AND AND/ OTHER
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- --------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- --------------------------------------------------------------------------------------------------------------------------
Martin L. Flanagan(1) -- 1960 2007 Director, Chief Executive Officer and None
Trustee President, AMVESCAP PLC (parent of AIM
and a global investment management
firm); Chairman, A I M Advisors, Inc.
(registered investment advisor); and
Director, Chairman, Chief Executive
Officer and President, AVZ Inc. (holding
company); INVESCO North American
Holdings, Inc. (holding company);
Chairman and President, AMVESCAP Group
Services, Inc. (service provider);
Trustee, The AIM Family of Funds(R);
Chairman, Investment Company Institute;
and Member of Executive Board, SMU Cox
School of Business
Formerly: President, Co-Chief Executive
Officer, Co-President, Chief Operating
Officer and Chief Financial Officer,
Franklin Resources, Inc. (global
investment management organization)
- --------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(2) -- 1946 1992 Director and Chairman, A I M Management None
Trustee and Vice Chair Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC; Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm) and
Trustee and Vice Chair of The AIM Family
of Funds--Registered Trademark--
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);
Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and President
and Principal Executive Officer of The
AIM Family of Funds--Registered
Trademark--
- --------------------------------------------------------------------------------------------------------------------------
Philip A. Taylor(3) -- 1954 2006 Director, Chief Executive Officer and None
Trustee, President and President, A I M Management Group Inc.,
Principal AIM Mutual Fund Dealer Inc. (registered
Executive Officer broker dealer), AIM Funds Management
Inc. (registered investment advisor) and
1371 Preferred Inc. (holding company);
Director and President, A I M Advisors,
Inc., INVESCO Funds Group, Inc.
(registered investment advisor and
register transfer agent) and AIM GP
Canada Inc. (general partner for a
limited partnership); 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); Director, President and
Chairman, AVZ Callco Inc. (holding
company); AMVESCAP Inc. (holding
company) and AIM Canada Holdings Inc.
(holding company); Director and Chief
Executive Officer, AIM Trimark Corporate
Class Inc. (formerly AIM Trimark Global
Fund Inc.) (corporate mutual fund
company) and AIM Trimark Canada Fund
Inc. (corporate mutual fund company);
Trustee, President and Principal
Executive Officer of The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); Trustee and
Executive Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); and Manager,
Powershares Capital Management LLC
Formerly: President and Principal
Executive Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); Chairman, AIM
Canada Holdings, Inc.; Executive Vice
President and Chief Operations Officer,
AIM Funds Management Inc.; President,
AIM Trimark Global Fund Inc. and AIM
Trimark Canada Fund Inc.; and Director,
Trimark Trust (federally regulated
Canadian Trust Company)
- --------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- --------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- --------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
- --------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company
Formerly: Partner, law firm of Baker & (2 portfolios))
McKenzie
- --------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Founder, Green, Manning & Bunch Ltd., None
Trustee (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 (property casualty company)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and Director of various
affiliated Volvo companies; and
Director, Magellan Insurance Company
- --------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund
company); and Owner, Dos Angelos Ranch, (non-profit)
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
- --------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- --------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- --------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired Director, Mainstay VP Series
Trustee Formerly: Partner, Deloitte & Touche Funds, Inc. (21 portfolios)
- --------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Flanagan was appointed as Trustee of the Trust on February 24, 2007. Mr.
Flanagan is considered an interested person of the Trust because he is an
officer of the advisor to the Trust, and an officer and a director of
AMVESCAP PLC, parent of the advisor to the Trust.
(2) 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.
(3) Mr. Taylor 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.
F-19
TRUSTEES AND OFFICERS--(CONTINUED)
AIM Global Value Fund
<Table>
<Caption>
TRUSTEE
NAME, YEAR OF BIRTH AND AND/ OTHER
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- --------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- --------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer N/A
Senior Vice President and of The AIM Family of Funds--Registered
Senior Officer Trademark--
Formerly: Director of Compliance and
Assistant General Counsel, ICON
Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- --------------------------------------------------------------------------------------------------------------------------
John M. Zerr -- 1962 2006 Director, Senior Vice President, N/A
Senior Vice President, Chief Secretary and General Counsel, A I M
Legal Officer and Secretary Management Group Inc. and A I M
Advisors, Inc.; Director, Vice President
and Secretary, INVESCO Distributors,
Inc.; Vice President and Secretary,
A I M Capital Management, Inc., AIM
Investment Services, Inc., and Fund
Management Company; Senior Vice
President and Secretary, A I M
Distributors, Inc.; Director and Vice
President, INVESCO Funds Group Inc.;
Senior Vice President, Chief Legal
Officer and Secretary of The AIM Family
of Funds--Registered Trademark--; and
Manager, Powershares Capital Management
LLC
Formerly: Chief Operating Officer,
Senior Vice President, General Counsel,
and Secretary, Liberty Ridge Capital,
Inc. (an investment adviser); Vice
President and Secretary, PBHG Funds (an
investment company); Vice President and
Secretary, PBHG Insurance Series Fund
(an investment company); General Counsel
and Secretary, Pilgrim Baxter Value
Investors (an investment adviser); Chief
Operating Officer, General Counsel and
Secretary, Old Mutual Investment
Partners (a broker-dealer); General
Counsel and Secretary, Old Mutual Fund
Services (an administrator); General
Counsel and Secretary, Old Mutual
Shareholder Services (a shareholder
servicing center); Executive Vice
President, General Counsel and
Secretary, Old Mutual Capital, Inc. (an
investment adviser); and Vice President
and Secretary, Old Mutual Advisors Funds
(an investment company)
- --------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Global Compliance Director, AMVESCAP N/A
Vice President PLC; and Vice President of The AIM
Family of Funds--Registered Trademark--
Formerly: Senior Vice President, A I M
Management Group Inc. (financial
services holding company); Senior Vice
President and Chief Compliance Officer,
A I M Advisors, Inc. and The AIM Family
of Funds--Registered Trademark--; Vice
President and Chief Compliance Officer,
A I M Capital Management, Inc. and A I M
Distributors, Inc.; Vice President, AIM
Investment Services, Inc. and Fund
Management Company; Senior Vice
President and Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; and Senior Vice President
and Compliance Director, Delaware
Investments Family of Funds
- --------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Senior Vice President and General
Vice President Counsel, AMVESCAP PLC; Director, INVESCO
Funds Group, Inc.; and Vice President of
The AIM Family of Funds--Registered
Trademark--
Formerly: Director, Vice President and N/A
General Counsel, Fund Management
Company; Director, Senior Vice
President, Secretary and General
Counsel, A I M Management Group Inc. and
A I M Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Senior Vice President, A I M
Distributors, Inc.; Vice President,
A I M Capital Management, Inc. and AIM
Investment Services, Inc.; Senior Vice
President, Chief Legal Officer and
Secretary of The AIM Family of
Funds--Registered Trademark--; Chief
Executive Officer and President, INVESCO
Funds Group, Inc.; and Senior Vice
President, and General Counsel, Liberty
Financial Companies, Inc. and Senior
Vice President and General Counsel
Liberty Funds Group, LLC
- --------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.; and Vice President,
Financial Officer and Treasurer and Principal Officer of The
Treasurer AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- --------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1992 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc. and The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); and
President and Principal Executive
Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust Only)
Formerly: Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only)
- --------------------------------------------------------------------------------------------------------------------------
Lance A. Rejsek -- 1967 2005 Anti-Money Laundering Compliance N/A
Anti-Money Laundering Officer, A I M Advisors, Inc., A I M
Compliance Officer Capital Management, Inc., A I M
Distributors, Inc., AIM Investment
Services, Inc., AIM Private Asset
Management, Inc., Fund Management
Company and The AIM Family of
Funds--Registered Trademark--
Formerly: Manager of the Fraud
Prevention Department, AIM Investment
Services, Inc.
- --------------------------------------------------------------------------------------------------------------------------
Todd L. Spillane -- 1958 2006 Senior Vice President, A I M Management N/A
Chief Compliance Officer Group Inc.; Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; 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: Global Head of Product
Development, AIG-Global Investment
Group, Inc.; Chief Compliance Officer
and Deputy General Counsel,
AIG-SunAmerica Asset Management; and
Chief Compliance Officer, Chief
Operating Officer and Deputy General
Counsel, American General Investment
Management
- --------------------------------------------------------------------------------------------------------------------------
</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, 51st & Frankel LLP P.O. Box 4739 225 Franklin Street
Floor 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Philadelphia, PA 19103-7599 Americas
New York, NY 10036-2714
</Table>
F-20
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GO PAPERLESS
AIMINVESTMENTS.COM/EDELIVERY
GRAPHIC]
REGISTER FOR EDELIVERY
eDelivery is the process of receiving your fund and account information via
e-mail. Once your quarterly statements, tax forms, fund reports, and
prospectuses are available, we will send you an e-mail notification containing
links to these documents. For security purposes, you will need to log in to your
account to view your statements and tax forms.
WHY SIGN UP?
Register for eDelivery to:
- - save your Fund the cost of printing and postage.
- - reduce the amount of paper you receive.
- - gain access to your documents faster by not waiting for the mail.
- - view your documents online anytime at your convenience.
- - save the documents to your personal computer or print them out for your
records.
HOW DO I SIGN UP?
It's easy. Just follow these simple steps:
1. Log in to your account.
2. Click on the "Service Center" tab.
3. Select "Register for eDelivery" and complete the consent process.
This AIM service is provided by AIM Investment Services, Inc.
If used after April 20, 2007, 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 and exchange-traded funds distributed by A I M
Distributors, Inc.
A I M Management Group Inc. has provided leadership in the investment management
industry since 1976. AIM Investment Services, Inc. is the transfer agent for the
products and services represented by AIM Investments. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $463 billion in assets under management as of December 31, 2006.
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.
AIMinvestments.com GLV-AR-1 A I M Distributors, Inc.
[YOUR GOALS. OUR SOLUTIONS.]
- REGISTERED TRADEMARK -
Exchange- College Separately
Mutual Traded Retirement Savings Managed Offshore Cash
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[AIM INVESTMENTS LOGO]
- REGISTERED TRADEMARK -
AIM International Small Company Fund
Annual Report to Shareholders - December 31, 2006
[COVER GLOBE IMAGE]
INTERNATIONAL/ GLOBAL EQUITY
International/Global Growth
Table of Contents
Supplemental Information ................................................ 2
Letters to Shareholders ................................................. 3
Performance Summary ..................................................... 5
Management Discussion ................................................... 5
Fund Expenses ........................................................... 7
Long-term Fund Performance .............................................. 8
Approval of Advisory Agreement .......................................... 10
Schedule of Investments ................................................. F-1
Financial Statements .................................................... F-5
Notes to Financial Statements ........................................... F-8
Financial Highlights .................................................... F-14
Auditor's Report ........................................................ F-17
Tax Disclosures ......................................................... F-18
Trustees and Officers ................................................... F-19
[AIM INVESTMENT SOLUTIONS]
[GRAPHIC] [GRAPHIC] [GRAPHIC]
[DOMESTIC EQUITY] [INTERNATIONAL/GLOBAL EQUITY] [SECTOR EQUITY]
[GRAPHIC] [GRAPHIC] [GRAPHIC]
[FIXED INCOME] [ALLOCATION SOLUTIONS] [DIVERSIFIED PORTFOLIOS]
[AIM INVESTMENTS LOGO]
- REGISTERED TRADEMARK -
AIM International Small Company Fund
AIM INTERNATIONAL SMALL COMPANY FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF
CAPITAL.
- - Unless otherwise stated, information presented in this report is as of
December 31, 2006, and is based on total net assets.
ABOUT SHARE CLASSES
- - Class B shares are not available as an investment for retirement plans
maintained pursuant to Section 401 of the Internal Revenue Code, including
401(k) plans, money purchase pension plans and profit sharing plans. Plans
that had existing accounts invested in Class B shares prior to September
30, 2003, will continue to be allowed to make additional purchases.
- - The Fund has limited public sales of its shares to certain investors. For
information on who may continue to invest in the Fund, please see the
prospectus.
PRINCIPAL RISKS OF INVESTING IN THE FUND
- - Foreign securities have additional risks, including exchange rate changes,
political and economic upheaval, the relative lack of information about
these companies, relatively low market liquidity and the potential lack of
strict financial and accounting controls and standards.
- - Investing in a fund that invests in smaller companies involves risks not
associated with investing in more established companies, such as business
risk, stock price fluctuations and illiquidity.
- - Investing in emerging markets involves greater risks than investing in more
established markets. Risks for emerging markets include risks relating to
the relatively smaller size and lesser liquidity of these markets, high
inflation rates, adverse political developments and lack of timely
information.
- - Prices of equity securities change in response to many factors including
the historical and prospective earnings of the issuer, the value of its
assets, general economic conditions, interest rates, investor perceptions
and market liquidity.
- - The value of convertible securities in which the Fund invests may be
affected by market interest rates, the risk that the issuer may default on
interest or principal payments and the value of the underlying common stock
into which these securities may be converted.
- - Because a large percentage of the Fund's assets may be invested in a
limited number of securities, a change in the value of these securities
could significantly affect the value of your investment in the Fund.
ABOUT INDEXES USED IN THIS REPORT
- - The unmanaged MSCI EUROPE, AUSTRALASIA AND THE FAR EAST INDEX (the MSCI
EAFE --REGISTERED TRADEMARK--) is a group of foreign securities tracked by
Morgan Stanley Capital International.
- - The unmanaged MSCI WORLD EX USA SMALL CAP INDEX measures securities in the
global developed markets excluding the U.S with market capitalizations
between $200-$1,500 million dollars. It is compiled by Morgan Stanley
Capital International.
- - The unmanaged LIPPER INTERNATIONAL SMALL/MID-CAP GROWTH FUNDS INDEX
represents an average of the performance of the 10 largest international
small/mid-cap growth mutual funds tracked by Lipper Inc., an independent
mutual fund performance monitor.
- - The Fund is not managed to track the performance of any particular index,
including the indexes defined here, and consequently, the performance of
the Fund may deviate significantly from the performance of the index.
- - A direct investment cannot be made in an index. Unless otherwise indicated,
index results include reinvested dividends, and they do not reflect sales
charges. Performance of an index of funds reflects fund expenses;
performance of a market index does not.
OTHER INFORMATION
- - The returns shown in the management's discussion of Fund performance are
based on net asset values calculated for shareholder transactions.
Generally accepted accounting principles require adjustments to be made to
the net assets of the Fund at period end for financial reporting purposes,
and as such, the net asset values for shareholder transactions and the
returns based on those net asset values may differ from the net asset
values and returns reported in the Financial Highlights.
- - Industry classifications used in this report are generally according to the
Global Industry Classification Standard, which was developed by and is the
exclusive property and a service mark of Morgan Stanley Capital
International Inc. and Standard & Poor's.
- - The Chartered Financial Analyst --REGISTERED TRADEMARK-- (CFA --REGISTERED
TRADEMARK--) designation is a globally recognized standard for measuring
the competence and integrity of investment professionals.
The Fund provides a complete list of its holdings four times in each fiscal
year, at the quarter-ends. For the second and fourth quarters, the lists appear
in the Fund's semiannual and annual reports to shareholders. For the first and
third quarters, the Fund files the lists with the Securities and Exchange
Commission (SEC) on Form N-Q. The most recent list of portfolio holdings is
available at AIMinvestments.com. From our home page, click on Products &
Performance, then Mutual Funds, then Fund Overview. Select your Fund from the
dropdown menu and click on Complete Quarterly Holdings. Shareholders can also
look up the Fund's Forms N-Q on the SEC Web site at sec.gov. Copies of the
Fund's Forms N-Q may be reviewed and copied at the SEC Public Reference Room in
Washington, D.C. You can obtain information on the operation of the Public
Reference Room, including information about duplicating fee charges, by calling
202-942-8090 or 800-732-0330, or by electronic request at the following e-mail
address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-01540 and
002-27334.
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.
Information regarding how the Fund voted proxies related to its portfolio
securities during the 12 months ended June 30, 2006, 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
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
FUND NASDAQ SYMBOLS
Class A Shares IEGAX
Class B Shares IEGBX
Class C Shares IEGCX
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIMINVESTMENTS.COM
2
AIM International Small Company Fund
[TAYLOR PHOTO]
Philip Taylor
Dear Shareholders of The AIM Family of Funds --REGISTERED TRADEMARK--:
I'm pleased to provide you with this report, which includes a discussion of how
your Fund was managed during the year ended December 31, 2006, and what factors
affected its performance. The following pages contain important information that
answers questions you may have about your investment.
In the United States and around the globe, most major stock market indexes
rose in 2006. U.S. stocks benefited from continued economic expansion and a
cessation of interest rate increases by the U.S. Federal Reserve, among other
factors. Global markets also enjoyed a good year, while all major fixed-income
indexes produced positive annual returns.
As I write this letter, the consensus outlook for the economy remains
positive. But we all know that markets are unpredictable and subject to sudden
changes based on geopolitical or economic developments. At AIM Investments
- --REGISTERED TRADEMARK--, we believe investors can do two things to deal with
short-term market fluctuations: maintain a long-term investment horizon and
maintain a diversified portfolio. AIM Investments offers a broad product line
that gives your financial advisor options to build a portfolio that's right for
you regardless of market conditions. Our product line includes a comprehensive
range of mutual funds, including domestic, global and international equity
funds; taxable and tax-exempt fixed-income funds; and a variety of allocation
portfolios--with risk and return characteristics to match your needs. We
maintain this extensive set of product solutions because we believe in the value
of diversified investment portfolios.
To provide you even more investment options, we recently launched AIM
Independence Funds, six new target maturity funds that combine AIM retail mutual
funds and PowerShares --REGISTERED TRADEMARK-- exchange-traded funds (ETFs) as
underlying investment options. ETFs are relatively low cost and potentially
tax-efficient funds that trade like individual stocks. These AIM Independence
Funds are intended to provide broad diversification and risk/reward levels that
change as your target retirement date nears. Your financial advisor can provide
you with more information about the new AIM Independence Funds.
At AIM Investments, we believe in the value of working with a trusted
financial advisor. Your financial advisor can help you build a diversified
investment portfolio, making periodic adjustments as market conditions and your
investment goals change. While there are no guarantees with any investment
program, a long-term plan matched to your financial goals, risk tolerance and
time horizon offers the potential to keep you and your investments on track--and
your financial advisor can provide you with valuable information and advice.
I also invite you to visit us on the Internet at AIMinvestments.com. Our
Web site allows you to access your account information, review fund performance,
learn more about your fund's investment strategies and obtain general investing
information--whenever it's convenient for you.
OUR COMMITMENT TO YOU
While we're committed to maintaining a comprehensive, easy-to-navigate Web site,
we're even more committed to providing excellent customer service. Our highly
trained, courteous client services representatives are eager to answer your
questions, provide you with product information or assist you with account
transactions. I encourage you to give us an opportunity to serve you by calling
us at 800-959-4246.
All of us at AIM Investments are committed to helping you achieve your
financial goals. We work every day to earn your trust, and are grateful for the
confidence you've placed in us.
Sincerely,
/S/ PHILIP TAYLOR
- -------------------------------------
Philip Taylor
President - AIM Funds
CEO, AIM Investments
February 9, 2007
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 mutual
funds represented by AIM Investments and the PowerShares Exchange-Traded Fund
Trust.
3
AIM International Small Company Fund
[CROCKETT PHOTO]
Bruce L. Crockett
Dear Fellow AIM Fund Shareholders:
Your AIM Funds Board started 2007 committed to continue working with management
at A I M Advisors, Inc. (AIM) with the goal of improving performance and
lowering shareholder expenses for the AIM Funds.
The progress made to date is encouraging. Following the general trends of
global equity markets and the U.S. stock market, the asset-weighted absolute
performance for all the equity and fixed-income AIM Funds improved to 15.08% for
the one-year period ended December 31, 2006, as compared to 9.13% for the
one-year period ended December 31, 2005, and 11.20% for the one-year period
ended December 31, 2004.(1) The asset-weighted absolute performance for the AIM
money market funds was 4.84% for the one-year period ended December 31, 2006, as
compared to 3.04% for the one-year period ended December 31, 2005, and 1.23% for
the one-year period ended December 31, 2004.(2)
In November, your Board approved, subject to shareholder vote, four more
AIM Fund consolidations. As always, these decisions were made to benefit
existing shareholders and were driven by a desire to improve the merged funds'
performance, attract new assets and reduce costs. The asset class subcommittees
of your Board's Investments Committee are meeting frequently with portfolio
managers to identify how performance might be further improved.
On the expense side, both AMVESCAP, the parent company of AIM, and AIM
continue to take advantage of opportunities for operational consolidation,
outsourcing and new technologies to improve cost efficiencies for your benefit.
Your Board, for example, takes advantage of effective software solutions that
enable us to save money through electronic information sharing. Additional
cost-saving steps are under way. I'll report more on these steps once they're
completed.
Another major Board initiative for early 2007 is the revision of the AIM
Funds' proxy voting guidelines, a project begun by a special Board task force
late last year. We expect to have new procedures in place for the 2007 spring
proxy season that will improve the ability of the AIM Funds to cast votes that
are in the best interests of all fund shareholders.
While your Board recognizes that additional work lies ahead, we are
gratified that some key external sources have recognized changes at AIM and the
AIM Funds in the past two years. An article in the November 21, 2006, issue of
Morningstar Report (Morningstar Inc. is a leading provider of independent mutual
fund investment research) included a review of AIM's progress, highlighting
lower expenses, stronger investment teams and an improved sales culture, as well
as areas for continued improvement. I'm looking forward to a return visit to
Morningstar this year to review AIM Funds' performance and governance ratings.
Your Board thanks Mark Williamson, former President and CEO of AIM
Investments, who retired from your Board in 2006. He has been succeeded on your
Board by Phil Taylor, President of AIM Funds. We extend a warm welcome to Phil.
I'd like to hear from you. Please write to me at AIM Investments, AIM
Investments Tower, 11 Greenway Plaza, Suite 100, Houston TX 77046. Let me know
your thoughts on how your Board is doing and how we might serve you better.
Sincerely,
/S/ BRUCE L. CROCKETT
- -------------------------------------
Bruce L. Crockett
Independent Chair
AIM Funds Board
February 9, 2007
(1) Past performance is no guarantee of future results. The asset-weighted
absolute performance for the equity and fixed-income AIM Funds is derived
by taking the one-year cumulative total return for each share class of each
AIM Fund in existence as of December 31, 2006, (excluding money market
funds) and weighting the performance by the calendar year average net
assets of that share class. The one-year cumulative total return includes
reinvested distributions, fund expenses and management fees, but excludes
applicable sales charges. If sales charges were included, the one-year
cumulative total return and the asset-weighted performance would be lower.
(2) Past performance is no guarantee of future results. The asset-weighted
absolute performance for the AIM money market funds is derived by taking
the one-year cumulative total return for each share class of each AIM money
market fund in existence as of December 31, 2006, and weighting the
performance by the calendar year average net assets of that share class.
The one-year cumulative total return includes reinvested distributions,
fund expenses and management fees, but excludes applicable sales charges.
If sales charges were included, the one-year cumulative total return and
the asset-weighted performance would be lower.
4
AIM International Small Company Fund
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
PERFORMANCE SUMMARY
Foreign equity markets, as measured by the MSCI EAFE Index, posted strong
positive returns over the year, ending 2006 with a fourth consecutive year of
double-digit gains. Following a trend of recent years, foreign equities
continued to outperform U.S. equities.
Within this environment, we are pleased to have provided shareholders with
double-digit Fund performance. As the table illustrates, your Fund--excluding
applicable sales charges--significantly outperformed both its broad market and
style-specific benchmarks. Strong stock selection and our willingness and
ability to identify and purchase attractive stocks that are not followed by many
analysts gave us a competitive edge over both the broad market and
style-specific benchmarks. Our exposure to emerging markets, which outperformed
during the period, provided an additional competitive advantage.
Your Fund's long-term performance appears on pages 8-9.
FUND VS. INDEXES
Total returns, 12/31/05-12/31/06, excluding applicable sales charges. If sales
charges were included, returns would be lower.
Class A Shares 38.18%
Class B Shares 37.20
Class C Shares 37.15
MSCI EAFE Index (Broad Market Index) 26.34
MSCI World Ex USA Small Cap Index (Style-Specific Index) 19.46
Lipper International Small/Mid-Cap Growth Funds Index (Peer Group Index) 27.31
SOURCE: LIPPER INC.
HOW WE INVEST
When selecting stocks for your Fund, we employ a disciplined investment strategy
that emphasizes fundamental research, supported by both quantitative analysis
and portfolio construction techniques. Our "EQV" (Earnings, Quality, Valuation)
strategy focuses primarily on identifying quality small-cap companies that have
experienced, or exhibit the potential for, accelerated or above-average earnings
growth but whose prices do not fully reflect these attributes.
While research responsibilities within the portfolio management team are
focused by region, we select investments for the Fund by using a "bottom-up"
investment approach. We construct the Fund on a stock-by-stock basis, focusing
on strengths of individual companies rather than sectors or countries.
We believe disciplined sell decisions are key to successful investing. We
consider selling a stock for several reasons including when:
- - A company's fundamentals deteriorate, or it posts disappointing earnings.
- - A stock's price seems overvalued.
- - A more attractive opportunity becomes available.
MARKET CONDITIONS AND YOUR FUND
Markets continued to rally in Europe, as positive economic data and strong
company earnings continued to bolster investor confidence. Asian stock markets
also performed strongly during the year. Inflationary pressures across the
region showed signs of weakening, and a general perception that the United
States could coordinate a "soft landing" for its economy provided a positive
backdrop for Asian equities. In contrast, Japanese shares remained relatively
lackluster. Emerging markets experienced a somewhat volatile 12-month period
during which stocks hit record highs in many countries before correcting from
early May. A combination of higher global interest rates and rising levels of
risk aversion accentuated this temporary sell-off. Most of these markets bounced
back from July onward and ended the year with strong returns.
(continued)
PORTFOLIO COMPOSITION
By sector
Industrials 24.1%
Consumer Discretionary 21.9
Financials 13.4
Materials 11.7
Energy 10.6
Consumer Staples 5.7
Health Care 3.6
Utilities 2.5
Information Technology 1.8
Telecommunication Services 0.6
Money Market funds Plus
Other Assets Less Liabilities 4.1
TOP FIVE COUNTRIES*
1. Canada 16.0%
2. Brazil 9.8
3. Norway 9.7
4. United Kingdom 6.7
5. South Korea 6.4
Total Net Assets $865.10 million
Total Number of
Holdings* 112
TOP 10 EQUITY HOLDINGS*
1. Petroleum Geo-Services A.S.A.
(Norway) 2.1%
2. USG People N.V. (Netherlands) 2.1
3. Intralot S.A. (Greece) 2.0
4. Prosafe A.S.A. (Norway) 1.7
5. Lion Diversified Holdings
Berhad (Malaysia) 1.6
6. Trican Well Service Ltd.
(Canada) 1.5
7. Homeserve PLC (United Kingdom) 1.5
8. Aalberts Industries N.V.
(Netherlands) 1.5
9. Andritz A.G. (Austria) 1.4
10. Mitie Group PLC (United
Kingdom) 1.4
The Fund's holdings are subject to change, and there is no assurance that the
Fund will continue to hold any particular security.
* Excluding money market fund holdings.
5
AIM International Small Company Fund
The overall quality of the portfolio, the attractiveness of individual
securities and the management team's ability to identify under-followed,
high-quality investments in developed and emerging markets largely explained the
Fund's absolute and relative outperformance.
The Fund significantly outperformed its style-specific index across almost
all regions and sectors. From a regional perspective, Asia and Latin America
were top contributors to Fund performance. At the sector level, holdings in
consumer discretionary, industrials, consumer staples and materials were the
largest contributors to relative outperformance. In contrast, select Canadian
energy stocks detracted from relative Fund returns.
Within consumer discretionary, significant contributions came from Greek
lottery vendor Intralot, Malaysian-based holding company Lion Diversified and
Brazilian homebuilder Gafisa--all companies not represented in the
style-specific index. We initially invested in Intralot at a time when we judged
the market's opinion of the company's growth prospects to be excessively
negative. We were therefore able to purchase the stock at attractive levels.
Significant increase and diversification of market share outside Greece, a
robust pipeline of contract tenders and strong positive cash flow have since
helped expand investor awareness of this company. Lion Diversified is another
prime example of what we look for in an investment opportunity. Supported by
consumer spending growth in China, department stores managed by the company
enjoyed double-digit same-store sales growth and posted strong quarterly
earnings results.
Within the industrials sector, exposure to Homeserve, a U.K.-based home
repair provider, and South Korean ship-building company Hyundai Mipo--stocks
also not represented in the style-specific index--enabled the Fund to
significantly outperform the index in this sector as well. Similarly, strong
stock selection was the key driver of outperformance in the consumer staples,
financials and materials sectors.
We believe that being bottom-up investors who are "benchmark aware, not
benchmark centric" helped drive the Fund's broad stock-driven results. In other
words, we focused on selecting good stocks rather than managing to the
benchmark. As illustrated above, we actively invested in stocks outside of the
index. It is off the beaten path where we tended to find many stocks not covered
by many analysts and under-appreciated companies with growth that has yet to be
recognized by the market.
The Fund's significant underweight exposure to the negatively performing
Japanese equity market versus the style-specific index was responsible for a
substantial portion of the Fund's outperformance in Asia. Although there were
signs of improvement in the underlying fundamentals of this market, few growth
companies met our stringent EQV-focused analysis. In general, we found faster
growing quality companies elsewhere in Latin America, Europe and Asia.
The Fund's exposure to emerging market stocks, including holdings in
Brazil, China, Indonesia, Mexico and Taiwan--markets not represented in the
benchmark--also gave the fund a competitive edge. These markets continued to be
underpinned by improvements on the macroeconomic and corporate levels and, in
most cases, were further supported by attractive stock valuations, despite
strong returns in recent years.
Key detractors from performance were relatively limited but included
Canadian energy stocks Trican Well Services and Total Energy Services, both
strong past performers. Despite being some of the highest quality firms in their
respective drilling niches, these companies were negatively affected by weaker
natural gas prices and, subsequently, fewer oil well drilling projects. We
trimmed our position in these names.
IN CLOSING
Over the past 12 months, the Fund has experienced strong double-digit returns.
It would be imprudent for us to suggest that such a level of performance is
sustainable over the long term. Thank you for your continued participation in
AIM International Small Company Fund.
The views and opinions expressed in management's discussion of Fund performance
are those of A I M Advisors, Inc. These views and opinions are subject to change
at any time based on factors such as market and economic conditions. These views
and opinions may not be relied upon as investment advice or recommendations, or
as an offer for a particular security. The information is not a complete
analysis of every aspect of any market, country, industry, security or the Fund.
Statements of fact are from sources considered reliable, but A I M Advisors,
Inc. makes no representation or warranty as to their completeness or accuracy.
Although historical performance is no guarantee of future results, these
insights may help you understand our investment management philosophy.
See important Fund and index disclosures on the inside front cover.
[HOLZER PHOTO]
Jason T. Holzer
Chartered Financial Analyst, senior portfolio manager, is lead manager of AIM
International Small Company Fund with respect to the Fund's European and
Canadian investments. Mr. Holzer joined AIM in 1996. He earned a B.A. in
quantitative economics and an M.S. in engineering-economic systems from Stanford
University.
[CAO PHOTO]
Shuxin Cao
Chartered Financial Analyst, portfolio manager, is lead manager of AIM
International Small Company Fund with respect to the Fund's Asia Pacific and
Latin American investments. He joined AIM in 1997. Mr. Cao graduated from
Tianjin Foreign Language Institute with a B.A. in English. He also earned an
M.B.A. from Texas A&M University and is a Certified Public Accountant.
[ENDRESEN PHOTO]
Borge Endresen
Chartered Financial Analyst, portfolio manager, is manager of AIM International
Small Company Fund. He joined AIM in 1999 and graduated summa cum laude from the
University of Oregon with a B.S. in finance. He also earned an M.B.A from The
University of Texas at Austin.
[NIELD PHOTO]
Richard Nield
Chartered Financial Analyst, portfolio manager, is manager of AIM International
Small Company Fund. Mr. Nield joined AIM in 2000. He earned a bachelor of
commerce degree in finance and international business from McGill University in
Montreal, Canada.
Assisted by the Asia Pacific/Latin America Team and the Europe/Canada Team
FOR A PRESENTATION OF YOUR FUND'S LONG-TERM PERFORMANCE, PLEASE SEE PAGES 8-9.
6
AIM International Small Company Fund
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, which may include sales charges (loads) on purchase payments or
contingent deferred sales charges on redemptions, and redemption fees, if any;
and (2) ongoing costs, including management fees; distribution and/or service
(12b-1) fees; and other Fund expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with ongoing costs of investing in other mutual funds. The
example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period July 1, 2006, through December 31, 2006.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return. The Fund's actual cumulative total returns at net asset value after
expenses for the six months ended December 31, 2006, appear in the table
"Cumulative Total Returns" on page 9.
The hypothetical account values and expenses may not be used to estimate
the actual ending account balance or expenses you paid for the period. You may
use this information to compare the ongoing costs of investing in the Fund and
other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight
your ongoing costs only and do not reflect any transaction costs, such as sales
charges (loads) on purchase payments, contingent deferred sales charges on
redemptions, and redemption fees, if any. Therefore, the hypothetical
information is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these transaction costs were included, your costs would have been higher.
HYPOTHETICAL
(5% ANNUAL RETURN BEFORE
ACTUAL EXPENSES)
--------------------------- --------------------------
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/06) (12/31/06)(1) PERIOD(2) (12/31/06) PERIOD(2) RATIO
- ----- ------------- ------------- ----------- ------------- ----------- ----------
A $1,000.00 $1,158.30 $ 8.32 $1,017.49 $ 7.78 1.53%
B 1,000.00 1,153.90 12.38 1,013.71 11.57 2.28
C 1,000.00 1,154.00 12.38 1,013.71 11.57 2.28
(1) The actual ending account value is based on the actual total return of the
Fund for the period July 1, 2006, through December 31, 2006, 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, 2006, appear in
the table "Cumulative Total Returns" on page 9.
(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.
7
AIM International Small Company Fund
YOUR FUND'S LONG-TERM PERFORMANCE
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.
This chart, which is a logarithmic chart, presents the fluctuations in the
value of the Fund and its indexes. We believe that a logarithmic chart is more
effective than other types of charts in illustrating changes in value during the
early years shown in the chart. The vertical axis, the one that indicates the
dollar value of an investment, is constructed with each segment representing a
percent change in the value of the investment. In this chart, each segment
represents a doubling, or 100% change, in the value of the investment. In other
words, the space between $4,000 and $8,000 is the same size as the space between
$8,000 and $16,000, and so on.
8
[MOUNTAIN CHART]
RESULTS OF A $10,000 INVESTMENT
Fund and index data from 8/31/00
AIM INTERNATIONAL AIM INTERNATIONAL AIM INTERNATIONAL MSCI WORLD LIPPER INTERNATIONAL
SMALL COMPANY FUND SMALL COMPANY FUND SMALL COMPANY FUND EX USA SMALL/MID-CAP
DATE -CLASS A SHARES -CLASS B SHARES -CLASS C SHARES MSCI EAFE INDEX SMALL CAP INDEX GROWTH FUNDS INDEX
- ------- ------------------ ------------------ ------------------ --------------- --------------- --------------------
8/31/00 $9450 $10000 $10000 $10000 $10000 $10000
9/00 8930 9450 9450 9513 9515 9454
10/00 8250 8720 8730 9288 8844 8743
11/00 7172 7581 7590 8940 8762 7864
12/00 7532 7951 7950 9258 8838 8051
1/01 8146 8591 8600 9253 9098 8163
2/01 7126 7511 7520 8559 8897 7653
3/01 6237 6570 6580 7989 8270 6818
4/01 6577 6931 6930 8544 8986 7151
5/01 6719 7080 7079 8242 8997 7145
6/01 6577 6930 6919 7905 8740 6839
7/01 6502 6850 6839 7761 8390 6539
8/01 6388 6720 6709 7565 8467 6375
9/01 5557 5841 5839 6799 7372 5539
10/01 6076 6381 6379 6973 7736 5805
11/01 6502 6821 6819 7230 8042 6065
12/01 6742 7071 7070 7273 7898 6095
1/02 6752 7071 7070 6886 7750 5954
2/02 6837 7171 7159 6935 7873 5967
3/02 7245 7591 7580 7343 8417 6260
4/02 7379 7731 7720 7358 8666 6303
5/02 7616 7971 7970 7451 9071 6424
6/02 7626 7981 7970 7155 8699 6174
7/02 6932 7251 7240 6448 7992 5597
8/02 6876 7191 7180 6434 7899 5541
9/02 6296 6571 6570 5743 7291 5027
10/02 6410 6691 6690 6051 7231 5083
11/02 6552 6831 6830 6326 7434 5236
12/02 6562 6841 6840 6113 7313 5148
1/03 6638 6911 6910 5858 7234 5030
2/03 6629 6901 6900 5724 7181 4928
3/03 6705 6981 6970 5611 7111 4887
4/03 7227 7511 7510 6161 7763 5325
5/03 7883 8201 8189 6535 8450 5794
6/03 8158 8481 8479 6693 8890 5961
7/03 8481 8801 8799 6855 9159 6179
8/03 8890 9231 9219 7020 9761 6503
9/03 9460 9811 9799 7236 10319 6737
10/03 10438 10821 10809 7687 11142 7317
11/03 10770 11152 11149 7858 11152 7388
12/03 11491 11892 11880 8472 11833 7831
1/04 12034 12452 12439 8592 12342 8099
2/04 12594 13032 13019 8790 12715 8307
3/04 12661 13082 13079 8840 13205 8454
4/04 12233 12642 12629 8640 12734 8234
5/04 12052 12453 12439 8658 12582 8106
6/04 12385 12783 12769 8859 13233 8380
7/04 12090 12463 12459 8571 12649 8006
8/04 12290 12674 12659 8609 12715 8016
9/04 12946 13334 13329 8834 13062 8374
10/04 13497 13905 13889 9136 13609 8625
11/04 14734 15165 15158 9760 14629 9245
12/04 15607 16049 16043 10188 15311 9669
1/05 15859 16302 16297 10001 15547 9729
2/05 16785 17246 17240 10433 16207 10231
3/05 16427 16870 16865 10171 15944 9973
4/05 16002 16423 16418 9932 15494 9705
5/05 16147 16566 16560 9937 15531 9752
6/05 16747 17176 17160 10068 15943 10046
7/05 17837 18271 18256 10377 16636 10610
8/05 18388 18830 18815 10639 17146 10944
9/05 19140 19582 19575 11113 17841 11510
10/05 18118 18526 18520 10789 17191 11006
11/05 19315 19734 19728 11052 17764 11469
12/05 20637 21070 21063 11567 19145 12347
1/06 22890 23363 23344 12277 20510 13427
2/06 23282 23744 23734 12250 20253 13290
3/06 24699 25180 25161 12653 21205 14122
4/06 26651 27154 27136 13258 22192 14966
5/06 25574 26035 26029 12743 20965 14068
6/06 24620 25054 25037 12742 20455 13630
7/06 24659 25076 25069 12868 19955 13457
8/06 25113 25530 25513 13222 20539 13842
9/06 24480 24864 24858 13242 20483 13784
10/06 26211 26607 26590 13758 21297 14484
11/06 27569 27959 27952 14169 22213 15146
12/06 28518 28899 28889 14613 22870 15719
SOURCE: LIPPER INC.
AIM International Small Company Fund
AVERAGE ANNUAL TOTAL RETURNS
As of 12/31/06, including applicable sales charges
CLASS A SHARES
Inception (8/31/00) 17.99%
5 Years 31.94
1 Year 30.61
CLASS B SHARES
Inception (8/31/00) 18.24%
5 Years 32.39
1 Year 32.20
CLASS C SHARES
Inception (8/31/00) 18.23%
5 Years 32.51
1 Year 36.15
CUMULATIVE TOTAL RETURNS
6 months ended 12/31/06, excluding applicable sales charges
Class A Shares 15.83%
Class B Shares 15.39
Class C Shares 15.40
The performance data quoted represent past performance and cannot guarantee
comparable future results; current performance may be lower or higher. Please
visit AIMinvestments.com for the most recent month-end performance. Performance
figures reflect reinvested distributions, changes in net asset value and the
effect of the maximum sales charge unless otherwise stated. Investment return
and principal value will fluctuate so that you may have a gain or loss when you
sell shares.
Class A share performance reflects the maximum 5.50% sales charge, and
Class B and Class C share performance reflects the applicable contingent
deferred sales charge (CDSC) for the period involved. The CDSC on Class B shares
declines from 5% beginning at the time of purchase to 0% at the beginning of the
seventh year. The CDSC on Class C shares is 1% for the first year after
purchase.
A redemption fee of 2% will be imposed on certain redemptions or exchanges
out of the Fund within 30 days of purchase. Exceptions to the redemption fee are
listed in the Fund's prospectus.
The performance of the Fund's share classes will differ primarily due to
different sales charge structures and class expenses.
Had the advisor not waived fees and/or reimbursed expenses in the past,
performance would have been lower.
9
AIM International Small Company Fund
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees of AIM Funds Group (the "Board") oversees the management
of AIM International Small Company Fund (the "Fund") and, as required by law,
determines annually whether to approve the continuance of the Fund's advisory
agreement with A I M Advisors, Inc. ("AIM"). Based upon the recommendation of
the Investments Committee of the Board, at a meeting held on June 27, 2006, the
Board, including all of the independent trustees, approved the continuance of
the advisory agreement (the "Advisory Agreement") between the Fund and AIM for
another year, effective July 1, 2006.
The Board considered the factors discussed below in evaluating the fairness
and reasonableness of the Advisory Agreement at the meeting on June 27, 2006 and
as part of the Board's ongoing oversight of the Fund. In their deliberations,
the Board and the independent trustees did not identify any particular factor
that was controlling, and each trustee attributed different weights to the
various factors.
One responsibility of the independent Senior Officer of the Fund is to
manage the process by which the Fund's proposed management fees are negotiated
to ensure that they are negotiated in a manner which is at arms' length and
reasonable. To that end, the Senior Officer must either supervise a competitive
bidding process or prepare an independent written evaluation. The Senior Officer
has recommended an independent written evaluation in lieu of a competitive
bidding process and, upon the direction of the Board, has prepared such an
independent written evaluation. Such written evaluation also considered certain
of the factors discussed below. In addition, as discussed below, the Senior
Officer made a recommendation to the Board in connection with such written
evaluation.
The discussion below serves as a summary of the Senior Officer's
independent written evaluation and recommendation to the Board in connection
therewith, as well as a discussion of the material factors and the conclusions
with respect thereto that formed the basis for the Board's approval of the
Advisory Agreement. After consideration of all of the factors below and based on
its informed business judgment, the Board determined that the Advisory Agreement
is in the best interests of the Fund and its shareholders and that the
compensation to AIM under the Advisory Agreement is fair and reasonable and
would have been obtained through arm's length negotiations.
Unless otherwise stated, information presented below is as of June 27, 2006
and does not reflect any changes that may have occurred since June 27, 2006,
including but not limited to changes to the Fund's performance, advisory fees,
expense limitations and/or fee waivers.
- - The nature and extent of the advisory services to be provided by AIM. The
Board reviewed the services to be provided by AIM under the Advisory
Agreement. Based on such review, the Board concluded that the range of
services to be provided by AIM under the Advisory Agreement was appropriate
and that AIM currently is providing services in accordance with the terms
of the Advisory Agreement.
- - The quality of services to be provided by AIM. The Board reviewed the
credentials and experience of the officers and employees of AIM who will
provide investment advisory services to the Fund. In reviewing the
qualifications of AIM to provide investment advisory services, the Board
considered such issues as AIM's portfolio and product review process,
various back office support functions provided by AIM and AIM's equity and
fixed income trading operations. Based on the review of these and other
factors, the Board concluded that the quality of services to be provided by
AIM was appropriate and that AIM currently is providing satisfactory
services in accordance with the terms of the Advisory Agreement.
- - The performance of the Fund relative to comparable funds. The Board
reviewed the performance of the Fund during the past one and three calendar
years against the performance of funds advised by other advisors with
investment strategies comparable to those of the Fund. The Board noted that
the Fund's performance in such periods was above the median performance of
such comparable funds. Based on this review and after taking account of all
of the other factors that the Board considered in determining whether to
continue the Advisory Agreement for the Fund, the Board concluded that no
changes should be made to the Fund and that it was not necessary to change
the Fund's portfolio management team at this time. Although the independent
written evaluation of the Fund's Senior Officer (discussed below) only
considered Fund performance through the most recent calendar year, the
Board also reviewed more recent Fund performance, which did not change
their conclusions.
- - The performance of the Fund relative to indices. The Board reviewed the
performance of the Fund during the past one and three calendar years
against the performance of the Lipper International Small/Medium Growth
Index. The Board noted that the Fund's performance in such periods was
above the performance of such Index. Based on this review and after taking
account of all of the other factors that the Board considered in
determining whether to continue the Advisory Agreement for the Fund, the
Board concluded that no changes should be made to the Fund and that it was
not necessary to change the Fund's portfolio management team at this time.
Although the independent written evaluation of the Fund's Senior Officer
(discussed below) only considered Fund performance through the most recent
calendar year, the Board also reviewed more recent Fund performance, which
did not change their conclusions.
- - Meetings with the Fund's portfolio managers and investment personnel. With
respect to the Fund, the Board is meeting periodically with such Fund's
portfolio managers and/or other investment personnel and believes that such
individuals are competent and able to continue to carry out their
responsibilities under the Advisory Agreement.
- - Overall performance of AIM. The Board considered the overall performance of
AIM in providing investment advisory and portfolio administrative services
to the Fund and concluded that such performance was satisfactory.
- - Fees relative to those of clients of AIM with comparable investment
strategies. The Board noted that AIM does not serve as an advisor to other
mutual funds or other clients with investment strategies comparable to
those of the Fund.
- - Fees relative to those of comparable funds with other advisors. The Board
reviewed the advisory fee rate for the Fund under the Advisory Agreement.
The Board compared effective contractual advisory fee rates at a common
asset level at the end of the past calendar year and noted that the Fund's
rate was below the median rate of the funds advised by other advisors with
investment strategies comparable to those of the Fund that the Board
reviewed. The Board noted that AIM has agreed to waive advisory fees of the
Fund and to limit the Fund's total operating expenses, as discussed below.
Based on this review, the Board concluded that the advisory fee rate for
the Fund under the Advisory Agreement was fair and reasonable.
- - Expense limitations and fee waivers. The Board noted that AIM has
contractually agreed to waive advisory fees of the Fund through December
31, 2009 to the extent necessary so that the advisory fees payable by the
Fund do not exceed a specified maximum advisory fee rate, which maximum
rate includes breakpoints and is based on net asset levels. The Board
considered the contractual nature of this fee waiver and noted that it
remains in effect until December 31, 2009. The Board noted that AIM has
contractually agreed to waive fees and/or limit expenses of the Fund
through December 31, 2006 in an amount necessary to limit total annual
operating expenses to a specified percentage of average daily net assets
for each class of the Fund. The Board considered the contractual nature of
this fee waiver/expense limitation and noted that it remains in effect
until December 31, 2006. The Board considered the effect these fee
waivers/expense limitations would have on the Fund's estimated expenses and
concluded that the levels of fee waivers/expense limitations for the Fund
were fair and reasonable.
- - Breakpoints and economies of scale. The Board reviewed the structure of the
Fund's advisory fee under the Advisory Agreement, noting that it does not
include any breakpoints. The Board considered whether it would be
appropriate to add advisory fee breakpoints for the Fund or whether, due to
the nature of the Fund and the advisory fee structures of comparable funds,
it was reasonable to structure the advisory fee without breakpoints. Based
on this review, the Board concluded that it was not necessary to add
advisory fee breakpoints to the Fund's advisory fee schedule. The Board
reviewed the level of the Fund's advisory fees, and noted that such fees,
as a percentage of the Fund's net assets, would remain constant under the
Advisory Agreement because the Advisory
(continued)
10
AIM International Small Company Fund
Agreement does not include any breakpoints. The Board noted that AIM has
contractually agreed to waive advisory fees of the Fund through December 31,
2009 to the extent necessary so that the advisory fees payable by the Fund do
not exceed a specified maximum advisory fee rate, which maximum rate includes
breakpoints and is based on net asset levels. The Board concluded that the
Fund's fee levels under the Advisory Agreement therefore would not reflect
economies of scale, although the advisory fee waiver reflects economies of
scale.
- - Investments in affiliated money market funds. The Board also took into
account the fact that uninvested cash and cash collateral from securities
lending arrangements, if any (collectively, "cash balances") of the Fund
may be invested in money market funds advised by AIM pursuant to the terms
of an SEC exemptive order. The Board found that the Fund may realize
certain benefits upon investing cash balances in AIM advised money market
funds, including a higher net return, increased liquidity, increased
diversification or decreased transaction costs. The Board also found that
the Fund will not receive reduced services if it invests its cash balances
in such money market funds. The Board noted that, to the extent the Fund
invests uninvested cash in affiliated money market funds, AIM has
voluntarily agreed to waive a portion of the advisory fees it receives from
the Fund attributable to such investment. The Board further determined that
the proposed securities lending program and related procedures with respect
to the lending Fund is in the best interests of the lending Fund and its
respective shareholders. The Board therefore concluded that the investment
of cash collateral received in connection with the securities lending
program in the money market funds according to the procedures is in the
best interests of the lending Fund and its respective shareholders.
- - Independent written evaluation and recommendations of the Fund's Senior
Officer. The Board noted that, upon their direction, the Senior Officer of
the Fund, who is independent of AIM and AIM's affiliates, had prepared an
independent written evaluation in order to assist the Board in determining
the reasonableness of the proposed management fees of the AIM Funds,
including the Fund. The Board noted that the Senior Officer's written
evaluation had been relied upon by the Board in this regard in lieu of a
competitive bidding process. In determining whether to continue the
Advisory Agreement for the Fund, the Board considered the Senior Officer's
written evaluation and the recommendation made by the Senior Officer to the
Board that the Board consider whether the advisory fee waivers for certain
equity AIM Funds, including the Fund, should be simplified. The Board
concluded that it would be advisable to consider this issue and reach a
decision prior to the expiration date of such advisory fee waivers.
- - Profitability of AIM and its affiliates. The Board reviewed information
concerning the profitability of AIM's (and its affiliates') investment
advisory and other activities and its financial condition. The Board
considered the overall profitability of AIM, as well as the profitability
of AIM in connection with managing the Fund. The Board noted that AIM's
operations remain profitable, although increased expenses in recent years
have reduced AIM's profitability. Based on the review of the profitability
of AIM's and its affiliates' investment advisory and other activities and
its financial condition, the Board concluded that the compensation to be
paid by the Fund to AIM under its Advisory Agreement was not excessive.
- - Benefits of soft dollars to AIM. The Board considered the benefits realized
by AIM as a result of brokerage transactions executed through "soft dollar"
arrangements. Under these arrangements, brokerage commissions paid by the
Fund and/or other funds advised by AIM are used to pay for research and
execution services. This research may be used by AIM in making investment
decisions for the Fund. The Board concluded that such arrangements were
appropriate.
- - AIM's financial soundness in light of the Fund's needs. The Board
considered whether AIM is financially sound and has the resources necessary
to perform its obligations under the Advisory Agreement, and concluded that
AIM has the financial resources necessary to fulfill its obligations under
the Advisory Agreement.
- - Historical relationship between the Fund and AIM. In determining whether to
continue the Advisory Agreement for the Fund, the Board also considered the
prior relationship between AIM and the Fund, as well as the Board's
knowledge of AIM's operations, and concluded that it was beneficial to
maintain the current relationship, in part, because of such knowledge. The
Board also reviewed the general nature of the non-investment advisory
services currently performed by AIM and its affiliates, such as
administrative, transfer agency and distribution services, and the fees
received by AIM and its affiliates for performing such services. In
addition to reviewing such services, the trustees also considered the
organizational structure employed by AIM and its affiliates to provide
those services. Based on the review of these and other factors, the Board
concluded that AIM and its affiliates were qualified to continue to provide
non-investment advisory services to the Fund, including administrative,
transfer agency and distribution services, and that AIM and its affiliates
currently are providing satisfactory non-investment advisory services.
- - Other factors and current trends. The Board considered the steps that AIM
and its affiliates have taken over the last several years, and continue to
take, in order to improve the quality and efficiency of the services they
provide to the Funds in the areas of investment performance, product line
diversification, distribution, fund operations, shareholder services and
compliance. The Board concluded that these steps taken by AIM have
improved, and are likely to continue to improve, the quality and efficiency
of the services AIM and its affiliates provide to the Fund in each of these
areas, and support the Board's approval of the continuance of the Advisory
Agreement for the Fund.
11
Supplement to Annual Report dated 12/31/06
AIM INTERNATIONAL SMALL COMPANY FUND
INSTITUTIONAL CLASS SHARES
The following information has been prepared to provide Institutional Class
shareholders with a performance overview specific to their holdings.
Institutional Class shares are offered exclusively to institutional investors,
including defined contribution plans that meet certain criteria.
NASDAQ SYMBOL IEGIX
AVERAGE ANNUAL TOTAL RETURNS
For periods ended 12/31/06
Inception 19.14%
5 Years 33.56
1 Year 38.73
6 Months* 16.09
* Cumulative total return that has not been annualized
INSTITUTIONAL CLASS SHARES' INCEPTION DATE IS OCTOBER 25, 2005. RETURNS SINCE
THAT DATE ARE HISTORICAL RETURNS. ALL OTHER RETURNS ARE BLENDED RETURNS OF
HISTORICAL INSTITUTIONAL CLASS SHARE PERFORMANCE AND RESTATED CLASS A SHARE
PERFORMANCE (FOR PERIODS PRIOR TO THE INCEPTION DATE OF INSTITUTIONAL CLASS
SHARES) AT NET ASSET VALUE (NAV) AND REFLECT THE HIGHER RULE 12B-1 FEES
APPLICABLE TO CLASS A SHARES. CLASS A SHARES' INCEPTION DATE IS AUGUST 31, 2000.
INSTITUTIONAL CLASS SHARES HAVE NO SALES CHARGE; THEREFORE, PERFORMANCE IS
AT NAV. PERFORMANCE OF INSTITUTIONAL CLASS SHARES WILL DIFFER FROM PERFORMANCE
OF OTHER SHARE CLASSES PRIMARILY DUE TO DIFFERING SALES CHARGES AND CLASS
EXPENSES.
A REDEMPTION FEE OF 2% WILL BE IMPOSED ON CERTAIN REDEMPTIONS OR EXCHANGES
OUT OF THE FUND WITHIN 30 DAYS OF PURCHASE. EXCEPTIONS TO THE REDEMPTION FEE ARE
LISTED IN THE FUND'S PROSPECTUS.
HAD THE ADVISOR NOT WAIVED FEES AND/OR REIMBURSED EXPENSES IN THE PAST,
PERFORMANCE WOULD HAVE BEEN LOWER.
PLEASE NOTE THAT PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. MORE
RECENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. ALL RETURNS ASSUME
REINVESTMENT OF DISTRIBUTIONS AT NAV. INVESTMENT RETURN AND PRINCIPAL VALUE WILL
FLUCTUATE SO YOUR SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. SEE THE FULL REPORT FOR INFORMATION ON COMPARATIVE BENCHMARKS.
PLEASE CONSULT YOUR FUND PROSPECTUS FOR MORE INFORMATION. FOR THE MOST CURRENT
MONTH-END PERFORMANCE, PLEASE CALL 800-451-4246 OR VISIT AIMINVESTMENTS.COM.
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.
[AIM INVESTMENTS LOGO]
-- REGISTERED TRADEMARK --
AIMINVESTMENTS.COM ISC-INS-1 A I M Distributors, Inc.
Information about your Fund's expenses
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the Fund, you incur ongoing costs, including management fees
and other Fund expenses. This example is intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with ongoing costs of investing in other mutual funds. The example is based on
an investment of $1,000 invested at the beginning of the period and held for the
entire period July 1, 2006, through December 31, 2006.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return. The Fund's actual cumulative total return after expenses for the six
months ended December 31, 2006 appears in the table on the front of this
supplement.
The hypothetical account values and expenses may not be used to estimate
the actual ending account balance or expenses you paid for the period. You may
use this information to compare the ongoing costs of investing in the Fund and
other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight
your ongoing costs only. Therefore, the hypothetical information is useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds.
HYPOTHETICAL
(5% ANNUAL RETURN
ACTUAL BEFORE EXPENSES
--------------------------- ---------------------------
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/06) (12/31/06)(1) PERIOD(2) (12/31/06) PERIOD(2) RATIO
- ----- ------------- ------------- ----------- ------------- ----------- ----------
Institutional $1,000.00 $1,160.90 $6.21 $1,019.46 $5.80 1.14%
(1) The actual ending account value is based on the actual total return of the
Fund for the period July 1, 2006, through December 31, 2006, 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, 2006, 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 ISC-INS-1 A I M Distributors, Inc.
AIM International Small Company Fund
SCHEDULE OF INVESTMENTS
December 31, 2006
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------
FOREIGN COMMON STOCKS & OTHER EQUITY
INTERESTS-93.13%
AUSTRALIA-4.81%
Australian Wealth Management Ltd. (Asset
Management & Custody Banks) 3,342,000 $ 6,648,200
- -------------------------------------------------------------------------
Bradken Ltd. (Construction & Farm Machinery &
Heavy Trucks)(a) 1,654,969 10,434,362
- -------------------------------------------------------------------------
CSL Ltd. (Biotechnology)(a) 123,600 6,356,015
- -------------------------------------------------------------------------
MFS Ltd. (Other Diversified Financial
Services) 927,585 3,382,928
- -------------------------------------------------------------------------
United Group Ltd. (Construction &
Engineering)(a) 605,000 6,637,695
- -------------------------------------------------------------------------
Zinifex Ltd. (Diversified Metals & Mining)(a) 551,700 8,164,375
=========================================================================
41,623,575
=========================================================================
AUSTRIA-1.44%
Andritz A.G. (Industrial Machinery) 57,600 12,494,424
=========================================================================
BELGIUM-0.57%
EVS Broadcast Equipment S.A. (Communications
Equipment)(a) 86,160 4,978,289
=========================================================================
BRAZIL-7.89%
All America Latina Logistica
(Railroads)(a)(b) 967,700 9,958,885
- -------------------------------------------------------------------------
American Banknote S.A. (Commercial
Printing)(a) 629,900 5,013,387
- -------------------------------------------------------------------------
American Banknote S.A. (Commercial Printing)
(Acquired 04/26/06; Cost $2,603,647)(a)(c) 325,900 2,593,845
- -------------------------------------------------------------------------
Equatorial Energia S.A. (Electric
Utilities)(a)(d)(e) 761,900 6,684,353
- -------------------------------------------------------------------------
Equatorial Energia S.A. (Electric Utilities)
(Acquired 03/31/06; Cost
$2,726,949)(a)(c)(d) 411,600 3,611,077
- -------------------------------------------------------------------------
Gafisa S.A. (Homebuilding)(a)(e) 664,300 9,887,853
- -------------------------------------------------------------------------
Klabin Segall S.A. (Real Estate Management &
Development) (Acquired 10/06/06; Cost
$4,810,992)(c)(e) 693,280 5,810,606
- -------------------------------------------------------------------------
Localiza Rent a Car S.A. (Trucking)(a) 221,800 6,642,517
- -------------------------------------------------------------------------
OdontoPrev S.A. (Health Care Services)(e) 264,900 4,241,972
- -------------------------------------------------------------------------
OdontoPrev S.A. (Health Care Services)
(Acquired 11/30/06; Cost $1,805,033)(c)(e) 139,600 2,235,483
- -------------------------------------------------------------------------
Perdigao S.A. (Packaged Foods & Meats)(a) 597,600 8,260,114
- -------------------------------------------------------------------------
Profarma Distribuidora de Produtos
Farmaceuticos S.A. (Construction &
Engineering)(e) 181,700 2,501,278
- -------------------------------------------------------------------------
Profarma Distribuidora de Produtos
Farmaceuticos S.A. (Pharmaceuticals)
(Acquired 10/26/06; Cost $700,315)(c)(e) 60,400 831,465
=========================================================================
68,272,835
=========================================================================
CANADA-15.95%
Aastra Technologies Ltd. (Communications
Equipment)(e) 152,700 4,702,895
- -------------------------------------------------------------------------
AKITA Drilling Ltd.-Class A (Oil & Gas
Drilling) 161,640 2,308,846
- -------------------------------------------------------------------------
</Table>
<Table>
SHARES VALUE
- -------------------------------------------------------------------------
<Caption>
CANADA-(CONTINUED)
Aspreva Pharmaceuticals Corp.
(Pharmaceuticals)(e) 182,329 $ 3,741,391
- -------------------------------------------------------------------------
Aur Resources Inc. (Diversified Metals &
Mining) 364,030 7,576,346
- -------------------------------------------------------------------------
Badger Income Fund (Construction &
Engineering) 194,840 2,512,285
- -------------------------------------------------------------------------
BMTC Group, Inc.-Class A (Homefurnishing
Retail) 147,564 2,229,316
- -------------------------------------------------------------------------
Bonnett's Energy Services Trust (Oil & Gas
Equipment & Services)(f) 638,300 8,597,186
- -------------------------------------------------------------------------
Canam Group Inc. (Steel) 291,200 2,313,312
- -------------------------------------------------------------------------
Canam Group Inc. (Steel) (Acquired 03/18/05;
Cost $2,870,694)(c) 600,000 4,766,439
- -------------------------------------------------------------------------
FirstService Corp. (Diversified Commercial &
Professional Services)(e) 181,600 4,206,408
- -------------------------------------------------------------------------
Groupe Laperriere & Verreault Inc.-Class A
(Industrial Machinery)(e) 296,600 7,760,734
- -------------------------------------------------------------------------
HudBay Minerals, Inc. (Diversified Metals &
Mining)(e) 355,700 6,664,512
- -------------------------------------------------------------------------
Kingsway Financial Services Inc. (Property &
Casualty Insurance) 352,000 7,341,072
- -------------------------------------------------------------------------
Lundin Mining Corp. (Diversified Metals &
Mining)(e) 241,504 8,908,911
- -------------------------------------------------------------------------
Reitmans (Canada) Ltd.-Class A (Apparel
Retail) 555,000 10,565,307
- -------------------------------------------------------------------------
Sherritt International Corp. (Diversified
Metals & Mining) 725,500 7,711,530
- -------------------------------------------------------------------------
Stoneham Drilling Trust (Oil & Gas
Drilling)(f) 499,000 8,514,657
- -------------------------------------------------------------------------
Total Energy Trust Ltd. (Oil & Gas Equipment
& Services) 791,490 8,107,400
- -------------------------------------------------------------------------
Transat A.T. Inc.-Class A (Airlines)(f) 341,600 9,374,842
- -------------------------------------------------------------------------
Trican Well Service Ltd. (Oil & Gas Equipment
& Services) 762,480 13,291,806
- -------------------------------------------------------------------------
Wajax Income Fund (Industrial Machinery) 230,870 6,783,595
=========================================================================
137,978,790
=========================================================================
CHINA-2.75%
Baoye Group Co. Ltd.-Class H (Construction &
Engineering) 416,000 695,285
- -------------------------------------------------------------------------
Century Sunshine Ecological Technology
Holdings Ltd. (Fertilizers & Agricultural
Chemicals)(e) 49,175,000 9,104,023
- -------------------------------------------------------------------------
Samson Holding Ltd. (Home Furnishings) 11,344,000 6,271,352
- -------------------------------------------------------------------------
Xinyi Glass Holding Co. Ltd. (Auto Parts &
Equipment)(a) 18,206,000 7,733,702
=========================================================================
23,804,362
=========================================================================
</Table>
F-1
AIM International Small Company Fund
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------
FINLAND-0.75%
Nokian Renkaat Oyj (Tires & Rubber) 318,000 $ 6,515,909
=========================================================================
FRANCE-1.03%
Euler Hermes S.A. (Property & Casualty
Insurance) 61,420 8,887,437
=========================================================================
GERMANY-0.69%
Bijou Brigitte Modische Accessories A.G.
(Apparel, Accessories & Luxury Goods)(a) 30,448 6,007,058
=========================================================================
GREECE-5.31%
Intralot S.A. (Casinos & Gaming)(a) 505,300 17,676,090
- -------------------------------------------------------------------------
Jumbo S.A. (Leisure Products) 459,000 10,047,393
- -------------------------------------------------------------------------
Mytilineos Holdings S.A. (Diversified Metals
& Mining)(a) 239,000 9,464,081
- -------------------------------------------------------------------------
Titan Cement Co. S.A. (Construction
Materials)(a) 161,200 8,771,291
=========================================================================
45,958,855
=========================================================================
HONG KONG-4.47%
First Pacific Co. Ltd. (Multi-Sector
Holdings)(a) 17,606,000 9,133,186
- -------------------------------------------------------------------------
Hengan International Group Co. Ltd. (Personal
Products)(a) 3,378,000 8,365,135
- -------------------------------------------------------------------------
Hopewell Holdings Ltd. (Highways &
Railtracks)(a) 2,443,000 8,554,544
- -------------------------------------------------------------------------
Neo-Neon Holdings Ltd. (Electronic Equipment
Manufacturers) (Acquired 12/08/06; Cost
$476,400)(c)(e) 531,000 507,236
- -------------------------------------------------------------------------
Paliburg Holdings Ltd. (Hotels, Resorts &
Cruise Lines)(a) 149,726,000 6,036,984
- -------------------------------------------------------------------------
Regal Hotels International Holdings Ltd.
(Hotels, Resorts & Cruise Lines)(a) 68,318,000 6,038,926
- -------------------------------------------------------------------------
Regal Real Estate Investment Trust-Rts.
(Hotels, Resorts & Cruise Lines)(g)(h)(i) 683,180 0
=========================================================================
38,636,011
=========================================================================
INDONESIA-1.91%
PT Ciputra Surya Tbk (Real Estate Management
& Development) 29,905,000 3,258,676
- -------------------------------------------------------------------------
PT United Tractors Tbk (Construction & Farm
Machinery & Heavy Trucks) 9,960,000 7,253,905
- -------------------------------------------------------------------------
Total Bangun Persada (Real Estate Management
& Development)(e) 83,000,000 5,998,777
=========================================================================
16,511,358
=========================================================================
IRELAND-1.66%
FBD Holdings PLC (Multi-Line Insurance)(a) 144,900 7,886,074
- -------------------------------------------------------------------------
Paddy Power PLC (Casinos & Gaming)(a) 325,000 6,457,001
=========================================================================
14,343,075
=========================================================================
</Table>
<Table>
SHARES VALUE
- -------------------------------------------------------------------------
<Caption>
JAPAN-1.58%
Argo Graphics Inc. (IT Consulting & Other
Services)(a) 78,000 $ 1,144,975
- -------------------------------------------------------------------------
EXEDY Corp. (Auto Parts & Equipment)(a) 221,700 6,843,736
- -------------------------------------------------------------------------
Takeuchi Mfg. Co., Ltd. (Construction & Farm
Machinery & Heavy Trucks)(a) 122,000 5,662,441
=========================================================================
13,651,152
=========================================================================
MALAYSIA-2.50%
IGB Corp. Berhad (Real Estate Management &
Development) 15,549,000 7,933,163
- -------------------------------------------------------------------------
Lion Diversified Holdings Berhad (Department
Stores) 7,591,000 13,662,940
=========================================================================
21,596,103
=========================================================================
MEXICO-3.70%
Corporacion Moctezuma, S.A. de C.V.
(Construction Materials) 590,700 1,640,378
- -------------------------------------------------------------------------
Corporacion Moctezuma, S.A. de C.V.
(Construction Materials) (Acquired
03/01/06; Cost $3,641,358)(c) 1,948,400 5,410,719
- -------------------------------------------------------------------------
Grupo Financiero Banorte S.A. de C.V.-Class O
(Diversified Banks) 2,399,100 9,380,541
- -------------------------------------------------------------------------
TV Azteca, S.A. de C.V.-CPO (Broadcasting &
Cable TV) 7,833,000 5,960,128
- -------------------------------------------------------------------------
Urbi, Desarrollos Urbanos, S.A. de C.V.
(Homebuilding)(e) 2,666,400 9,625,993
=========================================================================
32,017,759
=========================================================================
NETHERLANDS-5.36%
Aalberts Industries N.V. (Industrial
Machinery)(a) 146,621 12,676,996
- -------------------------------------------------------------------------
Koninklijke BAM Groep N.V. (Construction &
Engineering)(a) 393,564 7,621,074
- -------------------------------------------------------------------------
Koninklijke BAM Groep N.V. (Construction &
Engineering) (Acquired 12/10/04; Cost
$564,459)(a)(c) 65,000 1,258,677
- -------------------------------------------------------------------------
Smit Internationale N.V. (Marine Ports &
Services)(a) 130,800 7,037,988
- -------------------------------------------------------------------------
USG People N.V. (Human Resource & Employment
Services)(a) 408,884 17,771,057
=========================================================================
46,365,792
=========================================================================
NORWAY-9.72%
Acta Holding A.S.A. (Diversified Capital
Markets)(a) 2,132,200 11,244,236
- -------------------------------------------------------------------------
Cermaq A.S.A. (Packaged Foods & Meats) 715,375 10,441,839
- -------------------------------------------------------------------------
Pan Fish A.S.A. (Packaged Foods & Meats)
(Acquired 03/07/06; Cost
$8,014,658)(a)(c)(e) 12,190,000 11,140,997
- -------------------------------------------------------------------------
Petroleum Geo-Services A.S.A. (Oil & Gas
Equipment & Services)(a)(e) 773,400 18,098,437
- -------------------------------------------------------------------------
Prosafe A.S.A. (Oil & Gas Equipment &
Services) 1,040,660 14,772,499
- -------------------------------------------------------------------------
</Table>
F-2
AIM International Small Company Fund
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------
NORWAY-(CONTINUED)
Sinvest A.S.A. (Oil & Gas Drilling)(a)(e) 298,100 $ 6,388,035
- -------------------------------------------------------------------------
TGS Nopec Geophysical Co. A.S.A. (Oil & Gas
Equipment & Services)(e) 579,120 11,982,850
=========================================================================
84,068,893
=========================================================================
PHILIPPINES-1.94%
First Gen Corp. (Independent Power Producers
& Energy Traders) 5,047,800 5,819,235
- -------------------------------------------------------------------------
Globe Telecom, Inc. (Wireless
Telecommunication Services)(a) 215,700 5,432,318
- -------------------------------------------------------------------------
Manila Water Co. (Water Utilities) 26,550,000 5,092,226
- -------------------------------------------------------------------------
PNOC Energy Development Corp. (Independent
Power Producers & Energy Traders) (Acquired
12/04/06; Cost $287,238)(c)(e) 4,405,000 435,916
=========================================================================
16,779,695
=========================================================================
PORTUGAL-0.39%
Mota-Engil, SGPS, S.A. (Construction &
Engineering)(a) 500,000 3,389,907
=========================================================================
SINGAPORE-0.55%
Gems TV Holdings Ltd. (Apparel, Accessories &
Luxury Goods)(e) 3,601,000 3,217,065
- -------------------------------------------------------------------------
Gems TV Holdings Ltd. (Apparel, Accessories &
Luxury Goods) (Acquired 11/03/06; Cost
$1,187,460)(c)(e) 1,699,000 1,517,855
=========================================================================
4,734,920
=========================================================================
SOUTH AFRICA-0.79%
Massmart Holdings Ltd. (Hypermarkets & Super
Centers)(a) 684,600 6,827,969
=========================================================================
SOUTH KOREA-6.40%
Cheil Communications Inc. (Advertising) 23,670 5,879,323
- -------------------------------------------------------------------------
Daegu Bank (Regional Banks)(a) 365,300 6,225,928
- -------------------------------------------------------------------------
Hyundai Department Store Co., Ltd.
(Department Stores)(a) 95,270 8,564,451
- -------------------------------------------------------------------------
Hyundai Mipo Dockyard Co., Ltd. (Construction
& Farm Machinery & Heavy Trucks)(a) 48,800 6,255,516
- -------------------------------------------------------------------------
Joongang Construction Co., Ltd. (Construction
& Engineering)(a) 248,810 4,048,388
- -------------------------------------------------------------------------
Lotte Confectionery Co., Ltd. (Packaged Foods
& Meats)(a) 3,598 4,690,280
- -------------------------------------------------------------------------
Qrix Communications Inc. (Broadcasting &
Cable TV)(a) 88,500 6,937,196
- -------------------------------------------------------------------------
Sung Kwang Bend Co., Ltd. (Building
Products)(a) 574,678 4,897,251
- -------------------------------------------------------------------------
TechnoSemiChem Co., Ltd. (Commodity
Chemicals)(a) 367,455 7,836,859
=========================================================================
55,335,192
=========================================================================
SWITZERLAND-0.72%
Banque Cantonale Vaudoise (Diversified Banks) 12,918 6,223,115
=========================================================================
</Table>
<Table>
SHARES VALUE
- -------------------------------------------------------------------------
<Caption>
TAIWAN-2.13%
Hung Poo Real Estate Development Corp. (Real
Estate Management & Development)(a) 3,241,000 $ 3,830,752
- -------------------------------------------------------------------------
Makalot Industrial Co., Ltd. (Textiles)(a) 3,797,000 8,255,476
- -------------------------------------------------------------------------
St. Shine Optical Co., Ltd. (Health Care
Supplies)(a) 1,378,650 6,327,158
=========================================================================
18,413,386
=========================================================================
THAILAND-1.47%
Bangkok Expressway PCL (Highways &
Railtracks)(a) 7,437,500 5,056,509
- -------------------------------------------------------------------------
Siam Commercial Bank PCL (Diversified
Banks)(a) 4,731,000 7,691,248
=========================================================================
12,747,757
=========================================================================
UNITED KINGDOM-6.65%
Amlin PLC (Multi-Line Insurance)(a) 1,664,400 10,536,003
- -------------------------------------------------------------------------
Findel PLC (Catalog Retail)(a) 290,200 4,055,194
- -------------------------------------------------------------------------
Hikma Pharmaceuticals PLC (Pharmaceuticals)
(Acquired 11/01/05; Cost $3,594,014)(c) 700,000 5,007,523
- -------------------------------------------------------------------------
Homeserve PLC (Diversified Commercial &
Professional Services)(a) 350,400 12,936,074
- -------------------------------------------------------------------------
Informa PLC (Publishing)(a) 782,859 9,124,230
- -------------------------------------------------------------------------
Mitie Group PLC (Diversified Commercial &
Professional Services)(a) 2,469,500 12,008,282
- -------------------------------------------------------------------------
NDS Group PLC-ADR (Application Software)(e) 79,200 3,824,568
=========================================================================
57,491,874
=========================================================================
Total Foreign Common Stocks & Other
Equity Interests (Cost $522,317,027) 805,655,492
=========================================================================
PREFERRED STOCKS-2.75%
BRAZIL-1.95%
Net Servicos de Comunicacao S.A.-Pfd.
(Broadcasting & Cable TV)(a)(e) 839,913 10,034,303
- -------------------------------------------------------------------------
Duratex S.A.-Pfd. (Building Products)(a) 442,300 6,833,924
=========================================================================
16,868,227
=========================================================================
GERMANY-0.80%
Fuchs Petrolub A.G.-Pfd. (Commodity
Chemicals)(a) 91,000 6,965,910
=========================================================================
Total Preferred Stocks (Cost $15,530,059) 23,834,137
=========================================================================
MONEY MARKET FUNDS-2.45%
Liquid Assets Portfolio-Institutional
Class(j) 10,576,560 10,576,560
- -------------------------------------------------------------------------
Premier Portfolio-Institutional Class(j) 10,576,560 10,576,560
=========================================================================
Total Money Market Funds (Cost
$21,153,120) 21,153,120
=========================================================================
TOTAL INVESTMENTS-98.33% (Cost $559,000,206) 850,642,749
=========================================================================
OTHER ASSETS LESS LIABILITIES-1.67% 14,455,861
=========================================================================
NET ASSETS-100.00% $865,098,610
_________________________________________________________________________
=========================================================================
</Table>
F-3
AIM International Small Company Fund
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
CPO - Certificates of Ordinary Participation
Pfd. - Preferred
Rts. - Rights
</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, 2006 was $466,996,614,
which represented 53.98% of the Fund's Net Assets. See Note 1A.
(b) Each unit represents one common share and four preferred shares.
(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 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, 2006 was
$45,127,838, which represented 5.22% of the Fund's Net Assets. Unless
otherwise indicated, these securities are not considered to be illiquid.
(d) Each unit represents one ordinary share and two preferred shares.
(e) Non-income producing security.
(f) Affiliated company. The Investment Company Act of 1940 defines affiliates as
those companies in which a fund holds 5% or more of the outstanding voting
securities. The Fund has not owned enough of the outstanding voting
securities of the issuer to have control (as defined in the Investment
Company Act of 1940) of that issuer. The aggregate value of these securities
as of December 31, 2006 was $26,486,685, which represented 3.06% of the
Fund's Net Assets. See Note 3.
(g) 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, 2006 represented 0.00% of the Fund's Net Assets. See Note 1A.
(h) 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, 2006 represented 0.00% of the
Fund's Net Assets.
(i) Non-income producing security acquired through a corporate action.
(j) 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-4
AIM International Small Company Fund
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2006
<Table>
ASSETS:
Investments, at value (cost $508,215,641) $803,002,944
- -----------------------------------------------------------
Investments in affiliates (cost $50,784,565) 47,639,805
===========================================================
Total investments (cost $559,000,206) 850,642,749
===========================================================
Foreign currencies, at value (cost
$10,459,901) 10,496,045
- -----------------------------------------------------------
Receivables for:
Investments sold 4,423,328
- -----------------------------------------------------------
Fund shares sold 3,342,792
- -----------------------------------------------------------
Dividends 1,801,389
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 27,512
- -----------------------------------------------------------
Other assets 80,003
===========================================================
Total assets 870,813,818
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 3,434,185
- -----------------------------------------------------------
Fund shares reacquired 1,285,840
- -----------------------------------------------------------
Trustee deferred compensation and
retirement plans 48,313
- -----------------------------------------------------------
Accrued distribution fees 311,227
- -----------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 5,582
- -----------------------------------------------------------
Accrued transfer agent fees 249,514
- -----------------------------------------------------------
Accrued operating expenses 380,547
===========================================================
Total liabilities 5,715,208
===========================================================
Net assets applicable to shares outstanding $865,098,610
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $552,204,981
- -----------------------------------------------------------
Undistributed net investment income 2,090,873
- -----------------------------------------------------------
Undistributed net realized gain from
investment securities and foreign
currencies 19,118,861
- -----------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 291,683,895
===========================================================
$865,098,610
___________________________________________________________
===========================================================
NET ASSETS:
Class A $635,318,063
___________________________________________________________
===========================================================
Class B $ 86,235,514
___________________________________________________________
===========================================================
Class C $124,160,811
___________________________________________________________
===========================================================
Institutional Class $ 19,384,222
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 26,326,168
___________________________________________________________
===========================================================
Class B 3,690,035
___________________________________________________________
===========================================================
Class C 5,314,187
___________________________________________________________
===========================================================
Institutional Class 802,926
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 24.13
- -----------------------------------------------------------
Offering price per share
(Net asset value of $24.13 divided by
94.50%) $ 25.53
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 23.37
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 23.36
___________________________________________________________
===========================================================
Institutional Class:
Net asset value and offering price per
share $ 24.14
___________________________________________________________
===========================================================
</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, 2006
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $1,838,379) $ 16,441,516
- --------------------------------------------------------------------------
Dividends from affiliates (net of foreign withholding taxes
of $217,361) 2,686,353
- --------------------------------------------------------------------------
Interest 22,498
==========================================================================
Total investment income 19,150,367
==========================================================================
EXPENSES:
Advisory fees 7,417,339
- --------------------------------------------------------------------------
Administrative services fees 209,578
- --------------------------------------------------------------------------
Custodian fees 1,103,657
- --------------------------------------------------------------------------
Distribution fees:
Class A 1,427,103
- --------------------------------------------------------------------------
Class B 834,152
- --------------------------------------------------------------------------
Class C 1,173,502
- --------------------------------------------------------------------------
Transfer agent fees -- A, B and C 1,253,518
- --------------------------------------------------------------------------
Transfer agent fees -- Institutional 1,092
- --------------------------------------------------------------------------
Trustees' and officer's fees and benefits 36,818
- --------------------------------------------------------------------------
Other 334,244
==========================================================================
Total expenses 13,791,003
==========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (451,831)
==========================================================================
Net expenses 13,339,172
==========================================================================
Net investment income 5,811,195
==========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain from:
Investment securities (net of tax on the sale of foreign
investments of $53,005 -- Note 1J) 132,963,080
- --------------------------------------------------------------------------
Foreign currencies 259,543
==========================================================================
133,222,623
==========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (net of estimated tax on foreign
investments held of $(8,267) -- Note 1J) 102,055,646
- --------------------------------------------------------------------------
Foreign currencies (27,314)
==========================================================================
102,028,332
==========================================================================
Net gain from investment securities and foreign currencies 235,250,955
==========================================================================
Net increase in net assets resulting from operations $241,062,150
__________________________________________________________________________
==========================================================================
</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, 2006 and 2005
<Table>
<Caption>
2006 2005
- -------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 5,811,195 $ 1,062,109
- -------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 133,222,623 37,991,882
- -------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and foreign currencies 102,028,332 105,183,305
===========================================================================================
Net increase in net assets resulting from operations 241,062,150 144,237,296
===========================================================================================
Distributions to shareholders from net investment income:
Class A (5,297,354) (1,100,904)
- -------------------------------------------------------------------------------------------
Class B (43,484) --
- -------------------------------------------------------------------------------------------
Class C (62,515) --
- -------------------------------------------------------------------------------------------
Institutional Class (217,022) (1,979)
===========================================================================================
Total distributions from net investment income (5,620,375) (1,102,883)
===========================================================================================
Distributions to shareholders from net realized gains:
Class A (89,560,807) (16,860,092)
- -------------------------------------------------------------------------------------------
Class B (12,573,535) (2,943,799)
- -------------------------------------------------------------------------------------------
Class C (18,076,517) (3,937,571)
- -------------------------------------------------------------------------------------------
Institutional Class (2,563,644) (26,076)
===========================================================================================
Total distributions from net realized gains (122,774,503) (23,767,538)
===========================================================================================
Decrease in net assets resulting from distributions (128,394,878) (24,870,421)
===========================================================================================
Share transactions-net:
Class A 102,177,107 108,444,997
- -------------------------------------------------------------------------------------------
Class B (4,011,685) 13,612,615
- -------------------------------------------------------------------------------------------
Class C 3,549,363 36,376,030
- -------------------------------------------------------------------------------------------
Institutional Class 18,627,116 950,433
===========================================================================================
Net increase in net assets resulting from share
transactions 120,341,901 159,384,075
===========================================================================================
Net increase in net assets 233,009,173 278,750,950
===========================================================================================
NET ASSETS:
Beginning of year 632,089,437 353,338,487
===========================================================================================
End of year (including undistributed net investment income
of $2,090,873 and $(602,393), respectively) $ 865,098,610 $632,089,437
___________________________________________________________________________________________
===========================================================================================
</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, 2006
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 seven 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 long-term growth of capital.
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 or official closing price as of the close of
the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on that
day. Securities traded in the over-the-counter market are valued based on
the prices furnished by independent pricing services, in which case the
securities may be considered fair valued, or by market makers. 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 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 open-end and closed-end registered
investment companies that trade on an exchange are valued at the last sales
price or official closing price as of the close of the customary trading
session on the exchange where the security is principally traded.
Debt obligations (including convertible bonds) and unlisted equities 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.
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. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued at
the market quotations. Because trading hours for certain foreign securities
end before the close of the NYSE, closing market quotations may become
unreliable. If between the time trading ends on a particular security and
the close of the customary trading session on the NYSE, events occur that
are significant and may make the closing price unreliable, the Fund may
fair value the security. If 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 prices are not provided by any of the above
methods may be 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.
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
F-8
AIM International Small Company Fund
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 the 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 treat 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 to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that 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. ACCOUNTING ESTIMATES -- 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.
H. INDEMNIFICATIONS -- 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.
I. 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.
J. 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.
The Fund may invest in foreign securities which may be subject to foreign
taxes on income, gains on investments or currency repatriation, a portion
of which may be recoverable. Taxes are accrued based on the Fund's current
interpretation of tax regulations and rates that exist in the foreign
markets in which the Fund invests.
K. 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.
Fluctuations in the value of these contracts are recorded as unrealized
appreciation (depreciation) until the contracts are closed. When these
contracts are closed, realized gains (losses) are recorded. Realized and
unrealized gains and losses on these contracts are included in the
Statement of Operations. The Fund could be exposed to risk, which may be in
excess of the amount reflected in the Statement of Assets and Liabilities,
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 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, 2006, AIM waived advisory fees of $327,746.
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, 2006, AMVESCAP reimbursed expenses of the Fund in
the amount of $2,658.
The Trust has entered into a master administrative services agreement with
AIM pursuant to which the Fund has agreed to pay AIM for certain administrative
costs incurred in providing accounting services, to the Fund. For the year ended
December 31, 2006, expenses incurred under the agreement are shown in the
Statement of Operations as administrative services fees.
The Trust has entered into a transfer agency and service agreement with AIM
Investment Services, Inc. ("AIS") pursuant to which the Fund has agreed to pay
AIS a fee for providing transfer agency and shareholder services to the Fund and
reimburse AIS for certain expenses incurred by AIS in the course of providing
such services. AIS may make payments to intermediaries that provide omnibus
account services, sub-accounting services and/or networking services. All fees
payable by AIS to intermediaries that provide omnibus account services or
sub-accounting are charged back to the Fund, subject to certain limitations
approved by the Trust's Board of Trustees. For the year ended December 31, 2006,
expenses incurred under the agreement are shown in the Statement of Operations
as transfer agent fees.
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. Of the Plan payments, up to 0.25% of the average
daily net assets of each class of 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. For the year ended
December 31, 2006, expenses incurred under the Plans are shown in the Statement
of Operations as distribution fees.
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, 2006, ADI advised the Fund that it retained $66,545 in
front-end sales commissions from the sale of Class A shares and $7,063, $71,791
and $27,643 from Class A, Class B and Class C shares, respectively, for CDSC
imposed on redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS and/or ADI.
F-10
AIM International Small Company Fund
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to procedures approved 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, 2006.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 12/31/06 INCOME GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $ 7,770,836 $146,437,301 $(143,631,577) $ -- $10,576,560 $ 727,219 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-Institutional
Class -- 75,320,460 (64,743,900) -- 10,576,560 514,370 --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 7,770,836 82,220,666 (89,991,502) -- -- 213,052 --
===================================================================================================================================
Subtotal $15,541,672 $303,978,427 $(298,366,979) $ -- $21,153,120 $1,454,641 $ --
===================================================================================================================================
</Table>
INVESTMENTS IN OTHER AFFILIATES:
The Investment Company Act of 1940 defines affiliates as those issuances 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, 2006
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
ISSUER 12/31/05 AT COST FROM SALES (DEPRECIATION) 12/31/06 INCOME* GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Bonnett's
Energy
Services
Trust
(Canada)
(Cost
$12,071,842) $ 3,293,953 $ 8,972,103 $ -- $(3,668,870) $ 8,597,186 $ 756,207 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
Stoneham
Drilling
Trust
(Canada)
(Cost
$11,023,323) -- 11,023,323 -- (2,508,666) 8,514,657 421,675 --
- -----------------------------------------------------------------------------------------------------------------------------------
Transat A.T.
Inc.-Class A
(Canada)
(Cost
$6,536,280) -- 6,536,280 -- 2,838,562 9,374,842 53,830 --
===================================================================================================================================
Subtotal $ 3,293,953 $ 26,531,706 $ -- $(3,338,974) $26,486,685 $1,231,712 $ --
===================================================================================================================================
Total
Investments
in
Affiliates $18,835,625 $330,510,133 $(298,366,979) $(3,338,974) $47,639,805 $2,686,353 $ --
___________________________________________________________________________________________________________________________________
===================================================================================================================================
</Table>
* Net of foreign withholding taxes.
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions, (ii) custodian credits which result
from periodic overnight cash balances at the custodian and (iii) a one time
custodian fee credit to be used to offset future custodian fees. For the year
ended December 31, 2006, the Fund received credits from these arrangements,
which resulted in the reduction of the Fund's total expenses of $121,427.
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, 2006, the Fund paid legal fees of $6,372
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 Securities and Exchange Commission, 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
F-11
AIM International Small Company Fund
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, 2006, 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 bank 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 contractually agreed upon rate.
NOTE 7--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years December 31, 2006 and
2005 was as follows:
<Table>
<Caption>
2006 2005
- -----------------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $ 34,792,818 $ 2,445,092
- -----------------------------------------------------------------------------------------
Long-term capital gain 93,602,060 22,425,329
=========================================================================================
Total distributions $128,394,878 $24,870,421
_________________________________________________________________________________________
=========================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2006, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2006
- ----------------------------------------------------------------------------
Undistributed ordinary income $ 6,886,124
- ----------------------------------------------------------------------------
Undistributed long-term gain 14,758,768
- ----------------------------------------------------------------------------
Net unrealized appreciation -- investments 291,337,271
- ----------------------------------------------------------------------------
Temporary book/tax differences (44,212)
- ----------------------------------------------------------------------------
Post-October currency loss deferral (44,322)
- ----------------------------------------------------------------------------
Shares of beneficial interest 552,204,981
============================================================================
Total net assets $865,098,610
____________________________________________________________________________
============================================================================
</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 net unrealized
appreciation difference is attributable primarily to losses on wash sales. The
tax-basis net unrealized appreciation on investments amount includes
appreciation on foreign currencies of $41,352.
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 benefits.
The Fund does not have a capital loss carryforward as of December 31, 2006.
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the year ended December 31, 2006 was $506,883,330 and
$521,972,323, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $300,504,563
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (9,208,644)
==============================================================================
Net unrealized appreciation of investment securities $291,295,919
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $559,346,830.
</Table>
F-12
AIM International Small Company Fund
NOTE 9--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, passive foreign investment companies and foreign capital gain tax,
on December 31, 2006, undistributed net investment income was increased by
$2,502,446 and undistributed net realized gain was decreased by $2,502,446. This
reclassification had no effect on the net assets of the Fund.
NOTE 10--SHARE INFORMATION
The Fund currently offers four different classes of shares: Class A, Class B,
Class C and Institutional Class. 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 on or about the month-end which is at least eight years after
the date 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,
----------------------------------------------------------
2006(a) 2005
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 8,559,613 $ 208,963,602 12,734,728 $ 223,813,862
- ------------------------------------------------------------------------------------------------------------------------
Class B 543,420 12,911,084 1,431,141 24,129,493
- ------------------------------------------------------------------------------------------------------------------------
Class C 1,046,424 24,956,886 3,092,473 52,315,760
- ------------------------------------------------------------------------------------------------------------------------
Institutional Class(b) 653,962 16,208,677 46,064 923,638
========================================================================================================================
Issued as reinvestment of dividends:
Class A 3,511,862 83,547,180 760,981 15,354,062
- ------------------------------------------------------------------------------------------------------------------------
Class B 512,479 11,812,639 139,800 2,745,691
- ------------------------------------------------------------------------------------------------------------------------
Class C 723,391 16,666,945 187,018 3,671,151
- ------------------------------------------------------------------------------------------------------------------------
Institutional Class(b) 116,835 2,780,666 1,389 28,054
========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 174,636 4,328,444 167,278 3,006,246
- ------------------------------------------------------------------------------------------------------------------------
Class B (180,293) (4,328,444) (171,587) (3,006,246)
========================================================================================================================
Reacquired:(c)
Class A (7,933,240) (194,662,119) (7,583,280) (133,729,173)
- ------------------------------------------------------------------------------------------------------------------------
Class B (1,026,369) (24,406,964) (590,477) (10,256,323)
- ------------------------------------------------------------------------------------------------------------------------
Class C (1,612,948) (38,074,468) (1,147,180) (19,610,881)
- ------------------------------------------------------------------------------------------------------------------------
Institutional Class(b) (15,262) (362,227) (62) (1,259)
========================================================================================================================
5,074,510 $ 120,341,901 9,068,286 $ 159,384,075
________________________________________________________________________________________________________________________
========================================================================================================================
</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 26% 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 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 these entities are also owned beneficially.
(b) Institutional Class shares commenced sales on October 25, 2005.
(c) Amount is net of redemption fees of $32,386, $4,565, $6,502 and $638 for
Class A, Class B, Class C and Institutional Class shares, respectively,
for the year ended December 31, 2006 and $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.
NOTE 11--NEW ACCOUNTING STANDARD
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement for a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The provisions for FIN 48 are effective for
fiscal years beginning after December 15, 2006. Management is currently
assessing the impact of FIN 48, if any, on the Fund's financial statements and
currently intends for the Fund to adopt FIN 48 provisions during the fiscal year
ending December 31, 2007.
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,
--------------------------------------------------------------
2006 2005 2004 2003 2002
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 20.52 $ 16.17 $ 12.08 $ 6.91 $ 7.10
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.23(a) 0.07 (0.03)(a) (0.04)(a) (0.06)(a)
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 7.54 5.12 4.34 5.24 (0.13)
============================================================================================================================
Total from investment operations 7.77 5.19 4.31 5.20 (0.19)
============================================================================================================================
Less distributions:
Dividends from net investment income (0.23) (0.05) (0.00) (0.03) --
- ----------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (3.93) (0.79) (0.22) -- --
============================================================================================================================
Total distributions (4.16) (0.84) (0.22) (0.03) --
============================================================================================================================
Redemption fees added to shares of beneficial interest 0.00 0.00 0.00 0.00 --
============================================================================================================================
Net asset value, end of period $ 24.13 $ 20.52 $ 16.17 $ 12.08 $ 6.91
____________________________________________________________________________________________________________________________
============================================================================================================================
Total return(b) 38.18% 32.21% 35.83% 75.10% (2.68)%
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $635,318 $451,630 $257,579 $87,269 $9,703
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.54%(c) 1.61% 1.83% 2.00% 2.01%
- ----------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.58%(c) 1.64% 1.85% 2.35% 3.03%
============================================================================================================================
Ratio of net investment income (loss) to average net assets 0.93%(c) 0.42% (0.19)% (0.46)% (0.85)%
____________________________________________________________________________________________________________________________
============================================================================================================================
Portfolio turnover rate 69% 60% 87% 93% 118%
____________________________________________________________________________________________________________________________
============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $570,841,233.
<Table>
<Caption>
CLASS B
-----------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
2006 2005 2004 2003 2002
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 19.95 $ 15.81 $ 11.89 $ 6.84 $ 7.07
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.04(a) (0.05) (0.11)(a) (0.10)(a) (0.11)(a)
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 7.32 4.98 4.25 5.15 (0.12)
=========================================================================================================================
Total from investment operations 7.36 4.93 4.14 5.05 (0.23)
=========================================================================================================================
Less distributions:
Dividends from net investment income (0.01) -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (3.93) (0.79) (0.22) -- --
=========================================================================================================================
Total distributions (3.94) (0.79) (0.22) -- --
=========================================================================================================================
Redemption fees added to shares of beneficial interest 0.00 0.00 0.00 0.00 --
=========================================================================================================================
Net asset value, end of period $ 23.37 $ 19.95 $ 15.81 $ 11.89 $ 6.84
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(b) 37.20% 31.28% 34.94% 73.83% (3.25)%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $86,236 $76,626 $47,942 $16.543 $3,918
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.29%(c) 2.35% 2.48% 2.65% 2.66%
- -------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.33%(c) 2.38% 2.50% 3.00% 3.68%
=========================================================================================================================
Ratio of net investment income (loss) to average net assets 0.18%(c) (0.32)% (0.84)% (1.11)% (1.50)%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate 69% 60% 87% 93% 118%
_________________________________________________________________________________________________________________________
=========================================================================================================================
</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 $83,415,170.
F-14
AIM International Small Company Fund
NOTE 12--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS C
------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
2006 2005 2004 2003 2002
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 19.94 $ 15.81 $ 11.89 $ 6.83 $ 7.07
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.04(a) (0.05) (0.11)(a) (0.10)(a) (0.11)(a)
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 7.32 4.97 4.25 5.16 (0.13)
==========================================================================================================================
Total from investment operations 7.36 4.92 4.14 5.06 (0.24)
==========================================================================================================================
Less distributions:
Dividends from net investment income (0.01) -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (3.93) (0.79) (0.22) -- --
==========================================================================================================================
Total distributions (3.94) (0.79) (0.22) -- --
==========================================================================================================================
Redemption fees added to shares of beneficial interest 0.00 0.00 0.00 0.00 --
==========================================================================================================================
Net asset value, end of period $ 23.36 $ 19.94 $ 15.81 $11.89 $ 6.83
__________________________________________________________________________________________________________________________
==========================================================================================================================
Total return(b) 37.21% 31.22% 34.94% 74.09% (3.39)%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $124,161 $102,861 $47,818 $9,208 $2,849
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.29%(c) 2.35% 2.48% 2.65% 2.66%
- --------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.33%(c) 2.38% 2.50% 3.00% 3.68%
==========================================================================================================================
Ratio of net investment income (loss) to average net assets 0.18%(c) (0.32)% (0.84)% (1.11)% (1.50)%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Portfolio turnover rate 69% 60% 87% 93% 118%
__________________________________________________________________________________________________________________________
==========================================================================================================================
</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 $117,350,163.
<Table>
<Caption>
INSTITUTIONAL CLASS
-----------------------------------------
OCTOBER 25, 2005
(DATE OPERATIONS
YEAR ENDED COMMENCED) TO
DECEMBER 31, 2006 DECEMBER 31, 2005
- -------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 20.52 $18.73
- -------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.33(a) 0.03
- -------------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 7.55 2.61
=======================================================================================================
Total from investment operations 7.88 2.64
=======================================================================================================
Less distributions:
Dividends from net investment income (0.33) (0.06)
- -------------------------------------------------------------------------------------------------------
Distributions from net realized gains (3.93) (0.79)
=======================================================================================================
Total distributions (4.26) (0.85)
=======================================================================================================
Redemption fees added to shares of beneficial interest 0.00 0.00
=======================================================================================================
Net asset value, end of period $ 24.14 $20.52
_______________________________________________________________________________________________________
=======================================================================================================
Total return(b) 38.73% 14.19%
_______________________________________________________________________________________________________
=======================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $19,384 $ 972
_______________________________________________________________________________________________________
=======================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.14%(c) 1.18%(d)
- -------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.18%(c) 1.21%(d)
=======================================================================================================
Ratio of net investment income to average net assets 1.33%(c) 0.85%(d)
_______________________________________________________________________________________________________
=======================================================================================================
Portfolio turnover rate(e) 69% 60%
_______________________________________________________________________________________________________
=======================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $9,165,948.
(d) Annualized.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
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. 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 August 30, 2005, the West Virginia Office of the State
Auditor -- Securities Commission ("WVASC") issued a Summary Order to Cease and
Desist and Notice of Right to Hearing to AIM and ADI (Order No. 05-1318). The
WVASC makes findings of fact that AIM and ADI entered into certain arrangements
permitting market timing of the AIM Funds and failed to disclose these
arrangements in the prospectuses for such Funds, and conclusions of law to the
effect that AIM and ADI violated the West Virginia securities laws. The WVASC
orders AIM and ADI to cease any further violations and seeks to impose monetary
sanctions, including restitution to affected investors, disgorgement of fees,
reimbursement of investigatory, administrative and legal costs and an
"administrative assessment," to be determined by the Commissioner. Initial
research indicates that these damages could be limited or capped by statute.
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; 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
issues 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. Based on orders issued by the MDL Court,
all claims asserted against the AIM Funds that have been transferred to the MDL
Court have been dismissed, although certain Funds remain nominal defendants in
the Consolidated Amended Fund Derivative Complaint. On September 15, 2006, the
MDL Court granted the AMVESCAP defendants' motion to dismiss the Amended Class
Action Complaint for Violations of ERISA and dismissed such Complaint. The
plaintiff has commenced an appeal from that decision.
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 security
holders. IFG, AIM and ADI have advised the Fund that they 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.
F-16
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, 2006, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the periods indicated, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PRICEWATERHOUSECOOPERS LLP
February 20, 2007
Houston, Texas
F-17
AIM International Small Company Fund
TAX INFORMATION
Form 1099-DIV, Form 1042-S and other year-end tax information provide
shareholders with actual calendar year amounts that should be included in their
tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by
the Internal Revenue Code or to meet a specific state's requirement.
The Fund designates the following amounts or, if subsequently determined
to be different, the maximum amount allowable for its fiscal year ended December
31, 2006:
FEDERAL AND STATE INCOME TAX
<Table>
Long-Term Capital Gain Dividends $93,602,060
Qualified Dividend Income* 40.00%
</Table>
* The above percentage is based on ordinary income dividends paid to
shareholders during the Fund's fiscal year.
For the fiscal year ended 12/31/06, the amount of income received by the
Fund from sources within foreign countries and possessions of the United States
was $0.6319 per share (representing a total of $19,728,657). Of the foreign
source income, $0.6319 per share is considered qualified dividend income.
Foreign source income with the required adjustments for qualified dividends is
$0.2717 per share. The amount of taxes paid by the Fund to such countries for
the fiscal year end 12/31/06 was $0.0574 per share (representing a total of
$1,792,327). The following table provides a breakdown by country of ordinary
income received and foreign taxes paid by the Fund during the fiscal year ended
12/31/06. The per share amount is based on shareholders of record on December
14, 2006.
<Table>
<Caption>
FOREIGN SOURCE FOREIGN QUALIFIED ADJUSTED FOREIGN
COUNTRY INCOME % FOREIGN TAX PAID % DIVIDEND % SOURCE INCOME %
- --------------------------------------------------------------------------------------------------------------------------------
Australia 5.04% 0.00% 5.04% 5.26%
- --------------------------------------------------------------------------------------------------------------------------------
Austria 1.13% 1.62% 1.13% 1.18%
- --------------------------------------------------------------------------------------------------------------------------------
Belgium 1.08% 1.55% 1.08% 1.12%
- --------------------------------------------------------------------------------------------------------------------------------
Brazil 3.37% 3.86% 3.37% 3.51%
- --------------------------------------------------------------------------------------------------------------------------------
Canada 26.66% 37.90% 26.63% 27.75%
- --------------------------------------------------------------------------------------------------------------------------------
China 2.35% 0.00% 2.35% 2.44%
- --------------------------------------------------------------------------------------------------------------------------------
France 3.43% 4.92% 3.43% 3.57%
- --------------------------------------------------------------------------------------------------------------------------------
Germany 2.36% 3.39% 2.36% 2.46%
- --------------------------------------------------------------------------------------------------------------------------------
Greece 3.23% 0.00% 3.23% 3.36%
- --------------------------------------------------------------------------------------------------------------------------------
Hong Kong 4.97% 0.00% 4.97% 5.18%
- --------------------------------------------------------------------------------------------------------------------------------
India 0.07% 0.00% 0.07% 0.07%
- --------------------------------------------------------------------------------------------------------------------------------
Indonesia 1.45% 2.08% 1.45% 1.51%
- --------------------------------------------------------------------------------------------------------------------------------
Ireland 2.08% 0.00% 2.08% 2.17%
- --------------------------------------------------------------------------------------------------------------------------------
Japan 0.71% 0.51% 0.71% 0.74%
- --------------------------------------------------------------------------------------------------------------------------------
Malaysia 0.80% 0.00% 0.80% 0.83%
- --------------------------------------------------------------------------------------------------------------------------------
Mexico 4.60% 0.00% 4.60% 4.79%
- --------------------------------------------------------------------------------------------------------------------------------
The Netherlands 14.42% 20.74% 14.45% 15.03%
- --------------------------------------------------------------------------------------------------------------------------------
Norway 5.02% 7.21% 5.02% 5.23%
- --------------------------------------------------------------------------------------------------------------------------------
The Philippines 0.36% 0.80% 0.36% 0.38%
- --------------------------------------------------------------------------------------------------------------------------------
Portugal 0.36% 0.52% 0.36% 0.38%
- --------------------------------------------------------------------------------------------------------------------------------
Singapore 0.67% 0.00% 0.67% 0.70%
- --------------------------------------------------------------------------------------------------------------------------------
South Africa 1.22% 0.00% 1.22% 1.27%
- --------------------------------------------------------------------------------------------------------------------------------
South Korea 3.81% 5.94% 3.81% 3.97%
- --------------------------------------------------------------------------------------------------------------------------------
Switzerland 0.22% 0.31% 0.22% 0.23%
- --------------------------------------------------------------------------------------------------------------------------------
Taiwan 4.00% 7.34% 4.00% 1.36%
- --------------------------------------------------------------------------------------------------------------------------------
Thailand 1.31% 1.31% 1.31% 0.00%
- --------------------------------------------------------------------------------------------------------------------------------
United Kingdom 5.28% 0.00% 5.28% 5.51%
================================================================================================================================
TOTAL 100.00% 100.00% 100.00% 100.00%
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
NON-RESIDENT ALIEN SHAREHOLDERS
<Table>
Qualified Short-Term Gains $29,172,443
Qualified Interest Income** 2.45%
</Table>
** The above percentage is based on income dividends paid to
shareholders during the Fund's fiscal year.
ADDITIONAL NON-RESIDENT ALIEN SHAREHOLDER INFORMATION
The percentages of qualifying assets not subject to the U.S. estate tax for the
fiscal quarters ended March 31, 2006, June 30, 2006, September 30, 2006 and
December 31, 2006 were 99.86%, 99.55%, 99.76%, and 99.91%,
respectively.
F-18
AIM International Small Company Fund
TRUSTEES AND OFFICERS
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 110
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
NAME, YEAR OF BIRTH AND AND/ OTHER
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- --------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- --------------------------------------------------------------------------------------------------------------------------
Martin L. Flanagan(1) -- 1960 2007 Director, Chief Executive Officer and None
Trustee President, AMVESCAP PLC (parent of AIM
and a global investment management
firm); Chairman, A I M Advisors, Inc.
(registered investment advisor); and
Director, Chairman, Chief Executive
Officer and President, AVZ Inc. (holding
company); INVESCO North American
Holdings, Inc. (holding company);
Chairman and President, AMVESCAP Group
Services, Inc. (service provider);
Trustee, The AIM Family of Funds(R);
Chairman, Investment Company Institute;
and Member of Executive Board, SMU Cox
School of Business
Formerly: President, Co-Chief Executive
Officer, Co-President, Chief Operating
Officer and Chief Financial Officer,
Franklin Resources, Inc. (global
investment management organization)
- --------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(2) -- 1946 1992 Director and Chairman, A I M Management None
Trustee and Vice Chair Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC; Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm) and
Trustee and Vice Chair of The AIM Family
of Funds--Registered Trademark--
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);
Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and President
and Principal Executive Officer of The
AIM Family of Funds--Registered
Trademark--
- --------------------------------------------------------------------------------------------------------------------------
Philip A. Taylor(3) -- 1954 2006 Director, Chief Executive Officer and None
Trustee, President and President, A I M Management Group Inc.,
Principal AIM Mutual Fund Dealer Inc. (registered
Executive Officer broker dealer), AIM Funds Management
Inc. (registered investment advisor) and
1371 Preferred Inc. (holding company);
Director and President, A I M Advisors,
Inc., INVESCO Funds Group, Inc.
(registered investment advisor and
register transfer agent) and AIM GP
Canada Inc. (general partner for a
limited partnership); 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); Director, President and
Chairman, AVZ Callco Inc. (holding
company); AMVESCAP Inc. (holding
company) and AIM Canada Holdings Inc.
(holding company); Director and Chief
Executive Officer, AIM Trimark Corporate
Class Inc. (formerly AIM Trimark Global
Fund Inc.) (corporate mutual fund
company) and AIM Trimark Canada Fund
Inc. (corporate mutual fund company);
Trustee, President and Principal
Executive Officer of The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); Trustee and
Executive Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); and Manager,
Powershares Capital Management LLC
Formerly: President and Principal
Executive Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); Chairman, AIM
Canada Holdings, Inc.; Executive Vice
President and Chief Operations Officer,
AIM Funds Management Inc.; President,
AIM Trimark Global Fund Inc. and AIM
Trimark Canada Fund Inc.; and Director,
Trimark Trust (federally regulated
Canadian Trust Company)
- --------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- --------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- --------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
- --------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company
Formerly: Partner, law firm of Baker & (2 portfolios))
McKenzie
- --------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Founder, Green, Manning & Bunch Ltd., None
Trustee (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 (property casualty company)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and Director of various
affiliated Volvo companies; and
Director, Magellan Insurance Company
- --------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund
company); and Owner, Dos Angelos Ranch, (non-profit)
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
- --------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- --------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- --------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired Director, Mainstay VP Series
Trustee Formerly: Partner, Deloitte & Touche Funds, Inc. (21 portfolios)
- --------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Flanagan was appointed as Trustee of the Trust on February 24, 2007. Mr.
Flanagan is considered an interested person of the Trust because he is an
officer of the advisor to the Trust, and an officer and a director of
AMVESCAP PLC, parent of the advisor to the Trust.
(2) 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.
(3) Mr. Taylor 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.
F-19
TRUSTEES AND OFFICERS--(CONTINUED)
AIM International Small Company Fund
<Table>
<Caption>
TRUSTEE
NAME, YEAR OF BIRTH AND AND/ OTHER
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- --------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- --------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer N/A
Senior Vice President and of The AIM Family of Funds--Registered
Senior Officer Trademark--
Formerly: Director of Compliance and
Assistant General Counsel, ICON
Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- --------------------------------------------------------------------------------------------------------------------------
John M. Zerr -- 1962 2006 Director, Senior Vice President, N/A
Senior Vice President, Chief Secretary and General Counsel, A I M
Legal Officer and Secretary Management Group Inc. and A I M
Advisors, Inc.; Director, Vice President
and Secretary, INVESCO Distributors,
Inc.; Vice President and Secretary,
A I M Capital Management, Inc., AIM
Investment Services, Inc., and Fund
Management Company; Senior Vice
President and Secretary, A I M
Distributors, Inc.; Director and Vice
President, INVESCO Funds Group Inc.;
Senior Vice President, Chief Legal
Officer and Secretary of The AIM Family
of Funds--Registered Trademark--; and
Manager, Powershares Capital Management
LLC
Formerly: Chief Operating Officer,
Senior Vice President, General Counsel,
and Secretary, Liberty Ridge Capital,
Inc. (an investment adviser); Vice
President and Secretary, PBHG Funds (an
investment company); Vice President and
Secretary, PBHG Insurance Series Fund
(an investment company); General Counsel
and Secretary, Pilgrim Baxter Value
Investors (an investment adviser); Chief
Operating Officer, General Counsel and
Secretary, Old Mutual Investment
Partners (a broker-dealer); General
Counsel and Secretary, Old Mutual Fund
Services (an administrator); General
Counsel and Secretary, Old Mutual
Shareholder Services (a shareholder
servicing center); Executive Vice
President, General Counsel and
Secretary, Old Mutual Capital, Inc. (an
investment adviser); and Vice President
and Secretary, Old Mutual Advisors Funds
(an investment company)
- --------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Global Compliance Director, AMVESCAP N/A
Vice President PLC; and Vice President of The AIM
Family of Funds--Registered Trademark--
Formerly: Senior Vice President, A I M
Management Group Inc. (financial
services holding company); Senior Vice
President and Chief Compliance Officer,
A I M Advisors, Inc. and The AIM Family
of Funds--Registered Trademark--; Vice
President and Chief Compliance Officer,
A I M Capital Management, Inc. and A I M
Distributors, Inc.; Vice President, AIM
Investment Services, Inc. and Fund
Management Company; Senior Vice
President and Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; and Senior Vice President
and Compliance Director, Delaware
Investments Family of Funds
- --------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Senior Vice President and General
Vice President Counsel, AMVESCAP PLC; Director, INVESCO
Funds Group, Inc.; and Vice President of
The AIM Family of Funds--Registered
Trademark--
Formerly: Director, Vice President and N/A
General Counsel, Fund Management
Company; Director, Senior Vice
President, Secretary and General
Counsel, A I M Management Group Inc. and
A I M Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Senior Vice President, A I M
Distributors, Inc.; Vice President,
A I M Capital Management, Inc. and AIM
Investment Services, Inc.; Senior Vice
President, Chief Legal Officer and
Secretary of The AIM Family of
Funds--Registered Trademark--; Chief
Executive Officer and President, INVESCO
Funds Group, Inc.; and Senior Vice
President, and General Counsel, Liberty
Financial Companies, Inc. and Senior
Vice President and General Counsel
Liberty Funds Group, LLC
- --------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.; and Vice President,
Financial Officer and Treasurer and Principal Officer of The
Treasurer AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- --------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1992 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc. and The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); and
President and Principal Executive
Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust Only)
Formerly: Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only)
- --------------------------------------------------------------------------------------------------------------------------
Lance A. Rejsek -- 1967 2005 Anti-Money Laundering Compliance N/A
Anti-Money Laundering Officer, A I M Advisors, Inc., A I M
Compliance Officer Capital Management, Inc., A I M
Distributors, Inc., AIM Investment
Services, Inc., AIM Private Asset
Management, Inc., Fund Management
Company and The AIM Family of
Funds--Registered Trademark--
Formerly: Manager of the Fraud
Prevention Department, AIM Investment
Services, Inc.
- --------------------------------------------------------------------------------------------------------------------------
Todd L. Spillane -- 1958 2006 Senior Vice President, A I M Management N/A
Chief Compliance Officer Group Inc.; Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; 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: Global Head of Product
Development, AIG-Global Investment
Group, Inc.; Chief Compliance Officer
and Deputy General Counsel,
AIG-SunAmerica Asset Management; and
Chief Compliance Officer, Chief
Operating Officer and Deputy General
Counsel, American General Investment
Management
- --------------------------------------------------------------------------------------------------------------------------
</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, 51st & Frankel LLP P.O. Box 4739 225 Franklin Street
Floor 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Philadelphia, PA 19103-7599 Americas
New York, NY 10036-2714
</Table>
F-20
[EDELIVERY GO PAPERLESS AIMINVESTMENTS.COM/EDELIVERY GRAPHIC]
REGISTER FOR EDELIVERY
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e-mail. Once your quarterly statements, tax forms, fund reports, and
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WHY SIGN UP?
Register for eDelivery to:
- - save your Fund the cost of printing and postage.
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HOW DO I SIGN UP?
It's easy. Just follow these simple steps:
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2. Click on the "Service Center" tab.
3. Select "Register for eDelivery" and complete the consent process.
This AIM service is provided by AIM Investment Services, Inc.
If used after April 20, 2007, 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 and exchange-traded funds distributed by A I M
Distributors, Inc.
A I M Management Group Inc. has provided leadership in the investment management
industry since 1976. AIM Investment Services, Inc. is the transfer agent for the
products and services represented by AIM Investments. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $463 billion in assets under management as of December 31, 2006.
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.
AIMinvestments.com ISC-AR-1 A I M Distributors, Inc.
[YOUR GOALS. OUR SOLUTIONS.]
- REGISTERED TRADEMARK -
Mutual Exchange- Retirement Annuities College Separately Offshore Cash
Funds Traded Products Savings Managed Products Management
Funds Plans Accounts
[AIM INVESTMENTS LOGO]
- REGISTERED TRADEMARK -
AIM MID CAP BASIC VALUE FUND
Annual Report to Shareholders - December 31, 2006
[COVER GLOBE IMAGE]
DOMESTIC EQUITY
Mid-Cap Value
Table of Contents
Supplemental Information ................................................ 2
Letters to Shareholders ................................................. 3
Performance Summary ..................................................... 5
Management Discussion ................................................... 5
Fund Expenses ........................................................... 7
Long-term Fund Performance .............................................. 8
Approval of Advisory Agreement .......................................... 10
Schedule of Investments ................................................. F-1
Financial Statements .................................................... F-3
Notes to Financial Statements ........................................... F-6
Financial Highlights .................................................... F-13
Auditor's Report ........................................................ F-17
Tax Disclosures ......................................................... F-18
Trustees and Officers ................................................... F-19
[AIM INVESTMENT SOLUTIONS]
[GRAPHIC] [GRAPHIC] [GRAPHIC]
[DOMESTIC [INTERNATIONAL/ [SECTOR
EQUITY] GLOBAL EQUITY] EQUITY]
[GRAPHIC] [GRAPHIC] [GRAPHIC]
[FIXED [ALLOCATION [DIVERSIFIED
INCOME] SOLUTIONS] PORTFOLIOS]
[AIM INVESTMENTS LOGO]
- REGISTERED TRADEMARK -
AIM Mid Cap Basic Value Fund
AIM MID CAP BASIC VALUE FUND SEEKS LONG-TERM GROWTH OF CAPITAL.
- - Unless otherwise stated, information presented in this report is as of
December 31, 2006, and is based on total net assets.
ABOUT SHARE CLASSES
- - Class B shares are not available as an investment for retirement plans
maintained pursuant to Section 401 of the Internal Revenue Code, including
401(k) plans, money purchase pension plans and profit sharing plans. Plans
that had existing accounts invested in Class B shares prior to September
30, 2003, will continue to be allowed to make additional purchases.
- - Class R shares are available only to certain retirement plans. Please see
the prospectus for more information.
PRINCIPAL RISKS OF INVESTING IN THE FUND
- - Foreign securities have additional risks, including exchange rate changes,
political and economic upheaval, the relative lack of information about
these companies, relatively low market liquidity and the potential lack of
strict financial and accounting controls and standards.
- - Investing in a fund that invests in smaller companies involves risks not
associated with investing in more established companies, such as business
risk, stock price fluctuations and illiquidity.
- - Prices of equity securities change in response to many factors including
the historical and prospective earnings of the issuer, the value of its
assets, general economic conditions, interest rates, investor perceptions
and market liquidity.
- - The value of convertible securities in which the Fund invests may be
affected by market interest rates, the risk that the issuer may default on
interest or principal payments and the value of the underlying common stock
into which these securities may be converted.
- - Debt securities are particularly vulnerable to credit risk and interest
rate fluctuations.
- - Because a large percentage of the Fund's assets may be invested in a
limited number of securities, a change in the value of these securities
could significantly affect the value of your investment in the Fund.
ABOUT INDEXES USED IN THIS REPORT
- - The unmanaged LIPPER MID-CAP VALUE FUNDS INDEX represents an average of the
performance of the 30 largest mid-capitalization value funds tracked by
Lipper Inc., an independent mutual fund performance monitor.
- - The unmanaged RUSSELL MIDCAP --REGISTERED TRADEMARK-- VALUE INDEX is a
subset of the RUSSELL MIDCAP --REGISTERED TRADEMARK-- INDEX, which
represents the performance of the stocks of domestic mid-capitalization
companies; the Value subset measures the performance of Russell Midcap
companies with lower price/book ratios and lower forecasted growth values.
The Russell Midcap Value Index and the Russell Midcap Index are
trademarks/service marks of the Frank Russell Company. Russell --REGISTERED
TRADEMARK-- is a trademark of the Frank Russell Company.
- - The unmanaged STANDARD & POOR'S COMPOSITE INDEX OF 500 STOCKS (the S&P 500
--REGISTERED TRADEMARK-- Index) is an index of common stocks frequently
used as a general measure of U.S. stock market performance.
- - The Fund is not managed to track the performance of any particular index,
including the indexes defined here, and consequently, the performance of
the Fund may deviate significantly from the performance of the indexes.
- - A direct investment cannot be made in an index. Unless otherwise indicated,
index results include reinvested dividends, and they do not reflect sales
charges. Performance of an index of funds reflects fund expenses;
performance of a market index does not.
OTHER INFORMATION
- - The returns shown in management's discussion of Fund performance are based
on net asset values calculated for shareholder transactions. Generally
accepted accounting principles require adjustments to be made to the net
assets of the Fund at period end for financial reporting purposes, and as
such, the net asset values for shareholder transactions and the returns
based on those net asset values may differ from the net asset values and
returns reported in the Financial Highlights.
- - Industry classifications used in this report are generally according to the
Global Industry Classification Standard, which was developed by and is the
exclusive property and a service mark of Morgan Stanley Capital
International Inc. and Standard & Poor's.
- - The Chartered Financial Analyst --REGISTERED TRADEMARK-- (CFA --REGISTERED
TRADEMARK--) designation is a globally recognized standard for measuring
the competence and integrity of investment professionals.
The Fund provides a complete list of its holdings four times in each fiscal
year, at the quarter-ends. For the second and fourth quarters, the lists appear
in the Fund's semiannual and annual reports to shareholders. For the first and
third quarters, the Fund files the lists with the Securities and Exchange
Commission (SEC) on Form N-Q. The most recent list of portfolio holdings is
available at AIMinvestments.com. From our home page, click on Products &
Performance, then Mutual Funds, then Fund Overview. Select your Fund from the
drop-down menu and click on Complete Quarterly Holdings. Shareholders can also
look up the Fund's Forms N-Q on the SEC Web site at sec.gov. Copies of the
Fund's Forms N-Q may be reviewed and copied at the SEC Public Reference Room in
Washington, D.C. You can obtain information on the operation of the Public
Reference Room, including information about duplicating fee charges, by calling
202-942-8090 or 800-732-0330, or by electronic request at the following e-mail
address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-01540 and
002-27334.
Continued on page 9
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.
Fund NASDAQ Symbols
Class A Shares MDCAX
Class B Shares MDCBX
Class C Shares MDCVX
Class R Shares MDCRX
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIMINVESTMENTS.COM
2
AIM Mid Cap Basic Value Fund
[TAYLOR PHOTO]
Philip Taylor
Dear Shareholders of The AIM Family of Funds --REGISTERED TRADEMARK--:
I'm pleased to provide you with this report, which includes a discussion of how
your Fund was managed during the year ended December 31, 2006, and what factors
affected its performance. The following pages contain important information that
answers questions you may have about your investment.
In the United States and around the globe, most major stock market indexes
rose in 2006. U.S. stocks benefited from continued economic expansion and a
cessation of interest rate increases by the U.S. Federal Reserve, among other
factors. Global markets also enjoyed a good year, while all major fixed-income
indexes produced positive annual returns.
As I write this letter, the consensus outlook for the economy remains
positive. But we all know that markets are unpredictable and subject to sudden
changes based on geopolitical or economic developments. At AIM Investments
- --REGISTERED TRADEMARK--, we believe investors can do two things to deal with
short-term market fluctuations: maintain a long-term investment horizon and
maintain a diversified portfolio. AIM Investments offers a broad product line
that gives your financial advisor options to build a portfolio that's right for
you regardless of market conditions. Our product line includes a comprehensive
range of mutual funds, including domestic, global and international equity
funds; taxable and tax-exempt fixed-income funds; and a variety of allocation
portfolios--with risk and return characteristics to match your needs. We
maintain this extensive set of product solutions because we believe in the value
of diversified investment portfolios.
To provide you even more investment options, we recently launched AIM
Independence Funds, six new target maturity funds that combine AIM retail mutual
funds and PowerShares --REGISTERED TRADEMARK-- exchange-traded funds (ETFs) as
underlying investment options. ETFs are relatively low cost and potentially
tax-efficient funds that trade like individual stocks. These AIM Independence
Funds are intended to provide broad diversification and risk/reward levels that
change as your target retirement date nears. Your financial advisor can provide
you with more information about the new AIM Independence Funds.
At AIM Investments, we believe in the value of working with a trusted
financial advisor. Your financial advisor can help you build a diversified
investment portfolio, making periodic adjustments as market conditions and your
investment goals change. While there are no guarantees with any investment
program, a long-term plan matched to your financial goals, risk tolerance and
time horizon offers the potential to keep you and your investments on track--and
your financial advisor can provide you with valuable information and advice.
I also invite you to visit us on the Internet at AIMinvestments.com. Our
Web site allows you to access your account information, review fund performance,
learn more about your fund's investment strategies and obtain general investing
information--whenever it's convenient for you.
Our commitment to you
While we're committed to maintaining a comprehensive, easy-to-navigate Web site,
we're even more committed to providing excellent customer service. Our highly
trained, courteous client services representatives are eager to answer your
questions, provide you with product information or assist you with account
transactions. I encourage you to give us an opportunity to serve you by calling
us at 800-959-4246.
All of us at AIM Investments are committed to helping you achieve your
financial goals. We work every day to earn your trust, and are grateful for the
confidence you've placed in us.
Sincerely,
/S/ PHILIP TAYLOR
- -------------------------------------
Philip Taylor
President - AIM Funds
CEO, AIM Investments
February 9, 2007
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 mutual funds
represented by AIM Investments and the PowerShares Exchange-Traded Fund Trust.
3
AIM Mid Cap Basic Value Fund
[CROCKETT PHOTO]
Bruce L. Crockett
Dear Fellow AIM Fund Shareholders:
Your AIM Funds Board started 2007 committed to continue working with management
at A I M Advisors, Inc. (AIM) with the goal of improving performance and
lowering shareholder expenses for the AIM Funds.
The progress made to date is encouraging. Following the general trends of
global equity markets and the U.S. stock market, the asset-weighted absolute
performance for all the equity and fixed-income AIM Funds improved to 15.08% for
the one-year period ended December 31, 2006, as compared to 9.13% for the
one-year period ended December 31, 2005, and 11.20% for the one-year period
ended December 31, 2004.(1) The asset-weighted absolute performance for the AIM
money market funds was 4.84% for the one-year period ended December 31, 2006, as
compared to 3.04% for the one-year period ended December 31, 2005, and 1.23% for
the one-year period ended December 31, 2004.(2)
In November, your Board approved, subject to shareholder vote, four more
AIM Fund consolidations. As always, these decisions were made to benefit
existing shareholders and were driven by a desire to improve the merged funds'
performance, attract new assets and reduce costs. The asset class subcommittees
of your Board's Investments Committee are meeting frequently with portfolio
managers to identify how performance might be further improved.
On the expense side, both AMVESCAP, the parent company of AIM, and AIM
continue to take advantage of opportunities for operational consolidation,
outsourcing and new technologies to improve cost efficiencies for your benefit.
Your Board, for example, takes advantage of effective software solutions that
enable us to save money through electronic information sharing. Additional
cost-saving steps are underway. I'll report more on these steps once they're
completed.
Another major Board initiative for early 2007 is the revision of the AIM
Funds' proxy voting guidelines, a project begun by a special Board task force
late last year. We expect to have new procedures in place for the 2007 spring
proxy season that will improve the ability of the AIM Funds to cast votes that
are in the best interests of all fund shareholders.
While your Board recognizes that additional work lies ahead, we are
gratified that some key external sources have recognized changes at AIM and the
AIM Funds in the past two years. An article in the November 21, 2006, issue of
Morningstar Report (Morningstar Inc. is a leading provider of independent mutual
fund investment research) included a review of AIM's progress, highlighting
lower expenses, stronger investment teams and an improved sales culture, as well
as areas for continued improvement. I'm looking forward to a return visit to
Morningstar this year to review AIM Funds' performance and governance ratings.
Your Board thanks Mark Williamson, former President and CEO of AIM
Investments, who retired from your Board in 2006. He has been succeeded on your
Board by Phil Taylor, President of AIM Funds. We extend a warm welcome to Phil.
I'd like to hear from you. Please write to me at AIM Investments, AIM
Investments Tower, 11 Greenway Plaza, Suite 100, Houston TX 77046. Let me know
your thoughts on how your Board is doing and how we might serve you better.
Sincerely,
/S/ BRUCE L. CROCKETT
- -------------------------------------
Bruce L. Crockett
Independent Chair
AIM Funds Board
February 9, 2007
(1) Past performance is no guarantee of future results. The asset-weighted
absolute performance for the equity and fixed-income AIM Funds is derived
by taking the one-year cumulative total return for each share class of each
AIM Fund in existence as of December 31, 2006, (excluding money market
funds) and weighting the performance by the calendar year average net
assets of that share class. The one-year cumulative total return includes
reinvested distributions, fund expenses and management fees, but excludes
applicable sales charges. If sales charges were included, the one-year
cumulative total return and the asset-weighted performance would be lower.
(2) Past performance is no guarantee of future results. The asset-weighted
absolute performance for the AIM money market funds is derived by taking
the one-year cumulative total return for each share class of each AIM money
market fund in existence as of December 31, 2006, and weighting the
performance by the calendar year average net assets of that share class.
The one-year cumulative total return includes reinvested distributions,
fund expenses and management fees, but excludes applicable sales charges.
If sales charges were included, the one-year cumulative total return and
the asset-weighted performance would be lower.
4
AIM Mid Cap Basic Value Fund
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
PERFORMANCE SUMMARY
For the year ended December 31, 2006, all share classes of AIM Mid Cap Basic
Value Fund, excluding applicable sales charges, underperformed the S&P 500
Index, the Russell Midcap Value Index and the Lipper Mid-Cap Value Funds Index.
We attribute the Fund's underperformance versus its broad market and
style-specific indexes to below-market returns from selected investments in the
energy, consumer discretionary and materials sectors. The absence of utilities
stocks and real estate investment trusts (REITs) also detracted from the Fund's
performance versus its style specific index. We did not believe REITs or
utilities stocks, with valuations above their historic levels, represented
attractive values. Top contributors to Fund performance were selected
investments in the consumer discretionary, financials and health care sectors.
Your Fund's long-term performance appears on pages 8-9.
FUND VS. INDEXES
Total returns, 12/31/05-12/31/06, excluding applicable sales charges. If sales
charges were included, returns would be lower.
Class A Shares 8.47%
Class B Shares 7.63
Class C Shares 7.70
Class R Shares 8.22
S&P 500 Index (Broad Market Index) 15.78
Russell Midcap Value Index (Style-Specific Index) 20.22
Lipper Mid-Cap Value Funds Index (Peer Group Index) 15.66
Source: Lipper Inc.
HOW WE INVEST
As a reminder, we modified the responsibilities of the managers during the year,
but there were no changes in the investment process the Fund follows. Canon
Coleman was promoted to lead manager of the Fund and Michael Chapman was added
as a manager. Bret Stanley and Michael Simon continue as managers of the Fund.
We expect this team structure to enhance the research capacity of the team.
We seek to create wealth by maintaining a long-term investment horizon and
investing in companies that are selling at a significant discount to their
estimated intrinsic value--a value that is based on the estimated future cash
flows generated by the business. The Fund's philosophy is based on two elements
that we believe have extensive empirical evidence:
- - Companies have a measurable estimated intrinsic value. Importantly, this
estimated fair value is independent of the company's stock price.
- - Market prices are more volatile than business values, partly because
investors regularly overreact to negative news.
Since our application of this strategy is highly disciplined and relatively
unique, it is important to understand the benefits and limitations of our
process. First, the investment strategy is intended to preserve your capital
while growing it at above-market rates over the long term. Second, our
investments have little in common with popular benchmark indexes and most of our
peers. And third, the Fund's short-term relative performance will naturally be
different than the market and peers and have little information value since we
don't own many of the same stocks.
MARKET CONDITIONS AND YOUR FUND
Equity markets posted healthy gains during the year as favorable economic data
and solid corporate profits overshadowed housing market concerns and investor
uncertainty regarding interest rates and oil prices.
Interpublic Group was the Fund's largest performance contributor during
2006. The stock of this worldwide advertising and commu-
(continued)
PORTFOLIO COMPOSITION
By sector
Financials 20.6%
Consumer Discretionary 17.6
Information Technology 17.2
Health Care 15.3
Industrials 12.9
Materials 7.6
Consumer Staples 6.6
Money Market Funds
Plus Other Assets Less Liabilities 2.2
TOP FIVE INDUSTRIES*
1. Data Processing
& Outsourced Services 6.5%
2. Construction & Engineering 6.0
3. Apparel Retail 5.1
4. Managed Health Care 5.0
5. Advertising 4.7
Total Net Assets $236.54 million
Total Number of Holdings* 45
TOP 10 EQUITY HOLDINGS*
1. Interpublic Group of Cos.,
Inc. (The) 4.7%
2. Molson Coors Brewing Co.
-Class B 3.7
3. Chicago Bridge & Iron Co.
N.V.-New York Shares 3.4
4. UnitedHealth Group Inc. 3.3
5. DST Systems, Inc. 3.3
6. CA Inc. 3.0
7. Waters Corp. 3.0
8. Cadbury Schweppes PLC-ADR
(United Kingdom) 2.9
9. MacDermid, Inc. 2.9
10. Cemex S.A. de C.V.-ADR
(Mexico) 2.9
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.
5
AIM Mid Cap Basic Value Fund
nications corporation rose 27% as further evidence of the company's turnaround
became apparent. Investor sentiment turned more positive following improved
margins from previously announced cost reductions, stable organic growth and
recent high-profile client wins.
The Fund's investments in Waddell & Reed Financial and Waters Corporation
also made significant contributions to performance during the year. Under new
leadership, investment advisor Waddell & Reed began to make substantive progress
toward improving sales and operating margins. Solid investment performance
during 2006 was also a positive.
The Fund's largest detractors from performance were Massey Energy,
Smurfit-Stone Container and OSI Restaurants. Investors' concern over
weaker-than-expected coal production led to a decline in Massey Energy's stock
price. We sold our holdings in Massey Energy and OSI Restaurants before the end
of the year.
Smurfit-Stone's stock fell 25% in 2006 as a rise in input costs reduced
profits and investors became concerned about the potential impact of a slowing
U.S. economy. Despite these near-term issues, we believe the company's renewed
focus on profitability and return on capital, combined with the company's
strategic restructuring actions, present an attractive long-term outlook.
We believe the single most important indicator of the way AIM Mid Cap Basic
Value Fund is positioned for potential success is not our historical investment
results or popular statistical measures, but the portfolio's estimated intrinsic
value--the aggregate business value of the portfolio based on our estimate of
intrinsic value for each individual holding.
At the close of the year, and in our opinion, the difference between the
market price and the estimated intrinsic value of the portfolio was about
average by the Fund's historical standards, and we believed this value content
was greater than what was available in the broad market. While there is no
assurance that market value will ever reflect our estimate of the portfolio's
intrinsic value, we believe this provides the best indication that your Fund is
positioned to potentially achieve its objective of long-term growth of capital.
CONTEXT FOR RESULTS
As managers, we know a long-term investment horizon and attractive potential
upside to our estimate of portfolio intrinsic value are critical to creating
wealth. But we understand maintaining a long-term investment horizon is a
challenge. So when shareholders consider our short-term results, we encourage
them to review our long-term results on pages 8-9 and be mindful of a few key
points.
We are long-term investors who provide a portfolio that, in our opinion, is
distinct from market indexes and most of our peers. Several studies have shown
short-term results have little information value and the frequent trading of
stocks or mutual funds is a costly exercise--reducing actual returns by several
percentage points per year as shareholders unknowingly exchange tomorrow's
winner for tomorrow's loser. In addition, a recent Yale University study reveals
half of all mutual funds charge an active management fee for essentially a
closet-index portfolio. While this may create smooth and innocuous short-term
relative performance, it typically leads to long-term underperformance.
Considering these factors, your Fund is doing something different and old
fashioned--investing for the long term and following a common-sense approach
that has produced a portfolio that is different from common stock market indexes
and more attractively valued, in our opinion.
IN CLOSING
We remain optimistic about AIM Mid Cap Basic Value Fund's portfolio. As always,
we are continually searching for opportunities to increase the portfolio's
estimated intrinsic value. We thank you for your investment and for sharing our
long-term horizon.
The views and opinions expressed in management's discussion of Fund performance
are those of A I M Advisors, Inc. These views and opinions are subject to change
at any time based on factors such as market and economic conditions. These views
and opinions may not be relied upon as investment advice or recommendations, or
as an offer for a particular security. The information is not a complete
analysis of every aspect of any market, country, industry, security or the Fund.
Statements of fact are from sources considered reliable, but A I M Advisors,
Inc. makes no representation or warranty as to their completeness or accuracy.
Although historical performance is no guarantee of future results, these
insights may help you understand our investment management philosophy.
See important Fund and index disclosures on the inside front cover.
[COLEMAN PHOTO]
R. Canon Coleman II
Chartered Financial Analyst, portfolio manager, is lead manager of AIM Mid Cap
Basic Value Fund. He began his investment career in 1999 and joined AIM in 2000.
Mr. Coleman earned a B.S. and an M.S. in accounting from the University of
Florida. He also earned an M.B.A. from the Wharton School at the University of
Pennsylvania.
[CHAPMAN PHOTO]
Michael Chapman
Chartered Financial Analyst, portfolio manager, is manager of AIM Mid Cap Basic
Value Fund. He began his investment career in 1995 and joined AIM in 2001. Mr.
Chapman earned a B.S. in petroleum engineering and a M.A. in energy and mineral
resources from The University of Texas.
[SIMON PHOTO]
Michael J. Simon
Chartered Financial Analyst, senior portfolio manager, is manager of AIM Mid Cap
Basic Value Fund. He began his investment career in 1989 and joined AIM in 2001.
Mr. Simon earned a B.B.A. in finance from Texas Christian University and an
M.B.A. from the University of Chicago.
[STANLEY PHOTO]
Bret W. Stanley
Chartered Financial Analyst, senior portfolio manager, is manager of AIM Mid Cap
Basic Value Fund. He began his investment career in 1988 and joined AIM in 1998.
Mr. Stanley earned a B.B.A. in finance from The University of Texas at Austin
and an M.S. in finance from the University of Houston.
Assisted by the Basic Value Team
For a presentation of your Fund's long-term performance, please see pages 8-9.
6
AIM Mid Cap Basic Value Fund
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, which may include sales charges (loads) on purchase payments or
contingent deferred sales charges on redemptions, and redemption fees, if any;
and (2) ongoing costs, including management fees; distribution and/or service
(12b-1) fees; and other Fund expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with ongoing costs of investing in other mutual funds. The
example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period July 1, 2006, through December 31, 2006.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return. The Fund's actual cumulative total returns at net asset value after
expenses for the six months ended December 31, 2006, appear in the table
"Cumulative Total Returns" on page 9.
The hypothetical account values and expenses may not be used to estimate
the actual ending account balance or expenses you paid for the period. You may
use this information to compare the ongoing costs of investing in the Fund and
other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight
your ongoing costs only and do not reflect any transaction costs, such as sales
charges (loads) on purchase payments, contingent deferred sales charges on
redemptions, and redemption fees, if any. Therefore, the hypothetical
information is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these transaction costs were included, your costs would have been higher.
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 (7/1/06) (12/31/06)(1) Period(2) (12/31/06) Period(2) Ratio
- ----- ------------- -------------- ----------- ------------- ----------- ----------
A $1,000.00 $1,114.70 $ 8.21 $1,017.44 $ 7.83 1.54%
B 1,000.00 1,110.10 12.18 1,013.66 11.62 2.29
C 1,000.00 1,110.90 12.18 1,013.66 11.62 2.29
R 1,000.00 1,113.80 9.54 1,016.18 9.10 1.79
(1) The actual ending account value is based on the actual total return of the
Fund for the period July 1, 2006, through December 31, 2006, 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, 2006, appear in
the table "Cumulative Total Returns" on page 9.
(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.
7
AIM Mid Cap Basic Value Fund
YOUR FUND'S LONG-TERM PERFORMANCE
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.
This chart, which is a logarithmic chart, presents the fluctuations in the
value of the Fund and its indexes. We believe that a logarithmic chart is more
effective than other types of charts in illustrating changes in value during the
early years shown in the chart. The vertical axis, the one that indicates the
dollar value of an investment, is constructed with each segment representing a
percent change in the value of the investment. In this chart, each segment
represents a doubling, or 100% change, in the value of the investment. In other
words, the space between $5,000 and $10,000 is the same size as the space
between $10,000 and $20,000, and so on.
8
[MOUNTAIN CHART]
RESULTS OF A $10,000 INVESTMENT
Fund and index data from 12/31/01
AIM AIM AIM
Mid Cap Basic Mid Cap Basic Mid Cap Basic Lipper
Value Fund Value Fund Value Fund Russell Mid-Cap
Date -Class A Shares -Class B Shares -Class C Shares S&P 500 Index Midcap Value Index Value Funds 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 9255 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 13685 14100 14089 11660 17384 15432
1/06 14044 14459 14459 11968 18138 16124
2/06 13996 14409 14399 12001 18310 16088
3/06 14233 14639 14629 12150 18709 16478
4/06 14298 14699 14689 12313 18889 16672
5/06 13533 13900 13899 11959 18494 16178
6/06 13315 13669 13658 11975 18605 16112
7/06 13117 13459 13448 12049 18499 15881
8/06 13636 13978 13968 12335 19018 16253
9/06 13778 14118 14108 12653 19261 16533
10/06 14278 14618 14607 13065 20041 17153
11/06 14467 14808 14797 13313 20688 17749
12/06 14845 14976 15176 13499 20899 17848
Source: Lipper Inc.
AIM Mid Cap Basic Value Fund
AVERAGE ANNUAL TOTAL RETURNS
As of 12/31/06, including applicable
sales charges
CLASS A SHARES
Inception (12/31/01) 8.22%
5 Years 8.22
1 Year 2.52
CLASS B SHARES
Inception (12/31/01) 8.41%
5 Years 8.41
1 Year 2.91
CLASS C SHARES
Inception (12/31/01) 8.70%
5 Years 8.70
1 Year 6.76
CLASS R SHARES
Inception 9.26%
5 Years 9.26
1 Year 8.22
CUMULATIVE TOTAL RETURNS
6 months ended 12/31/06, excluding applicable sales charges
Class A Shares 11.47%
Class B Shares 11.01
Class C Shares 11.09
Class R Shares 11.38
Class R shares' inception date is April 30, 2004. Returns since that date are
historical returns. All other returns are blended returns of historical Class R
share performance and restated Class A share performance (for periods prior to
the inception date of Class R shares) at net asset value, adjusted to reflect
the higher Rule 12b-1 fees applicable to Class R shares. Class A shares'
inception date is December 31, 2001.
The performance data quoted represent past performance and cannot guarantee
comparable future results; current performance may be lower or higher. Please
visit AIMinvestments.com for the most recent month-end performance. Performance
figures reflect reinvested distributions, changes in net asset value and the
effect of the maximum sales charge unless otherwise stated. Investment return
and principal value will fluctuate so that you may have a gain or loss when you
sell shares.
Class A share performance reflects the maximum 5.50% sales charge, and
Class B and Class C share performance reflects the applicable contingent
deferred sales charge (CDSC) for the period involved. The CDSC on Class B shares
declines from 5% beginning at the time of purchase to 0% at the beginning of the
seventh year. The CDSC on Class C shares is 1% for the first year after
purchase. Class R shares do not have a front-end sales charge; returns shown are
at net asset value and do not reflect a 0.75% CDSC that may be imposed on a
total redemption of retirement plan assets within the first year.
The performance of the Fund's share classes will differ primarily due to
different sales charge structures and class expenses.
CONTINUED FROM INSIDE FRONT COVER
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800-959-4246 or on the AIM
Web site, AIMinvestments.com. On the home page, scroll down and click on AIM
Funds Proxy Policy. The information is also available on the SEC Web site,
sec.gov.
Information regarding how the Fund voted proxies related to its portfolio
securities during the 12 months ended June 30, 2006, 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.
9
AIM MID CAP BASIC VALUE FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees of AIM Funds Group (the "Board") oversees the management
of AIM Mid Cap Basic Value Fund (the "Fund") and, as required by law, determines
annually whether to approve the continuance of the Fund's advisory agreement
with A I M Advisors, Inc. ("AIM"). Based upon the recommendation of the
Investments Committee of the Board, at a meeting held on June 27, 2006, the
Board, including all of the independent trustees, approved the continuance of
the advisory agreement (the "Advisory Agreement") between the Fund and AIM for
another year, effective July 1, 2006.
The Board considered the factors discussed below in evaluating the fairness
and reasonableness of the Advisory Agreement at the meeting on June 27, 2006 and
as part of the Board's ongoing oversight of the Fund. In their deliberations,
the Board and the independent trustees did not identify any particular factor
that was controlling, and each trustee attributed different weights to the
various factors.
One responsibility of the independent Senior Officer of the Fund is to
manage the process by which the Fund's proposed management fees are negotiated
to ensure that they are negotiated in a manner which is at arms' length and
reasonable. To that end, the Senior Officer must either supervise a competitive
bidding process or prepare an independent written evaluation. The Senior Officer
has recommended an independent written evaluation in lieu of a competitive
bidding process and, upon the direction of the Board, has prepared such an
independent written evaluation. Such written evaluation also considered certain
of the factors discussed below. In addition, as discussed below, the Senior
Officer made a recommendation to the Board in connection with such written
evaluation.
The discussion below serves as a summary of the Senior Officer's
independent written evaluation and recommendation to the Board in connection
therewith, as well as a discussion of the material factors and the conclusions
with respect thereto that formed the basis for the Board's approval of the
Advisory Agreement. After consideration of all of the factors below and based on
its informed business judgment, the Board determined that the Advisory Agreement
is in the best interests of the Fund and its shareholders and that the
compensation to AIM under the Advisory Agreement is fair and reasonable and
would have been obtained through arm's length negotiations.
Unless otherwise stated, information presented below is as of June 27, 2006
and does not reflect any changes that may have occurred since June 27, 2006,
including but not limited to changes to the Fund's performance, advisory fees,
expense limitations and/or fee waivers.
- - The nature and extent of the advisory services to be provided by AIM. The
Board reviewed the services to be provided by AIM under the Advisory
Agreement. Based on such review, the Board concluded that the range of
services to be provided by AIM under the Advisory Agreement was appropriate
and that AIM currently is providing services in accordance with the terms
of the Advisory Agreement.
- - The quality of services to be provided by AIM. The Board reviewed the
credentials and experience of the officers and employees of AIM who will
provide investment advisory services to the Fund. In reviewing the
qualifications of AIM to provide investment advisory services, the Board
considered such issues as AIM's portfolio and product review process,
various back office support functions provided by AIM and AIM's equity and
fixed income trading operations. Based on the review of these and other
factors, the Board concluded that the quality of services to be provided by
AIM was appropriate and that AIM currently is providing satisfactory
services in accordance with the terms of the Advisory Agreement.
- - The performance of the Fund relative to comparable funds. The Board
reviewed the performance of the Fund during the past one and three calendar
years against the performance of funds advised by other advisors with
investment strategies comparable to those of the Fund. The Board noted that
the Fund's performance was above the median performance of such comparable
funds for the one year period and below such median performance for the
three year period. Based on this review and after taking account of all of
the other factors that the Board considered in determining whether to
continue the Advisory Agreement for the Fund, the Board concluded that no
changes should be made to the Fund and that it was not necessary to change
the Fund's portfolio management team at this time. Although the independent
written evaluation of the Fund's Senior Officer (discussed below) only
considered Fund performance through the most recent calendar year, the
Board also reviewed more recent Fund performance, which did not change
their conclusions.
- - The performance of the Fund relative to indices. The Board reviewed the
performance of the Fund during the past one and three calendar years
against the performance of the Lipper Mid-Cap Value Index. The Board noted
that the Fund's performance was above the performance of such Index for the
one year period and comparable to such Index for the three year period.
Based on this review and after taking account of all of the other factors
that the Board considered in determining whether to continue the Advisory
Agreement for the Fund, the Board concluded that no changes should be made
to the Fund and that it was not necessary to change the Fund's portfolio
management team at this time. Although the independent written evaluation
of the Fund's Senior Officer (discussed below) only considered Fund
performance through the most recent calendar year, the Board also reviewed
more recent Fund performance, which did not change their conclusions.
- - Meetings with the Fund's portfolio managers and investment personnel. With
respect to the Fund, the Board is meeting periodically with such Fund's
portfolio managers and/or other investment personnel and believes that such
individuals are competent and able to continue to carry out their
responsibilities under the Advisory Agreement.
- - Overall performance of AIM. The Board considered the overall performance of
AIM in providing investment advisory and portfolio administrative services
to the Fund and concluded that such performance was satisfactory.
- - Fees relative to those of clients of AIM with comparable investment
strategies. The Board noted that AIM does not serve as an advisor to other
mutual funds or other clients with investment strategies comparable to
those of the Fund.
- - Fees relative to those of comparable funds with other advisors. The Board
reviewed the advisory fee rate for the Fund under the Advisory Agreement.
The Board compared effective contractual advisory fee rates at a common
asset level at the end of the past calendar year and noted that the Fund's
rate was comparable to the median rate of the funds advised by other
advisors with investment strategies comparable to those of the Fund that
the Board reviewed. The Board noted that AIM has agreed to waive advisory
fees of the Fund and to limit the Fund's total operating expenses, as
discussed below. Based on this review, the Board concluded that the
advisory fee rate for the Fund under the Advisory Agreement was fair and
reasonable.
- - Expense limitations and fee waivers. The Board noted that AIM has
contractually agreed to waive advisory fees of the Fund through December
31, 2009 to the extent necessary so that the advisory fees payable by the
Fund do not exceed a specified maximum advisory fee rate, which maximum
rate includes breakpoints and is based on net asset levels. The Board
considered the contractual nature of this fee waiver and noted that it
remains in effect until December 31, 2009. The Board also noted that AIM
has voluntarily agreed to waive fees and/or limit expenses of the Fund in
an amount necessary to limit total annual operating expenses to a specified
percentage of average daily net assets for each class of the Fund. The
Board considered the voluntary nature of this fee waiver/expense limitation
and noted that it can be terminated at any time by AIM without further
notice to investors. The Board considered the effect these fee
waivers/expense limitations would have on the Fund's estimated expenses and
concluded that the levels of fee waivers/expense limitations for the Fund
were fair and reasonable.
(continued)
10
AIM MID CAP BASIC VALUE FUND
- - Breakpoints and economies of scale. The Board reviewed the structure of the
Fund's advisory fee under the Advisory Agreement, noting that it includes
two breakpoints. The Board reviewed the level of the Fund's advisory fees,
and noted that such fees, as a percentage of the Fund's net assets, would
decrease as net assets increase because the Advisory Agreement includes
breakpoints. The Board noted that, due to the Fund's asset levels at the
end of the past calendar year and the way in which the advisory fee
breakpoints have been structured, the Fund has yet to benefit from the
breakpoints. The Board noted that AIM has contractually agreed to waive
advisory fees of the Fund through December 31, 2009 to the extent necessary
so that the advisory fees payable by the Fund do not exceed a specified
maximum advisory fee rate, which maximum rate includes breakpoints and is
based on net asset levels. The Board concluded that the Fund's fee levels
under the Advisory Agreement therefore would reflect economies of scale at
higher asset levels and that it was not necessary to change the advisory
fee breakpoints in the Fund's advisory fee schedule.
- - Investments in affiliated money market funds. The Board also took into
account the fact that uninvested cash and cash collateral from securities
lending arrangements, if any (collectively, "cash balances") of the Fund
may be invested in money market funds advised by AIM pursuant to the terms
of an SEC exemptive order. The Board found that the Fund may realize
certain benefits upon investing cash balances in AIM advised money market
funds, including a higher net return, increased liquidity, increased
diversification or decreased transaction costs. The Board also found that
the Fund will not receive reduced services if it invests its cash balances
in such money market funds. The Board noted that, to the extent the Fund
invests uninvested cash in affiliated money market funds, AIM has
voluntarily agreed to waive a portion of the advisory fees it receives from
the Fund attributable to such investment. The Board further determined that
the proposed securities lending program and related procedures with respect
to the lending Fund is in the best interests of the lending Fund and its
respective shareholders. The Board therefore concluded that the investment
of cash collateral received in connection with the securities lending
program in the money market funds according to the procedures is in the
best interests of the lending Fund and its respective shareholders.
- - Independent written evaluation and recommendations of the Fund's Senior
Officer. The Board noted that, upon their direction, the Senior Officer of
the Fund, who is independent of AIM and AIM's affiliates, had prepared an
independent written evaluation in order to assist the Board in determining
the reasonableness of the proposed management fees of the AIM Funds,
including the Fund. The Board noted that the Senior Officer's written
evaluation had been relied upon by the Board in this regard in lieu of a
competitive bidding process. In determining whether to continue the
Advisory Agreement for the Fund, the Board considered the Senior Officer's
written evaluation and the recommendation made by the Senior Officer to the
Board that the Board consider whether the advisory fee waivers for certain
equity AIM Funds, including the Fund, should be simplified. The Board
concluded that it would be advisable to consider this issue and reach a
decision prior to the expiration date of such advisory fee waivers.
- - Profitability of AIM and its affiliates. The Board reviewed information
concerning the profitability of AIM's (and its affiliates') investment
advisory and other activities and its financial condition. The Board
considered the overall profitability of AIM, as well as the profitability
of AIM in connection with managing the Fund. The Board noted that AIM's
operations remain profitable, although increased expenses in recent years
have reduced AIM's profitability. Based on the review of the profitability
of AIM's and its affiliates' investment advisory and other activities and
its financial condition, the Board concluded that the compensation to be
paid by the Fund to AIM under its Advisory Agreement was not excessive.
- - Benefits of soft dollars to AIM. The Board considered the benefits realized
by AIM as a result of brokerage transactions executed through "soft dollar"
arrangements. Under these arrangements, brokerage commissions paid by the
Fund and/or other funds advised by AIM are used to pay for research and
execution services. This research may be used by AIM in making investment
decisions for the Fund. The Board concluded that such arrangements were
appropriate.
- - AIM's financial soundness in light of the Fund's needs. The Board
considered whether AIM is financially sound and has the resources necessary
to perform its obligations under the Advisory Agreement, and concluded that
AIM has the financial resources necessary to fulfill its obligations under
the Advisory Agreement.
- - Historical relationship between the Fund and AIM. In determining whether to
continue the Advisory Agreement for the Fund, the Board also considered the
prior relationship between AIM and the Fund, as well as the Board's
knowledge of AIM's operations, and concluded that it was beneficial to
maintain the current relationship, in part, because of such knowledge. The
Board also reviewed the general nature of the non-investment advisory
services currently performed by AIM and its affiliates, such as
administrative, transfer agency and distribution services, and the fees
received by AIM and its affiliates for performing such services. In
addition to reviewing such services, the trustees also considered the
organizational structure employed by AIM and its affiliates to provide
those services. Based on the review of these and other factors, the Board
concluded that AIM and its affiliates were qualified to continue to provide
non-investment advisory services to the Fund, including administrative,
transfer agency and distribution services, and that AIM and its affiliates
currently are providing satisfactory non-investment advisory services.
- - Other factors and current trends. The Board considered the steps that AIM
and its affiliates have taken over the last several years, and continue to
take, in order to improve the quality and efficiency of the services they
provide to the Funds in the areas of investment performance, product line
diversification, distribution, fund operations, shareholder services and
compliance. The Board concluded that these steps taken by AIM have
improved, and are likely to continue to improve, the quality and efficiency
of the services AIM and its affiliates provide to the Fund in each of these
areas, and support the Board's approval of the continuance of the Advisory
Agreement for the Fund.
11
Supplement to Annual Report dated 12/31/06
AIM MID CAP BASIC VALUE FUND
INSTITUTIONAL CLASS SHARES
The following information has been prepared to provide Institutional Class
shareholders with a performance overview specific to their holdings.
Institutional Class shares are offered exclusively to institutional investors,
including defined contribution plans that meet certain criteria.
NASDAQ SYMBOL MDICX
AVERAGE ANNUAL TOTAL RETURNS
For periods ended 12/31/06
Inception 9.80%
5 Years 9.80
1 Year 9.15
6 Months* 11.82
* Cumulative total return that has not been annualized
INSTITUTIONAL CLASS SHARES' INCEPTION DATE IS APRIL 30, 2004. RETURNS SINCE THAT
DATE ARE HISTORICAL RETURNS. ALL OTHER RETURNS ARE BLENDED RETURNS OF HISTORICAL
INSTITUTIONAL CLASS SHARE PERFORMANCE AND RESTATED CLASS A SHARE PERFORMANCE
(FOR PERIODS PRIOR TO THE INCEPTION DATE OF INSTITUTIONAL CLASS SHARES) AT NET
ASSET VALUE (NAV) 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 NAV. PERFORMANCE OF INSTITUTIONAL CLASS SHARES WILL DIFFER FROM PERFORMANCE
OF OTHER SHARE CLASSES PRIMARILY DUE TO DIFFERING SALES CHARGES AND CLASS
EXPENSES.
PLEASE NOTE THAT PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. MORE
RECENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. ALL RETURNS ASSUME
REINVESTMENT OF DISTRIBUTIONS AT NAV. INVESTMENT RETURN AND PRINCIPAL VALUE WILL
FLUCTUATE SO YOUR SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. SEE THE FULL REPORT FOR INFORMATION ON COMPARATIVE BENCHMARKS.
PLEASE CONSULT YOUR FUND PROSPECTUS FOR MORE INFORMATION. FOR THE MOST CURRENT
MONTH-END PERFORMANCE, PLEASE CALL 800-451-4246 OR VISIT AIMINVESTMENTS.COM.
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.
[AIM INVESTMENTS LOGO]
--REGISTERED TRADEMARK--
AIMINVESTMENTS.COM MCBV-INS-1 A I M Distributors, Inc.
Information about your Fund's expenses
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the Fund, you incur ongoing costs, including management fees
and other Fund expenses. This example is intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with ongoing costs of investing in other mutual funds. The example is based on
an investment of $1,000 invested at the beginning of the period and held for the
entire period July 1, 2006, through December 31, 2006.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return. The Fund's actual cumulative total return after expenses for the six
months ended December 31, 2006, appears in the table on the front of this
supplement.
The hypothetical account values and expenses may not be used to estimate
the actual ending account balance or expenses you paid for the period. You may
use this information to compare the ongoing costs of investing in the Fund and
other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight
your ongoing costs only. Therefore, the hypothetical information is useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds.
HYPOTHETICAL
(5% ANNUAL RETURN
ACTUAL BEFORE EXPENSES
--------------------------- ---------------------------
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/06) (12/31/06)(1) PERIOD(2) (12/31/06) PERIOD(2) RATIO
- ----- ------------- ------------- ----------- ------------- ----------- ----------
Institutional $1,000.00 $1,118.20 $4.91 $1,020.57 $4.69 0.92%
(1) The actual ending account value is based on the actual total return of the
Fund for the period July 1, 2006, through December 31, 2006, 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, 2006, 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 MCBV-INS-1 A I M Distributors, Inc.
AIM Mid Cap Basic Value Fund
SCHEDULE OF INVESTMENTS
December 31, 2006
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-97.80%
ADVERTISING-4.67%
Interpublic Group of Cos., Inc. (The)(a) 901,787 $ 11,037,873
=======================================================================
AEROSPACE & DEFENSE-0.35%
KBR, Inc.(a) 31,806 832,045
=======================================================================
APPAREL RETAIL-5.06%
Gap, Inc. (The) 286,911 5,594,765
- -----------------------------------------------------------------------
TJX Cos., Inc. (The) 223,268 6,367,603
=======================================================================
11,962,368
=======================================================================
APPLICATION SOFTWARE-2.61%
Epicor Software Corp.(a) 456,320 6,164,883
=======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-2.77%
Waddell & Reed Financial, Inc.-Class A 239,569 6,554,608
=======================================================================
BREWERS-3.70%
Molson Coors Brewing Co.-Class B(b) 114,449 8,748,482
=======================================================================
BUILDING PRODUCTS-2.27%
American Standard Cos. Inc. 117,258 5,376,279
=======================================================================
COMMUNICATIONS EQUIPMENT-2.60%
Plantronics, Inc.(b) 290,356 6,155,547
=======================================================================
CONSTRUCTION & ENGINEERING-6.02%
Chicago Bridge & Iron Co. N.V.-New York
Shares 295,000 8,065,300
- -----------------------------------------------------------------------
Shaw Group Inc. (The)(a) 184,226 6,171,571
=======================================================================
14,236,871
=======================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-2.19%
Navistar International Corp.(a) 155,194 5,188,135
=======================================================================
CONSTRUCTION MATERIALS-2.88%
Cemex S.A. de C.V.-ADR (Mexico)(a) 200,763 6,801,851
=======================================================================
DATA PROCESSING & OUTSOURCED SERVICES-6.53%
BISYS Group, Inc. (The)(a) 156,033 2,014,386
- -----------------------------------------------------------------------
Ceridian Corp.(a) 37,204 1,040,968
- -----------------------------------------------------------------------
DST Systems, Inc.(a) 123,014 7,704,367
- -----------------------------------------------------------------------
Fidelity National Information Services, Inc. 116,950 4,688,525
=======================================================================
15,448,246
=======================================================================
DIVERSIFIED COMMERCIAL & PROFESSIONAL
SERVICES-2.08%
ChoicePoint Inc.(a) 125,205 4,930,573
=======================================================================
</Table>
<Table>
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
EDUCATION SERVICES-2.41%
Apollo Group, Inc.-Class A(a) 146,501 $ 5,709,144
=======================================================================
HEALTH CARE DISTRIBUTORS-2.34%
McKesson Corp. 109,181 5,535,477
=======================================================================
HEALTH CARE EQUIPMENT-3.14%
CONMED Corp.(a) 170,000 3,930,400
- -----------------------------------------------------------------------
Symmetry Medical Inc.(a) 252,490 3,491,937
=======================================================================
7,422,337
=======================================================================
HEALTH CARE FACILITIES-1.86%
Health Management Associates, Inc.-Class A 208,201 4,395,123
=======================================================================
HOUSEHOLD APPLIANCES-0.95%
Whirlpool Corp. 26,956 2,237,887
=======================================================================
INSURANCE BROKERS-4.08%
Aon Corp. 189,137 6,684,102
- -----------------------------------------------------------------------
National Financial Partners Corp. 67,330 2,960,500
=======================================================================
9,644,602
=======================================================================
LEISURE PRODUCTS-2.58%
Brunswick Corp. 191,447 6,107,159
=======================================================================
LIFE & HEALTH INSURANCE-2.67%
Nationwide Financial Services, Inc.-Class A 22,736 1,232,291
- -----------------------------------------------------------------------
Protective Life Corp. 107,108 5,087,630
=======================================================================
6,319,921
=======================================================================
LIFE SCIENCES TOOLS & SERVICES-2.97%
Waters Corp.(a) 143,408 7,022,690
=======================================================================
MANAGED HEALTH CARE-5.00%
Aetna Inc. 92,119 3,977,698
- -----------------------------------------------------------------------
UnitedHealth Group Inc. 145,842 7,836,091
=======================================================================
11,813,789
=======================================================================
MULTI-LINE INSURANCE-0.96%
Genworth Financial Inc.-Class A 66,289 2,267,747
=======================================================================
PACKAGED FOODS & MEATS-2.91%
Cadbury Schweppes PLC-ADR (United Kingdom) 160,568 6,893,184
=======================================================================
PAPER PACKAGING-1.83%
Smurfit-Stone Container Corp.(a) 409,788 4,327,361
=======================================================================
PROPERTY & CASUALTY INSURANCE-2.88%
ACE Ltd. 61,022 3,696,102
- -----------------------------------------------------------------------
Security Capital Assurance Ltd. 112,155 3,121,274
=======================================================================
6,817,376
=======================================================================
</Table>
F-1
AIM Mid Cap Basic Value Fund
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
REGIONAL BANKS-1.50%
Zions Bancorp 42,994 $ 3,544,425
=======================================================================
REINSURANCE-2.14%
Max Re Capital Ltd. 204,260 5,069,733
=======================================================================
SEMICONDUCTOR EQUIPMENT-2.41%
Brooks Automation, Inc.(a) 395,999 5,702,386
=======================================================================
SPECIALTY CHEMICALS-2.90%
MacDermid, Inc. 201,322 6,865,080
=======================================================================
SPECIALTY STORES-1.88%
Borders Group, Inc. 198,738 4,441,794
=======================================================================
SYSTEMS SOFTWARE-3.05%
CA Inc. 318,407 7,211,919
=======================================================================
THRIFTS & MORTGAGE FINANCE-3.61%
Fannie Mae 96,290 5,718,663
- -----------------------------------------------------------------------
Federal Agricultural Mortgage Corp.-Class
C(b) 104,131 2,825,074
=======================================================================
8,543,737
=======================================================================
Total Common Stocks & Other Equity
Interests (Cost $187,804,601) 231,330,632
=======================================================================
</Table>
<Table>
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
MONEY MARKET FUNDS-1.50%
Liquid Assets Portfolio-Institutional
Class(c) 1,765,125 $ 1,765,125
- -----------------------------------------------------------------------
Premier Portfolio-Institutional Class(c) 1,765,125 1,765,125
=======================================================================
Total Money Market Funds
(Cost $3,530,250) 3,530,250
=======================================================================
TOTAL INVESTMENTS (excluding investments
purchased with cash collateral from
securities loaned)-99.30% (Cost
$191,334,851) 234,860,882
=======================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-3.26%
Liquid Assets Portfolio-Institutional
Class(c)(d) 7,718,100 7,718,100
=======================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $7,718,100) 7,718,100
=======================================================================
TOTAL INVESTMENTS-102.56%
(Cost $199,052,951) 242,578,982
=======================================================================
OTHER ASSETS LESS LIABILITIES-(2.56)% (6,039,148)
=======================================================================
NET ASSETS-100.00% $236,539,834
_______________________________________________________________________
=======================================================================
</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 was out on loan at December 31, 2006.
(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 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, 2006
<Table>
ASSETS:
Investments, at value (cost $187,804,601)* $231,330,632
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $11,248,350) 11,248,350
===========================================================
Total investments (cost $199,052,951) 242,578,982
===========================================================
Cash 6,637
- -----------------------------------------------------------
Receivables for:
Investments sold 1,862,563
- -----------------------------------------------------------
Fund shares sold 348,231
- -----------------------------------------------------------
Dividends 125,241
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 15,242
- -----------------------------------------------------------
Other assets 31,255
===========================================================
Total assets 244,968,151
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Fund shares reacquired 422,914
- -----------------------------------------------------------
Trustee deferred compensation and
retirement plans 25,062
- -----------------------------------------------------------
Collateral upon return of securities loaned 7,718,100
- -----------------------------------------------------------
Accrued distribution fees 91,208
- -----------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 3,724
- -----------------------------------------------------------
Accrued transfer agent fees 87,744
- -----------------------------------------------------------
Accrued operating expenses 79,565
===========================================================
Total liabilities 8,428,317
===========================================================
Net assets applicable to shares outstanding $236,539,834
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $189,459,295
- -----------------------------------------------------------
Undistributed net investment income (loss) (22,790)
- -----------------------------------------------------------
Undistributed net realized gain from
investment securities and foreign
currencies 3,577,298
- -----------------------------------------------------------
Unrealized appreciation of investment
securities 43,526,031
===========================================================
$236,539,834
___________________________________________________________
===========================================================
NET ASSETS:
Class A $113,672,332
___________________________________________________________
===========================================================
Class B $ 51,970,011
___________________________________________________________
===========================================================
Class C $ 26,435,131
___________________________________________________________
===========================================================
Class R $ 448,893
___________________________________________________________
===========================================================
Institutional Class $ 44,013,467
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 8,222,152
___________________________________________________________
===========================================================
Class B 3,906,927
___________________________________________________________
===========================================================
Class C 1,988,333
___________________________________________________________
===========================================================
Class R 32,649
___________________________________________________________
===========================================================
Institutional Class 3,126,767
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 13.83
- -----------------------------------------------------------
Offering price per share: $ 14.63
(Net asset value of $13.83 divided by
94.50%)
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 13.30
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 13.30
___________________________________________________________
===========================================================
Class R:
Net asset value and offering price per
share $ 13.75
___________________________________________________________
===========================================================
Institutional Class:
Net asset value and offering price per
share $ 14.08
___________________________________________________________
===========================================================
</Table>
* At December 31, 2006, securities with an aggregate value of $7,319,605 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, 2006
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $4,268) $ 2,496,433
- --------------------------------------------------------------------------
Dividends from affiliated money market funds (includes
securities lending income of $3,975) 448,990
==========================================================================
Total investment income 2,945,423
==========================================================================
EXPENSES:
Advisory fees 1,936,414
- --------------------------------------------------------------------------
Administrative services fees 95,672
- --------------------------------------------------------------------------
Custodian fees 27,215
- --------------------------------------------------------------------------
Distribution fees:
Class A 298,523
- --------------------------------------------------------------------------
Class B 598,502
- --------------------------------------------------------------------------
Class C 284,261
- --------------------------------------------------------------------------
Class R 1,621
- --------------------------------------------------------------------------
Transfer agent fees -- A, B, C and R 757,193
- --------------------------------------------------------------------------
Transfer agent fees -- Institutional 2,733
- --------------------------------------------------------------------------
Trustees' and officer's fees and benefits 21,827
- --------------------------------------------------------------------------
Other 262,344
==========================================================================
Total expenses 4,286,305
==========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (155,511)
==========================================================================
Net expenses 4,130,794
==========================================================================
Net investment income (loss) (1,185,371)
==========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain from:
Investment securities (includes net gains from securities
sold to affiliates of $142,880) 34,079,487
- --------------------------------------------------------------------------
Foreign currencies 34,328
==========================================================================
34,113,815
==========================================================================
Change in net unrealized appreciation (depreciation) of
investment securities (14,983,172)
==========================================================================
Net gain from investment securities and foreign currencies 19,130,643
==========================================================================
Net increase in net assets resulting from operations $ 17,945,272
__________________________________________________________________________
==========================================================================
</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, 2006 and 2005
<Table>
<Caption>
2006 2005
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (1,185,371) $ (1,737,932)
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 34,113,815 8,411,791
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (14,983,172) 16,912,296
==========================================================================================
Net increase in net assets resulting from operations 17,945,272 23,586,155
==========================================================================================
Distributions to shareholders from net realized gains:
Class A (13,617,000) --
- ------------------------------------------------------------------------------------------
Class B (6,511,768) --
- ------------------------------------------------------------------------------------------
Class C (3,286,412) --
- ------------------------------------------------------------------------------------------
Class R (51,729) --
- ------------------------------------------------------------------------------------------
Institutional Class (5,072,768) --
==========================================================================================
Decrease in net assets resulting from distributions (28,539,677) --
==========================================================================================
Share transactions-net:
Class A (9,269,776) (127,307)
- ------------------------------------------------------------------------------------------
Class B (14,926,594) 112,153
- ------------------------------------------------------------------------------------------
Class C (2,097,247) (191,498)
- ------------------------------------------------------------------------------------------
Class R 296,385 130,063
- ------------------------------------------------------------------------------------------
Institutional Class 20,466,955 15,452,598
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (5,530,277) 15,376,009
==========================================================================================
Net increase (decrease) in net assets (16,124,682) 38,962,164
==========================================================================================
NET ASSETS:
Beginning of year 252,664,516 213,702,352
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(22,790) and $(15,873), respectively) $236,539,834 $252,664,516
__________________________________________________________________________________________
==========================================================================================
</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, 2006
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 seven 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 long-term growth of capital.
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 or official closing price as of the close of
the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on that
day. Securities traded in the over-the-counter market are valued based on
the prices furnished by independent pricing services, in which case the
securities may be considered fair valued, or by market makers. 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 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 open-end and closed-end registered
investment companies that trade on an exchange are valued at the last sales
price or official closing price as of the close of the customary trading
session on the exchange where the security is principally traded.
Debt obligations (including convertible bonds) and unlisted equities 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.
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. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued at
the market quotations. Because trading hours for certain foreign securities
end before the close of the NYSE, closing market quotations may become
unreliable. If between the time trading ends on a particular security and
the close of the customary trading session on the NYSE, events occur that
are significant and may make the closing price unreliable, the Fund may
fair value the security. If 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 prices are not provided by any of the above
methods may be 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.
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
F-6
AIM Mid Cap Basic Value Fund
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 the 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 treat 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 to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that 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. ACCOUNTING ESTIMATES -- 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.
H. INDEMNIFICATIONS -- 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.
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 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.
The Fund may invest in foreign securities which may be subject to foreign
taxes on income, gains on investments or currency repatriation, a portion
of which may be recoverable. Taxes are accrued based on the Fund's current
interpretation of tax regulations and rates that exist in the foreign
markets in which the Fund invests.
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.
Fluctuations in the value of these contracts are recorded as unrealized
appreciation (depreciation) until the contracts are closed. When these
contracts are closed, realized gains (losses) are recorded. Realized and
unrealized gains and losses on these contracts are included in the
Statement of Operations. The Fund could be exposed to risk, which may be in
excess of the amount reflected in the Statement of Assets and Liabilities,
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-7
AIM Mid Cap Basic Value 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 $1 billion 0.80%
- -------------------------------------------------------------------
Next $4 billion 0.75%
- -------------------------------------------------------------------
Over $5 billion 0.70%
__________________________________________________________________
===================================================================
</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 0.745%
- --------------------------------------------------------------------
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). 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, 2006, AIM waived advisory fees of $135,636.
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, 2006, AMVESCAP reimbursed expenses of the Fund in
the amount of $2,762.
The Trust has entered into a master administrative services agreement with
AIM pursuant to which the Fund has agreed to pay AIM for certain administrative
costs incurred in providing accounting services, to the Fund. For the year ended
December 31, 2006, expenses incurred under the agreement are shown in the
Statement of Operations as administrative services fees.
The Trust has entered into a transfer agency and service agreement with AIM
Investment Services, Inc. ("AIS") pursuant to which the Fund has agreed to pay
AIS a fee for providing transfer agency and shareholder services to the Fund and
reimburse AIS for certain expenses incurred by AIS in the course of providing
such services. AIS may make payments to intermediaries that provide omnibus
account services, sub-accounting services and/or networking services. All fees
payable by AIS to intermediaries that provide omnibus account services or
sub-accounting are charged back to the Fund, subject to certain limitations
approved by the Trust's Board of Trustees. For the year ended December 31, 2006,
expenses incurred under the agreement are shown in the Statement of Operations
as transfer agent fees.
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 the Plan payments, up to 0.25% of the
average daily net assets of each class of 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.
For the year ended December 31, 2006, expenses incurred under the Plans are
shown in the Statement of Operations as distribution fees.
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, 2006, ADI advised the Fund that it retained $57,770 in
front-end sales commissions from the sale of Class A shares and $1,641, $57,303,
$3,695 and $0 from Class A, Class B, Class C and Class R shares, respectively,
for CDSC imposed on redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS and/or ADI.
F-8
AIM Mid Cap Basic Value Fund
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to procedures approved by the Board of Trustees,
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, 2006.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 12/31/06 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 9,368,194 $ 49,750,530 $ (57,353,599) $ -- $1,765,125 $222,328 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-
Institutional
Class -- 33,773,514 (32,008,389) -- 1,765,125 106,220 --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 9,368,194 20,277,151 (29,645,345) -- -- 116,467 --
==================================================================================================================================
Subtotal $18,736,388 $103,801,195 $(119,007,333) $ -- $3,530,250 $445,015 $ --
==================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 12/31/06 INCOME* GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 6,623,640 $ 84,931,195 $ (83,836,735) $ -- $ 7,718,100 $ 3,975 $ --
==================================================================================================================================
Total
Investments
in
Affiliates $25,360,028 $188,732,390 $(202,844,068) $ -- $11,248,350 $448,990 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</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, for the year ended December 31, 2006, the Fund
engaged in securities sales of $304,380 which resulted in net realized gains of
$142,880 and securities purchases of $417,193.
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, (ii) custodian credits which result
from periodic overnight cash balances at the custodian and (iii) a one time
custodian fee credit to be used to offset future custodian fees. For the year
ended December 31, 2006, the Fund received credits from these arrangements,
which resulted in the reduction of the Fund's total expenses of $17,113.
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, 2006, the Fund paid legal fees of $4,648
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 Securities and Exchange Commission, 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, 2006, 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 bank 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 contractually agreed upon rate.
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 any loss on
the collateral invested.
At December 31, 2006, securities with an aggregate value of $7,319,605 were
on loan to brokers. The loans were secured by cash collateral of $7,718,100
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended December 31, 2006, the Fund received dividends on cash
collateral investments of $3,975 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 December 31, 2006 and
2005 was as follows:
<Table>
<Caption>
2006 2005
- -----------------------------------------------------------------------------------
Distributions paid from long-term capital gains $28,539,677 $ --
___________________________________________________________________________________
===================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2006, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2006
- ----------------------------------------------------------------------------
Undistributed long-term gain $ 6,004,266
- ----------------------------------------------------------------------------
Net unrealized appreciation -- investments 41,099,063
- ----------------------------------------------------------------------------
Temporary book/tax differences (22,790)
- ----------------------------------------------------------------------------
Shares of beneficial interest 189,459,295
============================================================================
Total net assets $236,539,834
____________________________________________________________________________
============================================================================
</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 net unrealized
appreciation difference is attributable primarily to losses on wash sales.
F-10
AIM Mid Cap Basic Value Fund
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 benefits.
The Fund does not have a capital loss carryforward as of December 31, 2006.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the year ended December 31, 2006 was $107,643,453 and
$137,442,910, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $42,467,333
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (1,368,270)
===============================================================================
Net unrealized appreciation of investment securities $41,099,063
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $201,479,919.
</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, 2006, undistributed net
investment income (loss) was increased by $1,178,454, undistributed net realized
gain was decreased by $696,320 and shares of beneficial interest decreased by
$482,134. This reclassification had no effect on the net assets of the Fund.
F-11
AIM Mid Cap Basic Value Fund
NOTE 12--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A, Class B,
Class C, Class R and Institutional Class. Class A shares are sold with a
front-end sales charge unless certain waiver criteria are met. 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 on or about the month-end which is at
least eight years after the date of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2006(A) 2005
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 1,904,423 $ 27,969,183 4,227,501 $ 56,368,546
- ----------------------------------------------------------------------------------------------------------------------
Class B 553,749 7,875,513 1,654,961 21,569,582
- ----------------------------------------------------------------------------------------------------------------------
Class C 346,553 4,923,116 871,236 11,314,095
- ----------------------------------------------------------------------------------------------------------------------
Class R 21,100 309,171 10,187 137,391
- ----------------------------------------------------------------------------------------------------------------------
Institutional Class 1,082,906 15,996,988 1,189,861 15,990,676
======================================================================================================================
Issued as reinvestment of dividends:
Class A 949,174 13,003,685 -- --
- ----------------------------------------------------------------------------------------------------------------------
Class B 463,363 6,107,119 -- --
- ----------------------------------------------------------------------------------------------------------------------
Class C 242,476 3,195,833 -- --
- ----------------------------------------------------------------------------------------------------------------------
Class R 3,798 51,728 -- --
- ----------------------------------------------------------------------------------------------------------------------
Institutional Class 363,900 5,072,768 -- --
======================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 319,661 4,625,122 288,275 3,841,999
- ----------------------------------------------------------------------------------------------------------------------
Class B (329,478) (4,625,122) (295,324) (3,841,999)
======================================================================================================================
Reacquired:
Class A (3,776,685) (54,867,766) (4,467,385) (60,337,852)
- ----------------------------------------------------------------------------------------------------------------------
Class B (1,715,734) (24,284,104) (1,348,862) (17,615,430)
- ----------------------------------------------------------------------------------------------------------------------
Class C (725,525) (10,216,196) (892,221) (11,505,593)
- ----------------------------------------------------------------------------------------------------------------------
Class R (4,371) (64,514) (581) (7,328)
- ----------------------------------------------------------------------------------------------------------------------
Institutional Class (41,552) (602,801) (39,882) (538,078)
======================================================================================================================
(342,242) $ (5,530,277) 1,197,766 $ 15,376,009
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and it owns 8% of the outstanding shares
of the Fund. 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. In addition, 17% 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.
NOTE 13--NEW ACCOUNTING STANDARD
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement for a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The provisions for FIN 48 are effective for
fiscal years beginning after December 15, 2006. Management is currently
assessing the impact of FIN 48, if any, on the Fund's financial statements and
currently intends for the Fund to adopt FIN 48 provisions during the fiscal year
ending December 31, 2007.
F-12
AIM Mid Cap Basic Value 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,
------------------------------------------------------------
2006 2005 2004 2003 2002
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 14.48 $ 13.12 $ 11.28 $ 8.23 $ 9.99
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)(a) (0.07) (0.10)(a) (0.08) (0.06)(a)
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.25 1.43 1.93 3.13 (1.70)
- --------------------------------------------------------------------------------------------------------------------------
Increase from payments by affiliates -- -- 0.01 -- --
==========================================================================================================================
Total from investment operations 1.21 1.36 1.84 3.05 (1.76)
==========================================================================================================================
Less distributions from net realized gains (1.86) -- -- -- --
==========================================================================================================================
Net asset value, end of period $ 13.83 $ 14.48 $ 13.12 $ 11.28 $ 8.23
__________________________________________________________________________________________________________________________
==========================================================================================================================
Total return(b) 8.47% 10.37% 16.31%(c) 37.06% (17.62)%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $113,672 $127,775 $115,164 $55,372 $39,130
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.52%(d) 1.51% 1.67% 1.80% 1.80%
- --------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.58%(d) 1.57% 1.69% 1.92% 1.93%
==========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.30)%(d) (0.51)% (0.85)% (1.00)% (0.70)%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Portfolio turnover rate 46% 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.
(c) Total return is after reimbursement the advisor has agreed to pay 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 $119,409,249.
<Table>
<Caption>
CLASS B
------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------
2006 2005 2004 2003 2002
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 14.10 $ 12.87 $ 11.14 $ 8.18 $ 9.99
- --------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.15)(a) (0.16) (0.18)(a) (0.13) (0.12)(a)
- --------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.21 1.39 1.90 3.09 (1.69)
- --------------------------------------------------------------------------------------------------------------------
Increase from payments by affiliates -- -- 0.01 -- --
====================================================================================================================
Total from investment operations 1.06 1.23 1.73 2.96 (1.81)
====================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- -- (0.00)
- --------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (1.86) -- -- -- --
====================================================================================================================
Total distributions (1.86) -- -- -- (0.00)
====================================================================================================================
Net asset value, end of period $ 13.30 $ 14.10 $ 12.87 $ 11.14 $ 8.18
____________________________________________________________________________________________________________________
====================================================================================================================
Total return(b) 7.63% 9.56% 15.53%(c) 36.19% (18.12)%
____________________________________________________________________________________________________________________
====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $51,970 $69,594 $63,374 $38,165 $21,204
____________________________________________________________________________________________________________________
====================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.27%(d) 2.21% 2.32% 2.45% 2.45%
- --------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.33%(d) 2.27% 2.34% 2.57% 2.58%
====================================================================================================================
Ratio of net investment income (loss) to average net assets (1.05)%(d) (1.21)% (1.50)% (1.65)% (1.35)%
____________________________________________________________________________________________________________________
====================================================================================================================
Portfolio turnover rate 46% 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.
(c) Total return is after reimbursement the advisor has agreed to pay 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 $59,850,167.
F-13
AIM Mid Cap Basic Value Fund
NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS C
------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------
2006 2005 2004 2003 2002
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 14.09 $ 12.86 $ 11.13 $ 8.18 $ 9.99
- --------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.15)(a) (0.16) (0.18)(a) (0.12) (0.12)(a)
- --------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.22 1.39 1.90 3.07 (1.69)
- --------------------------------------------------------------------------------------------------------------------
Increase from payments by affiliates -- -- 0.01 -- --
====================================================================================================================
Total from investment operations 1.07 1.23 1.73 2.95 (1.81)
====================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- -- (0.00)
- --------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (1.86) -- -- -- --
====================================================================================================================
Total distributions (1.86) -- -- -- (0.00)
====================================================================================================================
Net asset value, end of period $ 13.30 $ 14.09 $ 12.86 $ 11.13 $ 8.18
____________________________________________________________________________________________________________________
====================================================================================================================
Total return(b) 7.70% 9.56% 15.54%(c) 36.06% (18.12)%
____________________________________________________________________________________________________________________
====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $26,435 $29,946 $27,601 $13,422 $ 8,059
____________________________________________________________________________________________________________________
====================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.27%(d) 2.21% 2.32% 2.45% 2.45%
- --------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.33%(d) 2.27% 2.34% 2.57% 2.58%
====================================================================================================================
Ratio of net investment income (loss) to average net assets (1.05)%(d) (1.21)% (1.50)% (1.65)% (1.35)%
____________________________________________________________________________________________________________________
====================================================================================================================
Portfolio turnover rate 46% 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.
(c) Total return is after reimbursement the advisor has agreed to pay 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 $28,426,050.
<Table>
<Caption>
CLASS R
--------------------------------------
APRIL 30, 2004
YEAR ENDED (DATE SALES
DECEMBER 31, COMMENCED) TO
-------------------- DECEMBER 31,
2006 2005 2004
- ----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 14.44 $13.11 $ 11.88
- ----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.08)(a) (0.05) (0.08)(a)
- ----------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 1.25 1.38 1.30
- ----------------------------------------------------------------------------------------------------
Increase from payments by affiliates -- -- 0.01
====================================================================================================
Total from investment operations 1.17 1.33 1.23
====================================================================================================
Less distributions from net realized gains (1.86) -- --
====================================================================================================
Net asset value, end of period $ 13.75 $14.44 $ 13.11
____________________________________________________________________________________________________
====================================================================================================
Total return(b) 8.22% 10.15% 10.35%(c)
____________________________________________________________________________________________________
====================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 449 $ 175 $ 33
____________________________________________________________________________________________________
====================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.77%(d) 1.71% 1.78%(e)
- ----------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.83%(d) 1.77% 1.80%(e)
====================================================================================================
Ratio of net investment income (loss) to average net assets (0.55)%(d) (0.71)% (0.96)%(e)
____________________________________________________________________________________________________
====================================================================================================
Portfolio turnover rate(f) 46% 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 reimbursement the advisor has agreed to pay 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 $324,240.
(e) Annualized.
(f) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
F-14
AIM Mid Cap Basic Value Fund
NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
---------------------------------------
APRIL 30, 2004
YEAR ENDED (DATE SALES
DECEMBER 31, COMMENCED) TO
--------------------- DECEMBER 31,
2006 2005 2004
- -----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 14.62 $ 13.17 $ 11.88
- -----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.05(a) 0.01 (0.02)(a)
- -----------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 1.27 1.44 1.30
- -----------------------------------------------------------------------------------------------------
Increase from payments by affiliates -- -- 0.01
=====================================================================================================
Total from investment operations 1.32 1.45 1.29
=====================================================================================================
Less distributions from net realized gains (1.86) -- --
=====================================================================================================
Net asset value, end of period $ 14.08 $ 14.62 $ 13.17
_____________________________________________________________________________________________________
=====================================================================================================
Total return(b) 9.15% 11.01% 10.86%(c)
_____________________________________________________________________________________________________
=====================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $44,013 $25,174 $ 7,530
_____________________________________________________________________________________________________
=====================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.92%(d) 0.92% 1.03%(e)
- -----------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.98%(d) 0.98% 1.05%(e)
=====================================================================================================
Ratio of net investment income (loss) to average net assets 0.30%(d) (0.08)% (0.21)%(e)
_____________________________________________________________________________________________________
=====================================================================================================
Portfolio turnover rate(f) 46% 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 reimbursement the advisor has agreed to pay 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 $34,042,083.
(e) Annualized.
(f) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
NOTE 15--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), 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. 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 August 30, 2005, the West Virginia Office of the State
Auditor -- Securities Commission ("WVASC") issued a Summary Order to Cease and
Desist and Notice of Right to Hearing to AIM and ADI (Order No. 05-1318). The
WVASC makes findings of fact that AIM and ADI entered into certain arrangements
permitting market timing of the AIM Funds and failed to disclose these
arrangements in the prospectuses for such Funds, and conclusions of law to the
effect that AIM and ADI violated the West Virginia securities laws. The WVASC
orders AIM and ADI to cease any further violations and seeks to impose monetary
sanctions, including restitution to affected investors, disgorgement of fees,
reimbursement of investigatory, administrative and legal costs and an
"administrative assessment," to be determined by the Commissioner. Initial
research indicates that these damages could be limited or capped by statute.
F-15
AIM Mid Cap Basic Value Fund
NOTE 15--LEGAL PROCEEDINGS--(CONTINUED)
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; 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
issues 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. Based on orders issued by the MDL Court,
all claims asserted against the AIM Funds that have been transferred to the MDL
Court have been dismissed, although certain Funds remain nominal defendants in
the Consolidated Amended Fund Derivative Complaint. On September 15, 2006, the
MDL Court granted the AMVESCAP defendants' motion to dismiss the Amended Class
Action Complaint for Violations of ERISA and dismissed such Complaint. The
plaintiff has commenced an appeal from that decision.
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 security
holders. IFG, AIM and ADI have advised the Fund that they 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.
F-16
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, 2006, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the periods indicated, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PRICEWATERHOUSECOOPERS LLP
February 20, 2007
Houston, Texas
F-17
AIM Mid Cap Basic Value Fund
TAX INFORMATION
Form 1099-DIV, Form 1042-S and other year-end tax information provide
shareholders with actual calendar year amounts that should be included in their
tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the
Internal Revenue Code or to meet a specific state's requirement.
The Fund designates the following amounts or, if subsequently determined to be
different, the maximum amount allowable for its fiscal year ended December 31,
2006:
FEDERAL AND STATE INCOME TAX
<Table>
Long-Term Capital Gain Dividends $28,536,677
</Table>
NON-RESIDENT ALIEN SHAREHOLDER INFORMATION
The percentages of qualifying assets not subject to the U.S. estate tax for
the fiscal quarters ended March 31, 2006, June 30, 2006, September 30, 2006 and
December 31, 2006 were 9.52%, 11.72%, 10.29%, and 7.27%, respectively.
F-18
AIM Mid Cap Basic Value Fund
TRUSTEES AND OFFICERS
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 110
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
NAME, YEAR OF BIRTH AND AND/ OTHER
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- --------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- --------------------------------------------------------------------------------------------------------------------------
Martin L. Flanagan(1) -- 1960 2007 Director, Chief Executive Officer and None
Trustee President, AMVESCAP PLC (parent of AIM
and a global investment management
firm); Chairman, A I M Advisors, Inc.
(registered investment advisor); and
Director, Chairman, Chief Executive
Officer and President, AVZ Inc. (holding
company); INVESCO North American
Holdings, Inc. (holding company);
Chairman and President, AMVESCAP Group
Services, Inc. (service provider);
Trustee, The AIM Family of Funds(R);
Chairman, Investment Company Institute;
and Member of Executive Board, SMU Cox
School of Business
Formerly: President, Co-Chief Executive
Officer, Co-President, Chief Operating
Officer and Chief Financial Officer,
Franklin Resources, Inc. (global
investment management organization)
- --------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(2) -- 1946 1992 Director and Chairman, A I M Management None
Trustee and Vice Chair Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC; Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm) and
Trustee and Vice Chair of The AIM Family
of Funds--Registered Trademark--
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);
Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and President
and Principal Executive Officer of The
AIM Family of Funds--Registered
Trademark--
- --------------------------------------------------------------------------------------------------------------------------
Philip A. Taylor(3) -- 1954 2006 Director, Chief Executive Officer and None
Trustee, President and President, A I M Management Group Inc.,
Principal AIM Mutual Fund Dealer Inc. (registered
Executive Officer broker dealer), AIM Funds Management
Inc. (registered investment advisor) and
1371 Preferred Inc. (holding company);
Director and President, A I M Advisors,
Inc., INVESCO Funds Group, Inc.
(registered investment advisor and
register transfer agent) and AIM GP
Canada Inc. (general partner for a
limited partnership); 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); Director, President and
Chairman, AVZ Callco Inc. (holding
company); AMVESCAP Inc. (holding
company) and AIM Canada Holdings Inc.
(holding company); Director and Chief
Executive Officer, AIM Trimark Corporate
Class Inc. (formerly AIM Trimark Global
Fund Inc.) (corporate mutual fund
company) and AIM Trimark Canada Fund
Inc. (corporate mutual fund company);
Trustee, President and Principal
Executive Officer of The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); Trustee and
Executive Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); and Manager,
Powershares Capital Management LLC
Formerly: President and Principal
Executive Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); Chairman, AIM
Canada Holdings, Inc.; Executive Vice
President and Chief Operations Officer,
AIM Funds Management Inc.; President,
AIM Trimark Global Fund Inc. and AIM
Trimark Canada Fund Inc.; and Director,
Trimark Trust (federally regulated
Canadian Trust Company)
- --------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- --------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- --------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
- --------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company
Formerly: Partner, law firm of Baker & (2 portfolios))
McKenzie
- --------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Founder, Green, Manning & Bunch Ltd., None
Trustee (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 (property casualty company)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and Director of various
affiliated Volvo companies; and
Director, Magellan Insurance Company
- --------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund
company); and Owner, Dos Angelos Ranch, (non-profit)
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
- --------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- --------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- --------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired Director, Mainstay VP Series
Trustee Formerly: Partner, Deloitte & Touche Funds, Inc. (21 portfolios)
- --------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Flanagan was appointed as Trustee of the Trust on February 24, 2007. Mr.
Flanagan is considered an interested person of the Trust because he is an
officer of the advisor to the Trust, and an officer and a director of
AMVESCAP PLC, parent of the advisor to the Trust.
(2) 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.
(3) Mr. Taylor 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.
F-19
TRUSTEES AND OFFICERS--(CONTINUED)
AIM Mid Cap Basic Value Fund
<Table>
<Caption>
TRUSTEE
NAME, YEAR OF BIRTH AND AND/ OTHER
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- --------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- --------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer N/A
Senior Vice President and of The AIM Family of Funds--Registered
Senior Officer Trademark--
Formerly: Director of Compliance and
Assistant General Counsel, ICON
Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- --------------------------------------------------------------------------------------------------------------------------
John M. Zerr -- 1962 2006 Director, Senior Vice President, N/A
Senior Vice President, Chief Secretary and General Counsel, A I M
Legal Officer and Secretary Management Group Inc. and A I M
Advisors, Inc.; Director, Vice President
and Secretary, INVESCO Distributors,
Inc.; Vice President and Secretary,
A I M Capital Management, Inc., AIM
Investment Services, Inc., and Fund
Management Company; Senior Vice
President and Secretary, A I M
Distributors, Inc.; Director and Vice
President, INVESCO Funds Group Inc.;
Senior Vice President, Chief Legal
Officer and Secretary of The AIM Family
of Funds--Registered Trademark--; and
Manager, Powershares Capital Management
LLC
Formerly: Chief Operating Officer,
Senior Vice President, General Counsel,
and Secretary, Liberty Ridge Capital,
Inc. (an investment adviser); Vice
President and Secretary, PBHG Funds (an
investment company); Vice President and
Secretary, PBHG Insurance Series Fund
(an investment company); General Counsel
and Secretary, Pilgrim Baxter Value
Investors (an investment adviser); Chief
Operating Officer, General Counsel and
Secretary, Old Mutual Investment
Partners (a broker-dealer); General
Counsel and Secretary, Old Mutual Fund
Services (an administrator); General
Counsel and Secretary, Old Mutual
Shareholder Services (a shareholder
servicing center); Executive Vice
President, General Counsel and
Secretary, Old Mutual Capital, Inc. (an
investment adviser); and Vice President
and Secretary, Old Mutual Advisors Funds
(an investment company)
- --------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Global Compliance Director, AMVESCAP N/A
Vice President PLC; and Vice President of The AIM
Family of Funds--Registered Trademark--
Formerly: Senior Vice President, A I M
Management Group Inc. (financial
services holding company); Senior Vice
President and Chief Compliance Officer,
A I M Advisors, Inc. and The AIM Family
of Funds--Registered Trademark--; Vice
President and Chief Compliance Officer,
A I M Capital Management, Inc. and A I M
Distributors, Inc.; Vice President, AIM
Investment Services, Inc. and Fund
Management Company; Senior Vice
President and Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; and Senior Vice President
and Compliance Director, Delaware
Investments Family of Funds
- --------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Senior Vice President and General
Vice President Counsel, AMVESCAP PLC; Director, INVESCO
Funds Group, Inc.; and Vice President of
The AIM Family of Funds--Registered
Trademark--
Formerly: Director, Vice President and N/A
General Counsel, Fund Management
Company; Director, Senior Vice
President, Secretary and General
Counsel, A I M Management Group Inc. and
A I M Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Senior Vice President, A I M
Distributors, Inc.; Vice President,
A I M Capital Management, Inc. and AIM
Investment Services, Inc.; Senior Vice
President, Chief Legal Officer and
Secretary of The AIM Family of
Funds--Registered Trademark--; Chief
Executive Officer and President, INVESCO
Funds Group, Inc.; and Senior Vice
President, and General Counsel, Liberty
Financial Companies, Inc. and Senior
Vice President and General Counsel
Liberty Funds Group, LLC
- --------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.; and Vice President,
Financial Officer and Treasurer and Principal Officer of The
Treasurer AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- --------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1992 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc. and The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); and
President and Principal Executive
Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust Only)
Formerly: Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only)
- --------------------------------------------------------------------------------------------------------------------------
Lance A. Rejsek -- 1967 2005 Anti-Money Laundering Compliance N/A
Anti-Money Laundering Officer, A I M Advisors, Inc., A I M
Compliance Officer Capital Management, Inc., A I M
Distributors, Inc., AIM Investment
Services, Inc., AIM Private Asset
Management, Inc., Fund Management
Company and The AIM Family of
Funds--Registered Trademark--
Formerly: Manager of the Fraud
Prevention Department, AIM Investment
Services, Inc.
- --------------------------------------------------------------------------------------------------------------------------
Todd L. Spillane -- 1958 2006 Senior Vice President, A I M Management N/A
Chief Compliance Officer Group Inc.; Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; 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: Global Head of Product
Development, AIG-Global Investment
Group, Inc.; Chief Compliance Officer
and Deputy General Counsel,
AIG-SunAmerica Asset Management; and
Chief Compliance Officer, Chief
Operating Officer and Deputy General
Counsel, American General Investment
Management
- --------------------------------------------------------------------------------------------------------------------------
</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, 51st & Frankel LLP P.O. Box 4739 225 Franklin Street
Floor 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Philadelphia, PA 19103-7599 Americas
New York, NY 10036-2714
</Table>
F-20
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REGISTER FOR EDELIVERY
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This AIM service is provided by AIM Investment Services, Inc.
If used after April 20, 2007, 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 and exchange-traded funds distributed by A I M
Distributors, Inc.
A I M Management Group Inc. has provided leadership in the investment management
industry since 1976. AIM Investment Services, Inc. is the transfer agent for the
products and services represented by AIM Investments. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $463 billion in assets under management as of December 31, 2006.
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.
AIMinvestments.com MCBV-AR-1 A I M Distributors, Inc.
[YOUR GOALS. OUR SOLUTIONS.]
- REGISTERED TRADEMARK -
Exchange- College Separately
Mutual Traded Retirement Savings Management Offshore Cash
Funds Funds Products Annuities Plans Accounts Products Managed
- ------ --------- ---------- --------- ------- ---------- -------- -------
[AIM INVESTMENTS LOGO]
- REGISTERED TRADEMARK -
AIM SELECT EQUITY FUND
Annual Report to Shareholders - December 31, 2006
[COVER GLOBE IMAGE]
DOMESTIC EQUITY
Large-Cap Blend
Table of Contents
Supplemental Information ................................................ 2
Letters to Shareholders ................................................. 3
Performance Summary ..................................................... 5
Management Discussion ................................................... 5
Fund Expenses ........................................................... 7
Long-term Fund Performance .............................................. 8
Approval of Advisory Agreement .......................................... 10
Schedule of Investments ................................................. F-1
Financial Statements .................................................... F-5
Notes to Financial Statements ........................................... F-7
Financial Highlights .................................................... F-14
Auditor's Report ........................................................ F-17
Tax Disclosures ......................................................... F-18
Trustees and Officers ................................................... F-19
[AIM INVESTMENT SOLUTIONS]
[GRAPHIC] [GRAPHIC] [GRAPHIC]
[DOMESTIC [INTERNATIONAL/ [SECTOR
EQUITY] GLOBAL EQUITY] EQUITY]
[GRAPHIC] [GRAPHIC] [GRAPHIC]
[FIXED [ALLOCATION [DIVERSIFIED
INCOME] SOLUTIONS] PORTFOLIOS]
[AIM INVESTMENTS LOGO]
-- REGISTERED TRADEMARK --
AIM Select Equity Fund
AIM SELECT EQUITY FUND SEEKS TO ACHIEVE LONG-TERM GROWTH OF CAPITAL.
- - Unless otherwise stated, information presented in this report is as of
December 31, 2006, and is based on total net assets.
About share classes
- - Class B shares are not available as an investment for retirement plans
maintained pursuant to Section 401 of the Internal Revenue Code, including
401(k) plans, money purchase pension plans and profit sharing plans. Plans
that had existing accounts invested in Class B shares prior to September
30, 2003, will continue to be allowed to make additional purchases.
Principal risks of investing in the Fund
- - Foreign securities have additional risks, including exchange rate changes,
political and economic upheaval, the relative lack of information about
these companies, relatively low market liquidity and the potential lack of
strict financial and accounting controls and standards.
- - Prices of equity securities change in response to many factors including
the historical and prospective earnings of the issuer, the value of its
assets, general economic conditions, interest rates, investor perceptions
and market liquidity.
About indexes used in this report
- - The unmanaged STANDARD & POOR'S COMPOSITE INDEX OF 500 STOCKS (the S&P 500
--REGISTERED TRADEMARK-- Index) is an index of common stocks frequently
used as a general measure of U.S. stock market performance.
- - The unmanaged RUSSELL 3000 --REGISTERED TRADEMARK-- INDEX is an index of
common stocks that measures performance of the largest 3,000 U.S. companies
based on market capitalization. The Russell 3000 Index is a
trademark/service mark of the Frank Russell Company. Russell
--REGISTERED TRADEMARK-- is a trademark of the Frank Russell Company.
- - The unmanaged LIPPER MULTI-CAP CORE FUNDS INDEX represents an average of
the performance of the 30 largest multi-capitalization core funds tracked
by Lipper Inc., an independent mutual fund performance monitor.
- - The Fund is not managed to track the performance of any particular index,
including the indexes defined here, and consequently, the performance of
the Fund may deviate significantly from the performance of the indexes.
- - A direct investment cannot be made in an index. Unless otherwise indicated,
index results include reinvested dividends, and they do not reflect sales
charges. Performance of an index of funds reflects fund expenses;
performance of a market index does not.
Other information
- - Industry classifications used in this report are generally according to the
Global Industry Classification Standard, which was developed by and is the
exclusive property and a service mark of Morgan Stanley Capital
International Inc. and Standard & Poor's.
- - The returns shown in the management's discussion of Fund performance are
based on net asset values calculated for shareholder transactions.
Generally accepted accounting principles require adjustments to be made to
the net assets of the Fund at period end for financial reporting purposes,
and as such, the net asset values for shareholder transactions and the
returns based on those net asset values may differ from the net asset
values and returns reported in the Financial Highlights.
- - The Chartered Financial Analyst --REGISTERED TRADEMARK-- (CFA
--REGISTERED TRADEMARK--) designation is a globally recognized standard for
measuring the competence and integrity of investment professionals.
The Fund provides a complete list of its holdings four times in each fiscal
year, at the quarter-ends. For the second and fourth quarters, the lists appear
in the Fund's semiannual and annual reports to shareholders. For the first and
third quarters, the Fund files the lists with the Securities and Exchange
Commission (SEC) on Form N-Q. The most recent list of portfolio holdings is
available at AIMinvestments.com. From our home page, click on Products &
Performance, then Mutual Funds, then Fund Overview. Select your Fund from the
drop-down menu and click on Complete Quarterly Holdings. Shareholders can also
look up the Fund's Forms N-Q on the SEC Web site at sec.gov. Copies of the
Fund's Forms N-Q may be reviewed and copied at the SEC Public Reference Room in
Washington, D.C. You can obtain information on the operation of the Public
Reference Room, including information about duplicating fee charges, by calling
202-942-8090 or 800-732-0330, or by electronic request at the following e-mail
address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-01540 and
002-27334.
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.
Information regarding how the Fund voted proxies related to its portfolio
securities during the 12 months ended June 30, 2006, 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
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
FUND NASDAQ SYMBOLS
Class A Shares AGWFX
Class B Shares AGWBX
Class C Shares AGWCX
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIMINVESTMENTS.COM
2
AIM Select Equity Fund
[TAYLOR PHOTO]
Philip Taylor
Dear Shareholders of The AIM Family of Funds : --REGISTERED TRADEMARK--
I'm pleased to provide you with this report, which includes a discussion of how
your Fund was managed during the year ended December 31, 2006, and what factors
affected its performance. The following pages contain important information that
answers questions you may have about your investment.
In the United States and around the globe, most major stock market indexes
rose in 2006. U.S. stocks benefited from continued economic expansion and a
cessation of interest rate increases by the U.S. Federal Reserve, among other
factors. Global markets also enjoyed a good year, while all major fixed-income
indexes produced positive annual returns.
As I write this letter, the consensus outlook for the economy remains
positive. But we all know that markets are unpredictable and subject to sudden
changes based on geopolitical or economic developments. At AIM Investments
- --REGISTERED TRADEMARK-- , we believe investors can do two things to deal with
short-term market fluctuations: maintain a long-term investment horizon and
maintain a diversified portfolio. AIM Investments offers a broad product line
that gives your financial advisor options to build a portfolio that's right for
you regardless of market conditions. Our product line includes a comprehensive
range of mutual funds, including domestic, global and international equity
funds; taxable and tax-exempt fixed-income funds; and a variety of allocation
portfolios--with risk and return characteristics to match your needs. We
maintain this extensive set of product solutions because we believe in the value
of diversified investment portfolios.
To provide you even more investment options, we recently launched AIM
Independence Funds, six new target maturity funds that combine AIM retail mutual
funds and PowerShares --REGISTERED TRADEMARK-- exchange-traded funds (ETFs) as
underlying investment options. ETFs are relatively low cost and potentially
tax-efficient funds that trade like individual stocks. These AIM Independence
Funds are intended to provide broad diversification and risk/reward levels that
change as your target retirement date nears. Your financial advisor can provide
you with more information about the new AIM Independence Funds.
At AIM Investments, we believe in the value of working with a trusted
financial advisor. Your financial advisor can help you build a diversified
investment portfolio, making periodic adjustments as market conditions and your
investment goals change. While there are no guarantees with any investment
program, a long-term plan matched to your financial goals, risk tolerance and
time horizon offers the potential to keep you and your investments on track--and
your financial advisor can provide you with valuable information and advice.
I also invite you to visit us on the Internet at AIMinvestments.com. Our
Web site allows you to access your account information, review fund performance,
learn more about your fund's investment strategies and obtain general investing
information--whenever it's convenient for you.
Our commitment to you
While we're committed to maintaining a comprehensive, easy-to-navigate Web site,
we're even more committed to providing excellent customer service. Our highly
trained, courteous client services representatives are eager to answer your
questions, provide you with product information or assist you with account
transactions. I encourage you to give us an opportunity to serve you by calling
us at 800-959-4246.
All of us at AIM Investments are committed to helping you achieve your
financial goals. We work every day to earn your trust, and are grateful for the
confidence you've placed in us.
Sincerely,
/S/ PHILIP TAYLOR
- ------------------------------------
Philip Taylor
President - AIM Funds
CEO, AIM Investments
February 9, 2007
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 mutual funds
represented by AIM Investments and the PowerShares Exchange-Traded Fund Trust.
3
AIM Select Equity Fund
[CROCKETT PHOTO]
Bruce L. Crockett
Dear Fellow AIM Fund Shareholders:
Your AIM Funds Board started 2007 committed to continue working with management
at A I M Advisors, Inc. (AIM) with the goal of improving performance and
lowering shareholder expenses for the AIM Funds.
The progress made to date is encouraging. Following the general trends of
global equity markets and the U.S. stock market, the asset-weighted absolute
performance for all the equity and fixed-income AIM Funds improved to 15.08% for
the one-year period ended December 31, 2006, as compared to 9.13% for the
one-year period ended December 31, 2005, and 11.20% for the one-year period
ended December 31, 2004.(1) The asset-weighted absolute performance for the AIM
money market funds was 4.84% for the one-year period ended December 31, 2006, as
compared to 3.04% for the one-year period ended December 31, 2005, and 1.23% for
the one-year period ended December 31, 2004.(2)
In November, your Board approved, subject to shareholder vote, four more
AIM Fund consolidations. As always, these decisions were made to benefit
existing shareholders and were driven by a desire to improve the merged funds'
performance, attract new assets and reduce costs. The asset class subcommittees
of your Board's Investments Committee are meeting frequently with portfolio
managers to identify how performance might be further improved.
On the expense side, both AMVESCAP, the parent company of AIM, and AIM
continue to take advantage of opportunities for operational consolidation,
outsourcing and new technologies to improve cost efficiencies for your benefit.
Your Board, for example, takes advantage of effective software solutions that
enable us to save money through electronic information sharing. Additional
cost-saving steps are under way. I'll report more on these steps once they're
completed.
Another major Board initiative for early 2007 is the revision of the AIM
Funds' proxy voting guidelines, a project begun by a special Board task force
late last year. We expect to have new procedures in place for the 2007 spring
proxy season that will improve the ability of the AIM Funds to cast votes that
are in the best interests of all fund shareholders.
While your Board recognizes that additional work lies ahead, we are
gratified that some key external sources have recognized changes at AIM and the
AIM Funds in the past two years. An article in the November 21, 2006, issue of
Morningstar Report (Morningstar Inc. is a leading provider of independent mutual
fund investment research) included a review of AIM's progress, highlighting
lower expenses, stronger investment teams and an improved sales culture, as well
as areas for continued improvement. I'm looking forward to a return visit to
Morningstar this year to review AIM Funds' performance and governance ratings.
Your Board thanks Mark Williamson, former President and CEO of AIM
Investments, who retired from your Board in 2006. He has been succeeded on your
Board by Phil Taylor, President of AIM Funds. We extend a warm welcome to Phil.
I'd like to hear from you. Please write to me at AIM Investments, AIM
Investments Tower, 11 Greenway Plaza, Suite 100, Houston TX 77046. Let me know
your thoughts on how your Board is doing and how we might serve you better.
Sincerely,
/S/ BRUCE L. CROCKETT
- ------------------------------------
Bruce L. Crockett
Independent Chair
AIM Funds Board
February 9, 2007
(1) Past performance is no guarantee of future results. The asset-weighted
absolute performance for the equity and fixed-income AIM Funds is derived
by taking the one-year cumulative total return for each share class of each
AIM Fund in existence as of December 31, 2006, (excluding money market
funds) and weighting the performance by the calendar year average net
assets of that share class. The one-year cumulative total return includes
reinvested distributions, fund expenses and management fees, but excludes
applicable sales charges. If sales charges were included, the one-year
cumulative total return and the asset-weighted performance would be lower.
(2) Past performance is no guarantee of future results. The asset-weighted
absolute performance for the AIM money market funds is derived by taking
the one-year cumulative total return for each share class of each AIM money
market fund in existence as of December 31, 2006, and weighting the
performance by the calendar year average net assets of that share class.
The one-year cumulative total return includes reinvested distributions,
fund expenses and management fees, but excludes applicable sales charges.
If sales charges were included, the one-year cumulative total return and
the asset-weighted performance would be lower.
4
AIM Select Equity Fund
Management's discussion of Fund performance
PERFORMANCE SUMMARY
For the year ended December 31, 2006, AIM Select Equity Fund, excluding
applicable sales charges, finished the year with double-digit returns. However,
the Fund underperformed its broad market index, the S&P 500 Index, and its
style-specific benchmark, the Russell 3000 Index. The Fund had strong
performance within the information technology (IT) and financials sectors,
outperforming the Russell 3000 Index in both sectors. However, an overweight
position in health care and an underweight position in telecommunication
services were the leading detractors from performance relative to the
style-specific index.
Your Fund's long-term performance appears on pages 8-9.
FUND VS. INDEXES
Total returns, 12/31/05-12/31/06, excluding applicable sales charges. If sales
charges were included, returns would be lower.
Class A Shares 13.75%
Class B Shares 12.88
Class C Shares 12.90
S&P 500 Index (Broad Market Index) 15.78
Russell 3000 Index (Style-Specific Index) 15.72
Lipper Multi-Cap Core Funds Index (Peer Group Index) 14.14
SOURCE: LIPPER INC.
HOW WE INVEST
We manage your Fund to provide exposure to a variety of investment styles and
market capitalizations so that the Fund can be used as a core portfolio. We
believe the Fund can serve as a long-term strategic allocation around which you
can make tactical adjustments using a combination of style and market-cap
specific investment strategies.
We select stocks based on analysis of individual companies. We use our
proprietary quantitative models to build a portfolio diversified across
investment styles (growth, blend/core and value) as well as market
capitalization (large-, mid- and small-cap stocks). We believe this
diversification positions the Fund to potentially perform well in a variety of
market environments.
We seek to generate superior risk-adjusted returns by:
- - Applying a series of quantitative measurements to rank stocks based on
factors specific to the growth, blend/core and value investment
disciplines.
- - Scrutinizing the highest-ranked stocks through fundamental analysis, which
identifies key drivers of potential success and assesses their durability,
with a goal to validate the results of our quantitative tools.
- - Using risk analysis to identify the best mix of highest-ranked stocks from
each investment discipline.
The portfolio generally includes 150 to 200 stocks allocated equally across
investment disciplines and market capitalizations.
We also use quantitative tools that help us to detect "red flags" in
companies that would trigger a decision to sell a particular stock. A stock is
considered for sale under the following circumstances:
- - Analysis indicates a deterioration in company fundamentals.
- - Analysis indicates there are more attractive opportunities.
- - A stock adversely affects the desired risk level of the Fund.
MARKET CONDITIONS AND YOUR FUND
Strong economic data propelled the markets early in the year, with small-cap
stocks leading the way. However, tensions in the Middle East escalated with the
Israel-Lebanon conflict,
(continued)
PORTFOLIO COMPOSITION
By sector
Financials 30.1%
Consumer Discretionary 15.5
Health Care 14.4
Information Technology 13.0
Energy 9.5
Industrials 6.4
Consumer Staples 3.4
Materials 2.5
Telecommunication Services 1.5
Money Market Funds Plus
Other Assets Less
Liabilities 3.7
TOP FIVE INDUSTRIES*
1. Investment Banking & Brokerage 8.8%
2. Integrated Oil & Gas 8.7
3. Other Diversified Financial Services 7.2
4. Pharmaceuticals 5.4
5. Computer Hardware 4.5
Total Net Assets $365.30 million
Total Number of Holdings* 145
TOP 10 EQUITY HOLDINGS*
1. Exxon Mobil Corp. 4.8%
2. Citigroup Inc. 4.3
3. Goldman Sachs Group, Inc. (The) 2.9
4. International Business Machines Corp. 2.8
5. Johnson & Johnson 2.5
6. Bank of America Corp. 2.3
7. Lehman Brothers Holdings Inc. 2.2
8. Merrill Lynch & Co., Inc. 2.0
9. Sherwin Williams Co. (The) 2.0
10. U.S. Bancorp 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.
5
AIM Select Equity Fund
residential housing markets showed signs of cooling and rising energy prices
heightened inflation concerns. As a result, the markets declined midway through
the year, as investors anticipated a potential economic downturn. Pricing
pressure affected more economically sensitive small-cap stocks than large-cap
stocks during the summer.
Nevertheless, small companies led the rally in the second half of the year
as a result of a series of positive developments The U.S. Federal Reserve Board
(the Fed) held interest rates steady after 17 consecutive increases of the
federal funds target rate. Additionally, a series of reports indicated economic
growth was slowing to a more sustainable level, and inflation remained subdued.
Within the market, as measured by the S&P 500 Index, telecommunication
services, real estate investment trusts (REITs) and energy were the best
performing areas. While IT and health care produced positive returns, these
sectors lagged the market in general.
The Fund had very strong performance within the IT sector, which rallied on
improving fundamentals in the fourth quarter of 2006 after a weak third quarter.
The Fund also benefited from an overweight position in financials and strong
stock selection in this sector. These positive contributions were offset by an
overweight position in health care, which was one of the poorer performing
sectors due to concerns within the pharmaceuticals industry and the potential
impact of a change in congressional leadership. Also, our underweight position
in telecommunication services detracted from performance, as significant merger
and acquisition activity in this sector surprised many investors and enhanced
the sector's performance.
Beyond sector level positioning of the Fund, certain individual stocks had
a significant impact on overall performance. EXXON MOBIL, the largest publicly
traded energy company in the world, was the leading contributor to the Fund's
overall performance. The firm, our top holding, has consistently been able to
provide above average returns on invested capital. Moreover, the company has
been shareholder-minded, with a history of strong dividend growth and share
repurchases.
Strong security selection within the IT sector generally helped Fund
performance relative to its style-specific index. However, the Fund was
negatively affected by holdings such as INTEL, a key player in the semiconductor
industry. Intel has suffered as a result of increased competition and loss of
market share in the personal computer and server markets. This loss of market
share contributed to a reduction in revenue and a decline in gross profit
margins, which had investors questioning the firm's future prospects. Although
profit margins remain fair, the earnings growth for this firm has deteriorated
over the last year, and we no longer viewed Intel as a good value. The stock was
sold subsequent to year end.
Fund managers regularly monitor the portfolio in an effort to position it
to capitalize on what we believe are the most attractive opportunities in the
marketplace. At the end of the year, the impact of market movements and
investment model decisions resulted in the portfolio being primarily overweight
in the financials and consumer discretionary sectors. The Fund's largest
underweight positions were in consumer staples and industrials. From a market
capitalization perspective, the Fund increased its large-cap stock exposure
while decreasing small- and mid-cap stock weightings. The Fund's market cap and
sector positioning is the result of a bottom-up quantitative analysis of our
stock universe. We use a variety of quantitative models in concert to evaluate
opportunities by market segments.
IN CLOSING
We continually strive to provide a Fund that provides exposure to a variety of
investment styles and market capitalizations as part of what could be a core
allocation strategy within your overall portfolio. Thank you for investing in
AIM Select Equity Fund.
The views and opinions expressed in management's discussion of Fund performance
are those of AIM Advisors, Inc. These views and opinions are subject to change
at any time based on factors such as market and economic conditions. These views
and opinions may not be relied upon as investment advice or recommendations, or
as an offer for a particular security. The information is not a complete
analysis of every aspect of any market, country, industry, security or the Fund.
Statements of fact are from sources considered reliable, but AIMAdvisors, Inc.
makes no representation or warranty as to their completeness or accuracy.
Although historical performance is no guarantee of future results, these
insights may help you understand our investment management philosophy.
See important Fund and index disclosures on the inside front cover.
[NGUYEN PHOTO]
Duy Nguyen
Chartered Financial Analyst, is lead manager of AIM Select Equity Fund. Prior to
joining AIM, he held the positions of vice president, assistant vice president
and quantitative equity analyst for two other financial services firms. Mr.
Nguyen earned a a B.B.A. at The University of Texas and an M.S. in Finance from
the University of Houston.
[IZUEL PHOTO]
Derek Izuel
Chartered Financial Analyst, portfolio manager, is manager of AIM Select Equity
Fund. Mr. Izuel began his investment career in 1997 as an equity analyst for
another investment firm. He earned a Bachelor of Arts degree in computer science
from the University of California-Berkeley and a Master of Business
Administration from the University of Michigan.
Assisted by the Global Quantitative Strategies Team
FOR A PRESENTATION OF YOUR FUND'S LONG-TERM PERFORMANCE, PLEASE SEE PAGES 8-9.
6
AIM Select Equity Fund
Calculating your ongoing fund expenses
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, which may include sales charges (loads) on purchase payments or
contingent deferred sales charges on redemptions, and redemption fees, if any;
and (2) ongoing costs, including management fees; distribution and/or service
(12b-1) fees; and other Fund expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with ongoing costs of investing in other mutual funds. The
example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period July 1, 2006, through December 31, 2006.
Actual expenses
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return. The Fund's actual cumulative total returns at net asset value after
expenses for the six months ended December 31, 2006, appear in the table
"Cumulative Total Returns" on page 9.
The hypothetical account values and expenses may not be used to estimate
the actual ending account balance or expenses you paid for the period. You may
use this information to compare the ongoing costs of investing in the Fund and
other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight
your ongoing costs only and do not reflect any transaction costs, such as sales
charges (loads) on purchase payments, contingent deferred sales charges on
redemptions, and redemption fees, if any. Therefore, the hypothetical
information is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these transaction costs were included, your costs would have been higher.
HYPOTHETICAL
(5% ANNUAL RETURN
ACTUAL BEFORE EXPENSES)
--------------------------- ---------------------------
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/06) (12/31/06)(1) PERIOD(2) (12/31/06) PERIOD(2) RATIO
- ------ ------------- ------------- ----------- ------------- ----------- ----------
A $1,000.00 $1,113.40 $ 7.35 $1,018.25 $7.02 1.38%
B 1,000.00 1,109.90 11.33 1,014.47 10.82 2.13
C 1,000.00 1,109.50 11.33 1,014.47 10.82 2.13
(1) The actual ending account value is based on the actual total return of the
Fund for the period July 1, 2006, through December 31, 2006, 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, 2006, appear in
the table "Cumulative Total Returns" on page 9.
(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.
7
AIM Select Equity Fund
Your Fund's long-term performance
Past performance cannot guarantee comparable future results.
The data shown in the chart include reinvested distributions, applicable
sales charges, Fund expenses and management fees. Index results include
reinvested dividends, but they do not reflect sales charges. Performance of an
index of funds reflects fund expenses and management fees; performance of a
market index does not. Performance shown in the chart and table(s) does not
reflect deduction of taxes a shareholder would pay on Fund distributions or sale
of Fund shares. Performance of the indexes does not reflect the effects of
taxes.
This chart, which is a logarithmic chart, presents the fluctuations in the
value of the Fund and its indexes. We believe that a logarithmic chart is more
effective than other types of charts in illustrating changes in value during the
early years shown in the chart. The vertical axis, the one that indicates the
dollar value of an investment, is constructed with each segment representing a
percent change in the value of the investment. In this chart, each segment
represents a doubling, or 100% change, in the value of the investment. In other
words, the space between $5,000 and $10,000 is the same size as the space
between $10,000 and $20,000, and so on.
8
[MOUNTAIN CHART]
RESULTS OF A $10,000 INVESTMENT
Index data from 11/30/67, Fund data from 12/4/67
AIM Select Equity Lipper Multi-Cap
Date Fund-Class A Shares S&P 500 Index Core Funds Index
- ---- ------------------- ------------- ----------------
11/30/67 $10000 $10000
12/67 $9535 10291 10481
1/68 9167 9866 10167
2/68 8628 9613 9597
3/68 8788 9701 9651
4/68 9593 10522 10719
5/68 9914 10667 11214
6/68 9895 10791 11339
7/68 9563 10619 11021
8/68 9724 10768 11328
9/68 10142 11210 12018
10/68 10209 11321 12159
11/68 10940 11894 12969
12/68 10627 11429 12657
1/69 10352 11364 12680
2/69 9931 10855 11743
3/69 10196 11256 12121
4/69 10560 11527 12329
5/69 10491 11530 12407
6/69 9528 10918 11323
7/69 8781 10290 10531
8/69 9384 10731 11210
9/69 9205 10491 11055
10/69 9563 10987 11639
11/69 9305 10631 11315
12/69 8949 10465 11094
1/70 8126 9694 10280
2/70 8914 10234 10842
3/70 8803 10279 10714
4/70 7873 9379 9351
5/70 7297 8838 8637
6/70 7095 8426 8336
7/70 7378 9074 8922
8/70 7808 9507 9339
9/70 8197 9851 9911
10/70 8105 9770 9730
11/70 8473 10264 10149
12/70 9078 10878 10812
1/71 9385 11348 11383
2/71 9792 11480 11653
3/71 10474 11932 12268
4/71 10846 12396 12750
5/71 10609 11912 12353
6/71 10774 11951 12410
7/71 10170 11488 11941
8/71 10628 11934 12516
9/71 10618 11882 12452
10/71 10118 11416 11793
11/71 10316 11418 11696
12/71 11472 12433 12840
1/72 11878 12689 13285
2/72 12601 13042 13782
3/72 12705 13148 13871
4/72 13093 13238 13981
5/72 13533 13498 14167
6/72 12892 13236 13790
7/72 12588 13299 13560
8/72 13075 13789 13967
9/72 12823 13755 13787
10/72 12781 13919 13815
11/72 13348 14589 14459
12/72 13663 14795 14474
1/73 12444 14574 13826
2/73 12091 14060 13114
3/73 11709 14072 12935
4/73 10782 13533 12137
5/73 10530 13312 11756
6/73 10258 13260 11655
7/73 11316 13799 12513
8/73 11235 13328 12304
9/73 12026 13897 13000
10/73 11696 13920 13044
11/73 10212 12376 11572
12/73 10256 12622 11792
1/74 9883 12531 11765
2/74 10050 12520 11858
3/74 9827 12266 11482
4/74 9438 11827 11011
SOURCE: LIPPER INC.
[MOUNTAIN CHART]
5/74 8938 11467 10490
6/74 8783 11338 10227
7/74 8026 10498 9692
8/74 7587 9590 8981
9/74 6831 8486 8137
10/74 7902 9914 9485
11/74 7778 9428 9156
12/74 7632 9281 8910
1/75 8415 10462 9874
2/75 9092 11129 10426
3/75 9493 11411 10798
4/75 10146 11993 11344
5/75 10570 12565 11823
6/75 11132 13164 12296
7/75 10214 12316 11581
8/75 10067 12099 11424
9/75 9719 11723 11058
10/75 10194 12489 11535
11/75 10519 12839 11832
12/75 10392 12736 11725
1/76 11547 14286 13106
2/76 11417 14166 13207
3/76 11769 14644 13509
4/76 11476 14530 13293
5/76 11487 14369 13196
6/76 12062 15005 13705
7/76 11828 14933 13612
8/76 11921 14905 13556
9/76 12229 15291 13796
10/76 11802 15006 13507
11/76 11920 14944 13595
12/76 12465 15784 14286
1/77 11304 15038 13686
2/77 11325 14763 13514
3/77 11217 14608 13472
4/77 11122 14669 13500
5/77 11002 14381 13312
6/77 11576 15092 13890
7/77 11480 14860 13647
8/77 11281 14649 13535
9/77 11450 14671 13604
10/77 11051 14100 13108
11/77 11498 14546 13706
12/77 11547 14654 13801
1/78 10929 13813 12992
2/78 10811 13533 12886
3/78 11143 13932 13334
4/78 12248 15188 14473
5/78 12580 15327 14875
6/78 12433 15117 14873
7/78 13148 15999 15945
8/78 13572 16480 16628
9/78 13335 16428 16376
10/78 12249 14995 14456
11/78 12562 15317 15037
12/78 12961 15618 15425
1/79 13384 16309 16031
2/79 13028 15784 15494
3/79 13803 16726 16569
4/79 14006 16832 16819
5/79 13878 16467 16600
6/79 14463 17182 17331
7/79 14720 17412 17570
8/79 15574 18416 18839
9/79 15677 18496 18893
10/79 14926 17311 17537
11/79 15741 18134 18868
12/79 16103 18522 19509
1/80 16840 19674 20489
2/80 16431 19672 20109
3/80 14859 17760 18176
4/80 15637 18581 19114
5/80 16442 19537 20218
6/80 17130 20155 20986
7/80 18358 21558 22644
8/80 18923 21776 23190
9/80 19705 22416 23732
10/80 20069 22870 24057
11/80 22090 25305 26358
12/80 21565 24543 25867
1/81 20581 23516 24856
2/81 20915 23923 25243
3/81 22437 24881 26621
4/81 22754 24400 26575
5/81 22467 24461 26999
6/81 21944 24310 26485
7/81 21707 24360 26097
8/81 20113 22952 24565
9/81 18744 21822 23230
[MOUNTAIN CHART]
10/81 20224 23000 24454
11/81 20837 23948 25601
12/81 20514 23335 25052
1/82 19757 23031 24538
2/82 18690 21743 23533
3/82 18358 21629 23253
4/82 19358 22608 24443
5/82 18866 21836 23731
6/82 18480 21508 23233
7/82 17986 21127 23041
8/82 20278 23691 25600
9/82 20564 23985 26057
10/82 23338 26746 29073
11/82 24607 27826 30695
12/82 24733 28362 31075
1/83 25396 29417 31869
2/83 26406 30091 32944
3/83 27209 31203 33863
4/83 28814 33662 36169
5/83 29177 33369 36740
6/83 30706 34667 38409
7/83 29616 33645 37131
8/83 29752 34150 37068
9/83 30374 34621 37789
10/83 28883 34220 36585
11/83 29619 34942 37659
12/83 29717 34759 37339
1/84 29040 34566 36357
2/84 27800 33349 34667
3/84 28447 33927 35045
4/84 28379 34249 35049
5/84 26588 32353 33052
6/84 27237 33055 33828
7/84 26499 32645 32951
8/84 29485 36251 36777
9/84 29326 36260 36523
10/84 29279 36399 36402
11/84 28708 35992 35804
12/84 29234 36940 36771
1/85 31695 39819 39969
2/85 32450 40307 40150
3/85 32326 40333 39915
4/85 31761 40296 39718
5/85 33285 42624 41968
6/85 33801 43291 42761
7/85 34193 43228 42644
8/85 33844 42810 42361
9/85 32572 41518 40675
10/85 33396 43436 42408
11/85 35667 46415 45408
12/85 37314 48660 47449
1/86 37464 48933 48097
2/86 40146 52589 52058
3/86 42133 55524 54642
4/86 41725 54899 54210
5/86 43736 57818 56682
6/86 44632 58796 57270
7/86 41722 55509 53249
8/86 44255 59625 56474
9/86 41069 54695 52108
10/86 42798 57850 54780
11/86 43320 59256 55278
12/86 42102 57743 54215
1/87 47159 65519 60419
2/87 50092 68106 64305
3/87 50884 70072 65257
4/87 50848 69451 64134
5/87 51082 70051 64676
6/87 53197 73590 67307
7/87 55809 77318 70210
8/87 57394 80202 72451
9/87 56900 78444 71218
10/87 43608 61552 55663
11/87 40137 56479 52221
12/87 43621 60775 56083
1/88 44175 63329 57643
2/88 46741 66268 60369
3/88 45278 64224 59392
4/88 45672 64934 59778
5/88 45476 65488 59459
6/88 48082 68491 62003
7/88 46779 68230 61210
8/88 44922 65918 59648
9/88 47015 68723 61853
10/88 47372 70636 62856
11/88 46818 69627 61828
12/88 48040 70840 62939
1/89 50860 76023 66865
[MOUNTAIN CHART]
2/89 49690 74133 65797
3/89 50252 75860 67478
4/89 53352 79795 70927
5/89 56089 83012 73790
6/89 54440 82544 73190
7/89 59835 89991 79140
8/89 62007 91744 80606
9/89 61846 91370 80401
10/89 59830 89252 78347
11/89 60954 91064 80191
12/89 61899 93248 81158
1/90 57628 86991 75648
2/90 58959 88110 76638
3/90 61406 90443 78438
4/90 60381 88190 76617
5/90 67053 96771 83573
6/90 67274 96119 83681
7/90 65229 95812 82942
8/90 58517 87162 75926
9/90 54157 82926 71823
10/90 52603 82576 70932
11/90 56738 87903 75406
12/90 58775 90349 77503
1/91 62630 94274 81017
2/91 67910 101008 86890
3/91 69193 103451 89346
4/91 69242 103697 89284
5/91 72005 108155 93337
6/91 67677 103204 88770
7/91 71724 108010 93096
8/91 73768 110562 95703
9/91 72433 108711 94636
10/91 72817 110169 96086
11/91 70436 105742 92051
12/91 80551 117815 102489
1/92 80003 115623 102326
2/92 81099 117119 104046
3/92 76614 114844 101636
4/92 75518 118213 101976
5/92 75738 118791 102963
6/92 73390 117024 100456
7/92 75525 121801 103935
8/92 74158 119313 101594
9/92 74981 120715 103287
10/92 77058 121129 105077
11/92 80503 125243 110152
12/92 80712 126779 112050
1/93 79986 127838 113522
2/93 76434 129580 113131
3/93 77879 132312 116016
4/93 74195 129114 113395
5/93 77875 132559 116988
6/93 79519 132946 117272
7/93 79916 132411 116784
8/93 84120 137424 121452
9/93 85567 136370 122265
10/93 84848 139189 124254
11/93 80639 137862 122181
12/93 83639 139529 125880
1/94 88808 144268 130238
2/94 87334 140354 128081
3/94 81718 134247 122413
4/94 81718 135967 123585
5/94 79798 138190 124514
6/94 74180 134808 120937
7/94 75953 139232 124476
8/94 80829 144927 129853
9/94 80094 141386 127113
10/94 82529 144558 128524
11/94 78757 139299 123454
12/94 79458 141362 124715
1/95 78767 145025 126316
2/95 83004 150672 131147
3/95 86466 155110 134781
4/95 88696 159674 137300
5/95 91473 166047 141294
6/95 97940 169897 146023
7/95 105951 175528 152404
8/95 106640 175967 153723
9/95 110340 183389 158175
10/95 107571 182733 155876
11/95 109346 190746 162576
12/95 106732 194420 164884
1/96 108120 201030 169158
2/96 112531 202900 172625
3/96 112610 204853 174882
4/96 117103 207871 179114
5/96 120206 213223 182614
[MOUNTAIN CHART]
6/96 117910 214035 180671
7/96 109892 204585 171830
8/96 114717 208906 177565
9/96 122563 220654 186559
10/96 122649 226737 188888
11/96 129763 243861 201092
12/96 126558 239030 198635
1/97 133329 253955 208048
2/97 130155 255949 207432
3/97 122450 245452 199766
4/97 126050 260092 206679
5/97 137180 275994 220626
6/97 142146 288263 228950
7/97 156873 311194 246348
8/97 152072 293774 239579
9/97 159858 309854 252753
10/97 151466 299517 243244
11/97 151632 313371 247377
12/97 151269 318749 250826
1/98 150104 322271 252230
2/98 163613 345501 270240
3/98 169503 363179 282919
4/98 172792 366898 285985
5/98 166606 360601 278137
6/98 173453 375237 285942
7/98 170262 371272 280109
8/98 137827 317632 236503
9/98 148536 337997 247714
10/98 158087 365447 264617
11/98 170338 387587 278800
12/98 192193 409908 297705
1/99 202321 427042 307580
2/99 188321 413772 295732
3/99 205703 430322 305069
4/99 215638 446986 317514
5/99 207207 436443 313967
6/99 218728 460598 329356
7/99 211969 446279 322103
8/99 207306 444069 316489
9/99 208404 431911 308599
10/99 221325 459231 324262
11/99 238212 468565 334701
12/99 271943 496124 359529
1/00 265090 471201 349371
2/00 317658 462290 362831
3/00 326870 507487 386086
4/00 310396 492224 371754
5/00 287178 482133 358834
6/00 315896 494007 373965
7/00 309767 486291 368122
8/00 347590 516480 394092
9/00 333791 489220 375989
10/00 314297 487141 371741
11/00 259767 448766 340090
12/00 267092 450968 347533
1/01 268721 466958 359530
2/01 225995 424408 327164
3/01 197271 397536 307759
4/01 219444 428404 332691
5/01 219334 431278 335494
6/01 219444 420785 329721
7/01 213014 416641 323091
8/01 199467 390585 304786
9/01 172618 359047 273543
10/01 177987 365898 280970
11/01 192350 393957 303035
12/01 198563 397411 310135
1/02 191197 391614 303277
2/02 184658 384060 297799
3/02 199615 398506 309852
4/02 188995 374356 296681
5/02 185839 371608 294251
6/02 168315 345148 271199
7/02 147763 318250 249811
8/02 145887 320333 251391
9/02 131167 285554 228272
10/02 139929 310660 242726
11/02 148338 328927 257507
12/02 139809 309613 242711
1/03 135727 301518 238612
2/03 132808 296987 234493
3/03 133858 299863 235251
4/03 142157 324551 253547
5/03 153259 341635 270693
6/03 155359 345999 274735
7/03 160377 352102 280043
8/03 165990 358955 288654
9/03 162372 355154 284815
[MOUNTAIN CHART]
10/03 172877 375235 301777
11/03 176507 378533 306489
12/03 181061 398371 318708
1/04 185027 405682 326196
2/04 187950 411318 331262
3/04 189472 405114 327502
4/04 186782 398763 320607
5/04 188762 404224 324447
6/04 193556 412082 331629
7/04 183743 398445 318032
8/04 181648 400041 317798
9/04 186208 404375 324593
10/04 189485 410553 329490
11/04 199641 427159 346030
12/04 206190 441690 358197
1/05 201159 430924 350048
2/05 203854 439988 357125
3/05 200470 432204 351510
4/05 193694 424011 341942
5/05 201752 437491 355944
6/05 205020 438118 359863
7/05 210986 454404 375117
8/05 208180 450260 373409
9/05 211449 453905 376763
10/05 208763 446334 368973
11/05 217051 463198 383174
12/05 216704 463361 387646
1/06 225459 475630 402044
2/06 224512 476917 400446
3/06 229294 482852 409370
4/06 231037 489331 414442
5/06 220986 475265 400086
6/06 221340 475896 398906
7/06 220765 478829 394126
8/06 225092 490205 403454
9/06 230584 502829 412117
10/06 237017 519204 427449
11/06 241923 529061 437572
12/06 246942 536481 442465
AIM Select Equity Fund
AVERAGE ANNUAL TOTAL RETURNS
As of 12/31/06, including applicable sales charges
CLASS A SHARES
Inception (12/4/67) 8.55%
10 Years 6.30
5 Years 3.24
1 Year 7.49
CLASS B SHARES
Inception (9/1/93) 7.84%
10 Years 6.24
5 Years 3.29
1 Year 7.88
CLASS C SHARES
Inception (8/4/97) 4.12%
5 Years 3.63
1 Year 11.90
THE PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE AND CANNOT GUARANTEE
COMPARABLE FUTURE RESULTS; CURRENT PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE
VISIT AIMINVESTMENTS.COM FOR THE MOST RECENT MONTH-END PERFORMANCE. PERFORMANCE
FIGURES REFLECT REINVESTED DISTRIBUTIONS, CHANGES IN NET ASSET VALUE AND THE
EFFECT OF THE MAXIMUM SALES CHARGE UNLESS OTHERWISE STATED. INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU MAY HAVE A GAIN OR LOSS WHEN YOU
SELL SHARES.
CUMULATIVE TOTAL RETURNS
6 months ended 12/31/06, excluding applicable sales charges
Class A Shares 11.34%
Class B Shares 10.99
Class C Shares 10.95
CLASS A SHARE PERFORMANCE REFLECTS THE MAXIMUM 5.50% SALES CHARGE, AND
CLASS B AND CLASS C SHARE PERFORMANCE REFLECTS THE APPLICABLE CONTINGENT
DEFERRED SALES CHARGE (CDSC) FOR THE PERIOD INVOLVED. THE CDSC ON CLASS B SHARES
DECLINES FROM 5% BEGINNING AT THE TIME OF PURCHASE TO 0% AT THE BEGINNING OF THE
SEVENTH YEAR. THE CDSC ON CLASS C SHARES IS 1% FOR THE FIRST YEAR AFTER
PURCHASE.
THE PERFORMANCE OF THE FUND'S SHARE CLASSES WILL DIFFER PRIMARILY DUE TO
DIFFERENT SALES CHARGE STRUCTURES AND CLASS EXPENSES.
9
AIM Select Equity Fund
Approval of Investment Advisory Agreement
The Board of Trustees of AIM Funds Group (the "Board") oversees the management
of AIM Select Equity Fund (the "Fund") and, as required by law, determines
annually whether to approve the continuance of the Fund's advisory agreement
with A I M Advisors, Inc. ("AIM"). Based upon the recommendation of the
Investments Committee of the Board, at a meeting held on June 27, 2006, the
Board, including all of the independent trustees, approved the continuance of
the advisory agreement (the "Advisory Agreement") between the Fund and AIM for
another year, effective July 1, 2006.
The Board considered the factors discussed below in evaluating the fairness
and reasonableness of the Advisory Agreement at the meeting on June 27, 2006 and
as part of the Board's ongoing oversight of the Fund. In their deliberations,
the Board and the independent trustees did not identify any particular factor
that was controlling, and each trustee attributed different weights to the
various factors.
One responsibility of the independent Senior Officer of the Fund is to
manage the process by which the Fund's proposed management fees are negotiated
to ensure that they are negotiated in a manner which is at arms' length and
reasonable. To that end, the Senior Officer must either supervise a competitive
bidding process or prepare an independent written evaluation. The Senior Officer
has recommended an independent written evaluation in lieu of a competitive
bidding process and, upon the direction of the Board, has prepared such an
independent written evaluation. Such written evaluation also considered certain
of the factors discussed below. In addition, as discussed below, the Senior
Officer made a recommendation to the Board in connection with such written
evaluation.
The discussion below serves as a summary of the Senior Officer's
independent written evaluation and recommendation to the Board in connection
therewith, as well as a discussion of the material factors and the conclusions
with respect thereto that formed the basis for the Board's approval of the
Advisory Agreement. After consideration of all of the factors below and based on
its informed business judgment, the Board determined that the Advisory Agreement
is in the best interests of the Fund and its shareholders and that the
compensation to AIM under the Advisory Agreement is fair and reasonable and
would have been obtained through arm's length negotiations.
Unless otherwise stated, information presented below is as of June 27, 2006
and does not reflect any changes that may have occurred since June 27, 2006,
including but not limited to changes to the Fund's performance, advisory fees,
expense limitations and/or fee waivers.
- - The nature and extent of the advisory services to be provided by AIM. The
Board reviewed the services to be provided by AIM under the Advisory
Agreement. Based on such review, the Board concluded that the range of
services to be provided by AIM under the Advisory Agreement was appropriate
and that AIM currently is providing services in accordance with the terms
of the Advisory Agreement.
- - The quality of services to be provided by AIM. The Board reviewed the
credentials and experience of the officers and employees of AIM who will
provide investment advisory services to the Fund. In reviewing the
qualifications of AIM to provide investment advisory services, the Board
considered such issues as AIM's portfolio and product review process,
various back office support functions provided by AIM and AIM's equity and
fixed income trading operations. Based on the review of these and other
factors, the Board concluded that the quality of services to be provided by
AIM was appropriate and that AIM currently is providing satisfactory
services in accordance with the terms of the Advisory Agreement.
- - The performance of the Fund relative to comparable funds. The Board
reviewed the performance of the Fund during the past one, three and five
calendar years against the performance of funds advised by other advisors
with investment strategies comparable to those of the Fund. The Board noted
that the Fund's performance was below the median performance of such
comparable funds for the one and five year periods and above such median
performance for the three year period. Based on this review and after
taking account of all of the other factors that the Board considered in
determining whether to continue the Advisory Agreement for the Fund, the
Board concluded that no changes should be made to the Fund and that it was
not necessary to change the Fund's portfolio management team at this time.
Although the independent written evaluation of the Fund's Senior Officer
(discussed below) only considered Fund performance through the most recent
calendar year, the Board also reviewed more recent Fund performance, which
did not change their conclusions.
- - The performance of the Fund relative to indices. The Board reviewed the
performance of the Fund during the past one, three and five calendar years
against the performance of the Lipper Multi-Cap Core Index. The Board noted
that the Fund's performance was below the performance of such Index for the
one and five year periods and comparable to such Index for the three year
period. Based on this review and after taking account of all of the other
factors that the Board considered in determining whether to continue the
Advisory Agreement for the Fund, the Board concluded that no changes should
be made to the Fund and that it was not necessary to change the Fund's
portfolio management team at this time. Although the independent written
evaluation of the Fund's Senior Officer (discussed below) only considered
Fund performance through the most recent calendar year, the Board also
reviewed more recent Fund performance, which did not change their
conclusions.
- - Meetings with the Fund's portfolio managers and investment personnel. With
respect to the Fund, the Board is meeting periodically with such Fund's
portfolio managers and/or other investment personnel and believes that such
individuals are competent and able to continue to carry out their
responsibilities under the Advisory Agreement.
- - Overall performance of AIM. The Board considered the overall performance of
AIM in providing investment advisory and portfolio administrative services
to the Fund and concluded that such performance was satisfactory.
- - Fees relative to those of clients of AIM with comparable investment
strategies. The Board reviewed the effective advisory fee rate (before
waivers) for the Fund under the Advisory Agreement. The Board noted that
this rate was (i) below the effective advisory fee rate (before waivers)
for a mutual fund advised by AIM with investment strategies comparable to
those of the Fund; and (ii) comparable to the effective advisory fee rate
(before waivers) for a variable insurance fund advised by AIM and offered
to insurance company separate accounts with investment strategies
comparable to those of the Fund. The Board noted that AIM has agreed to
waive advisory fees of the Fund, as discussed below. Based on this review,
the Board concluded that the advisory fee rate for the Fund under the
Advisory Agreement was fair and reasonable.
- - Fees relative to those of comparable funds with other advisors. The Board
reviewed the advisory fee rate for the Fund under the Advisory Agreement.
The Board compared effective contractual advisory fee rates at a common
asset level at the end of the past calendar year and noted that the Fund's
rate was below the median rate of the funds advised by other advisors with
investment strategies comparable to those of the Fund that the Board
reviewed. The Board noted that AIM has agreed to waive advisory fees of the
Fund, as discussed below. Based on this review, the Board concluded that
the advisory fee rate for the Fund under the Advisory Agreement was fair
and reasonable.
- - Expense limitations and fee waives. The Board noted that AIM has
contractually agreed to waive advisory fees of the Fund through June 30,
2007 to the extent necessary so that the advisory fees payable by the Fund
do not exceed a specified maximum advisory fee rate, which maximum rate
includes breakpoints and is based on net asset levels. The Board considered
the contractual nature of this fee waiver and noted that it remains in
effect until June 30, 2007. The Board considered the effect this fee waiver
would have on the Fund's estimated expenses and concluded that the levels
of fee waivers/expense limitations for the Fund were fair and reasonable.
- - Breakpoints and economies of scale. The Board reviewed the structure of the
Fund's advisory fee under the Advisory Agreement, noting that it includes
one breakpoint. The Board reviewed the level of the Fund's advisory fees,
and noted that such fees, as a percentage of the Fund's net assets, have
decreased as net assets increased because the Advisory Agreement includes a
breakpoint. The Board noted that AIM has contractually agreed to waive
advisory fees of the Fund through June 30, 2007 to the extent necessary so
that the advisory fees payable by the Fund do not exceed a specified
maximum advisory fee rate, which maximum rate includes breakpoints and is
based on
(continued)
10
AIM Select Equity Fund
net asset levels. The Board concluded that the Fund's fee levels under the
Advisory Agreement therefore reflect economies of scale and that it was not
necessary to change the advisory fee breakpoints in the Fund's advisory fee
schedule.
- - Investments in affiliated money market funds. The Board also took into
account the fact that uninvested cash and cash collateral from securities
lending arrangements, if any (collectively, "cash balances") of the Fund
may be invested in money market funds advised by AIM pursuant to the terms
of an SEC exemptive order. The Board found that the Fund may realize
certain benefits upon investing cash balances in AIM advised money market
funds, including a higher net return, increased liquidity, increased
diversification or decreased transaction costs. The Board also found that
the Fund will not receive reduced services if it invests its cash balances
in such money market funds. The Board noted that, to the extent the Fund
invests uninvested cash in affiliated money market funds, AIM has
voluntarily agreed to waive a portion of the advisory fees it receives from
the Fund attributable to such investment. The Board further determined that
the proposed securities lending program and related procedures with respect
to the lending Fund is in the best interests of the lending Fund and its
respective shareholders. The Board therefore concluded that the investment
of cash collateral received in connection with the securities lending
program in the money market funds according to the procedures is in the
best interests of the lending Fund and its respective shareholders.
- - Independent written evaluation and recommendations of the Fund's Senior
Officer. The Board noted that, upon their direction, the Senior Officer of
the Fund, who is independent of AIM and AIM's affiliates, had prepared an
independent written evaluation in order to assist the Board in determining
the reasonableness of the proposed management fees of the AIM Funds,
including the Fund. The Board noted that the Senior Officer's written
evaluation had been relied upon by the Board in this regard in lieu of a
competitive bidding process. In determining whether to continue the
Advisory Agreement for the Fund, the Board considered the Senior Officer's
written evaluation and the recommendation made by the Senior Officer to the
Board that the Board consider whether the advisory fee waivers for certain
equity AIM Funds, including the Fund, should be simplified. The Board
concluded that it would be advisable to consider this issue and reach a
decision prior to the expiration date of such advisory fee waivers.
- - Profitability of AIM and its affiliates. The Board reviewed information
concerning the profitability of AIM's (and its affiliates') investment
advisory and other activities and its financial condition. The Board
considered the overall profitability of AIM, as well as the profitability
of AIM in connection with managing the Fund. The Board noted that AIM's
operations remain profitable, although increased expenses in recent years
have reduced AIM's profitability. Based on the review of the profitability
of AIM's and its affiliates' investment advisory and other activities and
its financial condition, the Board concluded that the compensation to be
paid by the Fund to AIM under its Advisory Agreement was not excessive.
- - Benefits of soft dollars to AIM. The Board considered the benefits realized
by AIM as a result of brokerage transactions executed through "soft dollar"
arrangements. Under these arrangements, brokerage commissions paid by the
Fund and/or other funds advised by AIM are used to pay for research and
execution services. This research may be used by AIM in making investment
decisions for the Fund. The Board concluded that such arrangements were
appropriate.
- - AIM's financial soundness in light of the Fund's needs. The Board
considered whether AIM is financially sound and has the resources necessary
to perform its obligations under the Advisory Agreement, and concluded that
AIM has the financial resources necessary to fulfill its obligations under
the Advisory Agreement.
- - Historical relationship between the Fund and AIM. In determining whether to
continue the Advisory Agreement for the Fund, the Board also considered the
prior relationship between AIM and the Fund, as well as the Board's
knowledge of AIM's operations, and concluded that it was beneficial to
maintain the current relationship, in part, because of such knowledge. The
Board also reviewed the general nature of the non-investment advisory
services currently performed by AIM and its affiliates, such as
administrative, transfer agency and distribution services, and the fees
received by AIM and its affiliates for performing such services. In
addition to reviewing such services, the trustees also considered the
organizational structure employed by AIM and its affiliates to provide
those services. Based on the review of these and other factors, the Board
concluded that AIM and its affiliates were qualified to continue to provide
non-investment advisory services to the Fund, including administrative,
transfer agency and distribution services, and that AIM and its affiliates
currently are providing satisfactory non-investment advisory services.
- - Other factors and current trends. The Board considered the steps that AIM
and its affiliates have taken over the last several years, and continue to
take, in order to improve the quality and efficiency of the services they
provide to the Funds in the areas of investment performance, product line
diversification, distribution, fund operations, shareholder services and
compliance. The Board concluded that these steps taken by AIM have
improved, and are likely to continue to improve, the quality and efficiency
of the services AIM and its affiliates provide to the Fund in each of these
areas, and support the Board's approval of the continuance of the Advisory
Agreement for the Fund.
11
AIM Select Equity Fund
SCHEDULE OF INVESTMENTS
December 31, 2006
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-96.32%
ADVERTISING-0.18%
Omnicom Group Inc. 6,280 $ 656,511
========================================================================
AEROSPACE & DEFENSE-2.12%
General Dynamics Corp. 14,140 1,051,309
- ------------------------------------------------------------------------
Lockheed Martin Corp. 56,810 5,230,497
- ------------------------------------------------------------------------
Raytheon Co. 17,470 922,416
- ------------------------------------------------------------------------
United Technologies Corp. 8,680 542,673
========================================================================
7,746,895
========================================================================
AIR FREIGHT & LOGISTICS-0.11%
Hub Group, Inc.-Class A(a) 15,160 417,658
========================================================================
AIRLINES-0.52%
Continental Airlines, Inc.-Class B(a) 24,240 999,900
- ------------------------------------------------------------------------
Mesa Air Group, Inc.(a) 51,900 444,783
- ------------------------------------------------------------------------
World Air Holdings, Inc.(a) 52,900 466,578
========================================================================
1,911,261
========================================================================
APPAREL RETAIL-1.11%
Gap, Inc. (The) 52,810 1,029,795
- ------------------------------------------------------------------------
Payless ShoeSource, Inc.(a) 76,400 2,507,448
- ------------------------------------------------------------------------
TJX Cos., Inc. (The) 18,300 521,916
========================================================================
4,059,159
========================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-1.50%
Polo Ralph Lauren Corp. 22,900 1,778,414
- ------------------------------------------------------------------------
VF Corp. 45,210 3,710,837
========================================================================
5,489,251
========================================================================
APPLICATION SOFTWARE-0.47%
BEA Systems, Inc.(a) 34,900 439,042
- ------------------------------------------------------------------------
FactSet Research Systems Inc. 22,390 1,264,587
========================================================================
1,703,629
========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-2.79%
Affiliated Managers Group, Inc.(a)(b) 20,740 2,180,396
- ------------------------------------------------------------------------
Ameriprise Financial, Inc. 9,540 519,930
- ------------------------------------------------------------------------
Bank of New York Co., Inc. (The) 132,600 5,220,462
- ------------------------------------------------------------------------
Franklin Resources, Inc. 20,700 2,280,519
========================================================================
10,201,307
========================================================================
AUTOMOTIVE RETAIL-0.34%
AutoZone, Inc.(a) 10,830 1,251,515
========================================================================
BIOTECHNOLOGY-0.20%
Amgen Inc.(a) 10,720 732,283
========================================================================
</Table>
<Table>
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
BROADCASTING & CABLE TV-0.39%
Comcast Corp.-Class A(a) 13,940 $ 590,080
- ------------------------------------------------------------------------
DIRECTV Group, Inc. (The)(a) 33,760 841,975
========================================================================
1,432,055
========================================================================
BUILDING PRODUCTS-0.70%
Masco Corp. 86,100 2,571,807
========================================================================
COMMERCIAL PRINTING-0.30%
Harland (John H.) Co. 21,700 1,089,340
========================================================================
COMMUNICATIONS EQUIPMENT-2.07%
Cisco Systems, Inc.(a) 226,360 6,186,419
- ------------------------------------------------------------------------
Motorola, Inc. 66,800 1,373,408
========================================================================
7,559,827
========================================================================
COMPUTER & ELECTRONICS RETAIL-0.29%
Best Buy Co., Inc. 21,250 1,045,287
========================================================================
COMPUTER HARDWARE-4.45%
Dell Inc.(a) 48,290 1,211,596
- ------------------------------------------------------------------------
Hewlett-Packard Co. 119,600 4,926,324
- ------------------------------------------------------------------------
International Business Machines Corp. 104,026 10,106,126
========================================================================
16,244,046
========================================================================
COMPUTER STORAGE & PERIPHERALS-0.77%
Lexmark International, Inc.-Class A(a) 38,470 2,816,004
========================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.96%
Cummins Inc. 29,600 3,498,128
========================================================================
CONSTRUCTION MATERIALS-0.48%
Cemex S.A. de C.V.-ADR (Mexico)(a) 29,410 996,411
- ------------------------------------------------------------------------
Eagle Materials Inc. 17,407 752,504
========================================================================
1,748,915
========================================================================
CONSUMER FINANCE-0.55%
ASTA Funding, Inc.(b) 30,600 931,464
- ------------------------------------------------------------------------
First Cash Financial Services, Inc.(a) 42,100 1,089,127
========================================================================
2,020,591
========================================================================
DEPARTMENT STORES-1.65%
Federated Department Stores, Inc. 20,930 798,061
- ------------------------------------------------------------------------
Kohl's Corp.(a) 17,900 1,224,897
- ------------------------------------------------------------------------
Nordstrom, Inc. 80,810 3,987,165
========================================================================
6,010,123
========================================================================
</Table>
F-1
AIM Select Equity Fund
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
DIVERSIFIED BANKS-2.61%
U.S. Bancorp 194,870 $ 7,052,345
- ------------------------------------------------------------------------
Wells Fargo & Co. 69,680 2,477,821
========================================================================
9,530,166
========================================================================
DIVERSIFIED CHEMICALS-0.15%
Eastman Chemical Co. 9,210 546,245
========================================================================
EDUCATION SERVICES-0.14%
ITT Educational Services, Inc.(a) 7,800 517,686
========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-0.25%
Cooper Industries, Ltd.-Class A 10,200 922,386
========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-1.13%
Amphenol Corp.-Class A 40,600 2,520,448
- ------------------------------------------------------------------------
Mettler-Toledo International Inc.(a) 20,600 1,624,310
========================================================================
4,144,758
========================================================================
ELECTRONIC MANUFACTURING SERVICES-0.22%
Trimble Navigation Ltd.(a) 16,030 813,202
========================================================================
ENVIRONMENTAL & FACILITIES SERVICES-0.15%
Waste Management, Inc. 14,630 537,945
========================================================================
FOOD RETAIL-0.39%
Kroger Co. (The) 61,000 1,407,270
========================================================================
FOOTWEAR-1.19%
Deckers Outdoor Corp.(a) 18,600 1,115,070
- ------------------------------------------------------------------------
NIKE, Inc.-Class B 32,500 3,218,475
========================================================================
4,333,545
========================================================================
HEALTH CARE DISTRIBUTORS-1.41%
AmerisourceBergen Corp. 66,110 2,972,305
- ------------------------------------------------------------------------
McKesson Corp. 42,930 2,176,551
========================================================================
5,148,856
========================================================================
HEALTH CARE EQUIPMENT-0.29%
Zimmer Holdings, Inc.(a) 13,550 1,062,049
========================================================================
HEALTH CARE FACILITIES-1.13%
AmSurg Corp.(a) 47,500 1,092,500
- ------------------------------------------------------------------------
Manor Care, Inc. 13,780 646,558
- ------------------------------------------------------------------------
VCA Antech, Inc.(a) 73,700 2,372,403
========================================================================
4,111,461
========================================================================
HEALTH CARE SERVICES-0.92%
Laboratory Corp. of America Holdings(a) 37,090 2,725,002
- ------------------------------------------------------------------------
Pediatrix Medical Group, Inc.(a) 12,966 634,038
========================================================================
3,359,040
========================================================================
</Table>
<Table>
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
HOME FURNISHINGS-0.46%
Ethan Allen Interiors Inc.(b) 30,630 $ 1,106,049
- ------------------------------------------------------------------------
Tempur-Pedic International Inc.(a) 27,600 564,696
========================================================================
1,670,745
========================================================================
HOME IMPROVEMENT RETAIL-2.16%
Home Depot, Inc. (The) 16,010 642,961
- ------------------------------------------------------------------------
Sherwin-Williams Co. (The) 113,831 7,237,375
========================================================================
7,880,336
========================================================================
HOMEFURNISHING RETAIL-0.33%
Rent-A-Center, Inc.(a) 41,100 1,212,861
========================================================================
HOUSEHOLD APPLIANCES-1.15%
Black & Decker Corp. (The) 52,710 4,215,219
========================================================================
HYPERMARKETS & SUPER CENTERS-0.23%
Costco Wholesale Corp. 15,860 838,518
========================================================================
INDUSTRIAL GASES-0.33%
Airgas, Inc. 30,130 1,220,868
========================================================================
INDUSTRIAL MACHINERY-0.40%
Danaher Corp. 20,400 1,477,776
========================================================================
INSURANCE BROKERS-0.15%
Aon Corp. 15,056 532,079
========================================================================
INTEGRATED OIL & GAS-8.68%
Chevron Corp. 94,310 6,934,614
- ------------------------------------------------------------------------
ConocoPhillips 33,340 2,398,813
- ------------------------------------------------------------------------
Exxon Mobil Corp. 226,510 17,357,461
- ------------------------------------------------------------------------
Marathon Oil Corp. 37,300 3,450,250
- ------------------------------------------------------------------------
Occidental Petroleum Corp. 32,430 1,583,557
========================================================================
31,724,695
========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-1.51%
CenturyTel, Inc. 126,490 5,522,553
========================================================================
INTERNET SOFTWARE & SERVICES-0.56%
EarthLink, Inc.(a) 182,700 1,297,170
- ------------------------------------------------------------------------
Websense, Inc.(a) 33,190 757,728
========================================================================
2,054,898
========================================================================
INVESTMENT BANKING & BROKERAGE-8.81%
Goldman Sachs Group, Inc. (The) 53,363 10,637,914
- ------------------------------------------------------------------------
Lehman Brothers Holdings Inc. 102,652 8,019,174
- ------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 79,320 7,384,692
- ------------------------------------------------------------------------
Morgan Stanley 75,474 6,145,848
========================================================================
32,187,628
========================================================================
LEISURE PRODUCTS-0.16%
Marvel Entertainment, Inc.(a) 22,000 592,020
========================================================================
</Table>
F-2
AIM Select Equity Fund
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
LIFE & HEALTH INSURANCE-0.36%
Lincoln National Corp. 19,790 $ 1,314,056
========================================================================
LIFE SCIENCES TOOLS & SERVICES-0.82%
Covance Inc.(a) 32,100 1,891,011
- ------------------------------------------------------------------------
Waters Corp.(a) 22,600 1,106,722
========================================================================
2,997,733
========================================================================
MANAGED HEALTH CARE-4.23%
Aetna Inc. 109,350 4,721,733
- ------------------------------------------------------------------------
Coventry Health Care, Inc.(a) 31,260 1,564,563
- ------------------------------------------------------------------------
Sierra Health Services, Inc.(a) 65,570 2,363,143
- ------------------------------------------------------------------------
UnitedHealth Group Inc. 97,771 5,253,236
- ------------------------------------------------------------------------
WellPoint Inc.(a) 19,560 1,539,176
========================================================================
15,441,851
========================================================================
MOTORCYCLE MANUFACTURERS-0.60%
Harley-Davidson, Inc. 31,100 2,191,617
========================================================================
MOVIES & ENTERTAINMENT-0.36%
Walt Disney Co. (The) 37,980 1,301,575
========================================================================
MULTI-LINE INSURANCE-1.94%
Genworth Financial Inc.-Class A 86,300 2,952,323
- ------------------------------------------------------------------------
Hartford Financial Services Group, Inc. (The) 26,700 2,491,377
- ------------------------------------------------------------------------
Loews Corp. 39,500 1,638,065
========================================================================
7,081,765
========================================================================
OIL & GAS DRILLING-0.25%
Unit Corp.(a) 18,800 910,860
========================================================================
OIL & GAS EQUIPMENT & SERVICES-0.51%
Core Laboratories N.V. (Netherlands)(a) 16,800 1,360,800
- ------------------------------------------------------------------------
Tidewater Inc. 10,010 484,084
========================================================================
1,844,884
========================================================================
OIL & GAS REFINING & MARKETING-0.10%
Valero Energy Corp. 7,100 363,236
========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-7.18%
Bank of America Corp. 159,090 8,493,815
- ------------------------------------------------------------------------
Citigroup Inc. 284,360 15,838,852
- ------------------------------------------------------------------------
JPMorgan Chase & Co. 38,900 1,878,870
========================================================================
26,211,537
========================================================================
PACKAGED FOODS & MEATS-1.03%
General Mills, Inc. 65,260 3,758,976
========================================================================
PERSONAL PRODUCTS-0.28%
USANA Health Sciences, Inc.(a)(b) 19,640 1,014,602
========================================================================
</Table>
<Table>
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
PHARMACEUTICALS-5.42%
AstraZeneca PLC-ADR (United Kingdom) 20,200 $ 1,081,710
- ------------------------------------------------------------------------
Johnson & Johnson 139,005 9,177,110
- ------------------------------------------------------------------------
King Pharmaceuticals, Inc.(a) 37,040 589,677
- ------------------------------------------------------------------------
Merck & Co. Inc. 120,150 5,238,540
- ------------------------------------------------------------------------
Pfizer Inc. 143,300 3,711,470
========================================================================
19,798,507
========================================================================
PROPERTY & CASUALTY INSURANCE-4.36%
ACE Ltd. 20,300 1,229,571
- ------------------------------------------------------------------------
Allstate Corp. (The) 55,010 3,581,701
- ------------------------------------------------------------------------
Ambac Financial Group, Inc. 41,176 3,667,547
- ------------------------------------------------------------------------
Chubb Corp. (The) 104,730 5,541,264
- ------------------------------------------------------------------------
FPIC Insurance Group, Inc.(a) 21,100 822,267
- ------------------------------------------------------------------------
SAFECO Corp. 7,480 467,874
- ------------------------------------------------------------------------
W. R. Berkley Corp. 18,410 635,329
========================================================================
15,945,553
========================================================================
PUBLISHING-0.68%
McGraw-Hill Cos., Inc. (The) 36,700 2,496,334
========================================================================
REGIONAL BANKS-0.77%
Cullen/Frost Bankers, Inc. 33,800 1,886,716
- ------------------------------------------------------------------------
Nara Bancorp, Inc. 44,200 924,664
========================================================================
2,811,380
========================================================================
RESTAURANTS-1.98%
Darden Restaurants, Inc. 28,430 1,142,033
- ------------------------------------------------------------------------
Jack in the Box Inc.(a) 40,940 2,498,978
- ------------------------------------------------------------------------
Yum! Brands, Inc. 61,100 3,592,680
========================================================================
7,233,691
========================================================================
SEMICONDUCTOR EQUIPMENT-0.00%
Verigy Ltd. (Singapore)(c) 1 13
========================================================================
SEMICONDUCTORS-0.21%
Intel Corp. 38,300 775,575
========================================================================
SPECIALIZED CONSUMER SERVICES-0.80%
Jackson Hewitt Tax Service Inc. 37,010 1,257,230
- ------------------------------------------------------------------------
Steiner Leisure Ltd.(a) 36,500 1,660,750
========================================================================
2,917,980
========================================================================
SPECIALIZED FINANCE-0.35%
CIT Group, Inc. 23,032 1,284,495
========================================================================
STEEL-1.51%
IPSCO, Inc. (Canada) 20,050 1,882,093
- ------------------------------------------------------------------------
Nucor Corp. 56,600 3,093,756
- ------------------------------------------------------------------------
Steel Dynamics, Inc. 16,720 542,564
========================================================================
5,518,413
========================================================================
</Table>
F-3
AIM Select Equity Fund
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
SYSTEMS SOFTWARE-1.79%
BMC Software, Inc.(a) 17,630 $ 567,686
- ------------------------------------------------------------------------
MICROS Systems, Inc.(a) 10,700 563,890
- ------------------------------------------------------------------------
Microsoft Corp. 121,790 3,636,649
- ------------------------------------------------------------------------
Oracle Corp.(a) 103,700 1,777,418
========================================================================
6,545,643
========================================================================
TECHNOLOGY DISTRIBUTORS-1.34%
CDW Corp. 69,402 4,880,349
========================================================================
THRIFTS & MORTGAGE FINANCE-0.23%
MGIC Investment Corp. 13,290 831,157
========================================================================
TOBACCO-1.49%
Altria Group, Inc. 21,750 1,866,585
- ------------------------------------------------------------------------
Loews Corp.-Carolina Group 16,570 1,072,411
- ------------------------------------------------------------------------
Reynolds American Inc. 32,400 2,121,228
- ------------------------------------------------------------------------
Vector Group Ltd.(b) 21,939 389,417
========================================================================
5,449,641
========================================================================
TRADING COMPANIES & DISTRIBUTORS-0.27%
WESCO International, Inc.(a) 16,660 979,775
========================================================================
TRUCKING-0.60%
Arkansas Best Corp. 36,670 1,320,120
- ------------------------------------------------------------------------
Hunt (J.B.) Transport Services, Inc. 41,990 872,132
========================================================================
2,192,252
========================================================================
Total Common Stocks & Other Equity
Interests (Cost $281,526,356) 351,863,847
========================================================================
</Table>
<Table>
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
MONEY MARKET FUNDS-4.04%
Liquid Assets Portfolio-Institutional
Class(d) 7,367,459 $ 7,367,459
- ------------------------------------------------------------------------
Premier Portfolio-Institutional Class(d) 7,367,459 7,367,459
========================================================================
Total Money Market Funds (Cost
$14,734,918) 14,734,918
========================================================================
TOTAL INVESTMENTS (excluding investments
purchased with cash collateral from
securities loaned)-100.36% (Cost
$296,261,274) 366,598,765
========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-1.03%
Liquid Assets Portfolio-Institutional
Class(d)(e) 3,767,100 3,767,100
========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $3,767,100) 3,767,100
========================================================================
TOTAL INVESTMENTS-101.39% (Cost $300,028,374) 370,365,865
========================================================================
OTHER ASSETS LESS LIABILITIES-(1.39)% (5,062,240)
========================================================================
NET ASSETS-100.00% $365,303,625
________________________________________________________________________
========================================================================
</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 was out on loan at December 31, 2006.
(c) Non-income producing security acquired through a corporate action.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(e) The security has been segregated to satisfy the 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 Select Equity Fund
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2006
<Table>
ASSETS:
Investments, at value (cost $281,526,356)* $351,863,847
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $18,502,018) 18,502,018
===========================================================
Total investments (cost $300,028,374) 370,365,865
===========================================================
Cash 36,431
- -----------------------------------------------------------
Receivables for:
Fund shares sold 158,343
- -----------------------------------------------------------
Dividends 420,995
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 82,997
- -----------------------------------------------------------
Other assets 22,267
===========================================================
Total assets 371,086,898
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Fund shares reacquired 1,508,514
- -----------------------------------------------------------
Trustee deferred compensation and
retirement plans 127,230
- -----------------------------------------------------------
Collateral upon return of securities loaned 3,767,100
- -----------------------------------------------------------
Accrued distribution fees 145,298
- -----------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 4,286
- -----------------------------------------------------------
Accrued transfer agent fees 146,603
- -----------------------------------------------------------
Accrued operating expenses 84,242
===========================================================
Total liabilities 5,783,273
===========================================================
Net assets applicable to shares outstanding $365,303,625
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $360,120,500
- -----------------------------------------------------------
Undistributed net investment income (loss) (114,862)
- -----------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and option contracts (65,039,504)
- -----------------------------------------------------------
Unrealized appreciation of investment
securities 70,337,491
===========================================================
$365,303,625
___________________________________________________________
===========================================================
NET ASSETS:
Class A $259,816,743
___________________________________________________________
===========================================================
Class B $ 85,521,192
___________________________________________________________
===========================================================
Class C $ 19,965,690
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 12,314,353
___________________________________________________________
===========================================================
Class B 4,603,483
___________________________________________________________
===========================================================
Class C 1,076,372
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 21.10
- -----------------------------------------------------------
Offering price per share
(Net asset value of $21.10divided
by94.50% $ 22.33
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 18.58
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 18.55
___________________________________________________________
===========================================================
</Table>
* At December 31, 2006, securities with an aggregate value of $3,672,037 were on
loan to brokers.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-5
AIM Select Equity Fund
STATEMENT OF OPERATIONS
For the year ended December 31, 2006
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $33,100) $ 5,075,832
- -------------------------------------------------------------------------
Dividends from affiliated money market funds (includes
securities lending income of $12,986) 538,565
- -------------------------------------------------------------------------
Interest 3,578
=========================================================================
Total investment income 5,617,975
=========================================================================
EXPENSES:
Advisory fees 2,552,758
- -------------------------------------------------------------------------
Administrative services fees 104,282
- -------------------------------------------------------------------------
Custodian fees 31,956
- -------------------------------------------------------------------------
Distribution fees:
Class A 630,812
- -------------------------------------------------------------------------
Class B 934,593
- -------------------------------------------------------------------------
Class C 206,571
- -------------------------------------------------------------------------
Transfer agent fees 1,301,517
- -------------------------------------------------------------------------
Trustees' and officer's fees and benefits 25,790
- -------------------------------------------------------------------------
Other 249,871
=========================================================================
Total expenses 6,038,150
=========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (66,637)
=========================================================================
Net expenses 5,971,513
=========================================================================
Net investment income (loss) (353,538)
=========================================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES AND
OPTION CONTRACTS:
Net realized gain from:
Investment securities (includes net gains from securities
sold to affiliates of $211,634) 37,579,867
- -------------------------------------------------------------------------
Option contracts written 222,573
=========================================================================
37,802,440
=========================================================================
Change in net unrealized appreciation of investment
securities 8,594,908
=========================================================================
Net gain from investment securities and option contracts 46,397,348
=========================================================================
Net increase in net assets resulting from operations $46,043,810
_________________________________________________________________________
=========================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-6
AIM Select Equity Fund
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2006 and 2005
<Table>
<Caption>
2006 2005
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (353,538) $ (1,966,358)
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies and option contracts 37,802,440 69,678,599
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and options contracts 8,594,908 (50,186,478)
==========================================================================================
Net increase in net assets resulting from operations 46,043,810 17,525,763
==========================================================================================
Share transactions-net:
Class A (32,579,637) (45,443,426)
- ------------------------------------------------------------------------------------------
Class B (31,693,986) (46,135,865)
- ------------------------------------------------------------------------------------------
Class C (5,368,932) (7,734,281)
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (69,642,555) (99,313,572)
==========================================================================================
Net increase (decrease) in net assets (23,598,745) (81,787,809)
==========================================================================================
NET ASSETS:
Beginning of year 388,902,370 470,690,179
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(114,862) and $(106,381), respectively) $365,303,625 $388,902,370
__________________________________________________________________________________________
==========================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
December 31, 2006
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 seven 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.
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 or official closing price as of the close of
the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on that
day. Securities traded in the over-the-counter market are valued based on
the prices furnished by independent pricing services, in which case the
securities may be considered fair valued, or by market makers. 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 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 open-end and closed-end registered
investment companies that trade on an exchange are valued at the last sales
price or official closing price as of the close of the customary trading
session on the exchange where the security is principally traded.
Debt obligations (including convertible bonds) and unlisted equities 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.
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. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued at
the market quotations. Because trading hours for certain foreign securities
end before the close of the NYSE, closing market quotations may become
unreliable. If between the time trading ends on a particular security and
the close of the customary trading session on the NYSE, events occur that
F-7
AIM Select Equity Fund
are significant and may make the closing price unreliable, the Fund may
fair value the security. 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 prices are not provided by any of the above
methods may be 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.
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 the 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 treat 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 to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that 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. ACCOUNTING ESTIMATES -- 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.
H. INDEMNIFICATIONS -- 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.
I. COVERED CALL OPTIONS -- The Fund may write call options. A call option
gives the purchaser of such option the right to buy, and the writer (the
Fund) the obligation to sell, the underlying security at the stated
exercise price during the option period. Written call options are recorded
as a liability in the Statement of Assets and Liabilities. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. 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
F-8
AIM Select Equity 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.
Realized gains and losses on these contracts are included in the Statement
of Operations. 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.
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 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, 2007, 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). 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, 2006, AIM waived advisory fees of $37,734.
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, 2006, AMVESCAP reimbursed expenses of the Fund in the amount
of $3,852.
The Trust has entered into a master administrative services agreement with
AIM pursuant to which the Fund has agreed to pay AIM for certain administrative
costs incurred in providing accounting services, to the Fund. For the year ended
December 31, 2006, expenses incurred under the agreement are shown in the
Statement of Operations as administrative services fees.
The Trust has entered into a transfer agency and service agreement with AIM
Investment Services, Inc. ("AIS") pursuant to which the Fund has agreed to pay
AIS a fee for providing transfer agency and shareholder services to the Fund and
reimburse AIS for certain expenses incurred by AIS in the course of providing
such services. AIS may make payments to intermediaries that provide omnibus
account services, sub-accounting services and/or networking services. All fees
payable by AIS to intermediaries that provide omnibus account services or
sub-accounting are charged back to the Fund, subject to certain limitations
approved by the Trust's Board of Trustees. For the year ended December 31, 2006,
the expenses incurred under the agreement are shown in the Statement of
Operations as transfer agent fees.
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 each class of
Class B and Class C shares. Of the Plan payments, up to 0.25% of the average
daily net assets of each class of 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. For the year ended
December 31, 2006, expenses incurred under the Plans are shown in the Statement
of Operations as distribution fees.
F-9
AIM Select Equity Fund
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, 2006, ADI advised the Fund that it retained $46,293 in
front-end sales commissions from the sale of Class A shares and $2, $45,392 and
$655 from Class A, Class B and Class C shares, respectively, for CDSC imposed on
redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS and/or ADI.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to procedures approved by the Board of Trustees,
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, 2006.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 12/31/06 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 5,977,525 $ 35,503,482 $ (34,113,548) $ -- $ 7,367,459 $262,635 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-
Institutional
Class -- 21,733,041 (14,365,582) -- 7,367,459 145,983 --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 5,977,525 18,703,362 (24,680,887) -- -- 116,961 --
==================================================================================================================================
Subtotal $11,955,050 $ 75,939,885 $ (73,160,017) $ -- $14,734,918 $525,579 $ --
==================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 12/31/06 INCOME* GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 1,402,365 $ 66,256,796 $ (63,892,061) $ -- $ 3,767,100 $ 12,986 $ --
==================================================================================================================================
Total
Investments
in
Affiliates $13,357,415 $142,196,681 $(137,052,078) $ -- $18,502,018 $538,565 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</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, for the year ended December 31, 2006, the Fund
engaged in securities sales of $2,468,960, which resulted in net realized gains
of $211,634, and securities purchases of $2,141,990.
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, (ii) custodian credits which result
from periodic overnight cash balances at the custodian and (iii) a one time
custodian fee credit to be used to offset future custodian fees. For the year
ended December 31, 2006, the Fund received credits from these arrangements,
which resulted in the reduction of the Fund's total expenses of $25,051.
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
F-10
AIM Select Equity Fund
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, 2006, the Fund paid legal fees of $5,109
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 Securities and Exchange Commission, 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, 2006, 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 bank 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 contractually agreed upon rate.
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 any loss on
the collateral invested.
At December 31, 2006, securities with an aggregate value of $3,672,037 were
on loan to brokers. The loans were secured by cash collateral of $3,767,100
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended December 31, 2006, the Fund received dividends on cash
collateral investments of $12,986 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 period -- $ --
- ------------------------------------------------------------------------------------
Written 2,970 235,715
- ------------------------------------------------------------------------------------
Expired (185) (13,142)
- ------------------------------------------------------------------------------------
Exercised (2,785) (222,573)
====================================================================================
End of period -- $ --
____________________________________________________________________________________
====================================================================================
</Table>
F-11
AIM Select Equity Fund
NOTE 10--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long-term capital gain distributions paid
during the years ended December 31, 2006 and 2005.
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2006, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2006
- ----------------------------------------------------------------------------
Net unrealized appreciation-investments $ 69,876,502
- ----------------------------------------------------------------------------
Temporary book/tax differences (114,862)
- ----------------------------------------------------------------------------
Capital loss carryforward (64,578,515)
- ----------------------------------------------------------------------------
Shares of beneficial interest 360,120,500
============================================================================
Total net assets $365,303,625
____________________________________________________________________________
============================================================================
</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 net unrealized
appreciation difference is attributable primarily to losses on wash sales.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan benefits.
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 $38,215,420 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, 2006 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
December 31, 2010 $17,786,201
- -----------------------------------------------------------------------------
December 31, 2011 46,792,314
=============================================================================
Total capital loss carryforward $64,578,515
_____________________________________________________________________________
=============================================================================
</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,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the year ended December 31, 2006 was $257,755,840 and
$329,421,267, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $73,187,460
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (3,310,958)
===============================================================================
Net unrealized appreciation of investment securities $69,876,502
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $300,489,363.
</Table>
NOTE 12--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses,
on December 31, 2006, undistributed net investment income (loss) was increased
by $345,057, and shares of beneficial interest decreased by $345,057. This
reclassification had no effect on the net assets of the Fund.
F-12
AIM Select Equity Fund
NOTE 13--SHARE INFORMATION
The Fund currently offers three different classes of shares: Class A, Class B
and Class C. Class A shares are sold with a front-end sales charge unless
certain waiver criteria are met. 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 on or
about the month-end which is at least eight years after the date of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
--------------------------------------------------------
2006 2005
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 911,141 $ 18,233,072 780,120 $ 13,761,890
- ----------------------------------------------------------------------------------------------------------------------
Class B 324,950 5,630,460 498,217 7,793,624
- ----------------------------------------------------------------------------------------------------------------------
Class C 152,658 2,632,956 193,899 3,028,919
======================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 641,457 12,530,727 1,121,759 19,623,817
- ----------------------------------------------------------------------------------------------------------------------
Class B (725,646) (12,530,727) (1,259,304) (19,623,817)
======================================================================================================================
Reacquired:
Class A (3,252,189) (63,343,436) (4,470,464) (78,829,133)
- ----------------------------------------------------------------------------------------------------------------------
Class B (1,443,232) (24,793,719) (2,192,148) (34,305,672)
- ----------------------------------------------------------------------------------------------------------------------
Class C (467,646) (8,001,888) (688,802) (10,763,200)
======================================================================================================================
(3,858,507) $(69,642,555) (6,016,723) $(99,313,572)
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
NOTE 14--NEW ACCOUNTING STANDARD
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement for a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The provisions for FIN 48 are effective for
fiscal years beginning after December 15, 2006. Management is currently
assessing the impact of FIN 48, if any, on the Fund's financial statements and
currently intends for the Fund to adopt FIN 48 provisions during the fiscal year
ending December 31, 2007.
NOTE 15--SIGNIFICANT EVENT
The Board of Trustees of the Trust unanimously approved, on November 8, 2006 an
Agreement and Plan of Reorganization ("Agreement") pursuant to which the Fund
would acquire all of the assets of AIM Opportunities II Fund and AIM
Opportunities III Fund ("Selling Funds"), a series of AIM Special Opportunities
Funds. Upon closing of the Agreement, shareholders of Selling Funds will receive
a corresponding class of shares of the Fund in exchange for their shares of
Selling Funds, and Selling Funds will cease operations.
The Agreement requires approval of Selling Funds' shareholders. Selling
Funds will submit the Agreement to shareholders for their consideration at a
meeting to be held on or about March 15, 2007. If approved by Selling Funds'
shareholders, the Agreement is expected to be consummated shortly thereafter.
F-13
AIM Select Equity Fund
NOTE 16--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,
-----------------------------------------------------------------
2006 2005 2004 2003 2002
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 18.55 $ 17.65 $ 15.50 $ 11.97 $ 17.00
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss)(a) 0.03 (0.04) (0.06)(b) (0.09) (0.06)
- -------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.52 0.94 2.21 3.62 (4.97)
===============================================================================================================================
Total from investment operations 2.55 0.90 2.15 3.53 (5.03)
===============================================================================================================================
Net asset value, end of period $ 21.10 $ 18.55 $ 17.65 $ 15.50 $ 11.97
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(c) 13.75% 5.10% 13.87% 29.49% (29.59)%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $259,817 $259,946 $292,681 $288,976 $250,666
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets 1.40%(d)(e) 1.39% 1.38%(e) 1.47% 1.32%
===============================================================================================================================
Ratio of net investment income (loss) to average net assets 0.14%(d) (0.21)% (0.40)%(b) (0.65)% (0.45)%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate 72% 91% 38% 69% 86%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</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 $252,324,859.
(e) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.41% and 1.40% for the years ended December 31, 2006 and 2004,
respectively.
<Table>
<Caption>
CLASS B
----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 16.46 $ 15.78 $ 13.96 $ 10.86 $ 15.54
- ------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss)(a) (0.11) (0.15) (0.17)(b) (0.17) (0.16)
- ------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.23 0.83 1.99 3.27 (4.52)
==============================================================================================================================
Total from investment operations 2.12 0.68 1.82 3.10 (4.68)
==============================================================================================================================
Net asset value, end of period $ 18.58 $ 16.46 $ 15.78 $ 13.96 $ 10.86
______________________________________________________________________________________________________________________________
==============================================================================================================================
Total return(c) 12.88% 4.31% 13.04% 28.55% (30.12)%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $85,521 $106,097 $148,300 $198,148 $214,709
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratio of expenses to average net assets 2.15%(d)(e) 2.14% 2.13%(e) 2.22% 2.07%
==============================================================================================================================
Ratio of net investment income (loss) to average net assets (0.61)%(d) (0.96)% (1.15)%(b) (1.40)% (1.20)%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Portfolio turnover rate 72% 91% 38% 69% 86%
______________________________________________________________________________________________________________________________
==============================================================================================================================
</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 $93,459,331.
(e) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.16% and 2.15% for the years ended December 31, 2006 and 2004,
respectively.
F-14
AIM Select Equity Fund
NOTE 16--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS C
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
2006 2005 2004 2003 2002
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 16.43 $ 15.75 $ 13.94 $ 10.84 $ 15.52
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss)(a) (0.11) (0.15) (0.17)(b) (0.17) (0.16)
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.23 0.83 1.98 3.27 (4.52)
==========================================================================================================================
Total from investment operations 2.12 0.68 1.81 3.10 (4.68)
==========================================================================================================================
Net asset value, end of period $ 18.55 $ 16.43 $ 15.75 $ 13.94 $ 10.84
__________________________________________________________________________________________________________________________
==========================================================================================================================
Total return(c) 12.90% 4.32% 12.98% 28.60% (30.15)%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $19,966 $22,860 $29,710 $33,585 $32,558
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratio of expenses to average net assets 2.15%(d)(e) 2.14% 2.13%(e) 2.22% 2.07%
==========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.61)%(d) (0.96)% (1.15)%(b) (1.40)% (1.20)%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Portfolio turnover rate 72% 91% 38% 69% 86%
__________________________________________________________________________________________________________________________
==========================================================================================================================
</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 $20,657,120.
(e) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.16% and 2.15% for the years ended December 31, 2006 and 2004,
respectively.
NOTE 17--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. 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 August 30, 2005, the West Virginia Office of the State Auditor
- -Securities Commission ("WVASC") issued a Summary Order to Cease and Desist and
Notice of Right to Hearing to AIM and ADI (Order No. 05-1318). The WVASC makes
findings of fact that AIM and ADI entered into certain arrangements permitting
market timing of the AIM Funds and failed to disclose these arrangements in the
prospectuses for such Funds, and conclusions of law to the effect that AIM and
ADI violated the West Virginia securities laws. The WVASC orders AIM and ADI to
cease any further violations and seeks to impose monetary sanctions, including
restitution to affected investors, disgorgement of fees, reimbursement of
investigatory, administrative and legal costs and an "administrative
assessment," to be determined by the Commissioner. Initial research indicates
that these damages could be limited or capped by statute.
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; 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.
F-15
AIM Select Equity Fund
NOTE 17--LEGAL PROCEEDINGS--(CONTINUED)
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws and
ERISA, negligence, breach of fiduciary duty and/or breach of contract. These
lawsuits seek remedies that include, depending on the lawsuit, damages,
restitution, injunctive relief, imposition of a constructive trust, removal of
certain directors and/or employees, various corrective measures under ERISA,
rescission of certain AIM Funds' advisory agreements and/or distribution plans
and recovery of all fees paid, an accounting of all fund-related fees,
commissions and soft dollar payments, restitution of all commissions and fees
paid, and prospective relief in the form of reduced fees.
All lawsuits based on allegations of market timing, late trading and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). 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. Based on orders issued by the MDL Court,
all claims asserted against the AIM Funds that have been transferred to the MDL
Court have been dismissed, although certain Funds remain nominal defendants in
the Consolidated Amended Fund Derivative Complaint. On September 15, 2006, the
MDL Court granted the AMVESCAP defendants' motion to dismiss the Amended Class
Action Complaint for Violations of ERISA and dismissed such Complaint. The
plaintiff has commenced an appeal from that decision.
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 security
holders. IFG, AIM and ADI have advised the Fund that they 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.
F-16
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, 2006, 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, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PRICEWATERHOUSECOOPERS LLP
February 20, 2007
Houston, Texas
F-17
AIM Select Equity Fund
TAX INFORMATION
NON-RESIDENT ALIEN SHAREHOLDER INFORMATION
The percentage of qualifying assets not subject to the U.S. estate tax for the
fiscal quarters ended March 31, 2006, June 30, 2006, September 30, 2006 and
December 31, 2006 were 7.45%, 6.95%, 5.63% and 5.47%, respectively.
F-18
AIM Select Equity Fund
TRUSTEES AND OFFICERS
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 110
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
NAME, YEAR OF BIRTH AND AND/ OTHER
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- --------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- --------------------------------------------------------------------------------------------------------------------------
Martin L. Flanagan(1) -- 1960 2007 Director, Chief Executive Officer and None
Trustee President, AMVESCAP PLC (parent of AIM
and a global investment management
firm); Chairman, A I M Advisors, Inc.
(registered investment advisor); and
Director, Chairman, Chief Executive
Officer and President, AVZ Inc. (holding
company); INVESCO North American
Holdings, Inc. (holding company);
Chairman and President, AMVESCAP Group
Services, Inc. (service provider);
Trustee, The AIM Family of Funds(R);
Chairman, Investment Company Institute;
and Member of Executive Board, SMU Cox
School of Business
Formerly: President, Co-Chief Executive
Officer, Co-President, Chief Operating
Officer and Chief Financial Officer,
Franklin Resources, Inc. (global
investment management organization)
- --------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(2) -- 1946 1992 Director and Chairman, A I M Management None
Trustee and Vice Chair Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC; Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm) and
Trustee and Vice Chair of The AIM Family
of Funds--Registered Trademark--
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);
Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and President
and Principal Executive Officer of The
AIM Family of Funds--Registered
Trademark--
- --------------------------------------------------------------------------------------------------------------------------
Philip A. Taylor(3) -- 1954 2006 Director, Chief Executive Officer and None
Trustee, President and President, A I M Management Group Inc.,
Principal AIM Mutual Fund Dealer Inc. (registered
Executive Officer broker dealer), AIM Funds Management
Inc. (registered investment advisor) and
1371 Preferred Inc. (holding company);
Director and President, A I M Advisors,
Inc., INVESCO Funds Group, Inc.
(registered investment advisor and
register transfer agent) and AIM GP
Canada Inc. (general partner for a
limited partnership); 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); Director, President and
Chairman, AVZ Callco Inc. (holding
company); AMVESCAP Inc. (holding
company) and AIM Canada Holdings Inc.
(holding company); Director and Chief
Executive Officer, AIM Trimark Corporate
Class Inc. (formerly AIM Trimark Global
Fund Inc.) (corporate mutual fund
company) and AIM Trimark Canada Fund
Inc. (corporate mutual fund company);
Trustee, President and Principal
Executive Officer of The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); Trustee and
Executive Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); and Manager,
Powershares Capital Management LLC
Formerly: President and Principal
Executive Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); Chairman, AIM
Canada Holdings, Inc.; Executive Vice
President and Chief Operations Officer,
AIM Funds Management Inc.; President,
AIM Trimark Global Fund Inc. and AIM
Trimark Canada Fund Inc.; and Director,
Trimark Trust (federally regulated
Canadian Trust Company)
- --------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- --------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- --------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
- --------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company
Formerly: Partner, law firm of Baker & (2 portfolios))
McKenzie
- --------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Founder, Green, Manning & Bunch Ltd., None
Trustee (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 (property casualty company)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and Director of various
affiliated Volvo companies; and
Director, Magellan Insurance Company
- --------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund
company); and Owner, Dos Angelos Ranch, (non-profit)
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
- --------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- --------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- --------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired Director, Mainstay VP Series
Trustee Formerly: Partner, Deloitte & Touche Funds, Inc. (21 portfolios)
- --------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Flanagan was appointed as Trustee of the Trust on February 24, 2007. Mr.
Flanagan is considered an interested person of the Trust because he is an
officer of the advisor to the Trust, and an officer and a director of
AMVESCAP PLC, parent of the advisor to the Trust.
(2) 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.
(3) Mr. Taylor 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.
F-19
TRUSTEES AND OFFICERS--(CONTINUED)
AIM Select Equity Fund
<Table>
<Caption>
TRUSTEE
NAME, YEAR OF BIRTH AND AND/ OTHER
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- --------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- --------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer N/A
Senior Vice President and of The AIM Family of Funds--Registered
Senior Officer Trademark--
Formerly: Director of Compliance and
Assistant General Counsel, ICON
Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- --------------------------------------------------------------------------------------------------------------------------
John M. Zerr -- 1962 2006 Director, Senior Vice President, N/A
Senior Vice President, Chief Secretary and General Counsel, A I M
Legal Officer and Secretary Management Group Inc. and A I M
Advisors, Inc.; Director, Vice President
and Secretary, INVESCO Distributors,
Inc.; Vice President and Secretary,
A I M Capital Management, Inc., AIM
Investment Services, Inc., and Fund
Management Company; Senior Vice
President and Secretary, A I M
Distributors, Inc.; Director and Vice
President, INVESCO Funds Group Inc.;
Senior Vice President, Chief Legal
Officer and Secretary of The AIM Family
of Funds--Registered Trademark--; and
Manager, Powershares Capital Management
LLC
Formerly: Chief Operating Officer,
Senior Vice President, General Counsel,
and Secretary, Liberty Ridge Capital,
Inc. (an investment adviser); Vice
President and Secretary, PBHG Funds (an
investment company); Vice President and
Secretary, PBHG Insurance Series Fund
(an investment company); General Counsel
and Secretary, Pilgrim Baxter Value
Investors (an investment adviser); Chief
Operating Officer, General Counsel and
Secretary, Old Mutual Investment
Partners (a broker-dealer); General
Counsel and Secretary, Old Mutual Fund
Services (an administrator); General
Counsel and Secretary, Old Mutual
Shareholder Services (a shareholder
servicing center); Executive Vice
President, General Counsel and
Secretary, Old Mutual Capital, Inc. (an
investment adviser); and Vice President
and Secretary, Old Mutual Advisors Funds
(an investment company)
- --------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Global Compliance Director, AMVESCAP N/A
Vice President PLC; and Vice President of The AIM
Family of Funds--Registered Trademark--
Formerly: Senior Vice President, A I M
Management Group Inc. (financial
services holding company); Senior Vice
President and Chief Compliance Officer,
A I M Advisors, Inc. and The AIM Family
of Funds--Registered Trademark--; Vice
President and Chief Compliance Officer,
A I M Capital Management, Inc. and A I M
Distributors, Inc.; Vice President, AIM
Investment Services, Inc. and Fund
Management Company; Senior Vice
President and Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; and Senior Vice President
and Compliance Director, Delaware
Investments Family of Funds
- --------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Senior Vice President and General
Vice President Counsel, AMVESCAP PLC; Director, INVESCO
Funds Group, Inc.; and Vice President of
The AIM Family of Funds--Registered
Trademark--
Formerly: Director, Vice President and N/A
General Counsel, Fund Management
Company; Director, Senior Vice
President, Secretary and General
Counsel, A I M Management Group Inc. and
A I M Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Senior Vice President, A I M
Distributors, Inc.; Vice President,
A I M Capital Management, Inc. and AIM
Investment Services, Inc.; Senior Vice
President, Chief Legal Officer and
Secretary of The AIM Family of
Funds--Registered Trademark--; Chief
Executive Officer and President, INVESCO
Funds Group, Inc.; and Senior Vice
President, and General Counsel, Liberty
Financial Companies, Inc. and Senior
Vice President and General Counsel
Liberty Funds Group, LLC
- --------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.; and Vice President,
Financial Officer and Treasurer and Principal Officer of The
Treasurer AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- --------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1992 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc. and The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); and
President and Principal Executive
Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust Only)
Formerly: Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only)
- --------------------------------------------------------------------------------------------------------------------------
Lance A. Rejsek -- 1967 2005 Anti-Money Laundering Compliance N/A
Anti-Money Laundering Officer, A I M Advisors, Inc., A I M
Compliance Officer Capital Management, Inc., A I M
Distributors, Inc., AIM Investment
Services, Inc., AIM Private Asset
Management, Inc., Fund Management
Company and The AIM Family of
Funds--Registered Trademark--
Formerly: Manager of the Fraud
Prevention Department, AIM Investment
Services, Inc.
- --------------------------------------------------------------------------------------------------------------------------
Todd L. Spillane -- 1958 2006 Senior Vice President, A I M Management N/A
Chief Compliance Officer Group Inc.; Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; 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: Global Head of Product
Development, AIG-Global Investment
Group, Inc.; Chief Compliance Officer
and Deputy General Counsel,
AIG-SunAmerica Asset Management; and
Chief Compliance Officer, Chief
Operating Officer and Deputy General
Counsel, American General Investment
Management
- --------------------------------------------------------------------------------------------------------------------------
</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, 51st & Frankel LLP P.O. Box 4739 225 Franklin Street
Floor 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Philadelphia, PA 19103-7599 Americas
New York, NY 10036-2714
</Table>
F-20
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3. Select "Register for eDelivery" and complete the consent process.
If used after April 20, 2007, 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 and exchange-traded funds distributed by A I M
Distributors, Inc.
A I M Management Group Inc. has provided leadership in the investment management
industry since 1976. AIM Investment Services, Inc. is the transfer agent for the
products and services represented by AIM Investments. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $463 billion in assets under management as of December 31, 2006.
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.
This AIM service is provided by AIM Investment Services, Inc.
AIMinvestments.com SEQ-AR-1 A I M Distributors, Inc.
[YOUR GOALS. OUR SOLUTIONS.]
-- REGISTERED TRADEMARK --
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Mutual Exchange- Retirement Savings Managed Offshore Cash
Funds Traded Funds Products Annuities Plans Accounts Products Management
[AIM INVESTMENTS LOGO]
-- REGISTERED TRADEMARK --
AIM Small Cap Equity Fund
Annual Report to Shareholders - December 31, 2006
[COVER GLOBE IMAGE]
DOMESTIC EQUITY
Small Cap
Table of Contents
Supplemental Information ................................................ 2
Letters to Shareholders ................................................. 3
Performance Summary ..................................................... 5
Management Discussion ................................................... 5
Fund Expenses ........................................................... 7
Long-term Fund Performance .............................................. 8
Approval of Advisory Agreement .......................................... 10
Schedule of Investments ................................................. F-1
Financial Statements .................................................... F-5
Notes to Financial Statements ........................................... F-8
Financial Highlights .................................................... F-15
Auditor's Report ........................................................ F-19
Tax Disclosures ......................................................... F-20
Trustees and Officers ................................................... F-21
[AIM INVESTMENT SOLUTIONS]
[GRAPHIC] [GRAPHIC] [GRAPHIC]
[DOMESTIC [INTERNATIONAL/ [SECTOR
EQUITY] GLOBAL EQUITY] EQUITY]
[GRAPHIC] [GRAPHIC] [GRAPHIC]
[FIXED [ALLOCATION [DIVERSIFIED
INCOME] SOLUTIONS] PORTFOLIOS]
[AIM INVESTMENTS LOGO]
- -- REGISTERED TRADEMARK --
AIM Small Cap Equity Fund
AIM SMALL CAP EQUITY FUND SEEKS LONG-TERM GROWTH OF CAPITAL.
- - Unless otherwise stated, information presented in this report is as of
December 31, 2006, and is based on total net assets.
About share classes
- - Class B shares are not available as an investment for retirement plans
maintained pursuant to Section 401 of the Internal Revenue Code, including
401(k) plans, money purchase pension plans and profit sharing plans. Plans
that had existing accounts invested in Class B shares prior to September
30, 2003, will continue to be allowed to make additional purchases.
- - Class R shares are available only to certain retirement plans. Please see
the prospectus for more information.
Principal risks of investing in the Fund
- - Foreign securities have additional risks, including exchange rate changes,
political and economic upheaval, the relative lack of information about
these companies, relatively low market liquidity and the potential lack of
strict financial and accounting controls and standards.
- - Investing in a fund that invests in smaller companies involves risks not
associated with investing in more established companies, such as business
risk, stock price fluctuations and illiquidity.
- - Prices of equity securities change in response to many factors including
the historical and prospective earnings of the issuer, the value of its
assets, general economic conditions, interest rates, investor perceptions
and market liquidity.
- - The value of convertible securities in which the Fund invests may be
affected by market interest rates, the risk that the issuer may default on
interest or principal payments and the value of the underlying common stock
into which these securities may be converted.
- - Because a large percentage of the Fund's assets may be invested in a
limited number of securities, a change in the value of these securities
could significantly affect the value of your investment in the Fund.
- - Although the Fund's return during certain periods was positively impacted
by its investments in initial public offerings (IPOs), there can be no
assurance that the Fund will have favorable IPO investment opportunities in
the future.
About indexes used in this report
- - The unmanaged STANDARD & POOR'S COMPOSITE INDEX OF 500 STOCKS (the S&P 500
--REGISTERED TRADEMARK-- Index) is an index of common stocks frequently
used as a general measure of U.S. stock market performance.
- - The unmanaged STANDARD & POOR'S COMPOSITE INDEX OF 600 STOCKS (the S&P 600
--REGISTERED TRADEMARK-- Index) is an index of common stocks frequently
used as a general measure of the small company segment of the U.S. stock
market.
- - The unmanaged Russell 2000 --REGISTERED TRADEMARK-- Index represents the
performance of the stocks of small-capitalization companies. The Russell
2000 Index is a trademark/service mark of the Frank Russell Company.
Russell --REGISTERED TRADEMARK-- is a trademark of the Frank Russell
Company.
- - The unmanaged LIPPER SMALL-CAP CORE FUNDS INDEX represents an average of
the performance of the 30 largest small-capitalization core equity funds
tracked by Lipper Inc., an independent mutual fund performance monitor.
- - The Fund is not managed to track the performance of any particular index,
including the indexes defined here, and consequently, the performance of
the Fund may deviate significantly from the performance of the indexes
- - A direct investment cannot be made in an index. Unless otherwise indicated,
index results include reinvested dividends, and they do not reflect sales
charges. Performance of an index of funds reflects fund expenses;
performance of a market index does not.
Other information
- - Industry classifications used in this report are generally according to the
Global Industry Classification Standard, which was developed by and is the
exclusive property and a service mark of Morgan Stanley Capital
International Inc. and Standard & Poor's.
- - The returns shown in the Management's Discussion of Fund Performance are
based on net asset values calculated for shareholder transactions.
Generally accepted accounting principles require adjustments to be made to
the net assets of the fund at period end for financial reporting purposes,
and as such, the net asset values for shareholder transactions and the
returns based on those net asset values may differ from the net asset
values and returns reported in the Financial Highlights.
- - The Chartered Financial Analyst --REGISTERED TRADEMARK-- (CFA --REGISTERED
TRADEMARK--) designation is a globally recognized standard for measuring
the competence and integrity of investment professionals.
The Fund provides a complete list of its holdings four times in each fiscal
year, at the quarter-ends. For the second and fourth quarters, the lists appear
in the Fund's semiannual and annual reports to shareholders. For the first and
third quarters, the Fund files the lists with the Securities and Exchange
Commission (SEC) on Form N-Q. The most recent list of portfolio holdings is
available at AIMinvestments.com. From our home page, click on Products &
Performance, then Mutual Funds, then Fund Overview. Select your Fund from the
drop-down menu and click on Complete Quarterly Holdings. Shareholders can also
look up the Fund's Forms N-Q on the SEC Web site at sec.gov. Copies of the
Fund's Forms N-Q may be reviewed and copied at the SEC Public Reference Room in
Washington, D.C. You can obtain information on the operation of the Public
Reference Room, including information about duplicating fee charges, by calling
Continued on page 9
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.
FUND NASDAQ SYMBOLS
Class A Shares SMEAX
Class B Shares SMEBX
Class C Shares SMECX
Class R Shares SMERX
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIMINVESTMENTS.COM
2
AIM Small Cap Equity Fund
[TAYLOR PHOTO]
Philip Taylor
Dear Shareholders of The AIM Family of Funds --REGISTERED TRADEMARK--:
I'm pleased to provide you with this report, which includes a discussion of how
your Fund was managed during the year ended December 31, 2006, and what factors
affected its performance. The following pages contain important information that
answers questions you may have about your investment.
In the United States and around the globe, most major stock market indexes
rose in 2006. U.S. stocks benefited from continued economic expansion and a
cessation of interest rate increases by the U.S. Federal Reserve, among other
factors. Global markets also enjoyed a good year, while all major fixed-income
indexes produced positive annual returns.
As I write this letter, the consensus outlook for the economy remains
positive. But we all know that markets are unpredictable and subject to sudden
changes based on geopolitical or economic developments. At AIM Investments
- --REGISTERED TRADEMARK--, we believe investors can do two things to deal with
short-term market fluctuations: maintain a long-term investment horizon and
maintain a diversified portfolio. AIM Investments offers a broad product line
that gives your financial advisor options to build a portfolio that's right for
you regardless of market conditions. Our product line includes a comprehensive
range of mutual funds, including domestic, global and international equity
funds; taxable and tax-exempt fixed-income funds; and a variety of allocation
portfolios--with risk and return characteristics to match your needs. We
maintain this extensive set of product solutions because we believe in the value
of diversified investment portfolios.
To provide you even more investment options, we recently launched AIM
Independence Funds, six new target maturity funds that combine AIM retail mutual
funds and PowerShares --REGISTERED TRADEMARK-- exchange-traded funds (ETFs) as
underlying investment options. ETFs are relatively low cost and potentially
tax-efficient funds that trade like individual stocks. These AIM Independence
Funds are intended to provide broad diversification and risk/reward levels that
change as your target retirement date nears. Your financial advisor can provide
you with more information about the new AIM Independence Funds.
At AIM Investments, we believe in the value of working with a trusted
financial advisor. Your financial advisor can help you build a diversified
investment portfolio, making periodic adjustments as market conditions and your
investment goals change. While there are no guarantees with any investment
program, a long-term plan matched to your financial goals, risk tolerance and
time horizon offers the potential to keep you and your investments on track--and
your financial advisor can provide you with valuable information and advice.
I also invite you to visit us on the Internet at AIMinvestments.com. Our
Web site allows you to access your account information, review fund performance,
learn more about your fund's investment strategies and obtain general investing
information--whenever it's convenient for you.
OUR COMMITMENT TO YOU
While we're committed to maintaining a comprehensive, easy-to-navigate Web site,
we're even more committed to providing excellent customer service. Our highly
trained, courteous client services representatives are eager to answer your
questions, provide you with product information or assist you with account
transactions. I encourage you to give us an opportunity to serve you by calling
us at 800-959-4246.
All of us at AIM Investments are committed to helping you achieve your
financial goals. We work every day to earn your trust, and are grateful for the
confidence you've placed in us.
Sincerely,
/s/ Philip Taylor
- -------------------------------------
Philip Taylor
President - AIM Funds
CEO, AIM Investments
February 9, 2007
AIM Investments is a registered service mark of A I M Management Group Inc. AIM
Advisors, Inc. and A I M Capital Management, Inc. are the investment advisors. A
I M Distributors, Inc. is the distributor for the retail mutual funds
represented by AIM Investments and the PowerShares Exchange-Traded Fund Trust.
3
AIM Small Cap Equity Fund
[CROCKETT PHOTO]
Bruce L. Crockett
Dear Fellow AIM Fund Shareholders:
Your AIM Funds Board started 2007 committed to continue working with management
at A I M Advisors, Inc. (AIM) with the goal of improving performance and
lowering shareholder expenses for the AIM Funds.
The progress made to date is encouraging. Following the general trends of
global equity markets and the U.S. stock market, the asset-weighted absolute
performance for all the equity and fixed-income AIM Funds improved to 15.08% for
the one-year period ended December 31, 2006, as compared to 9.13% for the
one-year period ended December 31, 2005, and 11.20% for the one-year period
ended December 31, 2004.(1) The asset-weighted absolute performance for the AIM
money market funds was 4.84% for the one-year period ended December 31, 2006, as
compared to 3.04% for the one-year period ended December 31, 2005, and 1.23% for
the one-year period ended December 31, 2004.(2)
In November, your Board approved, subject to shareholder vote, four more
AIM Fund consolidations. As always, these decisions were made to benefit
existing shareholders and were driven by a desire to improve the merged funds'
performance, attract new assets and reduce costs. The asset class subcommittees
of your Board's Investments Committee are meeting frequently with portfolio
managers to identify how performance might be further improved.
On the expense side, both AMVESCAP, the parent company of AIM, and AIM
continue to take advantage of opportunities for operational consolidation,
outsourcing and new technologies to improve cost efficiencies for your benefit.
Your Board, for example, takes advantage of effective software solutions that
enable us to save money through electronic information sharing. Additional
cost-saving steps are under way. I'll report more on these steps once they're
completed.
Another major Board initiative for early 2007 is the revision of the AIM
Funds' proxy voting guidelines, a project begun by a special Board task force
late last year. We expect to have new procedures in place for the 2007 spring
proxy season that will improve the ability of the AIM Funds to cast votes that
are in the best interests of all fund shareholders.
While your Board recognizes that additional work lies ahead, we are
gratified that some key external sources have recognized changes at AIM and the
AIM Funds in the past two years. An article in the November 21, 2006, issue of
Morningstar Report (Morningstar Inc. is a leading provider of independent mutual
fund investment research) included a review of AIM's progress, highlighting
lower expenses, stronger investment teams and an improved sales culture, as well
as areas for continued improvement. I'm looking forward to a return visit to
Morningstar this year to review AIM Funds' performance and governance ratings.
Your Board thanks Mark Williamson, former President and CEO of AIM
Investments, who retired from your Board in 2006. He has been succeeded on your
Board by Phil Taylor, President of AIM Funds. We extend a warm welcome to Phil.
I'd like to hear from you. Please write to me at AIM Investments, AIM
Investments Tower, 11 Greenway Plaza, Suite 100, Houston TX 77046. Let me know
your thoughts on how your Board is doing and how we might serve you better.
Sincerely,
/S/ BRUCE L. CROCKETT
- -------------------------------------
Bruce L. Crockett
Independent Chair
AIM Funds Board
February 9, 2007
(1) Past performance is no guarantee of future results. The asset-weighted
absolute performance for the equity and fixed-income AIM Funds is derived
by taking the one-year cumulative total return for each share class of each
AIM Fund in existence as of December 31, 2006, (excluding money market
funds) and weighting the performance by the calendar year average net
assets of that share class. The one-year cumulative total return includes
reinvested distributions, fund expenses and management fees, but excludes
applicable sales charges. If sales charges were included, the one-year
cumulative total return and the asset-weighted performance would be lower.
(2) Past performance is no guarantee of future results. The asset-weighted
absolute performance for the AIM money market funds is derived by taking
the one-year cumulative total return for each share class of each AIM money
market fund in existence as of December 31, 2006, and weighting the
performance by the calendar year average net assets of that share class.
The one-year cumulative total return includes reinvested distributions,
fund expenses and management fees, but excludes applicable sales charges.
If sales charges were included, the one-year cumulative total return and
the asset-weighted performance would be lower.
4
AIM Small Cap Equity Fund
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
PERFORMANCE SUMMARY
For the year ended December 31, 2006, AIM Small Cap Equity Fund, excluding
applicable sales charges, had positive returns and outperformed the broad
market, as measured by the S&P 500 Index. The Fund underperformed its
style-specific index, the Russell 2000 Index, as outperformance in some sectors
was offset by underperformance in other sectors.
Solid stock selection and strong performance by small-cap stocks enabled
the Fund to outperform the large-cap oriented S&P 500 Index.
Your Fund's long-term performance appears on pages 8-9.
FUND VS. INDEXES
Total returns, 12/31/05-12/31/06, excluding applicable sales charges. If sales
charges were included, returns would be lower.
Class A Shares 16.83%
Class B Shares 15.90
Class C Shares 16.00
Class R Shares 16.47
S&P 500 Index (Broad Market Index) 15.78
Russell 2000 Index (Style-Specific Index) 18.37
Lipper Small-Cap Core Funds Index (Peer Group Index) 13.70
SOURCE: LIPPER INC.
HOW WE INVEST
We focus on small-cap companies with visible and long-term growth opportunities,
as demonstrated by consistent and accelerating earnings growth. Our investment
philosophy involves:
PORTFOLIO CONSTRUCTION: We align the fund with the S&P 600 Index, the benchmark
we believe represents the small-cap-core asset class. We seek to control risk by
keeping the Fund's sector weightings in line with the benchmark by staying fully
diversified in all those sectors.
STOCK SELECTION: We select stocks based on an analysis of individual companies.
Our three-step selection process includes:
1. Fundamental analysis. Building financial models and conducting in-depth
interviews with company management.
2. Valuation analysis. Identifying attractively valued stocks given their growth
potential over a one- to two-year horizon.
3. Technical analysis. Identifying the "timeliness" of a stock purchase. We
review trading volume characteristics and trend analysis to make sure there are
no signs of stock deterioration. This also serves as a risk management measure
that helps us confirm our high conviction candidates.
We consider selling or trimming a stock when:
- - The company's fundamental business prospects deteriorate
- - A stock hits its target price
- - The company's technical profile deteriorates
MARKET CONDITIONS AND YOUR FUND
Domestic equities posted solid returns in 2006, leaving several major market
indexes near multi-year highs. Strong economic growth, favorable corporate
earnings results and continued benign inflation benefited equities, offsetting
high energy prices, a slowing housing market and the U.S. Federal Reserve
Board's (the Fed) tightening campaign.
Although mixed signals from the Fed created some market volatility in May
and June, the market began to rally when the Fed left interest rates unchanged
at several meetings beginning in August. In addition, the price of crude oil and
other commodities stabilized, fostering optimism that a hard landing for the
U.S. economy could be avoided. While small-cap stocks continued to lead the
market higher, large- and mid-cap stocks also had double-digit returns.
Additionally, value stocks outperformed growth stocks. Positive perform-
(continued)
PORTFOLIO COMPOSITION
By sector
Financials 17.9%
Information Technology 17.6
Industrials 17.5
Consumer Discretionary 12.4
Health Care 11.2
Energy 7.3
Materials 6.0
Consumer Staples 4.0
Telecommunication Services 1.9
Utilities 1.8
Money Market Funds Plus
Other Assets Less Liabilities 2.4
TOP FIVE INDUSTRIES*
1. Regional Banks 5.8%
2. Semiconductors 4.5
3. Property 4.3
& Casualty Insurance 4.3
4. Application Software 4.0
5. Restaurants 3.7
Total Net Assets $474.27 million
Total Number of Holdings* 117
TOP 10 EQUITY HOLDINGS*
1. NTELOS Holdings Corp. 1.4%
2. Philadelphia Consolidated
Holding Co. 1.3
3. Phase Forward Inc. 1.3
4. Pinnacle Entertainment, Inc. 1.2
5. DJO Inc. 1.2
6. Snap-On Inc. 1.2
7. FMC Corp. 1.2
8. UAP Holding Corp. 1.2
9. Compass Minerals
International, Inc. 1.2
10. H.B. Fuller Co. 1.2
The Fund's holdings are subject to change, and there is no assurance that the
Fund will continue to hold any particular security.
* Excluding money market fund holdings.
5
AIM Small Cap Equity Fund
ance was broad among Russell 2000 Index sectors, with the best returns found in
materials, telecommunication services and consumer staples.
The Fund benefited from positive absolute performance in all 10 economic
sectors, with the highest positive impact on performance coming from holdings in
the financials, industrials and consumer discretionary sectors. On a relative
basis, the Fund performed in line with the Russell 2000 Index, as outperformance
in several sectors was offset by underperformance in other sectors.
The Fund outperformed the Russell 2000 Index by the widest margin in the
financials sector, primarily due to solid stock selection. We had particular
success with a number of bank stocks, including HANCOCK HOLDINGS, a leading
provider of commercial and consumer banking services along the Gulf coast of
Mississippi and Louisiana. This bank has benefited from strong earnings growth
as a result of increased deposits associated with the rebuilding efforts along
the Gulf coast. Commercial real estate services provider JONES LANG LASALLE also
made a significant contribution to Fund performance. This company delivered
strong results in all business segments, exceeding sales and earnings
expectations in several consecutive quarters. Other areas of strength included
diversified financials and insurance.
The Fund also outperformed its style-specific index in the consumer
discretionary sector due to stock selection in the retailing and consumer
services industries. Fund holding GYMBOREE, a children's apparel retailer, was
up over 65% during the year as the company's strategy to broaden its assortment
of merchandise led to strong sales growth. Other retailing holdings that made
key contributions included TOO, which we sold, and CACHE. In the consumer
services industry, Gulf coast casino operator PINNACLE ENTERTAINMENT was a key
contributor to performance, as the company generated strong revenue growth from
a combination of the successful opening of a new upscale facility in Lake
Charles, Lousiana, with the closing of several competiting facilities in the
area.
The Fund also benefited from strong stock selection in the industrials
sector. In the capital goods industry, crane manufacturer MANITOWOC was the top
contributor to overall Fund performance during the year. The company's
significant global presence positioned it to benefit from the worldwide
acceleration in non-residential construction activity. However, we sold our
position in the company before the close of the year. One other holding that
performed well was PEOPLESUPPORT, a company that provides outsourced customer
care through a call center in the Philippines. The company benefited from solid
growth in market share because it had a significant cost advantage over its key
competitors.
The Fund underperformed relative to the Russell 2000 Index by the largest
margin in the information technology (IT) and materials sectors. In the IT
sector, Fund performance was hindered by several software holdings, including
BISYS. BISYS was negatively affected when the company reported disappointing
results and lowered earnings guidance for 2007. Despite the pullback, we
continued to maintain a position in the stock for several reasons, including its
attractive valuation. One other area of weakness was the semiconductor industry,
where NEXTEST, DSP GROUP and SEMTECH detracted from performance. However, some
of this underperformance in these two industries was offset by strong stock
selection in the hardware industry.
In the materials sector, underperformance versus the Russell 2000 Index was
due to both stock selection and an underweight position in metals and mining
stocks. Many of these stocks had strong performance during the reporting period.
The most significant changes to overall positioning of the Fund included
additions in the materials, telecommunication services and consumer
discretionary sectors and reductions in the financials and IT sectors. All
changes to the Fund were based on our bottom-up stock selection process of
identifying high quality growth companies trading at what we believe are
attractive valuations.
IN CLOSING
Although we are pleased to have provided positive returns for our investors for
the reporting period, we are always striving to improve performance. We thank
you for your commitment to AIM Small Cap Equity Fund.
The views and opinions expressed in management's discussion of Fund performance
are those of A I M Advisors, Inc. These views and opinions are subject to change
at any time based on factors such as market and economic conditions. These views
and opinions may not be relied upon as investment advice or recommendations, or
as an offer for a particular security. The information is not a complete
analysis of every aspect of any market, country, industry, security or the Fund.
Statements of fact are from sources considered reliable, but A I M Advisors,
Inc. makes no representation or warranty as to their completeness or accuracy.
Although historical performance is no guarantee of future results, these
insights may help you understand our investment management philosophy.
See important Fund and index disclosures on the inside front cover.
[ELLIS PHOTO]
Juliet Ellis
Chartered Financial Analyst, senior portfolio manager, is lead manager of AIM
Small Cap Equity Fund. Ms. Ellis joined AIM in 2004. She previously served as
senior portfolio manager of two small-cap funds for another company and was
responsible for the management of more than $2 billion in assets. Ms. Ellis
began her investment career in 1981 as a financial consultant. She is a Cum
Laude and Phi Beta Kappa graduate of Indiana University with a B.A. in economics
and political science.
[HARTSFIELD PHOTO]
Juan Hartsfield
Chartered Financial Analyst, portfolio manager, is manager of AIM Small Cap
Equity Fund. Prior to joining AIM in 2004, he began his investment career in
2000 as an equity analyst and most recently served as a portfolio manager. Mr.
Hartsfield earned a B.S. in petroleum engineering from the University of Texas
and his M.B.A. from the University of Michigan.
Assisted by the Small Cap Growth/Core Team
FOR A PRESENTATION OF YOUR FUND'S LONG-TERM PERFORMANCE, PLEASE SEE PAGES 8 AND
9.
6
AIM Small Cap Equity Fund
CALCULATING YOUR ONGOING FUND EXPENSES
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, which may include sales charges (loads) on purchase payments or
contingent deferred sales charges on redemptions, and redemption fees, if any;
and (2) ongoing costs, including management fees; distribution and/or service
(12b-1) fees; and other Fund expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with ongoing costs of investing in other mutual funds. The
example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period July 1, 2006, through December 31, 2006.
Actual expenses
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return. The Fund's actual cumulative total returns at net asset value after
expenses for the six months ended December 31, 2006, appear in the table
"Cumulative Total Returns" on page 9.
The hypothetical account values and expenses may not be used to estimate
the actual ending account balance or expenses you paid for the period. You may
use this information to compare the ongoing costs of investing in the Fund and
other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight
your ongoing costs only and do not reflect any transaction costs, such as sales
charges (loads) on purchase payments, contingent deferred sales charges on
redemptions, and redemption fees, if any. Therefore, the hypothetical
information is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these transaction costs were included, your costs would have been higher.
HYPOTHETICAL
(5% ANNUAL RETURN
ACTUAL BEFORE EXPENSES)
--------------------------- ---------------------------
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/06) (12/31/06)(1) PERIOD(2) (12/31/06) PERIOD(2) RATIO
- ----- ------------- ------------- ----------- ------------- ----------- ----------
A $1,000.00 $1,068.90 $ 7.67 $1,017.80 $ 7.48 1.47%
B 1,000.00 1,064.90 11.55 1,014.01 11.27 2.22
C 1,000.00 1,064.90 11.55 1,014.01 11.27 2.22
R 1,000.00 1,067.20 8.96 1,016.53 8.74 1.72
(1) The actual ending account value is based on the actual total return of the
Fund for the period July 1, 2006, through December 31, 2006, 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, 2006, appear in
the table "Cumulative Total Returns" on page 9.
(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.
7
AIM Small Cap Equity Fund
YOUR FUND'S LONG-TERM PERFORMANCE
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.
This chart, which is a logarithmic chart, presents the fluctuations in the
value of the Fund and its indexes. We believe that a logarithmic chart is more
effective than other types of charts in illustrating changes in value during the
early years shown in the chart. The vertical axis, the one that indicates the
dollar value of an investment, is constructed with each segment representing a
percent change in the value of the investment. In this chart, each segment
represents a doubling, or 100% change, in the value of the investment. In other
words, the space between $5,000 and $10,000 is the same size as the space
between $10,000 and $20,000, and so on.
8
[MOUNTAIN CHART]
RESULTS OF A $10,000 INVESTMENT
Fund and index data from 08/31/00
AIM SMALL AIM SMALL AIM SMALL LIPPER
CAP EQUITY CAP EQUITY CAP EQUITY SMALL-CAP
FUND-CLASS FUND-CLASS FUND-CLASS S&P 500 RUSSELL CORE FUNDS
DATE A SHARES B SHARES C SHARES INDEX 2000 INDEX INDEX
- ---- ---------- ---------- ---------- ------- ---------- ----------
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 13265 13548 13538 8972 13415 14490
1/06 14260 14562 14551 9209 14617 15594
2/06 14326 14608 14609 9234 14577 15490
3/06 14716 15000 14989 9349 15284 16173
4/06 14986 15265 15254 9474 15282 16294
5/06 14651 14908 14910 9202 14424 15508
6/06 14500 14747 14749 9214 14516 15402
7/06 14110 14345 14346 9271 14044 14879
8/06 14446 14679 14680 9491 14460 15174
9/06 14597 14829 14830 9736 14580 15245
10/06 15215 15439 15441 10053 15420 15982
11/06 15691 15923 15913 10244 15825 16448
12/06 15504 15693 15695 10387 15878 16475
SOURCE: LIPPER INC.
AIM Small Cap Equity Fund
AVERAGE ANNUAL TOTAL RETURNS
As of 12/31/06, including applicable sales charges
CLASS A SHARES
Inception (8/31/00) 7.17%
5 Years 8.75
1 Year 10.43
CLASS B SHARES
Inception (8/31/00) 7.37%
5 Years 8.91
1 Year 10.99
CLASS C SHARES
Inception (8/31/00) 7.38%
5 Years 9.22
1 Year 15.02
CLASS R SHARES
Inception 7.90%
5 Years 9.72
1 Year 16.47
CUMULATIVE TOTAL RETURNS
6 months ended 12/31/06, excluding applicable sales charges
Class A Shares 6.89%
Class B Shares 6.49
Class C Shares 6.49
Class R Shares 6.72
CLASS R SHARES' INCEPTION DATE IS JUNE 3, 2002. RETURNS SINCE THAT DATE ARE
HISTORICAL RETURNS. ALL OTHER RETURNS ARE BLENDED RETURNS OF HISTORICAL CLASS R
SHARE PERFORMANCE AND RESTATED CLASS A SHARE PERFORMANCE (FOR PERIODS PRIOR TO
THE INCEPTION DATE OF CLASS R SHARES) AT NET ASSET VALUE, ADJUSTED TO REFLECT
THE HIGHER RULE 12B-1FEES APPLICABLE TO CLASS R SHARES. CLASS A SHARES'
INCEPTION DATE IS AUGUST 31, 2000.
THE PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE AND CANNOT GUARANTEE
COMPARABLE FUTURE RESULTS; CURRENT PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE
VISIT AIMINVESTMENTS.COM FOR THE MOST RECENT MONTH-END PERFORMANCE. PERFORMANCE
FIGURES REFLECT REINVESTED DISTRIBUTIONS, CHANGES IN NET ASSET VALUE AND THE
EFFECT OF THE MAXIMUM SALES CHARGE UNLESS OTHERWISE STATED. INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU MAY HAVE A GAIN OR LOSS WHEN YOU
SELL SHARES.
CLASS A SHARE PERFORMANCE REFLECTS THE MAXIMUM 5.50% SALES CHARGE, AND
CLASS B AND CLASS C SHARE PERFORMANCE REFLECTS THE APPLICABLE CONTINGENT
DEFERRED SALES CHARGE (CDSC) FOR THE PERIOD INVOLVED. THE CDSC ON CLASS B SHARES
DECLINES FROM 5% BEGINNING AT THE TIME OF PURCHASE TO 0% AT THE BEGINNING OF THE
SEVENTH YEAR. THE CDSC ON CLASS C SHARES IS 1% FOR THE FIRST YEAR AFTER
PURCHASE. CLASS R SHARES DO NOT HAVE A FRONT-END SALES CHARGE; RETURNS SHOWN ARE
AT NET ASSET VALUE AND DO NOT REFLECT A 0.75% CDSC THAT MAY BE IMPOSED ON A
TOTAL REDEMPTION OF RETIREMENT PLAN ASSETS WITHIN THE FIRST YEAR.
THE PERFORMANCE OF THE FUND'S SHARE CLASSES WILL DIFFER DUE TO DIFFERENT
SALES CHARGE STRUCTURES AND CLASS EXPENSES.
Continued from inside front cover
202-942-8090 or 800-732-0330, or by electronic request at the following e-mail
address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-01540 and
002-27334.
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.
Information regarding how the Fund voted proxies related to its portfolio
securities during the 12 months ended June 30, 2006, 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.
9
AIM Small Cap Equity Fund
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees of AIM Funds Group (the "Board") oversees the management
of AIM Small Cap Equity Fund (the "Fund") and, as required by law, determines
annually whether to approve the continuance of the Fund's advisory agreement
with A I M Advisors, Inc. ("AIM"). Based upon the recommendation of the
Investments Committee of the Board, at a meeting held on June 27, 2006, the
Board, including all of the independent trustees, approved the continuance of
the advisory agreement (the "Advisory Agreement") between the Fund and AIM for
another year, effective July 1, 2006.
The Board considered the factors discussed below in evaluating the fairness
and reasonableness of the Advisory Agreement at the meeting on June 27, 2006 and
as part of the Board's ongoing oversight of the Fund. In their deliberations,
the Board and the independent trustees did not identify any particular factor
that was controlling, and each trustee attributed different weights to the
various factors.
One responsibility of the independent Senior Officer of the Fund is to
manage the process by which the Fund's proposed management fees are negotiated
to ensure that they are negotiated in a manner which is at arms' length and
reasonable. To that end, the Senior Officer must either supervise a competitive
bidding process or prepare an independent written evaluation. The Senior Officer
has recommended an independent written evaluation in lieu of a competitive
bidding process and, upon the direction of the Board, has prepared such an
independent written evaluation. Such written evaluation also considered certain
of the factors discussed below. In addition, as discussed below, the Senior
Officer made a recommendation to the Board in connection with such written
evaluation.
The discussion below serves as a summary of the Senior Officer's
independent written evaluation and recommendation to the Board in connection
therewith, as well as a discussion of the material factors and the conclusions
with respect thereto that formed the basis for the Board's approval of the
Advisory Agreement. After consideration of all of the factors below and based on
its informed business judgment, the Board determined that the Advisory Agreement
is in the best interests of the Fund and its shareholders and that the
compensation to AIM under the Advisory Agreement is fair and reasonable and
would have been obtained through arm's length negotiations.
Unless otherwise stated, information presented below is as of June 27, 2006
and does not reflect any changes that may have occurred since June 27, 2006,
including but not limited to changes to the Fund's performance, advisory fees,
expense limitations and/or fee waivers.
- - The nature and extent of the advisory services to be provided by AIM. The
Board reviewed the services to be provided by AIM under the Advisory
Agreement. Based on such review, the Board concluded that the range of
services to be provided by AIM under the Advisory Agreement was appropriate
and that AIM currently is providing services in accordance with the terms
of the Advisory Agreement.
- - The quality of services to be provided by AIM. The Board reviewed the
credentials and experience of the officers and employees of AIM who will
provide investment advisory services to the Fund. In reviewing the
qualifications of AIM to provide investment advisory services, the Board
considered such issues as AIM's portfolio and product review process,
various back office support functions provided by AIM and AIM's equity and
fixed income trading operations. Based on the review of these and other
factors, the Board concluded that the quality of services to be provided by
AIM was appropriate and that AIM currently is providing satisfactory
services in accordance with the terms of the Advisory Agreement.
- - The performance of the Fund relative to comparable funds. The Board
reviewed the performance of the Fund during the past one, three and five
calendar years against the performance of funds advised by other advisors
with investment strategies comparable to those of the Fund. The Board noted
that the Fund's performance in such periods was below the median
performance of such comparable funds. Based on this review and after taking
account of all of the other factors that the Board considered in
determining whether to continue the Advisory Agreement for the Fund, the
Board concluded that no changes should be made to the Fund and that it was
not necessary to change the Fund's portfolio management team at this time.
Although the independent written evaluation of the Fund's Senior Officer
(discussed below) only considered Fund performance through the most recent
calendar year, the Board also reviewed more recent Fund performance, which
did not change their conclusions.
- - The performance of the Fund relative to indices. The Board reviewed the
performance of the Fund during the past one, three and five calendar years
against the performance of the Lipper Small-Cap Core Index. The Board noted
that the Fund's performance was below the performance of such Index for the
one year period and comparable to such Index for the three and five year
periods. Based on this review and after taking account of all of the other
factors that the Board considered in determining whether to continue the
Advisory Agreement for the Fund, the Board concluded that no changes should
be made to the Fund and that it was not necessary to change the Fund's
portfolio management team at this time. Although the independent written
evaluation of the Fund's Senior Officer (discussed below) only considered
Fund performance through the most recent calendar year, the Board also
reviewed more recent Fund performance, which did not change their
conclusions.
- - Meetings with the Fund's portfolio managers and investment personnel. With
respect to the Fund, the Board is meeting periodically with such Fund's
portfolio managers and/or other investment personnel and believes that such
individuals are competent and able to continue to carry out their
responsibilities under the Advisory Agreement.
- - Overall performance of AIM. The Board considered the overall performance of
AIM in providing investment advisory and portfolio administrative services
to the Fund and concluded that such performance was satisfactory.
- - Fees relative to those of clients of AIM with comparable investment
strategies. The Board reviewed the effective advisory fee rate (before
waivers) for the Fund under the Advisory Agreement. The Board noted that
this rate was (i) the same as the effective advisory fee rate (before
waivers) for a mutual fund advised by AIM with investment strategies
comparable to those of the Fund and below the effective advisory fee rate
(before waivers) for a second mutual fund advised by AIM with investment
strategies comparable to those of the Fund; (ii) the same as the effective
advisory fee rate (before waivers) for a variable insurance fund advised by
AIM and offered to insurance company separate accounts with investment
strategies comparable to those of the Fund; and (iii) above the effective
sub-advisory fee rate for one Canadian mutual fund sub-advised by an AIM
affiliate with investment strategies comparable to those of the Fund. The
Board noted that AIM has agreed to waive advisory fees of the Fund, as
discussed below. Based on this review, the Board concluded that the
advisory fee rate for the Fund under the Advisory Agreement was fair and
reasonable.
- - Fees relative to those of comparable funds with other advisors. The Board
reviewed the advisory fee rate for the Fund under the Advisory Agreement.
The Board compared effective contractual advisory fee rates at a common
asset level at the end of the past calendar year and noted that the Fund's
rate was below the median rate of the funds advised by other advisors with
investment strategies comparable to those of the Fund that the Board
reviewed. The Board noted that AIM has agreed to waive advisory fees of the
Fund, as discussed below. Based on this review, the Board concluded that
the advisory fee rate for the Fund under the Advisory Agreement was fair
and reasonable.
(continued)
10
AIM Small Cap Equity Fund
- - Expense limitations and fee waivers. The Board noted that AIM has
contractually agreed to waive advisory fees of the Fund through December
31, 2009 to the extent necessary so that the advisory fees payable by the
Fund do not exceed a specified maximum advisory fee rate, which maximum
rate includes breakpoints and is based on net asset levels. The Board
considered the contractual nature of this fee waiver and noted that it
remains in effect until December 31, 2009. The Board considered the effect
this fee waiver would have on the Fund's estimated expenses and concluded
that the levels of fee waivers/expense limitations for the Fund were fair
and reasonable.
- - Breakpoints and economies of scale. The Board reviewed the structure of the
Fund's advisory fee under the Advisory Agreement, noting that it does not
include any breakpoints. The Board considered whether it would be
appropriate to add advisory fee breakpoints for the Fund or whether, due to
the nature of the Fund and the advisory fee structures of comparable funds,
it was reasonable to structure the advisory fee without breakpoints. Based
on this review, the Board concluded that it was not necessary to add
advisory fee breakpoints to the Fund's advisory fee schedule. The Board
reviewed the level of the Fund's advisory fees, and noted that such fees,
as a percentage of the Fund's net assets, would remain constant under the
Advisory Agreement because the Advisory Agreement does not include any
breakpoints. The Board noted that AIM has contractually agreed to waive
advisory fees of the Fund through December 31, 2009 to the extent necessary
so that the advisory fees payable by the Fund do not exceed a specified
maximum advisory fee rate, which maximum rate includes breakpoints and is
based on net asset levels. The Board concluded that the Fund's fee levels
under the Advisory Agreement therefore would not reflect economies of
scale, although the advisory fee waiver reflects economies of scale.
- - Investments in affiliated money market funds. The Board also took into
account the fact that uninvested cash and cash collateral from securities
lending arrangements, if any (collectively, "cash balances") of the Fund
may be invested in money market funds advised by AIM pursuant to the terms
of an SEC exemptive order. The Board found that the Fund may realize
certain benefits upon investing cash balances in AIM advised money market
funds, including a higher net return, increased liquidity, increased
diversification or decreased transaction costs. The Board also found that
the Fund will not receive reduced services if it invests its cash balances
in such money market funds. The Board noted that, to the extent the Fund
invests uninvested cash in affiliated money market funds, AIM has
voluntarily agreed to waive a portion of the advisory fees it receives from
the Fund attributable to such investment. The Board further determined that
the proposed securities lending program and related procedures with respect
to the lending Fund is in the best interests of the lending Fund and its
respective shareholders. The Board therefore concluded that the investment
of cash collateral received in connection with the securities lending
program in the money market funds according to the procedures is in the
best interests of the lending Fund and its respective shareholders.
- - Independent written evaluation and recommendations of the Fund's Senior
Officer. The Board noted that, upon their direction, the Senior Officer of
the Fund, who is independent of AIM and AIM's affiliates, had prepared an
independent written evaluation in order to assist the Board in determining
the reasonableness of the proposed management fees of the AIM Funds,
including the Fund. The Board noted that the Senior Officer's written
evaluation had been relied upon by the Board in this regard in lieu of a
competitive bidding process. In determining whether to continue the
Advisory Agreement for the Fund, the Board considered the Senior Officer's
written evaluation and the recommendation made by the Senior Officer to the
Board that the Board consider whether the advisory fee waivers for certain
equity AIM Funds, including the Fund, should be simplified. The Board
concluded that it would be advisable to consider this issue and reach a
decision prior to the expiration date of such advisory fee waivers.
- - Profitability of AIM and its affiliates. The Board reviewed information
concerning the profitability of AIM's (and its affiliates') investment
advisory and other activities and its financial condition. The Board
considered the overall profitability of AIM, as well as the profitability
of AIM in connection with managing the Fund. The Board noted that AIM's
operations remain profitable, although increased expenses in recent years
have reduced AIM's profitability. Based on the review of the profitability
of AIM's and its affiliates' investment advisory and other activities and
its financial condition, the Board concluded that the compensation to be
paid by the Fund to AIM under its Advisory Agreement was not excessive.
- - Benefits of soft dollars to AIM. The Board considered the benefits realized
by AIM as a result of brokerage transactions executed through "soft dollar"
arrangements. Under these arrangements, brokerage commissions paid by the
Fund and/or other funds advised by AIM are used to pay for research and
execution services. This research may be used by AIM in making investment
decisions for the Fund. The Board concluded that such arrangements were
appropriate.
- - AIM's financial soundness in light of the Fund's needs. The Board
considered whether AIM is financially sound and has the resources necessary
to perform its obligations under the Advisory Agreement, and concluded that
AIM has the financial resources necessary to fulfill its obligations under
the Advisory Agreement.
- - Historical relationship between the Fund and AIM. In determining whether to
continue the Advisory Agreement for the Fund, the Board also considered the
prior relationship between AIM and the Fund, as well as the Board's
knowledge of AIM's operations, and concluded that it was beneficial to
maintain the current relationship, in part, because of such knowledge. The
Board also reviewed the general nature of the non-investment advisory
services currently performed by AIM and its affiliates, such as
administrative, transfer agency and distribution services, and the fees
received by AIM and its affiliates for performing such services. In
addition to reviewing such services, the trustees also considered the
organizational structure employed by AIM and its affiliates to provide
those services. Based on the review of these and other factors, the Board
concluded that AIM and its affiliates were qualified to continue to provide
non-investment advisory services to the Fund, including administrative,
transfer agency and distribution services, and that AIM and its affiliates
currently are providing satisfactory non-investment advisory services.
- - Other factors and current trends. The Board considered the steps that AIM
and its affiliates have taken over the last several years, and continue to
take, in order to improve the quality and efficiency of the services they
provide to the Funds in the areas of investment performance, product line
diversification, distribution, fund operations, shareholder services and
compliance. The Board concluded that these steps taken by AIM have
improved, and are likely to continue to improve, the quality and efficiency
of the services AIM and its affiliates provide to the Fund in each of these
areas, and support the Board's approval of the continuance of the Advisory
Agreement for the Fund.
11
Supplement to Annual Report Dated 12/31/06
AIM SMALL CAP EQUITY FUND
INSTITUTIONAL CLASS SHARES
The following information has been prepared to provide Institutional Class
shareholders with a performance overview specific to their holdings.
Institutional Class shares are offered exclusively to institutional investors,
including defined contribution plans that meet certain criteria.
NASDAQ SYMBOL SMEIX
AVERAGE ANNUAL TOTAL RETURNS
For periods ended 12/31/06
Inception 8.33%
5 Years 10.25
1 Year 17.55
6 Months* 7.20
* Cumulative total return that has not been annualized
INSTITUTIONAL CLASS SHARES' INCEPTION DATE IS APRIL 29, 2005 RETURNS SINCE THAT
DATE ARE HISTORICAL RETURNS. ALL OTHER RETURNS ARE BLENDED RETURNS OF HISTORICAL
INSTITUTIONAL CLASS SHARE PERFORMANCE AND RESTATED CLASS A SHARE PERFORMANCE
(FOR PERIODS PRIOR TO THE INCEPTION DATE OF INSTITUTIONAL CLASS SHARES) AT NET
ASSET VALUE (NAV) AND REFLECT THE HIGHER RULE 12B-1 FEES APPLICABLE TO CLASS A
SHARES. CLASS A SHARES INCEPTION DATE IS AUGUST 31, 2000.
INSTITUTIONAL CLASS SHARES HAVE NO SALES CHARGE; THEREFORE, PERFORMANCE IS
AT NAV. PERFORMANCE OF INSTITUTIONAL CLASS SHARES WILL DIFFER FROM PERFORMANCE
OF OTHER SHARE CLASSES PRIMARILY DUE TO DIFFERING SALES CHARGES AND CLASS
EXPENSES.
PLEASE NOTE THAT PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. MORE
RECENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. ALL RETURNS ASSUME
REINVESTMENT OF DISTRIBUTIONS AT NAV INVESTMENT RETURN AND PRINCIPAL VALUE WILL
FLUCTUATE SO YOUR SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. SEE THE FULL REPORT FOR INFORMATION ON COMPARATIVE BENCHMARKS.
PLEASE CONSULT YOUR FUND PROSPECTUS FOR MORE INFORMATION. FOR THE MOST CURRENT
MONTH-END PERFORMANCE, PLEASE CALL 800-451-4246 OR VISIT AIMINVESTMENTS.COM.
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.
AIMINVESTMENTS.COM SCE-INS-1 A I M Distributors, Inc.
[AIM INVESTMENTS LOGO]
-- REGISTERED TRADEMARK --
Information about your Fund's expenses
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the Fund, you incur ongoing costs, including management fees
and other Fund expenses. This example is intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with ongoing costs of investing in other mutual funds. The example is based on
an investment of $1,000 invested at the beginning of the period and held for the
entire period July 1, 2006, through December 31, 2006.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000(for example, an $8,600 account value divided
by $1,000= 8.6), then multiply the result by the number in the table under the
heading entitled "Actual Expenses Paid During Period" to estimate the expenses
you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense Ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return. The Fund's actual cumulative total return after expenses for the six
months ended December 31, 2006 appears in the table on the front of this
supplement.
The hypothetical account values and expenses may not be used to estimate
the actual ending account balance or expenses you paid for the period. You may
use this information to compare the ongoing costs of investing in the Fund and
other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight
your ongoing costs only. Therefore, the hypothetical information is useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds.
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 (7/1/06) (12/31/06)(1) PERIOD(2) (12/31/06) PERIOD(2) RATIO
- ----- ------------- ------------- ----------- ------------- ----------- ----------
Institutional $1,000.00 $1,072.00 $4.70 $1,020.67 $4.58 0.90%
(1) The actual ending account value is based on the actual total return of the
Fund for the period July 1, 2006, through December 31, 2006 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, 2006, 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 AIM Distributors, Inc.
AIM Small Cap Equity Fund
SCHEDULE OF INVESTMENTS
December 31, 2006
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-97.63%
AEROSPACE & DEFENSE-1.11%
Curtiss-Wright Corp. 142,323 $ 5,277,337
=======================================================================
AIRLINES-0.38%
Allegiant Travel Co.(a) 63,539 1,782,904
=======================================================================
APPAREL RETAIL-3.14%
Cache, Inc.(a) 188,073 4,746,963
- -----------------------------------------------------------------------
Charming Shoppes, Inc.(a) 319,747 4,326,177
- -----------------------------------------------------------------------
Christopher & Banks Corp. 151,911 2,834,659
- -----------------------------------------------------------------------
Gymboree Corp. (The)(a) 77,828 2,969,916
=======================================================================
14,877,715
=======================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.51%
Fossil, Inc.(a) 107,148 2,419,402
=======================================================================
APPLICATION SOFTWARE-3.99%
Blackbaud, Inc. 140,261 3,646,786
- -----------------------------------------------------------------------
Epicor Software Corp.(a) 332,995 4,498,762
- -----------------------------------------------------------------------
Hyperion Solutions Corp.(a) 138,320 4,971,221
- -----------------------------------------------------------------------
Transaction Systems Architects, Inc.(a) 125,558 4,089,424
- -----------------------------------------------------------------------
Ultimate Software Group, Inc. (The)(a) 74,449 1,731,684
=======================================================================
18,937,877
=======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.00%
Affiliated Managers Group, Inc.(a)(b) 45,014 4,732,322
=======================================================================
AUTOMOTIVE RETAIL-1.04%
Midas, Inc.(a) 213,612 4,913,076
=======================================================================
BIOTECHNOLOGY-0.38%
Cubist Pharmaceuticals, Inc.(a) 98,640 1,786,370
=======================================================================
BUILDING PRODUCTS-1.74%
Goodman Global, Inc.(a) 271,960 4,677,712
- -----------------------------------------------------------------------
NCI Building Systems, Inc.(a) 68,791 3,559,934
=======================================================================
8,237,646
=======================================================================
CASINOS & GAMING-1.25%
Pinnacle Entertainment, Inc.(a) 179,560 5,950,618
=======================================================================
COMMUNICATIONS EQUIPMENT-1.60%
Black Box Corp. 89,069 3,740,007
- -----------------------------------------------------------------------
Packeteer, Inc.(a) 283,971 3,862,006
=======================================================================
7,602,013
=======================================================================
</Table>
<Table>
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
COMPUTER STORAGE & PERIPHERALS-1.04%
Emulex Corp.(a) 251,684 $ 4,910,355
=======================================================================
CONSTRUCTION & ENGINEERING-1.93%
Infrasource Services Inc.(a) 236,750 5,154,048
- -----------------------------------------------------------------------
URS Corp.(a) 92,765 3,974,980
=======================================================================
9,129,028
=======================================================================
DATA PROCESSING & OUTSOURCED SERVICES-1.59%
BISYS Group, Inc. (The)(a) 238,958 3,084,948
- -----------------------------------------------------------------------
Wright Express Corp.(a) 142,840 4,452,323
=======================================================================
7,537,271
=======================================================================
DIVERSIFIED CHEMICALS-1.20%
FMC Corp. 74,625 5,712,544
=======================================================================
DIVERSIFIED METALS & MINING-1.20%
Compass Minerals International, Inc. 179,757 5,673,131
=======================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.03%
Genlyte Group Inc. (The)(a) 62,578 4,887,968
=======================================================================
ELECTRONIC MANUFACTURING SERVICES-0.89%
Park Electrochemical Corp. 165,352 4,241,279
=======================================================================
ENVIRONMENTAL & FACILITIES SERVICES-1.05%
Waste Connections, Inc.(a) 120,315 4,999,088
=======================================================================
FOOD RETAIL-1.01%
Ruddick Corp. 172,569 4,788,790
=======================================================================
GAS UTILITIES-1.13%
Energen Corp. 114,362 5,368,152
=======================================================================
HEALTH CARE DISTRIBUTORS-0.92%
Owens & Minor, Inc. 139,826 4,372,359
=======================================================================
HEALTH CARE EQUIPMENT-1.92%
STERIS Corp. 172,705 4,346,985
- -----------------------------------------------------------------------
Vital Signs, Inc. 95,009 4,742,849
=======================================================================
9,089,834
=======================================================================
HEALTH CARE FACILITIES-0.67%
LCA-Vision Inc.(b) 91,917 3,158,268
=======================================================================
HEALTH CARE SUPPLIES-2.13%
DJO Inc.(a) 134,536 5,760,831
- -----------------------------------------------------------------------
Haemonetics Corp.(a) 96,496 4,344,250
=======================================================================
10,105,081
=======================================================================
</Table>
F-1
AIM Small Cap Equity Fund
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
HEALTH CARE TECHNOLOGY-1.88%
Computer Programs and Systems, Inc. 85,236 $ 2,897,172
- -----------------------------------------------------------------------
Phase Forward Inc.(a) 400,523 5,999,834
=======================================================================
8,897,006
=======================================================================
HOTELS, RESORTS & CRUISE LINES-1.11%
Red Lion Hotels Corp.(a) 413,600 5,269,264
=======================================================================
HOUSEHOLD APPLIANCES-1.21%
Snap-on Inc. 119,968 5,715,275
=======================================================================
HOUSEHOLD PRODUCTS-0.85%
Central Garden & Pet Co.(a) 82,937 4,015,809
=======================================================================
HUMAN RESOURCE & EMPLOYMENT SERVICES-1.69%
Heidrick & Struggles International, Inc.(a) 112,171 4,751,564
- -----------------------------------------------------------------------
Kenexa Corp.(a) 97,986 3,259,014
=======================================================================
8,010,578
=======================================================================
INDUSTRIAL MACHINERY-3.57%
Chart Industries, Inc.(a) 212,800 3,449,488
- -----------------------------------------------------------------------
Kadant Inc.(a) 177,219 4,320,599
- -----------------------------------------------------------------------
RBC Bearings Inc.(a) 181,178 5,192,562
- -----------------------------------------------------------------------
Valmont Industries, Inc. 71,414 3,962,763
=======================================================================
16,925,412
=======================================================================
INSURANCE BROKERS-1.08%
eHealth, Inc.(a)(b) 33,454 672,760
- -----------------------------------------------------------------------
Hilb Rogal and Hobbs Co. 106,082 4,468,174
=======================================================================
5,140,934
=======================================================================
INTEGRATED TELECOMMUNICATION SERVICES-1.93%
Alaska Communications Systems Group Inc. 172,058 2,613,561
- -----------------------------------------------------------------------
NTELOS Holdings Corp.(a) 366,503 6,553,074
=======================================================================
9,166,635
=======================================================================
INTERNET SOFTWARE & SERVICES-1.60%
CyberSource Corp.(a) 451,940 4,980,379
- -----------------------------------------------------------------------
DealerTrack Holdings Inc.(a) 89,046 2,619,733
=======================================================================
7,600,112
=======================================================================
INVESTMENT BANKING & BROKERAGE-1.16%
CMET Finance Holdings, Inc. (Acquired
12/08/03; Cost $4,480,000)(a)(c)(d) 44,800 766,528
- -----------------------------------------------------------------------
Thomas Weisel Partners Group, Inc.(a) 224,201 4,730,641
=======================================================================
5,497,169
=======================================================================
LEISURE PRODUCTS-0.37%
Smith & Wesson Holding Corp.(a) 170,704 1,765,079
=======================================================================
</Table>
<Table>
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
LIFE SCIENCES TOOLS & SERVICES-1.86%
Dionex Corp.(a) 85,143 $ 4,828,460
- -----------------------------------------------------------------------
ICON PLC-ADR (United Kingdom)(a) 106,332 4,008,716
=======================================================================
8,837,176
=======================================================================
METAL & GLASS CONTAINERS-1.09%
AptarGroup, Inc. 87,194 5,147,934
=======================================================================
MULTI-UTILITIES-0.65%
Avista Corp. 121,631 3,078,481
=======================================================================
OFFICE REIT'S-1.02%
Alexandria Real Estate Equities, Inc. 34,346 3,448,338
- -----------------------------------------------------------------------
Republic Property Trust 121,786 1,405,411
=======================================================================
4,853,749
=======================================================================
OFFICE SERVICES & SUPPLIES-0.76%
PeopleSupport Inc.(a) 172,037 3,621,379
=======================================================================
OIL & GAS EQUIPMENT & SERVICES-3.52%
NATCO Group Inc.-Class A(a) 140,778 4,488,003
- -----------------------------------------------------------------------
Oceaneering International, Inc.(a) 112,832 4,479,431
- -----------------------------------------------------------------------
Oil States International, Inc.(a) 147,457 4,752,539
- -----------------------------------------------------------------------
Seitel, Inc.(a) 829,792 2,966,506
=======================================================================
16,686,479
=======================================================================
OIL & GAS EXPLORATION & PRODUCTION-2.89%
Comstock Resources, Inc.(a) 162,523 5,047,964
- -----------------------------------------------------------------------
Penn Virginia Corp. 73,736 5,164,470
- -----------------------------------------------------------------------
Warren Resources Inc.(a)(b) 299,256 3,507,280
=======================================================================
13,719,714
=======================================================================
OIL & GAS REFINING & MARKETING-0.88%
Alon USA Energy, Inc. 158,195 4,162,110
=======================================================================
PACKAGED FOODS & MEATS-2.15%
Flowers Foods, Inc. 173,885 4,693,156
- -----------------------------------------------------------------------
TreeHouse Foods, Inc.(a) 175,769 5,483,993
=======================================================================
10,177,149
=======================================================================
PHARMACEUTICALS-1.48%
Aspreva Pharmaceuticals Corp. (Canada)(a) 150,909 3,096,652
- -----------------------------------------------------------------------
ViroPharma Inc.(a) 267,434 3,915,234
=======================================================================
7,011,886
=======================================================================
PROPERTY & CASUALTY INSURANCE-4.25%
Assured Guaranty Ltd. 172,845 4,597,677
- -----------------------------------------------------------------------
FPIC Insurance Group, Inc.(a) 118,550 4,619,894
- -----------------------------------------------------------------------
Ohio Casualty Corp. 156,316 4,659,780
- -----------------------------------------------------------------------
Philadelphia Consolidated Holding Corp.(a) 140,456 6,258,719
=======================================================================
20,136,070
=======================================================================
</Table>
F-2
AIM Small Cap Equity Fund
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
REAL ESTATE MANAGEMENT & DEVELOPMENT-1.12%
Jones Lang LaSalle Inc. 57,661 $ 5,314,614
=======================================================================
REGIONAL BANKS-5.82%
Alabama National BanCorp. 54,113 3,719,187
- -----------------------------------------------------------------------
Columbia Banking System, Inc. 87,971 3,089,542
- -----------------------------------------------------------------------
First Financial Bankshares, Inc.(b) 58,714 2,457,768
- -----------------------------------------------------------------------
Hancock Holding Co. 68,204 3,603,899
- -----------------------------------------------------------------------
Provident Bankshares Corp. 90,507 3,222,049
- -----------------------------------------------------------------------
Sterling Bancshares, Inc. 271,067 3,529,286
- -----------------------------------------------------------------------
Sterling Financial Corp. 96,288 3,255,497
- -----------------------------------------------------------------------
United Community Banks, Inc. 146,682 4,740,762
=======================================================================
27,617,990
=======================================================================
RESIDENTIAL REIT'S-0.31%
Mid-America Apartment Communities, Inc. 25,911 1,483,146
=======================================================================
RESTAURANTS-3.74%
IHOP Corp. 93,850 4,945,895
- -----------------------------------------------------------------------
O'Charley's Inc.(a) 254,431 5,414,292
- -----------------------------------------------------------------------
Papa John's International, Inc.(a) 124,263 3,604,870
- -----------------------------------------------------------------------
Steak n Shake Co. (The)(a) 215,324 3,789,702
=======================================================================
17,754,759
=======================================================================
SEMICONDUCTOR EQUIPMENT-1.53%
ATMI, Inc.(a) 169,873 5,186,223
- -----------------------------------------------------------------------
Nextest Systems Corp.(a) 185,620 2,091,937
=======================================================================
7,278,160
=======================================================================
SEMICONDUCTORS-4.47%
DSP Group, Inc.(a) 161,807 3,511,212
- -----------------------------------------------------------------------
Hittite Microwave Corp.(a) 106,806 3,451,970
- -----------------------------------------------------------------------
Micrel, Inc.(a) 351,489 3,789,051
- -----------------------------------------------------------------------
Power Integrations, Inc.(a) 165,005 3,869,367
- -----------------------------------------------------------------------
Semtech Corp.(a) 242,494 3,169,397
- -----------------------------------------------------------------------
Supertex, Inc.(a) 87,408 3,430,764
=======================================================================
21,221,761
=======================================================================
SPECIALIZED REIT'S-2.15%
Equity Inns Inc. 79,159 1,263,378
- -----------------------------------------------------------------------
LaSalle Hotel Properties 104,605 4,796,139
- -----------------------------------------------------------------------
Senior Housing Properties Trust 30,971 758,170
- -----------------------------------------------------------------------
Universal Health Realty Income Trust 86,502 3,371,848
=======================================================================
10,189,535
=======================================================================
</Table>
<Table>
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
SPECIALTY CHEMICALS-1.58%
A. Schulman, Inc. 87,663 $ 1,950,502
- -----------------------------------------------------------------------
H.B. Fuller Co. 214,432 5,536,634
=======================================================================
7,487,136
=======================================================================
STEEL-0.94%
Carpenter Technology Corp. 43,460 4,455,519
=======================================================================
TECHNOLOGY DISTRIBUTORS-0.85%
Agilysys, Inc. 241,697 4,046,008
=======================================================================
TRADING COMPANIES & DISTRIBUTORS-2.66%
H&E Equipment Services, Inc.(a) 89,528 2,217,609
- -----------------------------------------------------------------------
UAP Holding Corp. 226,446 5,701,910
- -----------------------------------------------------------------------
Williams Scotsman International Inc.(a) 240,267 4,714,038
=======================================================================
12,633,557
=======================================================================
TRUCKING-1.61%
Landstar System, Inc. 99,102 3,783,714
- -----------------------------------------------------------------------
Marten Transport, Ltd.(a) 209,408 3,838,449
=======================================================================
7,622,163
=======================================================================
Total Common Stocks & Other Equity
Interests (Cost $382,493,441) 463,030,176
=======================================================================
MONEY MARKET FUNDS-2.77%
Liquid Assets Portfolio-Institutional
Class(e) 6,551,842 6,551,842
- -----------------------------------------------------------------------
Premier Portfolio-Institutional Class(e) 6,551,842 6,551,842
=======================================================================
Total Money Market Funds (Cost
$13,103,684) 13,103,684
=======================================================================
Total Investments (excluding investments
purchased with cash collateral from
securities loaned)-100.40%
(Cost $395,597,125) 476,133,860
=======================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-1.60%
Liquid Assets Portfolio-Institutional
Class(e)(f) 3,799,849 3,799,849
- -----------------------------------------------------------------------
STIC Prime Portfolio-Institutional
Class(e)(f) 3,799,849 3,799,849
=======================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $7,599,698) 7,599,698
=======================================================================
TOTAL INVESTMENTS-102.00% (Cost $403,196,823) 483,733,558
=======================================================================
OTHER ASSETS LESS LIABILITIES-(2.00)% (9,464,005)
=======================================================================
NET ASSETS-100.00% $474,269,553
_______________________________________________________________________
=======================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
REIT - Real Estate Investment Trust
</Table>
F-3
AIM Small Cap Equity Fund
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this security was out on loan at December 31, 2006.
(c) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 44A transaction or a Regulation D
transaction). The security may be resold 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 value of this security at December 31, 2006 represented 0.16% 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 the time of
purchase.
(d) 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, 2006 represented 0.16% 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 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 Small Cap Equity Fund
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2006
<Table>
ASSETS:
Investments, at value (cost $382,493,441)* $463,030,176
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $20,703,382) 20,703,382
===========================================================
Total investments (cost $403,196,823) 483,733,558
===========================================================
Receivables for:
Fund shares sold 883,057
- -----------------------------------------------------------
Dividends 282,342
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 28,866
- -----------------------------------------------------------
Other assets 38,451
===========================================================
Total assets 484,966,274
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 1,768,152
- -----------------------------------------------------------
Fund shares reacquired 673,972
- -----------------------------------------------------------
Trustee deferred compensation and
retirement plans 54,574
- -----------------------------------------------------------
Collateral upon return of securities loaned 7,599,698
- -----------------------------------------------------------
Accrued distribution fees 222,858
- -----------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 4,459
- -----------------------------------------------------------
Accrued transfer agent fees 255,219
- -----------------------------------------------------------
Accrued operating expenses 117,789
===========================================================
Total liabilities 10,696,721
===========================================================
Net assets applicable to shares outstanding $474,269,553
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $389,241,467
- -----------------------------------------------------------
Undistributed net investment income (loss) (1,486,927)
- -----------------------------------------------------------
Undistributed net realized gain from
investment securities 5,978,278
- -----------------------------------------------------------
Unrealized appreciation of investment
securities 80,536,735
===========================================================
$474,269,553
___________________________________________________________
===========================================================
NET ASSETS:
Class A $245,868,348
___________________________________________________________
===========================================================
Class B $126,111,272
___________________________________________________________
===========================================================
Class C $ 57,221,270
___________________________________________________________
===========================================================
Class R $ 27,946,411
___________________________________________________________
===========================================================
Institutional Class $ 17,122,252
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 20,089,534
___________________________________________________________
===========================================================
Class B 10,907,336
___________________________________________________________
===========================================================
Class C 4,950,822
___________________________________________________________
===========================================================
Class R 2,314,999
___________________________________________________________
===========================================================
Institutional Class 1,380,288
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 12.24
- -----------------------------------------------------------
Offering price per share
(Net asset value of $12.24 divided by
94.50% $ 12.95
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 11.56
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 11.56
___________________________________________________________
===========================================================
Class R:
Net asset value and offering price per
share $ 12.07
___________________________________________________________
===========================================================
Institutional Class:
Net asset value and offering price per
share $ 12.40
___________________________________________________________
===========================================================
</Table>
* At December 31, 2006, securities with an aggregate value of $7,428,210 were on
loan to brokers.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-5
AIM Small Cap Equity Fund
STATEMENT OF OPERATIONS
For the year ended December 31, 2006
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $2,658) $ 3,796,647
- -------------------------------------------------------------------------
Dividends from affiliated money market funds (includes
securities lending income of $30,956) 509,255
=========================================================================
Total investment income 4,305,902
=========================================================================
EXPENSES:
Advisory fees 3,897,318
- -------------------------------------------------------------------------
Administrative services fees 145,457
- -------------------------------------------------------------------------
Custodian fees 42,427
- -------------------------------------------------------------------------
Distribution fees:
Class A 590,661
- -------------------------------------------------------------------------
Class B 1,309,386
- -------------------------------------------------------------------------
Class C 572,093
- -------------------------------------------------------------------------
Class R 115,977
- -------------------------------------------------------------------------
Transfer agent fees -- A, B, C and R 1,575,328
- -------------------------------------------------------------------------
Transfer agent fees -- Institutional 610
- -------------------------------------------------------------------------
Trustees' and officer's fees and benefits 27,978
- -------------------------------------------------------------------------
Other 493,473
=========================================================================
Total expenses 8,770,708
=========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (550,367)
=========================================================================
Net expenses 8,220,341
=========================================================================
Net investment income (loss) (3,914,439)
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES:
Net realized gain from investment securities (includes net
gains from securities sold to affiliates of $2,050,442) 75,649,095
=========================================================================
Change in net unrealized appreciation (depreciation) of
investment securities (2,727,353)
=========================================================================
Net gain from investment securities 72,921,742
=========================================================================
Net increase in net assets resulting from operations $69,007,303
_________________________________________________________________________
=========================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-6
AIM Small Cap Equity Fund
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2006 and 2005
<Table>
<Caption>
2006 2005
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (3,914,439) $ (5,104,962)
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities 75,649,095 52,314,807
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (2,727,353) (22,003,409)
==========================================================================================
Net increase in net assets resulting from operations 69,007,303 25,206,436
==========================================================================================
Distributions to shareholders from net realized gains:
Class A (36,462,500) (22,592,351)
- ------------------------------------------------------------------------------------------
Class B (19,731,723) (14,170,518)
- ------------------------------------------------------------------------------------------
Class C (8,937,506) (5,917,343)
- ------------------------------------------------------------------------------------------
Class R (4,122,500) (1,804,074)
- ------------------------------------------------------------------------------------------
Institutional Class (2,432,755) (448,570)
==========================================================================================
Decrease in net assets resulting from distributions (71,686,984) (44,932,856)
==========================================================================================
Share transactions-net:
Class A 27,183,520 (19,909,085)
- ------------------------------------------------------------------------------------------
Class B (5,223,138) (17,778,977)
- ------------------------------------------------------------------------------------------
Class C 2,793,822 (7,879,427)
- ------------------------------------------------------------------------------------------
Class R 10,834,095 6,732,018
- ------------------------------------------------------------------------------------------
Institutional Class 13,316,914 4,966,296
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions 48,905,213 (33,869,175)
==========================================================================================
Net increase (decrease) in net assets 46,225,532 (53,595,595)
==========================================================================================
NET ASSETS:
Beginning of year 428,044,021 481,639,616
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(1,486,927) and $(997,583), respectively) $474,269,553 $428,044,021
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-7
AIM Small Cap Equity Fund
NOTES TO FINANCIAL STATEMENTS
December 31, 2006
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 seven 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 long-term growth of capital.
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 or official closing price as of the close of
the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on that
day. Securities traded in the over-the-counter market are valued based on
the prices furnished by independent pricing services, in which case the
securities may be considered fair valued, or by market makers. 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 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 open-end and closed-end registered
investment companies that trade on an exchange are valued at the last sales
price or official closing price as of the close of the customary trading
session on the exchange where the security is principally traded.
Debt obligations (including convertible bonds) and unlisted equities 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.
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. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued at
the market quotations. Because trading hours for certain foreign securities
end before the close of the NYSE, closing market quotations may become
unreliable. If between the time trading ends on a particular security and
the close of the customary trading session on the NYSE, events occur that
are significant and may make the closing price unreliable, the Fund may
fair value the security. If 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 prices are not provided by any of the above
methods may be 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.
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
F-8
AIM Small Cap Equity Fund
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 the 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 treat 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 to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that 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. ACCOUNTING ESTIMATES -- 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.
H. INDEMNIFICATIONS -- 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.
F-9
AIM Small Cap 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 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). 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, 2006, AIM waived advisory fees of $515,300.
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, 2006, AMVESCAP reimbursed expenses of the Fund in the amount of
$3,613.
The Trust has entered into a master administrative services agreement with
AIM pursuant to which the Fund has agreed to pay AIM for certain administrative
costs incurred in providing accounting services, to the Fund. For the year ended
December 31, 2006, expenses incurred under the agreement are shown in the
Statement of Operations as administrative services fees.
The Trust has entered into a transfer agency and service agreement with AIM
Investment Services, Inc. ("AIS") pursuant to which the Fund has agreed to pay
AIS a fee for providing transfer agency and shareholder services to the Fund and
reimburse AIS for certain expenses incurred by AIS in the course of providing
such services. AIS may make payments to intermediaries that provide omnibus
account services, sub-accounting services and/or networking services. All fees
payable by AIS to intermediaries that provide omnibus account services or
sub-accounting are charged back to the Fund, subject to certain limitations
approved by the Trust's Board of Trustees. For the year ended December 31, 2006,
expenses incurred under the agreement are shown in the Statement of Operations
as transfer agent fees.
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 the Plan payments, up to 0.25% of the
average daily net assets of each class of 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.
For the year ended December 31, 2006, expenses incurred under the Plans are
shown in the Statement of Operations as distribution fees.
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, 2006, ADI advised the Fund that it retained $82,585 in
front-end sales commissions from the sale of Class A shares and $1,309, $60,767,
$3,115 and $0 from Class A, Class B, Class C and Class R shares, respectively,
for CDSC imposed on redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS and/or ADI.
F-10
AIM Small Cap Equity Fund
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to procedures approved by the Board of Trustees,
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, 2006.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 12/31/06 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $4,513,597 $ 90,381,432 $ (88,343,187) $ -- $ 6,551,842 $239,209 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-Institutional
Class -- 38,572,135 (32,020,293) -- 6,551,842 143,214 --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 4,513,597 54,473,422 (58,987,019) -- -- 95,876 --
==================================================================================================================================
Subtotal $9,027,194 $183,426,989 $(179,350,499) $ -- $13,103,684 $478,299 $ --
==================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 12/31/06 DIVIDEND INCOME*
- --------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 6,440,358 $ 29,119,142 $ (31,759,651) $ -- $ 3,799,849 $ 15,440
- --------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 6,440,359 29,119,142 (31,759,652) -- 3,779,849 15,516
==========================================================================================================================
Subtotal $12,880,717 $ 58,238,284 $ (63,519,303) $ -- $ 7,599,698 $ 30,956
==========================================================================================================================
Total
Investments
in
Affiliates $21,907,911 $241,665,273 $(242,869,802) $ -- $20,703,382 $509,255
__________________________________________________________________________________________________________________________
==========================================================================================================================
<Caption>
REALIZED
FUND GAIN (LOSS)
- ---------------
Liquid Assets
Portfolio-
Institutional
Class $ --
- ---------------
STIC Prime
Portfolio-
Institutional
Class --
===============
Subtotal $ --
===============
Total
Investments
in
Affiliates $ --
_______________
===============
</Table>
* Net of compensation to counterparties.
NOTE 4--SECURITY TRANSACTION 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, for the year ended December 31, 2006, the Fund
engaged in securities sales of $2,478,152, which resulted in net realized gains
of $2,050,442, and securities purchases of $29,613,198.
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, (ii) custodian credits which result
from periodic overnight cash balances at the custodian and (iii) a one time
custodian fee credit to be used to offset future custodian fees. For the year
ended December 31, 2006, the Fund received credits from these arrangements,
which resulted in the reduction of the Fund's total expenses of $31,454.
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee 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.
F-11
AIM Small Cap Equity Fund
During the year ended December 31, 2006, the Fund paid legal fees of $5,379
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 Securities and Exchange Commission, 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, 2006, 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 bank 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 contractually agreed upon rate.
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 any loss on
the collateral invested.
At December 31, 2006, securities with an aggregate value of $7,428,210 were
on loan to brokers. The loans were secured by cash collateral of $7,599,698
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended December 31, 2006, the Fund received dividends on cash
collateral investments of $30,956 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 December 31, 2006 and
2005 was as follows:
<Table>
<Caption>
2006 2005
- ----------------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $ 7,714,419 $ 6,000,021
- ----------------------------------------------------------------------------------------
Long-term capital gain 63,972,565 38,932,835
========================================================================================
Total distributions $71,686,984 $44,932,856
________________________________________________________________________________________
========================================================================================
</Table>
F-12
AIM Small Cap Equity Fund
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2006, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2006
- ----------------------------------------------------------------------------
Undistributed ordinary income $ 3,953,023
- ----------------------------------------------------------------------------
Undistributed long-term gain 2,095,938
- ----------------------------------------------------------------------------
Net Unrealized appreciation -- investments 79,029,398
- ----------------------------------------------------------------------------
Temporary book/tax differences (50,273)
- ----------------------------------------------------------------------------
Shares of beneficial interest 389,241,467
============================================================================
Total net assets $474,269,553
____________________________________________________________________________
============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's net unrealized
appreciation difference is attributable primarily to losses on wash sales and
certain 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 does not have a capital loss carryforward as of December 31, 2006.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the year ended December 31, 2006 was $251,980,937 and
$277,677,039, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities 94,242,149
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (15,212,751)
==============================================================================
Net unrealized appreciation of investment securities $ 79,029,398
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $404,704,160.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of excise taxes, passive
foreign investment company investments and net operating losses, on December 31,
2006, undistributed net investment income (loss) was increased by $3,425,095,
undistributed net realized gain was decreased by $3,246,304 and shares of
beneficial interest decreased by $178,791. This reclassification had no effect
on the net assets of the Fund.
F-13
AIM Small Cap Equity Fund
NOTE 12--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A, Class B,
Class C, Class R and Institutional Class. Class A shares are sold with a
front-end sales charge unless certain waiver criteria are met. 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 on or about the month-end which is at
least eight years after the date of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ---------------------------------------------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
-------------------------------------------------------
2006(A) 2005
------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------------------
Sold:
Class A 4,794,651 $64,276,733 3,901,303 $ 49,612,776
- ---------------------------------------------------------------------------------------------------------------------
Class B 1,279,476 16,202,198 1,054,880 12,990,537
- ---------------------------------------------------------------------------------------------------------------------
Class C 859,764 11,071,910 673,437 8,227,460
- ---------------------------------------------------------------------------------------------------------------------
Class R 1,190,165 15,898,736 783,334 9,858,946
- ---------------------------------------------------------------------------------------------------------------------
Institutional Class(b) 839,404 11,343,836 347,363 4,533,352
=====================================================================================================================
Issued as reinvestment of dividends:
Class A 2,802,700 34,753,476 1,730,830 21,427,679
- ---------------------------------------------------------------------------------------------------------------------
Class B 1,609,455 18,862,808 1,132,537 13,465,872
- ---------------------------------------------------------------------------------------------------------------------
Class C 714,847 8,378,003 468,582 5,566,746
- ---------------------------------------------------------------------------------------------------------------------
Class R 336,500 4,118,765 147,151 1,804,074
- ---------------------------------------------------------------------------------------------------------------------
Institutional Class(b) 193,536 2,432,755 36,059 448,570
=====================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 444,500 5,927,010 468,795 5,954,632
- ---------------------------------------------------------------------------------------------------------------------
Class B (465,030) (5,927,010) (484,746) (5,954,632)
=====================================================================================================================
Reacquired:
Class A (5,808,551) (77,773,699) (7,592,348) (96,904,172)
- ---------------------------------------------------------------------------------------------------------------------
Class B (2,694,084) (34,361,134) (3,118,759) (38,280,754)
- ---------------------------------------------------------------------------------------------------------------------
Class C (1,300,311) (16,656,091) (1,763,932) (21,673,633)
- ---------------------------------------------------------------------------------------------------------------------
Class R (682,383) (9,183,406) (389,299) (4,931,002)
- ---------------------------------------------------------------------------------------------------------------------
Institutional Class(b) (34,877) (459,677) (1,198) (15,626)
=====================================================================================================================
4,079,762 $48,905,213 (2,606,011) $(33,869,175)
_____________________________________________________________________________________________________________________
=====================================================================================================================
</Table>
(a) There are two entities that are each record owners of more than 5% of
the outstanding shares of the Fund and in the aggregate they own 18% of
the outstanding shares of the Fund. 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 entities are also owned beneficially.
(b) Institutional Class shares commenced sales on April 29, 2005.
F-14
AIM Small Cap Equity Fund
NOTE 13--NEW ACCOUNTING STANDARD
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement for a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The provisions for FIN 48 are effective for
fiscal years beginning after December 15, 2006. Management is currently
assessing the impact of FIN 48, if any, on the Fund's financial statements and
currently intends for the Fund to adopt FIN 48 provisions during the fiscal year
ending December 31, 2007.
NOTE 14--SIGNIFICANT EVENT
The Board of Trustees of the Trust unanimously approved, on November 8, 2006 an
Agreement and Plan of Reorganization ("Agreement") pursuant to which the Fund
would acquire all of the assets of AIM Opportunities I Fund ("Selling Fund"), a
series of AIM Special Opportunities Funds. Upon closing of the Agreement,
shareholders of Selling Fund will receive a corresponding class of shares of the
Fund in exchange for their shares of Selling Fund, and Selling Fund will cease
operations.
The Agreement requires approval of Selling Fund's shareholders. Selling Fund
will submit the Agreement to shareholders for their consideration at a meeting
to be held on or about March 15, 2007. If approved by Selling Fund's
shareholders, the Agreement is expected to be consummated shortly thereafter.
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,
-----------------------------------------------------------------
2006 2005 2004 2003 2002
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.26 $ 12.80 $ 12.03 $ 8.23 $ 10.19
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07)(a) (0.10) (0.09)(a) (0.09)(a) (0.05)(a)
- -------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.16 0.96 1.22 3.89 (1.91)
===============================================================================================================================
Total from investment operations 2.09 0.86 1.13 3.80 (1.96)
===============================================================================================================================
Less distributions from net realized gains (2.11) (1.40) (0.36) -- --
===============================================================================================================================
Net asset value, end of period $ 12.24 $ 12.26 $ 12.80 $ 12.03 $ 8.23
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(b) 16.83% 6.58% 9.45% 46.17% (19.23)%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $245,868 $218,915 $247,581 $266,284 $140,652
===============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.49%(c) 1.51% 1.53% 1.77% 1.67%
- -------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.60%(c) 1.62% 1.64% 1.77% 1.67%
===============================================================================================================================
Ratio of net investment income (loss) to average net assets (0.55)%(c) (0.84)% (0.77)% (0.89)% (0.54)%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate 56% 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. Does not include sales charges.
(c) Ratios are based on average daily net assets of $236,264,555.
F-15
AIM Small Cap Equity Fund
NOTE 15--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS B
----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.77 $ 12.42 $ 11.77 $ 8.11 $ 10.11
- ------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.17)(a) (0.19) (0.18)(a) (0.15)(a) (0.11)(a)
- ------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.07 0.94 1.19 3.81 (1.89)
==============================================================================================================================
Total from investment operations 1.90 0.75 1.01 3.66 (2.00)
==============================================================================================================================
Less distributions from net realized gains (2.11) (1.40) (0.36) -- --
==============================================================================================================================
Net asset value, end of period $ 11.56 $ 11.77 $ 12.42 $ 11.77 $ 8.11
______________________________________________________________________________________________________________________________
==============================================================================================================================
Total return(b) 15.90% 5.89% 8.64% 45.13% (19.78)%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $126,111 $131,547 $156,450 $177,811 $99,551
==============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.24%(c) 2.21% 2.27% 2.42% 2.32%
- ------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.35%(c) 2.32% 2.29% 2.42% 2.32%
==============================================================================================================================
Ratio of net investment income (loss) to average net assets (1.30)%(c) (1.54)% (1.51)% (1.54)% (1.19)%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Portfolio turnover rate 56% 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. Does not include sales charges.
(c) Ratios are based on average daily net assets of $130,938,576.
<Table>
<Caption>
CLASS C
------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
2006 2005 2004 2003 2002
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.76 $ 12.42 $ 11.77 $ 8.11 $ 10.10
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.17)(a) (0.19) (0.18)(a) (0.15)(a) (0.11)(a)
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.08 0.93 1.19 3.81 (1.88)
==========================================================================================================================
Total from investment operations 1.91 0.74 1.01 3.66 (1.99)
==========================================================================================================================
Less distributions from net realized gains (2.11) (1.40) (0.36) -- --
==========================================================================================================================
Net asset value, end of period $ 11.56 $ 11.76 $ 12.42 $ 11.77 $ 8.11
__________________________________________________________________________________________________________________________
==========================================================================================================================
Total return(b) 16.00% 5.81% 8.64% 45.13% (19.70)%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $57,221 $55,009 $65,792 $75,763 $41,132
==========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.24%(c) 2.21% 2.27% 2.42% 2.32%
- --------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.35%(c) 2.32% 2.29% 2.42% 2.32%
==========================================================================================================================
Ratio of net investment income (loss) to average net assets (1.30)%(c) (1.54)% (1.51)% (1.54)% (1.19)%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Portfolio turnover rate 56% 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. Does not include sales charges.
(c) Ratios are based on average daily net assets of $57,209,345.
F-16
AIM Small Cap Equity Fund
NOTE 15--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS R
------------------------------------------------------------
JUNE 3, 2002
(DATE SALES
YEAR ENDED DECEMBER 31, COMMENCED) TO
------------------------------------------- DECEMBER 31,
2006 2005 2004 2003 2002
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.15 $ 12.71 $ 11.99 $ 8.22 $ 10.58
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.11)(a) (0.10) (0.12)(a) (0.11)(a) (0.04)(a)
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.14 0.94 1.20 3.88 (2.32)
==========================================================================================================================
Total from investment operations 2.03 0.84 1.08 3.77 (2.36)
==========================================================================================================================
Less distributions from net realized gains (2.11) (1.40) (0.36) -- --
==========================================================================================================================
Net asset value, end of period $ 12.07 $ 12.15 $ 12.71 $ 11.99 $ 8.22
__________________________________________________________________________________________________________________________
==========================================================================================================================
Total return(b) 16.47% 6.48% 9.06% 45.86% 22.31%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $27,946 $17,862 $11,817 $ 2,502 $ 55
==========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.74%(c) 1.71% 1.77% 1.92% 1.92%(d)
- --------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.85%(c) 1.82% 1.79% 1.92% 1.92%(d)
==========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.80)%(c) (1.04)% (1.01)% (1.04)% (0.78)%(d)
__________________________________________________________________________________________________________________________
==========================================================================================================================
Portfolio turnover rate(e) 56% 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 $23,195,351.
(d) Annualized.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
<Table>
<Caption>
INSTITUTIONAL CLASS
------------------------------------
APRIL 29, 2005
(DATE SALES
YEAR ENDED COMMENCED) TO
DECEMBER 31, DECEMBER 31,
2006 2005
- --------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.33 $ 11.69
- --------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.01(a) (0.01)
- --------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 2.17 2.05
==================================================================================================
Total from investment operations 2.18 2.04
==================================================================================================
Less distributions from net realized gains (2.11) (1.40)
==================================================================================================
Net asset value, end of period $ 12.40 $ 12.33
__________________________________________________________________________________________________
==================================================================================================
Total return(b) 17.45% 17.31%
__________________________________________________________________________________________________
==================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $17,122 $ 4,712
==================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.90%(c) 0.87%(d)
- --------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.01%(c) 0.98%(d)
==================================================================================================
Ratio of net investment income (loss) to average net assets 0.04%(c) (0.20)%(d)
__________________________________________________________________________________________________
==================================================================================================
Portfolio turnover rate(e) 56% 52%
__________________________________________________________________________________________________
==================================================================================================
</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 $10,900,161.
(d) Annualized.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
F-17
AIM Small Cap Equity Fund
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. 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 August 30, 2005, the West Virginia Office of the State Auditor
- -Securities Commission ("WVASC") issued a Summary Order to Cease and Desist and
Notice of Right to Hearing to AIM and ADI (Order No. 05-1318). The WVASC makes
findings of fact that AIM and ADI entered into certain arrangements permitting
market timing of the AIM Funds and failed to disclose these arrangements in the
prospectuses for such Funds, and conclusions of law to the effect that AIM and
ADI violated the West Virginia securities laws. The WVASC orders AIM and ADI to
cease any further violations and seeks to impose monetary sanctions, including
restitution to affected investors, disgorgement of fees, reimbursement of
investigatory, administrative and legal costs and an "administrative
assessment," to be determined by the Commissioner. Initial research indicates
that these damages could be limited or capped by statute.
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; 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
issues 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. Based on orders issued by the MDL Court,
all claims asserted against the AIM Funds that have been transferred to the MDL
Court have been dismissed, although certain Funds remain nominal defendants in
the Consolidated Amended Fund Derivative Complaint. On September 15, 2006, the
MDL Court granted the AMVESCAP defendants' motion to dismiss the Amended Class
Action Complaint for Violations of ERISA and dismissed such Complaint. The
plaintiff has commenced an appeal from that decision.
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 security
holders. IFG, AIM and ADI have advised the Fund that they 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.
F-18
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, 2006, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the periods indicated, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PRICEWATERHOUSECOOPERS LLP
February 20, 2007
Houston, Texas
F-19
AIM Small Cap Equity Fund
TAX INFORMATION
Form 1099-DIV, Form 1042-S and other year-end tax information provide
shareholders with actual calendar year amounts that should be included in their
tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the
Internal Revenue Code or to meet a specific state's requirement.
The Fund designates the following amounts or, if subsequently determined to be
different, the maximum amount allowable for its fiscal year ended December 31,
2006:
<Table>
FEDERAL AND STATE INCOME TAX
----------------------------
Long-Term Capital Gain
Distributions $63,972,565
Qualified Dividend Income* 30%
Corporate Dividends Received
Deduction 30%
</Table>
* The above percentages are based on ordinary income dividends paid to
shareholders during the Fund's fiscal year.
<Table>
NON-RESIDENT ALIEN SHAREHOLDERS
----------------------------------------------------
Qualified Short-Term Gains $6,002,475
</Table>
ADDITIONAL NON-RESIDENT ALIEN SHAREHOLDER INFORMATION
The percentages of qualifying assets not subject to the U.S. estate tax for the
fiscal quarters ended March 31, 2006, June 30, 2006, September 30, 2006 and
December 31, 2006 were 4.24%, 3.24%, 3.06%, and 2.92%, respectively.
F-20
AIM Small Cap Equity Fund
TRUSTEES AND OFFICERS
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 110
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
NAME, YEAR OF BIRTH AND AND/ OTHER
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- --------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- --------------------------------------------------------------------------------------------------------------------------
Martin L. Flanagan(1) -- 1960 2007 Director, Chief Executive Officer and None
Trustee President, AMVESCAP PLC (parent of AIM
and a global investment management
firm); Chairman, A I M Advisors, Inc.
(registered investment advisor); and
Director, Chairman, Chief Executive
Officer and President, AVZ Inc. (holding
company); INVESCO North American
Holdings, Inc. (holding company);
Chairman and President, AMVESCAP Group
Services, Inc. (service provider);
Trustee, The AIM Family of Funds(R);
Chairman, Investment Company Institute;
and Member of Executive Board, SMU Cox
School of Business
Formerly: President, Co-Chief Executive
Officer, Co-President, Chief Operating
Officer and Chief Financial Officer,
Franklin Resources, Inc. (global
investment management organization)
- --------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(2) -- 1946 1992 Director and Chairman, A I M Management None
Trustee and Vice Chair Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC; Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm) and
Trustee and Vice Chair of The AIM Family
of Funds--Registered Trademark--
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);
Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and President
and Principal Executive Officer of The
AIM Family of Funds--Registered
Trademark--
- --------------------------------------------------------------------------------------------------------------------------
Philip A. Taylor(3) -- 1954 2006 Director, Chief Executive Officer and None
Trustee, President and President, A I M Management Group Inc.,
Principal AIM Mutual Fund Dealer Inc. (registered
Executive Officer broker dealer), AIM Funds Management
Inc. (registered investment advisor) and
1371 Preferred Inc. (holding company);
Director and President, A I M Advisors,
Inc., INVESCO Funds Group, Inc.
(registered investment advisor and
register transfer agent) and AIM GP
Canada Inc. (general partner for a
limited partnership); 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); Director, President and
Chairman, AVZ Callco Inc. (holding
company); AMVESCAP Inc. (holding
company) and AIM Canada Holdings Inc.
(holding company); Director and Chief
Executive Officer, AIM Trimark Corporate
Class Inc. (formerly AIM Trimark Global
Fund Inc.) (corporate mutual fund
company) and AIM Trimark Canada Fund
Inc. (corporate mutual fund company);
Trustee, President and Principal
Executive Officer of The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); Trustee and
Executive Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); and Manager,
Powershares Capital Management LLC
Formerly: President and Principal
Executive Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); Chairman, AIM
Canada Holdings, Inc.; Executive Vice
President and Chief Operations Officer,
AIM Funds Management Inc.; President,
AIM Trimark Global Fund Inc. and AIM
Trimark Canada Fund Inc.; and Director,
Trimark Trust (federally regulated
Canadian Trust Company)
- --------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- --------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- --------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
- --------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company
Formerly: Partner, law firm of Baker & (2 portfolios))
McKenzie
- --------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Founder, Green, Manning & Bunch Ltd., None
Trustee (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 (property casualty company)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and Director of various
affiliated Volvo companies; and
Director, Magellan Insurance Company
- --------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund
company); and Owner, Dos Angelos Ranch, (non-profit)
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
- --------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- --------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- --------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired Director, Mainstay VP Series
Trustee Formerly: Partner, Deloitte & Touche Funds, Inc. (21 portfolios)
- --------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Flanagan was appointed as Trustee of the Trust on February 24, 2007. Mr.
Flanagan is considered an interested person of the Trust because he is an
officer of the advisor to the Trust, and an officer and a director of
AMVESCAP PLC, parent of the advisor to the Trust.
(2) 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.
(3) Mr. Taylor 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.
F-21
TRUSTEES AND OFFICERS--(CONTINUED)
AIM Small Cap Equity Fund
<Table>
<Caption>
TRUSTEE
NAME, YEAR OF BIRTH AND AND/ OTHER
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- --------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- --------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer N/A
Senior Vice President and of The AIM Family of Funds--Registered
Senior Officer Trademark--
Formerly: Director of Compliance and
Assistant General Counsel, ICON
Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- --------------------------------------------------------------------------------------------------------------------------
John M. Zerr -- 1962 2006 Director, Senior Vice President, N/A
Senior Vice President, Chief Secretary and General Counsel, A I M
Legal Officer and Secretary Management Group Inc. and A I M
Advisors, Inc.; Director, Vice President
and Secretary, INVESCO Distributors,
Inc.; Vice President and Secretary,
A I M Capital Management, Inc., AIM
Investment Services, Inc., and Fund
Management Company; Senior Vice
President and Secretary, A I M
Distributors, Inc.; Director and Vice
President, INVESCO Funds Group Inc.;
Senior Vice President, Chief Legal
Officer and Secretary of The AIM Family
of Funds--Registered Trademark--; and
Manager, Powershares Capital Management
LLC
Formerly: Chief Operating Officer,
Senior Vice President, General Counsel,
and Secretary, Liberty Ridge Capital,
Inc. (an investment adviser); Vice
President and Secretary, PBHG Funds (an
investment company); Vice President and
Secretary, PBHG Insurance Series Fund
(an investment company); General Counsel
and Secretary, Pilgrim Baxter Value
Investors (an investment adviser); Chief
Operating Officer, General Counsel and
Secretary, Old Mutual Investment
Partners (a broker-dealer); General
Counsel and Secretary, Old Mutual Fund
Services (an administrator); General
Counsel and Secretary, Old Mutual
Shareholder Services (a shareholder
servicing center); Executive Vice
President, General Counsel and
Secretary, Old Mutual Capital, Inc. (an
investment adviser); and Vice President
and Secretary, Old Mutual Advisors Funds
(an investment company)
- --------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Global Compliance Director, AMVESCAP N/A
Vice President PLC; and Vice President of The AIM
Family of Funds--Registered Trademark--
Formerly: Senior Vice President, A I M
Management Group Inc. (financial
services holding company); Senior Vice
President and Chief Compliance Officer,
A I M Advisors, Inc. and The AIM Family
of Funds--Registered Trademark--; Vice
President and Chief Compliance Officer,
A I M Capital Management, Inc. and A I M
Distributors, Inc.; Vice President, AIM
Investment Services, Inc. and Fund
Management Company; Senior Vice
President and Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; and Senior Vice President
and Compliance Director, Delaware
Investments Family of Funds
- --------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Senior Vice President and General
Vice President Counsel, AMVESCAP PLC; Director, INVESCO
Funds Group, Inc.; and Vice President of
The AIM Family of Funds--Registered
Trademark--
Formerly: Director, Vice President and N/A
General Counsel, Fund Management
Company; Director, Senior Vice
President, Secretary and General
Counsel, A I M Management Group Inc. and
A I M Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Senior Vice President, A I M
Distributors, Inc.; Vice President,
A I M Capital Management, Inc. and AIM
Investment Services, Inc.; Senior Vice
President, Chief Legal Officer and
Secretary of The AIM Family of
Funds--Registered Trademark--; Chief
Executive Officer and President, INVESCO
Funds Group, Inc.; and Senior Vice
President, and General Counsel, Liberty
Financial Companies, Inc. and Senior
Vice President and General Counsel
Liberty Funds Group, LLC
- --------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.; and Vice President,
Financial Officer and Treasurer and Principal Officer of The
Treasurer AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- --------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1992 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc. and The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); and
President and Principal Executive
Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust Only)
Formerly: Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only)
- --------------------------------------------------------------------------------------------------------------------------
Lance A. Rejsek -- 1967 2005 Anti-Money Laundering Compliance N/A
Anti-Money Laundering Officer, A I M Advisors, Inc., A I M
Compliance Officer Capital Management, Inc., A I M
Distributors, Inc., AIM Investment
Services, Inc., AIM Private Asset
Management, Inc., Fund Management
Company and The AIM Family of
Funds--Registered Trademark--
Formerly: Manager of the Fraud
Prevention Department, AIM Investment
Services, Inc.
- --------------------------------------------------------------------------------------------------------------------------
Todd L. Spillane -- 1958 2006 Senior Vice President, A I M Management N/A
Chief Compliance Officer Group Inc.; Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; 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: Global Head of Product
Development, AIG-Global Investment
Group, Inc.; Chief Compliance Officer
and Deputy General Counsel,
AIG-SunAmerica Asset Management; and
Chief Compliance Officer, Chief
Operating Officer and Deputy General
Counsel, American General Investment
Management
- --------------------------------------------------------------------------------------------------------------------------
</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, 51st & Frankel LLP P.O. Box 4739 225 Franklin Street
Floor 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Philadelphia, PA 19103-7599 Americas
New York, NY 10036-2714
</Table>
F-22
[EDELIVERY
GO PAPERLESS
AIMINVESTMENTS.COM/EDELIVERY
GRAPHIC]
REGISTER FOR EDILIVERY
eDelivery is the process of receiving your fund and account information via
e-mail. Once your quarterly statements, tax forms, fund reports, and
prospectuses are available, we will send you an e-mail notification containing
links to these documents. For security purposes, you will need to log in to your
account to view your statements and tax forms.
WHY SIGN UP?
Register for eDelivery to:
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- - view your documents online anytime at your convenience.
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HOW DO I SIGN UP?
It's easy. Just follow these simple steps:
1. Log in to your account.
2. Click on the "Service Center" tab.
3. Select "Register for eDelivery" and complete the consent process.
This AIM service is provided by AIM Investment Services, Inc.
If used after April 20, 2007, 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 and exchange-traded funds distributed by A I M
Distributors, Inc.
A I M Management Group Inc. has provided leadership in the investment management
industry since 1976. AIM Investment Services, Inc. is the transfer agent for the
products and services represented by AIM Investments. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $463 billion in assets under management as of December 31, 2006.
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.
[YOUR GOALS. OUR SOLUTIONS.]
--REGISTERED TRADEMARK--
Exchange- College Separately
Mutual Traded Retirement Savings Managed Offshore Cash
Funds Funds Products Annuities Plans Accounts Products Management
[AIM INVESTMENTS LOGO]
-- REGISTERED TRADEMARK --
AIMinvestments.com SCE-AR-1 A I M Distributors, Inc.
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"). The Code was amended in September, 2006, to (i) remove
individuals listed in Exhibit A and any references to Exhibit A thus
allowing for future flexibility and (ii) remove ambiguities found in
the second paragraph of Section III. The Registrant did not grant any
waivers, including implicit waivers, from any provisions of the Code
to the PEO or PFO during the period covered by this report.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees has determined that the Registrant has at least
one audit committee financial expert serving on its Audit Committee.
The Audit Committee financial expert is Raymond Stickel, Jr. 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 2006 Fees Billed for year end 2005
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 2006 Requirement(1) fiscal year end 2005 Requirement(1)
-------------------- --------------------- -------------------- ---------------------
Audit Fees $251,827 N/A $298,561 N/A
Audit-Related Fees (2) $ 0 0% $ 19,250 0%
Tax Fees(3) $ 66,529 0% $ 76,216 0%
All Other Fees $ 0 0% $ 0 0%
-------- --------
Total Fees $318,356 0% $394,027 0%
======== ========
PWC billed the Registrant aggregate non-audit fees of $66,529 for the fiscal
year ended 2006, and $95,466 for the fiscal year ended 2005, 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 brought to the attention of the Registrant's Audit Committee and
approved by the Registrant's Audit Committee prior to the completion of the
audit.
(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, 2006 includes fees billed for
reviewing tax returns and consultation services. Tax fees for the fiscal
year end December 31, 2005 includes fees billed for reviewing tax returns
and consultation services.
FEES BILLED BY PWC RELATED TO AIM AND AIM AFFILIATES
PWC billed A I M 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 Audit Services
Rendered to AIM and Percentage of Fees Rendered to AIM and Percentage of Fees
AIM Affiliates for Billed Applicable to AIM Affiliates for Billed Applicable to
fiscal year end 2006 Non-Audit Services fiscal year end 2005 Non-Audit Services
That Were Required Provided for fiscal year That Were Required Provided for fiscal year
to be Pre-Approved end 2006 Pursuant to to be Pre-Approved end 2005 Pursuant to
by the Registrant's Waiver of Pre-Approval by the Registrant's Waiver of Pre-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 brought to the attention of the Registrant's
Audit Committee and approved by the Registrant's Audit Committee prior to
the completion of the audit.
(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 2006, and $0 for the fiscal
year ended 2005, 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 18, 2006
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 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.
DELEGATION
The Audit Committees may from time to time delegate pre-approval authority to
one or more of its members who are Independent Trustees. All decisions to
pre-approve a service by a delegated member shall be reported to the Audit
Committee at its next quarterly meeting.
AUDIT SERVICES
The annual audit services engagement terms 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 either general or specific pre-approval of 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.
NON-AUDIT SERVICES
The Audit Committees may provide either general or 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's Rules on auditor
independence, and otherwise conforms to the Audit Committee's general principles
and policies as set forth herein.
AUDIT-RELATED SERVICES
"Audit-related services" are assurance and related services that are reasonably
related to the performance of the audit or review of the Fund's financial
statements or that are traditionally performed by the independent auditor.
Audit-related services include, among others, accounting consultations related
to accounting, financial reporting or disclosure matters not classified as
"Audit services"; assistance with understanding and implementing new accounting
and financial reporting guidance from rulemaking authorities; and
agreed-upon procedures related to mergers, 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 Affiliate before a tax court,
district court or federal court of claims.
Under rules adopted by the Public Company Accounting Oversight Board and
approved by the SEC, in connection with seeking Audit Committee pre-approval of
permissible Tax services, the Auditor shall:
1. Describe in writing to the Audit Committees, which writing may be in
the form of the proposed engagement letter:
a. The scope of the service, the fee structure for the
engagement, and any side letter or amendment to the
engagement letter, or any other agreement between the
Auditor and the Fund, relating to the service; and
b. Any compensation arrangement or other agreement, such as a
referral agreement, a referral fee or fee-sharing
arrangement, between the Auditor and any person (other than
the Fund) with respect to the promoting, marketing, or
recommending of a transaction covered by the service;
2. Discuss with the Audit Committees the potential effects of the
services on the independence of the Auditor; and
3. Document the substance of its discussion with the Audit Committees.
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.
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.
PROCEDURES
On an annual basis, 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.
Each request to provide tax services under either the general or specific
pre-approval of the Audit Committees will describe in writing: (i) the scope of
the service, the fee structure for the engagement, and any side letter or
amendment to the engagement letter, or any other agreement between the Auditor
and the audit client, relating to the service; and (ii) any compensation
arrangement or other agreement between the Auditor and any person (other than
the audit client) with respect to the promoting, marketing, or recommending of a
transaction covered by the service. The Auditor will discuss with the Audit
Committees the potential effects of the services on the Auditor's independence
and will document the substance of the discussion.
Non-audit services pursuant to the de minimis exception provided by the SEC
Rules will be promptly brought to the attention of the Audit Committees for
approval, including documentation that each of the conditions for this
exception, as set forth in the SEC Rules, has been satisfied.
On at least an annual basis, the Auditor will prepare a summary of all the
services provided to any entity in the investment company complex as defined in
section 2-01(f)(14) of Regulation S-X in sufficient detail as to the nature of
the engagement and the fees associated with those services.
The Audit Committees have designated the Funds' Treasurer to monitor the
performance of all services provided by the Auditor and to ensure such services
are in compliance with these policies and procedures. The Funds' Treasurer will
report to the Audit Committee on a periodic basis as to the results of such
monitoring. Both the Funds' Treasurer and management of AIM will immediately
report to the chairman of the Audit Committee any breach of these policies and
procedures that comes to the attention of the Funds' Treasurer or senior
management of AIM.
EXHIBIT 1 TO PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES POLICIES AND
PROCEDURES
CONDITIONALLY PROHIBITED NON-AUDIT SERVICES (NOT PROHIBITED IF THE FUND CAN
REASONABLY CONCLUDE THAT THE RESULTS OF THE SERVICE WOULD NOT BE SUBJECT TO
AUDIT PROCEDURES IN CONNECTION WITH THE AUDIT OF THE FUND'S FINANCIAL
STATEMENTS)
- Bookkeeping or other services related to the accounting records or
financial statements of the audit client
- Financial information systems design and implementation
- Appraisal or valuation services, fairness opinions, or
contribution-in-kind reports
- Actuarial services
- Internal audit outsourcing services
CATEGORICALLY PROHIBITED NON-AUDIT SERVICES
- Management functions
- Human resources
- Broker-dealer, investment adviser, or investment banking services
- Legal services
- Expert services unrelated to the audit
- Any service or product provided for a contingent fee or a commission
- Services related to marketing, planning, or opining in favor of the
tax treatment of confidential transactions or aggressive tax position
transactions, a significant purpose of which is tax avoidance
- Tax services for persons in financial reporting oversight roles at the
Fund
- 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 14, 2006, 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 14, 2006, the Registrant's disclosure controls and
procedures were reasonably designed to ensure: (1) that information
required to be disclosed by the Registrant on Form N-CSR is recorded,
processed, summarized and reported within the time periods specified by the
rules and forms of the Securities and Exchange Commission; and (2) that
material information relating to the Registrant is made known to the PEO
and PFO as appropriate to allow timely decisions regarding required
disclosure.
(b) There have been no changes in the Registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act) that
occurred during the second fiscal quarter of the period covered by this
report that have materially affected, or are reasonably likely to
materially affect, the Registrant's internal control over financial
reporting.
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/ Philip A. Taylor
---------------------------------
Philip A. Taylor
Principal Executive Officer
Date: March 8, 2007
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/ Philip A. Taylor
---------------------------------
Philip A. Taylor
Principal Executive Officer
Date: March 8, 2007
By: /s/ Sidney M. Dilgren
---------------------------------
Sidney M. Dilgren
Principal Financial Officer
Date: March 8, 2007
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.