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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 811-08697
----------------------------------------------
AIM Special Opportunities Funds
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
11 Greenway Plaza, Suite 100 Houston, Texas 77046
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Robert H. Graham 11 Greenway Plaza, Suite 100 Houston, Texas 77046
- --------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (713) 626-1919
-----------------------------
Date of fiscal year end: 10/31
------------
Date of reporting period: 10/31/04
-----------
Item 1. Reports to Stockholders.
AIM OPPORTUNITIES I FUND
Annual Report to Shareholders o October 31, 2004
[COVER IMAGE]
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
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AIM OPPORTUNITIES I FUND SEEKS LONG-TERM GROWTH OF CAPITAL.
o Unless otherwise stated, information presented in this report is as of 10/31/04 and is based on total net assets.
====================================================================================================================================
o As discussed in a notice previously o The fund is nondiversified, which OTHER INFORMATION
communicated to shareholders, the fund increases risks as well as potential
changed its strategy and its management rewards. o Bloomberg, Inc. is an independent
team effective November 30, 2004, after financial research and reporting firm.
the close of the reporting period. While o Investing in small and mid-size
the fund's objective continued to be companies involves risks not associated o The returns shown in the Management's
long-term growth of capital, the fund's with investing in more established Discussion of Fund Performance are based
investment style changed from growth to companies, including business risk, on net asset values calculated for
value. The individual members of the team significant stock price fluctuations and shareholder transactions. Generally
who are primarily responsible for the illiquidity. accepted accounting principles require
management of the fund's portfolio are adjustments to be made to the net assets
Roger J. Mortimer (lead), Robert Leslie o The fund may participate in the initial of the fund at period end for financial
and Glen Hilton. public offering (IPO) market in some reporting purposes, and as such, the net
market cycles. Because of the fund's asset values for shareholder transactions
ABOUT SHARE CLASSES small asset base, any investment the fund and the returns based on those net asset
may make in IPOs may significantly affect values may differ from the net asset
o Effective 9/30/03, Class B shares are the fund's total return. As the fund's values and returns reported in the
not available as an investment for assets grow, the impact of IPO Financial Highlights.
retirement plans maintained pursuant to investments will decline, which may
Section 401 of the Internal Revenue Code, reduce the effect of IPO investments on o Industry classifications used in this
including 401(k) plans, money purchase the fund's total return. report are generally according to the
pension plans and profit sharing plans. Global Industry Classification Standard,
Plans that have existing accounts ABOUT INDEXES USED IN THIS REPORT which was developed by and is the
invested in Class B shares will continue exclusive property and a service mark of
to be allowed to make additional o The unmanaged Lipper Small-Cap Growth Morgan Stanley Capital International Inc.
purchases. Fund Index represents an average of the and Standard & Poor's.
performance of the 30 largest
PRINCIPAL RISKS OF INVESTING IN THE FUND small-capitalization growth funds The fund files its complete schedule of
tracked by Lipper, Inc., an independent portfolio holdings with the Securities
o International investing presents mutual fund performance monitor. and Exchange Commission ("SEC") for the
certain risks not associated with 1st and 3rd quarters of each fiscal year
investing solely in the United States. o The unmanaged MSCI World Index is a on Form N-Q. The fund's Form N-Q filings
These include risks relating to group of global securities tracked by are available on the SEC's Web site at
fluctuations in the value of the U.S. Morgan Stanley Capital International. http://www.sec.gov. Copies of the fund's
dollar relative to the values of other Forms N-Q may be reviewed and copied at
currencies, the custody arrangements made o The unmanaged Russell 2000--Registered the SEC's Public Reference Room at 450
for the fund's foreign holdings, Trademark-- Index represents the Fifth Street, N.W., Washington, D.C.
differences in accounting, political performance of the stocks of 20549-0102. You can obtain information on
risks and the lesser degree of public small-capitalization companies. the operation of the Public Reference
information required to be provided by Room, including information about
non-U.S. companies. The fund may invest up o The unmanaged Standard & Poor's duplicating fee charges, by calling
to 25% of its assets in the securities of Composite Index of 500 Stocks (the S&P 1-202-942-8090 or by electronic request
non-U.S. issuers. 500--Registered Trademark-- Index) is an at the following email address:
index of common stocks frequently used as publicinfo@sec.gov. The SEC file numbers
o Leveraging and short-selling, along with a general measure of U.S. stock market for the fund are 811-08697 and 333-47949.
other hedging strategies, present higher performance. The fund's most recent portfolio
risks, but also offer greater potential holdings, as filed on Form N-Q, are also
rewards. Since stock prices can rise o The fund is not managed to track the available at AIMinvestments.com.
without limit, short sales are riskier performance of any particular index,
because of unlimited exposure to loss including the indexes defined here, and A description of the policies and
until the position is covered. The fund, consequently, the performance of the fund procedures that the fund uses to
which is not a complete investment may deviate significantly from the determine how to vote proxies relating to
program, may not be appropriate for all performance of the indexes. portfolio securities is available without
investors. There is no guarantee that the charge, upon request, from our Client
fund managers' investment strategies will o A direct investment cannot be made in Services department at 800-959-4246, or
help investors attain their goals. Please an index. Unless otherwise indicated, on the AIM Web site, AIMinvestments.com.
see the prospectus for more information index results include reinvested Scroll down on the home page and click on
about specific investment strategies and dividends, and they do not reflect sales AIM Funds Proxy Policy. The information
risks. charges. Performance of an index of funds is also available on the Securities and
reflects fund expenses; performance of a Exchange commission's Web site, sec.gov.
market index does not.
Information regarding how the fund voted
proxies related to its portfolio
securities during the 12 months ended
6/30/04 is available at our Web site. Go
to AIMinvestments.com, access the About
Us tab, click on Required Notices and
then click on Proxy Voting Activity.
Next, select your fund from the drop-down
menu.
</Table>
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THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
=============================================================================
=====================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
=====================================================
AIMinvestments.com
TO OUR SHAREHOLDERS
<Table>
DEAR FELLOW SHAREHOLDER OF THE AIM FAMILY OF
FUNDS--Registered Trademark--:
NEW BOARD CHAIRMAN
[PHOTO OF It is our pleasure to introduce you to Bruce Crockett, the
ROBERT H. new Chairman of the Board of Trustees of the AIM Funds. Bob
GRAHAM] Graham has served as Chairman of the Board of Trustees of
the AIM Funds ever since Ted Bauer retired from that
ROBERT H. GRAHAM position in 2000. However, as you may be aware, the U.S.
Securities and Exchange Commission recently adopted a rule
[PHOTO OF requiring that an independent fund trustee, meaning a
MARK H. trustee who is not an officer of the fund's investment
WILLIAMSON] advisor, serve as chairman of the funds' Board. In addition,
a similar provision was included in the terms of AIM
MARK H. WILLIAMSON Advisors' recent settlements with certain regulators.
Accordingly, the AIM Funds' Board recently elected Mr.
[PHOTO OF Crockett, one of the fourteen independent trustees on the
BRUCE L. AIM Funds' Board, as Chairman. His appointment became
CROCKETT] effective on October 4, 2004. Mr. Graham will remain on the
funds' Board, as will Mark Williamson, President and Chief
BRUCE L. CROCKETT Executive Officer of AIM. Mr. Graham will also remain
Chairman of AIM Investments--Registered Trademark--.
Mr. Crockett has been a member of the AIM Funds' board
since 1992, when AIM acquired certain funds that had been
advised by CIGNA. He had been a member of the board of those
funds since 1978. Mr. Crockett has more than 30 years of
experience in finance and general management and has been
Chairman of Crockett Technologies Associates since 1996. He
is the first independent chairman of the funds' board in
AIM's history, as he is not affiliated with AIM or AMVESCAP
in any way. He is committed to ensuring that the AIM Funds
adhere to the highest standards of corporate governance for
the benefit of fund shareholders, and we at AIM share that
commitment.
MARKET CONDITIONS DURING THE FISCAL YEAR
Virtually every equity index, domestic and foreign, produced
positive returns for the fiscal year ended October 31, 2004.
Domestically, the S&P 500 Index was up 9.41% for the year.
Globally, the MSCI World Index advanced more than 13%.
However, a goodly portion of this positive performance was
achieved during 2003. Year to date as of October 31, the S&P
500 Index was up just over 3%, the MSCI World Index just
about 5%. In the pages that follow, you will find a more
detailed discussion of the market conditions that affected
your fund during the fiscal year.
While it is agreeable to report positive market
performance for the year covered by this report, as ever, we
encourage our shareholders to look past short-term
performance and focus on their long-term investment goals.
Over the short-term, the one sure thing about the investment
markets is their unpredictability. Over the long term,
equities have produced very attractive returns. For the
25-year period ended October 31, 2004, the S&P 500 Index
averaged 13.50% growth per year and the MSCI World Index
averaged 11.16%. While past performance cannot guarantee
future results, we believe staying invested for the long
term offers the best opportunity for capital growth.
AN IMPORTANT ANNOUNCEMENT ABOUT YOUR FUND'S MANAGEMENT
Charles Scavone, who joined AIM in 1996 and has been
responsible for the fund since its inception, will retire
from the company December 31, 2004. All of us at AIM
appreciate Mr. Scavone's years of dedicated service to AIM
Investments and to the fund's shareholders. He has played an
important role in AIM's success, and we wish him the best in
his future endeavors.
The following pages of this report provide an explanation
of how your fund was managed during the fiscal year, how it
performed in comparison to various benchmarks, and a
presentation of its long-term performance. We hope you find
this information helpful. Current information about your
fund and about the markets in general is always available on
our Web site, AIMinvestments.com.
As always, AIM remains committed to building solutions
for your investment goals, and we thank you for your
continued participation in AIM Investments. If you have any
questions, please contact our Client Service representatives
at 800-959-4246.
Sincerely,
/s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
------------------------------------ --------------------------------
Robert H. Graham Mark H. Williamson
Chairman, AIM Investments CEO & President, AIM Investments
President & Vice Chairman, AIM Funds Trustee, AIM Funds
December 16, 2004
AIM Investments is a registered service mark of A I M
Management Group Inc. A I M Advisors, Inc. and A I M Capital
Management, Inc. are the investment advisors, and A I M
Distributors, Inc. is the distributor for the retail funds
represented by AIM Investments.
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MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
WEAK YEAR FOR GROWTH STOCKS HAMPERED FUND
RESULTS
AIM Opportunities I Fund's Class A shares out to be a disadvantage in comparison YOUR FUND
returned 0.97% at net asset value for the with the S&P 500 and the Russell 2000
fiscal year ended October 31, 2004. indexes, which include both value and We saw a significant change in
PERFORMANCE SHOWN AT NAV DOES NOT INCLUDE growth-oriented stocks. expectations in the economy in April and
FRONT-END SALES CHARGES, WHICH WOULD HAVE May of 2004 in a very short time. In
REDUCED THE PERFORMANCE. Results for the MARKET CONDITIONS June, as the Fed abruptly reversed its
fund's other share classes and for its course and began tightening credit
benchmark indexes are shown in the table The U.S. economy showed signs of strength conditions, stocks that had been
on page 3. during the fiscal year ended October 31, expected to perform well were revalued.
2004. Economic news was generally Historically, during periods when stocks
The fund underperformed the 1.95% positive, marked by expansion of gross are reacting more to "big picture,"
return of the Lipper Small-Cap Growth Fund domestic product (GDP), the broadest macro effects such as rising oil prices
Index, which measures comparable funds. measure of overall economic activity. and interest rates, terrorism and
It also underperformed the S&P 500 While remaining positive, GDP growth pre-election uncertainty, it has been
Index--an index of common stocks often tapered off somewhat from an annualized difficult for us to find good short
cited as representing the performance of rate of 4.2% in the fourth quarter of selling opportunities. As a result, we
the U.S. stock market as a whole--which 2003 to a more modest 3.9% in the third carried a lower than usual level of
returned 9.41% for this 12-month period. quarter of 2004. short holdings during the period, and
The Russell 2000 Index, which their net effect on fund performance was
approximates the kinds of stocks in which Despite this slippage, corporate negative; but derivatives --especially
the fund invests, returned 11.73%. earnings remained strong. Bloomberg futures contracts-- contributed
reported that 80% of the companies in the significantly to net gains for the
In general, value stocks outperformed S&P 500 Index that had reported fiscal year.
growth stocks for the fiscal year. Since third-quarter earnings by the close of the
the beginning of 2004, we continued to fiscal year either met or exceeded As the annualized rate of economic
see the more economically sensitive or expectations; just 20% missed growth slowed over the fund's fiscal
more cyclical sectors (energy, utilities expectations. year, the information technology sector
and telecommunication services, which confronted the prospect of slowing
typically are not considered growth Generally positive economic capital spending, and many stock values
sectors) perform the best. On the other developments prompted the U.S. Federal in that sector sagged. Consequently, our
hand, technology and health care--our Reserve (the Fed) to raise its federal position in this sector hurt fund
classic growth sectors--were the funds target rate from a decades-low performance. In response, we exited
worst-performing sectors. As a result, the 1.00%, where it stood at the beginning of positions in any companies we considered
fund's focus on growth-oriented stocks the fiscal year, to 1.75% by the fiscal marginal and focused on the companies in
turned year's close. In its anecdotal report on which we had the most confidence. This
the economy released in late October, the action reduced the fund's weighting in
Fed said economic activity continued to that sector and decreased the number of
expand in September and early October. holdings in the fund.
On the other hand, the energy sector
made the largest contribution to fund
performance during the period, driven by
high oil prices and our stock selections.
We added more
</Table>
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====================================================================================================================================
PORTFOLIO COMPOSITION TOP 10 LONG HOLDINGS* SHORT HOLDINGS
By sector; long and short holdings
1. Medicis Pharmaceutical Corp.- 1. Tidewater Inc. 0.8%
[PIE CHART] Class A 3.8%
2. Landry's Restaurants, Inc. 0.7
Information Technology 18.7% 2. Getty Images, Inc. 2.3
3. Network Appliances, Inc. 0.2
Financials 7.8% 3. Pacific Sunwear of California,
Inc. 2.1 TOTAL NET ASSETS $378.3 MILLION
Industrials 4.2% TOTAL NUMBER OF LONG HOLDINGS* 95
4. United Auto Group, Inc. 1.6 TOTAL NUMBER OF SHORT HOLDINGS 3
Energy 3.2%
5. Raymond James Financial, Inc. 1.6
Telecommunication Services 2.4%
6. Cullen/Frost Bankers, Inc. 1.6
Materials 1.0%
7. Kindred Healthcare, Inc. 1.6
Consumer Discretionary 20.8%
8. Speedway Motorsports, Inc. 1.5
Health Care 20.6%
9. VCA Antech, Inc. 1.5
Money Market Funds Plus Other
Assets Less Liabilities 21.3% 10. National Instruments Corp. 1.5
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.
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</Table>
2
<Table>
energy-sector stocks during the period technology developer and systems BRANT H. DEMUTH
and found the oil services industry integrator that does much business for Mr. DeMuth, Chartered
especially interesting, as initial the Department of Defense, the Department [DEMUTH Financial Analyst, is
earnings reports from some large players of Homeland Security and other U.S. PHOTO] co-manager of AIM
were positive. government agencies. Its stock declined Opportunities I Fund.
when major defense contractor Lockheed He began his investment
Among holdings that made positive Martin backed out of plans to acquire the career in 1987 and joined AIM in 1996.
contributions to fund performance were company, citing Titan's inability to sort Mr. DeMuth received a B.S. in business
the following: out some legal problems. The fund sold administration from Colorado State
the stock short and profited from the University and an M.B.A. in oil and gas
o Our position in Ultra Petroleum, an price drop. finance from the University of Denver.
independent oil and gas company, was one
of our top contributors to performance. IN CLOSING ROBERT C. LESLIE
The company benefited from an increase in Mr. Leslie, Chartered
production and high oil prices, and its The fund continued to pursue long-term [LESLIE Financial Analyst, is
reserve base proved to be larger and more growth of capital by holding equities of PHOTO] co-manager of AIM
productive than previously estimated. small-capitalization companies. We also Opportunities I Fund.
continued to apply alternative strategies He began his investment
o The fund's investment in Ask Jeeves and techniques, such as short sales and career in 1985 and joined AIM in 1998.
Inc., an Internet search engine, was derivatives, which are designed to target Mr. Leslie received a B.A. from
another strong contributor. The company risk-adjusted returns. Susquehanna University and an M.B.A. in
benefited from increased revenue due to finance from the University of Maryland.
higher traffic to its site. THE VIEWS AND OPINIONS EXPRESSED IN
MANAGEMENT'S DISCUSSION OF FUND CHARLES C. SCAVONE
Holdings that detracted from fund PERFORMANCE ARE THOSE OF A I M ADVISORS, Mr. Scavone, Chartered
performances included the following: INC. THESE VIEWS AND OPINIONS ARE SUBJECT [SCAVONE Financial Analyst, is
TO CHANGE AT ANY TIME BASED ON FACTORS PHOTO] co-manager of AIM
o WJ Communications is a developer and SUCH AS MARKET AND ECONOMIC CONDITIONS. Opportunities I Fund.
manufacturer of radio frequency THESE VIEWS AND OPINIONS MAY NOT BE He has been in the
communications products for wireless and RELIED UPON AS INVESTMENT ADVICE OR investment business since 1991 and joined
wireline communications networks. The RECOMMENDATIONS, OR AS AN OFFER FOR A AIM in 1996. Mr. Scavone received a
stock declined as the company exited the PARTICULAR SECURITY. THE INFORMATION IS B.B.A. from Southeastern Louisiana
fixed wireless and fiber optics NOT A COMPLETE ANALYSIS OF EVERY ASPECT University and an M.B.A. from the
businesses, and we sold our holding. OF ANY MARKET, COUNTRY, INDUSTRY, University of Houston. Mr. Scavone will
SECURITY OR THE FUND. STATEMENTS OF FACT retire from AIM December 31, 2004.
o DDi Corp. is a provider of electronics ARE FROM SOURCES CONSIDERED RELIABLE, BUT
engineering to electronics manufacturing A I M ADVISORS, INC. MAKES NO Assisted by the Opportunities Team
services. We sold our position after DDi REPRESENTATION OR WARRANTY AS TO THEIR
issued earnings guidance that was at the COMPLETENESS OR ACCURACY. ALTHOUGH Effective November 30, 2004, after the
lower end of analyst expectations. HISTORICAL PERFORMANCE IS NO GUARANTEE OF close of the reporting period, the fund
FUTURE RESULTS, THESE INSIGHTS MAY HELP changed its strategy and its management
Our short position in Titan Corp. YOU UNDERSTAND OUR INVESTMENT MANAGEMENT team. While the fund's objective
contributed positively to the fund's PHILOSOPHY. continued to be long-term growth of
performance. Titan is a capital, the fund's investment style
See important fund and index changed from growth to value. The
disclosures inside front cover. individual members of the team who are
primarily responsible for the management
of the fund's portfolio after that date
are Roger J. Mortimer (lead), Robert
Leslie and Glen Hilton.
======================================================================================
TOP 10 INDUSTRIES* FUND VS. INDEXES
Based on long holdings only TOTAL RETURNS, 10/31/03-10/31/04,
EXCLUDING APPLICABLE SALES CHARGES. IF
1. Pharmaceuticals 6.8% SALES CHARGES WERE INCLUDED, RETURNS
WOULD BE LOWER.
2. Specialty Stores 5.0
CLASS A SHARES 0.97%
3. Application Software 4.9
CLASS B SHARES 0.31
4. Health Care Equipment 4.8
CLASS C SHARES 0.31
5. Health Care Facilities 4.3
S&P 500 INDEX (BROAD MARKET INDEX) 9.41
6. Electronic Equipment
Manufacturers 3.8 RUSSELL 2000 INDEX
(STYLE SPECIFIC INDEX) 11.73
7. Apparel Retail 3.8
LIPPER SMALL-CAP GROWTH FUND INDEX
8. Regional Banks 2.9 (PEER GROUP INDEX) 1.95
9. Investment Banking & Brokerage 2.8 SOURCE: LIPPER, INC.
10. Restaurants 2.5
====================================================================================== [RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S
LONG-TERM PERFORMANCE RECORD, PLEASE TURN
TO PAGE 5.
</Table>
3
INFORMATION ABOUT YOUR FUND'S EXPENSES
<Table>
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE You may use the information in this or expenses you paid for the period. You
table, together with the amount you may use this information to compare the
As a shareholder of the fund, you incur invested, to estimate the expenses that ongoing costs of investing in the fund
two types of costs: (1) transaction you paid over the period. Simply divide and other funds. To do so, compare this
costs, which may include sales charges your account value by $1,000 (for 5% hypothetical example with the 5%
(loads) on purchase payments; contingent example, an $8,600 account value divided hypothetical examples that appear in the
deferred sales charges on redemptions; by $1,000 = 8.6), then multiply the shareholder reports of the other funds.
and redemption fees, if any; and (2) result by the number in the table under
ongoing costs, including management fees; the heading entitled "Actual Expenses Please note that the expenses shown in
distribution and/or service fees (12b-1); Paid During Period" to estimate the the table are meant to highlight your
and other fund expenses. This example-is expenses you paid on your account during ongoing costs only and do not reflect any
intended to help you understand your this period. transactional costs, such as sales
ongoing costs (in dollars) of investing charges (loads) on purchase payments,
in the fund and to compare these costs HYPOTHETICAL EXAMPLE FOR COMPARISON contingent deferred sales charges on
with ongoing costs of investing in other PURPOSES redemptions, and redemption fees, if any.
mutual funds. The example is based on an Therefore, the hypothetical information
investment of $1,000 invested at the The table below also provides information is useful in comparing ongoing costs
beginning of the period and held for the about hypothetical account values and only, and will not help you determine the
entire period, May 1, 2004-October 31, hypothetical expenses based on the fund's relative total costs of owning different
2004. actual expense ratio and an assumed rate funds. In addition, if these
of return of 5% per year before expenses, transactional costs were included, your
ACTUAL EXPENSES which is not the fund's actual return. costs would have been higher.
The hypothetical account values and
The table below provides information expenses may not be used to estimate the
about actual account values and actual actual ending account balance
expenses.
</Table>
<Table>
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ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
VALUE VALUE PAID DURING VALUE PAID DURING
(5/01/04) (10/31/04)(1) PERIOD(2) (10/31/04) PERIOD(2)
Class A $1,000.00 $975.40 $5.11 $1,019.96 $5.23
Class B 1,000.00 971.80 8.33 1,016.69 8.52
Class C 1,000.00 971.80 8.33 1,016.69 8.52
(1) The actual ending account value is based on the actual total return of the fund for the period May 1, 2004, to October 31, 2004,
after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio and a
hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period May 1, 2004, to
October 31, 2004, was -2.46%, -2.82% and -2.82% for Class A, B and C shares, respectively.
(2) Expenses are equal to the fund's annualized expense ratio (1.03%, 1.68% and 1.68% for Class A, B and C shares, respectively)
multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
====================================================================================================================================
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
</Table>
4
LONG-TERM PERFORMANCE
YOUR FUND'S LONG-TERM PERFORMANCE
<Table>
====================================================================================================================================
Past performance cannot guarantee RESULTS OF A $10,000 INVESTMENT
comparable future results. 6/29/98-10/31/04. Index data are from 6/30/98.
Your fund's total return includes [MOUNTAIN CHART]
reinvested distributions, applicable
sales charges, fund expenses and AIM LIPPER SMALL-CAP
management fees. Index results include OPPORTUNITIES I FUND RUSSELL 2000 S&P 500 GROWTH FUND
reinvested dividends, but they do not DATE CLASS A SHARES INDEX INDEX INDEX
reflect sales charges. Performance of an
index of funds reflects fund expenses and 6/29/1998 $ 9450
management fees; performance of a market 7/98 9223 $ 9190 $ 9894 $ 9248
index does not. Performance shown in the 10/98 8780 8311 9739 7914
chart does not reflect deduction of taxes 1/99 11509 9411 11381 9644
a shareholder would pay on fund 4/99 12087 9571 11912 9465
distributions or sale of fund shares. 7/99 14055 9872 11893 10371
Performance of the indexes does not 10/99 15965 9547 12238 11214
reflect the effects of taxes. 1/00 20897 11081 12557 15018
4/00 24600 11334 13118 15682
In evaluating this chart, please note 7/00 25529 11231 12960 15834
that the chart uses a logarithmic scale 10/00 25857 11209 12982 15417
along the vertical axis (the value 101 25632 11490 12444 14348
scale). This means that each scale 4/01 22899 11010 11417 12515
increment always represents the same 7/01 22681 11039 11103 12444
percent change in price; in a linear 10/01 21078 9785 9751 10604
chart each scale increment always 1/02 22378 11077 10436 11751
represents the same absolute change in 4/02 22346 11745 9977 11628
price. In this example, the scale 7/02 17199 9056 8481 8867
increment between $5,000 and $10,000 is 10/02 17046 8653 8279 8672
the same as that between $10,000 and 1/03 16641 8654 8035 8539
$20,000. In a linear chart, the latter 4/03 17384 9307 8649 9141
scale increment would be twice as large. 7/03 20607 11149 9383 11023
The benefit of using a logarithmic scale 10/03 22566 12406 10000 12350
is that it better illustrates performance 1/04 25129 13676 10811 13291
during the fund's early years before 4/04 23358 13217 10627 12507
reinvested distributions and compounding 7/04 22278 13051 10618 11973
create the potential for the original 10/04 $22779 $13861 $10941 $12591
investment to grow to very large numbers. Source: Lipper, Inc.
Had the chart used a linear scale along
its vertical axis, you would not be able AVERAGE ANNUAL TOTAL RETURNS The performance data quoted represent
to see as clearly the movements in the past performance and cannot guarantee
value of the fund and the indexes during As of 10/31/04, including applicable comparable future results; current
the fund's early years. We use a sales charges performance may be lower or higher.
logarithmic scale in financial reports of Please visit AIMinvestments.com for the
funds that have more than five years of CLASS A SHARES most recent month-end performance.
performance history. Inception (6/29/98) 13.87% Performance figures reflect reinvested
5 Years 6.16 distributions, changes in net asset value
1 Year -4.59 and the effect of the maximum sales
charge unless otherwise stated.
CLASS B SHARES Investment return and principal value
Inception (7/13/98) 14.03% will fluctuate so that you may have a
5 Years 6.36 gain or loss when you sell shares.
1 Year -4.69
Class A share performance reflects the
CLASS C SHARES maximum 5.50% sales charge, and Class B
Inception (12/30/98) 12.77% and Class C share performance reflects
5 Years 6.59 the applicable contingent deferred sales
1 Year -0.69 charge (CDSC) for the period involved.
The CDSC on Class B shares declines from
In addition to returns as of the close of 5% beginning at the time of purchase to
the fiscal year, industry regulations 0% at the beginning of the seventh year.
require us to provide average annual The CDSC on Class C shares is 1% for the
total returns as of 9/30/04, the most first year after purchase.
recent calendar quarter-end.
The performance of the fund's share
AVERAGE ANNUAL TOTAL RETURNS classes will differ due to different
sales charge structures and class
As of 9/30/04, most recent calendar expenses.
quarter-end, including applicable sales
charges
CLASS A SHARES
Inception (6/29/98) 13.58%
5 Years 7.17
1 Year -1.13
CLASS B SHARES
Inception (7/13/98) 13.75%
5 Years 7.37
1 Year -1.06
CLASS C SHARES
Inception (12/30/98) 12.44%
5 Years 7.57
1 Year 2.85
====================================================================================================================================
</Table>
5
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-80.41%
AEROSPACE & DEFENSE-0.59%
Engineered Support Systems, Inc. 46,500 $ 2,233,860
==========================================================================
APPAREL RETAIL-3.81%
Charlotte Russe Holding Inc.(a) 100,000 1,321,000
- --------------------------------------------------------------------------
Christopher & Banks Corp. 100,000 1,625,000
- --------------------------------------------------------------------------
Hot Topic, Inc.(a) 170,000 3,495,200
- --------------------------------------------------------------------------
Pacific Sunwear of California, Inc.(a) 340,000 7,969,600
==========================================================================
14,410,800
==========================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.91%
Columbia Sportswear Co.(a) 20,000 1,207,200
- --------------------------------------------------------------------------
Fossil, Inc.(a) 75,000 2,232,000
==========================================================================
3,439,200
==========================================================================
APPLICATION SOFTWARE-4.89%
Henry (Jack) & Associates, Inc. 145,000 2,702,800
- --------------------------------------------------------------------------
Informatica Corp.(a) 455,000 3,553,550
- --------------------------------------------------------------------------
Macromedia, Inc.(a) 100,000 2,714,000
- --------------------------------------------------------------------------
RSA Security Inc.(a) 152,300 3,116,058
- --------------------------------------------------------------------------
Sonic Solutions(a) 150,000 2,977,500
- --------------------------------------------------------------------------
Ulticom, Inc.(a) 200,000 3,438,000
==========================================================================
18,501,908
==========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.01%
Apollo Investment Corp. 156,500 2,128,400
- --------------------------------------------------------------------------
Federated Investors, Inc.-Class B 58,500 1,695,915
==========================================================================
3,824,315
==========================================================================
AUTOMOBILE MANUFACTURERS-0.83%
Winnebago Industries, Inc. 100,000 3,140,000
==========================================================================
BIOTECHNOLOGY-1.04%
Digene Corp.(a) 155,719 3,916,333
==========================================================================
BROADCASTING & CABLE TV-1.52%
Cumulus Media Inc.-Class A(a) 175,000 2,843,750
- --------------------------------------------------------------------------
Emmis Communications Corp.-Class A(a) 155,000 2,898,500
==========================================================================
5,742,250
==========================================================================
COMPUTER & ELECTRONICS RETAIL-1.04%
GameStop Corp.-Class A(a) 200,000 3,918,000
==========================================================================
COMPUTER STORAGE & PERIPHERALS-1.93%
Applied Films Corp.(a) 200,000 4,638,000
- --------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
COMPUTER STORAGE & PERIPHERALS-(CONTINUED)
Avid Technology, Inc.(a) 50,000 $ 2,649,000
==========================================================================
7,287,000
==========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-2.06%
Alliance Data Systems Corp.(a) 75,000 3,171,000
- --------------------------------------------------------------------------
Euronet Worldwide, Inc.(a) 125,000 2,865,000
- --------------------------------------------------------------------------
Pegasus Solutions Inc.(a) 167,280 1,741,385
==========================================================================
7,777,385
==========================================================================
DISTRIBUTORS-0.49%
Source Interlink Cos., Inc.(a) 185,000 1,864,800
==========================================================================
DIVERSIFIED COMMERCIAL SERVICES-0.65%
CoStar Group Inc.(a) 60,550 2,444,403
==========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.01%
Intermagnetics General Corp.(a) 150,000 3,823,500
==========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-3.84%
Aeroflex Inc.(a) 400,000 4,440,000
- --------------------------------------------------------------------------
Cognex Corp. 75,000 1,920,000
- --------------------------------------------------------------------------
FLIR Systems, Inc.(a) 50,000 2,660,500
- --------------------------------------------------------------------------
National Instruments Corp. 200,000 5,506,000
==========================================================================
14,526,500
==========================================================================
ELECTRONIC MANUFACTURING SERVICES-0.83%
Xyratex Ltd. (Bermuda)(a) 270,000 3,156,300
==========================================================================
HEALTH CARE DISTRIBUTORS-1.25%
Schein (Henry), Inc.(a) 75,000 4,742,250
==========================================================================
HEALTH CARE EQUIPMENT-4.83%
Advanced Neuromodulation Systems, Inc.(a) 100,000 3,183,000
- --------------------------------------------------------------------------
Bruker BioSciences Corp.(a) 442,600 1,526,970
- --------------------------------------------------------------------------
Conceptus Inc.(a) 200,000 1,713,000
- --------------------------------------------------------------------------
IntraLase Corp.(a) 100,000 1,923,000
- --------------------------------------------------------------------------
NuVasive, Inc.(a) 166,300 1,639,718
- --------------------------------------------------------------------------
Varian Inc.(a) 100,000 3,648,000
- --------------------------------------------------------------------------
VISX, Inc.(a) 100,000 1,668,000
- --------------------------------------------------------------------------
Wilson Greatbatch Technologies, Inc.(a) 176,000 2,983,200
==========================================================================
18,284,888
==========================================================================
HEALTH CARE FACILITIES-4.28%
Beverly Enterprises, Inc.(a) 300,000 2,607,000
- --------------------------------------------------------------------------
Kindred Healthcare, Inc.(a) 250,000 6,025,000
- --------------------------------------------------------------------------
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
HEALTH CARE FACILITIES-(CONTINUED)
Symbion, Inc.(a) 125,000 $ 1,942,500
- --------------------------------------------------------------------------
VCA Antech, Inc.(a)(b) 250,000 5,605,000
==========================================================================
16,179,500
==========================================================================
HEALTH CARE SERVICES-2.40%
Accredo Health, Inc.(a) 100,000 2,303,000
- --------------------------------------------------------------------------
Amedisys, Inc.(a) 52,000 1,571,960
- --------------------------------------------------------------------------
HealthExtras, Inc.(a) 200,000 2,854,000
- --------------------------------------------------------------------------
Renal Care Group, Inc.(a) 75,000 2,367,000
==========================================================================
9,095,960
==========================================================================
HOUSEHOLD APPLIANCES-1.05%
Helen of Troy Ltd. (Bermuda)(a) 150,000 3,982,500
==========================================================================
INDUSTRIAL GASES-0.98%
Airgas, Inc. 150,000 3,690,000
==========================================================================
INTERNET SOFTWARE & SERVICES-1.90%
Ask Jeeves, Inc.(a) 75,000 1,933,500
- --------------------------------------------------------------------------
CNET Networks, Inc.(a) 175,000 1,429,750
- --------------------------------------------------------------------------
Kintera Inc.(a) 400,000 3,826,000
==========================================================================
7,189,250
==========================================================================
INVESTMENT BANKING & BROKERAGE-2.79%
Jefferies Group, Inc. 110,000 4,414,300
- --------------------------------------------------------------------------
Raymond James Financial, Inc. 235,000 6,133,500
==========================================================================
10,547,800
==========================================================================
IT CONSULTING & OTHER SERVICES-1.56%
Forrester Research, Inc.(a) 150,000 2,313,750
- --------------------------------------------------------------------------
Gartner, Inc.-Class A(a) 300,000 3,570,000
==========================================================================
5,883,750
==========================================================================
LEISURE FACILITIES-1.49%
Speedway Motorsports, Inc. 170,000 5,627,000
==========================================================================
LEISURE PRODUCTS-0.58%
SCP Pool Corp. 75,000 2,189,250
==========================================================================
OIL & GAS DRILLING-0.97%
Patterson-UTI Energy, Inc. 190,000 3,653,700
==========================================================================
OIL & GAS EQUIPMENT & SERVICES-1.20%
FMC Technologies, Inc.(a) 66,700 2,016,341
- --------------------------------------------------------------------------
National-Oilwell, Inc.(a) 75,000 2,528,250
==========================================================================
4,544,591
==========================================================================
OIL & GAS EXPLORATION & PRODUCTION-1.84%
Quicksilver Resources Inc.(a) 85,000 2,688,550
- --------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
OIL & GAS EXPLORATION & PRODUCTION-(CONTINUED)
Ultra Petroleum Corp. (Canada)(a) 88,000 $ 4,276,800
==========================================================================
6,965,350
==========================================================================
PHARMACEUTICALS-6.84%
Axcan Pharma Inc. (Canada)(a) 135,000 2,042,550
- --------------------------------------------------------------------------
Bone Care International, Inc.(a) 76,302 1,752,275
- --------------------------------------------------------------------------
Corcept Therapeutics Inc.(a) 300,000 2,062,500
- --------------------------------------------------------------------------
Impax Laboratories, Inc.(a) 185,000 2,730,600
- --------------------------------------------------------------------------
IVAX Corp.(a) 118,000 2,135,800
- --------------------------------------------------------------------------
Medicis Pharmaceutical Corp.-Class A 350,000 14,234,500
- --------------------------------------------------------------------------
Valeant Pharmaceuticals International 39,000 936,000
==========================================================================
25,894,225
==========================================================================
PUBLISHING-2.34%
Getty Images, Inc.(a) 150,000 8,869,500
==========================================================================
REAL ESTATE-1.17%
Acadia Realty Trust 100,000 1,540,000
- --------------------------------------------------------------------------
Realty Income Corp. 60,000 2,879,400
==========================================================================
4,419,400
==========================================================================
REGIONAL BANKS-2.86%
Cullen/Frost Bankers, Inc. 125,000 6,125,000
- --------------------------------------------------------------------------
Southwest Bancorp. of Texas, Inc. 100,000 2,344,000
- --------------------------------------------------------------------------
Sterling Bancshares, Inc. 167,000 2,366,390
==========================================================================
10,835,390
==========================================================================
RESTAURANTS-2.47%
Panera Bread Co.-Class A(a) 85,000 2,969,050
- --------------------------------------------------------------------------
Sonic Corp.(a) 150,000 4,084,500
- --------------------------------------------------------------------------
Texas Roadhouse, Inc.-Class A(a) 100,000 2,302,000
==========================================================================
9,355,550
==========================================================================
SEMICONDUCTOR EQUIPMENT-0.84%
MKS Instruments, Inc.(a) 200,000 3,164,000
==========================================================================
SPECIALTY STORES-5.03%
America's Car-Mart, Inc.(a) 50,000 1,726,500
- --------------------------------------------------------------------------
Bombay Co., Inc. (The)(a) 550,000 3,080,000
- --------------------------------------------------------------------------
CSK Auto Corp.(a) 150,000 2,196,000
- --------------------------------------------------------------------------
Guitar Center, Inc.(a) 50,000 2,231,500
- --------------------------------------------------------------------------
PETCO Animal Supplies, Inc.(a) 100,000 3,577,000
- --------------------------------------------------------------------------
United Auto Group, Inc. 230,000 6,210,000
==========================================================================
19,021,000
==========================================================================
TECHNOLOGY DISTRIBUTORS-1.02%
Anixter International Inc. 100,000 3,864,000
==========================================================================
TRUCKING-1.91%
Landstar System, Inc.(a) 60,000 4,076,400
- --------------------------------------------------------------------------
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
TRUCKING-(CONTINUED)
Old Dominion Freight Line, Inc.(a) 112,500 $ 3,152,813
==========================================================================
7,229,213
==========================================================================
WIRELESS TELECOMMUNICATION SERVICES-2.36%
SpectraSite, Inc.(a) 75,000 3,847,500
- --------------------------------------------------------------------------
Western Wireless Corp.-Class A(a) 175,000 5,099,500
==========================================================================
8,947,000
==========================================================================
Total Common Stocks & Other Equity
Interests (Cost $254,957,721) 304,181,621
==========================================================================
<Caption>
PRINCIPAL
AMOUNT
U.S. TREASURY BILLS-0.92%
1.57%, 12/16/04 (Cost $3,492,902)(c) $3,500,000(d) 3,492,902
==========================================================================
<Caption>
SHARES
MONEY MARKET FUNDS-17.34%
Liquid Assets Portfolio-Institutional
Class(e) 32,797,943 32,797,943
- --------------------------------------------------------------------------
</Table>
<Table>
<Caption>
SHARES
STIC Prime Portfolio-Institutional Class(e) 32,797,943 $ 32,797,943
==========================================================================
Total Money Market Funds (Cost
$65,595,886) 65,595,886
==========================================================================
TOTAL INVESTMENTS-98.67% (Cost $324,046,509) 373,270,409
==========================================================================
OTHER ASSETS LESS LIABILITIES-1.33% 5,040,014
==========================================================================
NET ASSETS-100.00% $378,310,423
__________________________________________________________________________
==========================================================================
<Caption>
SHARES
SOLD MARKET
SHORT VALUE
- --------------------------------------------------------------------------
SECURITIES SOLD SHORT-1.74%(F)
COMMON STOCKS-1.74%
COMPUTER STORAGE & PERIPHERALS-0.21%
Network Appliance, Inc. 33,300 $ 814,851
==========================================================================
OIL & GAS EQUIPMENT & SERVICES-0.81%
Tidewater Inc. 98,600 3,049,698
==========================================================================
RESTAURANTS-0.72%
Landry's Restaurants, Inc. 100,000 2,708,000
==========================================================================
Total Common Stock Securities Sold Short
(Total Proceeds $6,100,054) $ 6,572,549
__________________________________________________________________________
==========================================================================
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) A portion of this security is subject to call options written. See Note 1G
and Note 8.
(c) Security traded on a discount basis. Unless otherwise indicated, the
interest rate shown represents the discount rate at the time of purchase by
the Fund.
(d) A portion of the principal balance was pledged as collateral to cover margin
requirements for open futures contracts. See Note 1I and Note 9.
(e) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(f) Collateral on short sales was segregated by the Fund in the amount of
$16,609,670 which represents 2.53% of market value of securities sold short.
See accompanying notes which are an integral part of the financial statements.
F-3
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$258,450,623) $307,674,523
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $65,595,886) 65,595,886
===========================================================
Total investments (cost $324,046,509) 373,270,409
===========================================================
Receivables for:
Deposits with brokers for securities sold
short 9,126,886
- -----------------------------------------------------------
Investments sold 6,399,217
- -----------------------------------------------------------
Fund shares sold 356,826
- -----------------------------------------------------------
Dividends and interest 162,258
- -----------------------------------------------------------
Short stock rebates 13,336
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 42,873
- -----------------------------------------------------------
Other assets 56,765
===========================================================
Total assets 389,428,570
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 1,422,214
- -----------------------------------------------------------
Fund shares reacquired 2,457,869
- -----------------------------------------------------------
Options written, at market value (premiums
received $133,119) 256,250
- -----------------------------------------------------------
Trustee deferred compensation and
retirement plans 58,007
- -----------------------------------------------------------
Variation margin 36,250
- -----------------------------------------------------------
Short positions covered 5,231
- -----------------------------------------------------------
Securities sold short, at market value
(proceeds $6,100,054) 6,572,549
- -----------------------------------------------------------
Accrued distribution fees 192,137
- -----------------------------------------------------------
Accrued trustees' fees 1,505
- -----------------------------------------------------------
Accrued transfer agent fees 60,059
- -----------------------------------------------------------
Accrued operating expenses 56,076
===========================================================
Total liabilities 11,118,147
===========================================================
Net assets applicable to shares outstanding $378,310,423
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $343,493,124
- -----------------------------------------------------------
Undistributed net investment income (loss) (52,154)
- -----------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, futures contracts,
option contracts and securities sold short (14,765,845)
- -----------------------------------------------------------
Unrealized appreciation of investment
securities, futures contracts, option
contracts and securities sold short 49,635,298
===========================================================
$378,310,423
___________________________________________________________
===========================================================
NET ASSETS:
Class A $225,437,318
___________________________________________________________
===========================================================
Class B $123,702,832
___________________________________________________________
===========================================================
Class C $ 29,170,273
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 16,705,574
___________________________________________________________
===========================================================
Class B 9,710,704
___________________________________________________________
===========================================================
Class C 2,287,098
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 13.49
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $13.49 divided by
94.50%) $ 14.28
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 12.74
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 12.75
___________________________________________________________
===========================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF OPERATIONS
For the year ended October 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $1,734) $ 1,084,064
- --------------------------------------------------------------------------
Dividends from affiliated money market funds 439,655
- --------------------------------------------------------------------------
Interest 63,717
- --------------------------------------------------------------------------
Short stock rebates 155,066
==========================================================================
Total investment income 1,742,502
==========================================================================
EXPENSES:
Advisory fees 1,548,606
- --------------------------------------------------------------------------
Administrative services fees 118,967
- --------------------------------------------------------------------------
Custodian fees 53,673
- --------------------------------------------------------------------------
Distribution fees:
Class A 889,112
- --------------------------------------------------------------------------
Class B 1,441,773
- --------------------------------------------------------------------------
Class C 320,824
- --------------------------------------------------------------------------
Interest and line of credit 170,212
- --------------------------------------------------------------------------
Transfer agent fees 645,328
- --------------------------------------------------------------------------
Trustees' fees and retirement benefits 20,349
- --------------------------------------------------------------------------
Dividends on short sales 118,677
- --------------------------------------------------------------------------
Other 234,493
==========================================================================
Total expenses 5,562,014
==========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (63,859)
==========================================================================
Net expenses 5,498,155
==========================================================================
Net investment income (loss) (3,755,653)
==========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FUTURES CONTRACTS, OPTION CONTRACTS AND
SECURITIES SOLD SHORT:
Net realized gain (loss) from:
Investment securities 6,550,623
- --------------------------------------------------------------------------
Futures contracts 7,062,101
- --------------------------------------------------------------------------
Option contracts written 1,634,692
- --------------------------------------------------------------------------
Securities sold short (290,801)
==========================================================================
14,956,615
==========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (11,217,004)
- --------------------------------------------------------------------------
Futures contracts (851,712)
- --------------------------------------------------------------------------
Option contracts written (195,327)
- --------------------------------------------------------------------------
Securities sold short 62,358
==========================================================================
(12,201,685)
==========================================================================
Net gain from investment securities, futures contracts,
option contracts and securities sold short 2,754,930
==========================================================================
Net increase (decrease) in net assets resulting from
operations $ (1,000,723)
__________________________________________________________________________
==========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-5
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (3,755,653) $ (4,538,193)
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities, futures
contracts, option contracts and securities sold short 14,956,615 14,554,650
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, futures contracts, option
contracts and securities sold short (12,201,685) 81,660,445
==========================================================================================
Net increase (decrease) in net assets resulting from
operations (1,000,723) 91,676,902
==========================================================================================
Share transactions-net:
Class A (11,676,074) 16,711,714
- ------------------------------------------------------------------------------------------
Class B (22,337,975) (15,247,443)
- ------------------------------------------------------------------------------------------
Class C 2,757,536 3,936,587
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (31,256,513) 5,400,858
==========================================================================================
Net increase (decrease) in net assets (32,257,236) 97,077,760
==========================================================================================
NET ASSETS:
Beginning of year 410,567,659 313,489,899
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(52,154) and $(44,970), respectively) $378,310,423 $410,567,659
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-6
NOTES TO FINANCIAL STATEMENTS
October 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Opportunities I Fund (the "Fund") is a series portfolio of AIM Special
Opportunities Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of three
separate portfolios, each authorized to issue an unlimited number of shares of
beneficial interest. The Fund currently offers multiple classes of shares.
Matters affecting each portfolio or class will be voted on exclusively by the
shareholders of such portfolio or class. The assets, liabilities and operations
of each portfolio are accounted for separately. Information presented in these
financial statements pertains only to the Fund.
The Fund's investment objective is long-term growth of capital. Each company
listed in the Schedule of Investments is organized in the United States of
America unless otherwise noted.
Under the Trust's organizational documents, the Fund's officers, trustees,
employees and agents are indemnified against certain liabilities that may arise
out of performance of their duties to the Fund. Additionally, in the normal
course of business, the Fund enters into contracts that contain a variety of
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, the Fund has not had prior claims or losses
pursuant to these contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
is valued on the basis of prices furnished by independent pricing services
or market makers. Each security reported on the NASDAQ National Market
System is valued at the NASDAQ Official Closing Price ("NOCP") as of the
close of the customary trading session on the valuation date or absent a
NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of
F-7
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 and short stock rebate income are recorded on the
accrual basis. Dividend income and dividend expense on short sales are
recorded on the ex-dividend date. Premiums and discounts are amortized
and/or accreted for financial reporting purposes.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
F. SECURITIES SOLD SHORT -- The Fund may enter into short sales of securities
which it concurrently holds (against the box) or for which it holds no
corresponding position (naked). Securities sold short represent a liability
of the Fund to acquire specific securities at prevailing market prices at a
future date in order to satisfy the obligation to deliver the securities
sold. The liability is recorded on the books of the Fund at the market
value of the common stock determined each day in accordance with the
procedures for security valuations disclosed in "A" above. The Fund will
incur a loss if the price of the security increases between the date of the
short sale and the date on which the Fund replaces the borrowed security.
The Fund realizes a gain if the price of the security declines between
those dates.
The Fund is required to segregate cash or securities as collateral in
margin accounts at a level that is equal to the obligation to the broker
who delivered such securities to the buyer on behalf of the Fund. The short
stock rebate presented in the Statement of Operations represents the net
income earned on short sale proceeds held on deposit with the broker and
margin interest earned or incurred on short sale transactions. The Fund may
also earn or incur margin interest on short sales transactions. Margin
interest is the income earned (or expense incurred) as a result of the
market value of securities sold short being less than (or greater than) the
proceeds received from the short sales.
G. CALL OPTIONS -- The Fund may write and buy call options, including
securities index options. Options written by the Fund normally will have
expiration dates between three and nine months from the date written. The
exercise price of a call option may be below, equal to, or above the
current market value of the underlying security at the time the option is
written. When the Fund writes a call option, an amount equal to the premium
received by the Fund is recorded as an asset and an equivalent liability.
The amount of the liability is subsequently "marked-to-market" to reflect
the current market value of the option written. The current market value of
a written option is the mean between the last bid and asked prices on that
day. If a written call option expires on the stipulated expiration date, or
if the Fund enters into a closing purchase transaction, the Fund realizes a
gain (or a loss if the closing purchase transaction exceeds the premium
received when the option was written) without regard to any unrealized gain
or loss on the underlying security, and the liability related to such
option is extinguished. If a written option is exercised, the Fund realizes
a gain or a loss from the sale of the underlying security and the proceeds
of the sale are increased by the premium originally received. A risk in
writing a call option is that the Fund gives up the opportunity for profit
if the market price of the security increases and the option is exercised.
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. The purchaser of a call
option has the right to acquire the security which is the subject of the
call option at any time during the option period. During the option period,
in return for the premium paid by the purchaser of the option, the Fund has
given up the opportunity for capital appreciation above the exercise price
should the market price of the underlying security increase, but has
retained the risk of loss should the price of the underlying security
decline. During the option period, the Fund may be required at any time to
deliver the underlying security against payment of the exercise price. This
obligation is terminated upon the expiration of the option period or at
such earlier time at which the Fund effects a closing purchase transaction
by purchasing (at a price which may be higher than that received when the
call option was written) a call option identical to the one originally
written.
An option on a securities index gives the holder the right to receive a
cash "exercise settlement amount" equal to the difference between the
exercise price of the option and the value of the underlying stock index on
the exercise date, multiplied by a fixed "index multiplier." A securities
index fluctuates with changes in the market values of the securities
included in the index. In the purchase of securities index options, the
principal risk is that the premium and transaction costs paid by the Fund
in purchasing an option will be lost if the changes in the level of the
index do not
F-8
exceed the cost of the option. In writing securities index options, the
principal risk is that the Fund could bear a loss on the options that would
be only partially offset (or not offset at all) by the increased value or
reduced cost of hedged securities. Moreover, in the event the Fund was
unable to close an option it had written, it might be unable to sell the
securities used as cover.
H. PUT OPTIONS -- The Fund may purchase and write put options including
securities index options. By purchasing a put option, the Fund obtains the
right (but not the obligation) to sell the option's underlying instrument
at a fixed strike price. In return for this right, the Fund pays an option
premium. The option's underlying instrument may be a security, 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 securities hedged. The Fund may write put
options to earn additional income in the form of option premiums if it
expects the price of the underlying securities 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. A risk in buying an option
is that the Fund pays a premium whether or not the option is exercised. In
addition, there can be no assurance that a liquid secondary market will
exist for any option purchased or sold.
I. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. If the Fund were unable
to liquidate a futures contract and/or enter into an offsetting closing
transaction, the Fund would continue to be subject to market risk with
respect to the value of the contracts and continue to be required to
maintain the margin deposits on the futures contracts.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays a base management fee calculated at the annual rate of 1.00% of
the Fund's average daily net assets. The base management fee will be adjusted,
on a monthly basis, (i) upward at the rate of 0.15%, on a pro rata basis, for
each percentage point the 12-month rolling investment performance of the Class A
shares exceeds the sum of 2.00% and the 12-month rolling investment record of
the Russell 2000 Index, or (ii) downward at the rate of 0.15%, on a pro rata
basis, for each percentage point the 12-month rolling investment record of the
Russell 2000 Index less 2.00% exceeds the 12-month rolling investment
performance of the Class A shares. 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 October 31, 2004, AIM waived
fees of $5,633.
For the year ended October 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $50,874 of expenses incurred
by the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended October 31, 2004, AIM was
paid $118,967 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the year ended
October 31, 2004, the Fund paid AISI $645,328. AISI may make payments to
intermediaries that provide omnibus account services, sub-accounting services
and/or networking services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A,
Class B and Class C shares (collectively the "Plans"). The Fund, pursuant to the
Plans, pays AIM Distributors compensation at the annual rate of 0.35% of the
Fund's average daily net assets of Class A shares and 1.00% of the average daily
net assets of Class B and Class C shares. Of these amounts, up to 0.25% of the
average daily net assets of the Class A, Class B or Class C shares may be paid
to furnish continuing personal shareholder services to customers who purchase
and own shares of such classes. Any amounts not paid as a service fee under the
Plans would constitute an asset-based sales charge. NASD Rules also impose a cap
on the total sales charges, including asset-based sales charges that may be paid
by any class of shares of the Fund. Pursuant to the Plans, for the year ended
October 31, 2004, the Class A, Class B and Class C shares paid $889,112,
$1,441,773 and $320,824, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the year
ended October 31, 2004, AIM Distributors advised the Fund that it retained
$131,643 in front-end sales commissions from the sale of Class A shares and
$982, $24,137 and $6,187 from Class A, Class B and Class C shares, respectively,
for CDSC imposed upon redemptions by shareholders.
F-9
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC") and approved procedures by the Board of Trustees, to
invest daily available cash balances in affiliated money market funds. The Fund
and the money market funds below have the same investment advisor and therefore,
are considered to be affiliated. The table below shows the transactions in and
earnings from investments in affiliated money market funds for the year ended
October 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $4,962,954 $162,039,821 $(134,204,832) $ -- $32,797,943 $221,418 $ --
- ---------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 4,962,954 162,039,821 (134,204,832) -- 32,797,943 218,237 --
===========================================================================================================================
Total $9,925,908 $324,079,642 $(268,409,664) $ -- $65,595,886 $439,655 $ --
___________________________________________________________________________________________________________________________
===========================================================================================================================
</Table>
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended October 31, 2004, the Fund
engaged in purchases and sales of securities of $1,368,687 and $4,580,824,
respectively.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions and (ii) custodian credits which
result from periodic overnight cash balances at the custodian. For the year
ended October 31, 2004, the Fund received credits in transfer agency fees of
$6,046 and credits in custodian fees of $1,306 under expense offset
arrangements, which resulted in a reduction of the Fund's total expenses of
$7,352.
NOTE 6--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended October 31, 2004, the Fund paid legal fees of $5,725
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
The Fund is a participant in a committed line of credit facility with a
syndicate administered by JP Morgan Chase Bank. The Fund may borrow up to the
lesser of (i) $240,000,000, or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. The funds which
are party to the line of credit are charged a commitment fee of 0.10% on the
unused balance of the committed line. During the year ended October 31, 2004,
the Fund had average borrowings for the number of days the borrowings were
outstanding, in the amount of $5,000,000 with a weighted average interest rate
of 1.78% and interest expense of $1,711.
Effective November 1, 2004, the Fund entered into a new agreement whereby
the Fund may borrow up to the lesser of (i) $225,000,000, or (ii) the limits set
by its prospectus for borrowings and the funds that are parties to the line of
credit will be charged a commitment fee of 0.09% on the unused balance of the
committed line.
F-10
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan. The Fund did not borrow or
lend under the facility during the year ended October 31, 2004.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- --------------------------------------------------------------------------------------
CALL OPTION CONTRACTS
------------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- --------------------------------------------------------------------------------------
Beginning of year 2,700 $ 180,696
- --------------------------------------------------------------------------------------
Written 36,106 4,336,630
- --------------------------------------------------------------------------------------
Closed (17,923) (3,004,732)
- --------------------------------------------------------------------------------------
Exercised (4,302) (479,109)
- --------------------------------------------------------------------------------------
Expired (14,081) (900,366)
======================================================================================
End of year 2,500 $ 133,119
______________________________________________________________________________________
======================================================================================
</Table>
<Table>
<Caption>
OPEN OPTIONS WRITTEN AT PERIOD END
- -----------------------------------------------------------------------------------------------------------------------------
OCTOBER 31,
2004
CONTRACT STRIKE NUMBER OF PREMIUMS MARKET UNREALIZED
CALLS MONTH PRICE CONTRACTS RECEIVED VALUE DEPRECIATION
- -----------------------------------------------------------------------------------------------------------------------------
VCA Antech, Inc. Dec-04 $22.5 2,500 $133,119 $256,250 $(123,131)
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</Table>
NOTE 9--FUTURES CONTRACTS
On October 31, 2004, $2,261,000 principal amount of U.S. Treasury obligations
was pledged as collateral to cover margin requirements for open futures
contracts.
<Table>
<Caption>
OPEN FUTURES CONTRACTS AT PERIOD END
- ---------------------------------------------------------------------------------------------------------------------
NO. OF MONTH/ MARKET UNREALIZED
CONTRACT CONTRACTS COMMITMENT VALUE APPRECIATION
- ---------------------------------------------------------------------------------------------------------------------
Russell 2000 Index 145 Dec-04/Long $42,376,250 $1,007,024
_____________________________________________________________________________________________________________________
=====================================================================================================================
</Table>
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 October 31, 2004 and 2003.
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- --------------------------------------------------------------------------
Unrealized appreciation -- investments $ 46,037,331
- --------------------------------------------------------------------------
Temporary book/tax differences (52,154)
- --------------------------------------------------------------------------
Capital loss carryforward (11,167,878)
- --------------------------------------------------------------------------
Shares of beneficial interest 343,493,124
==========================================================================
Total net assets $378,310,423
__________________________________________________________________________
==========================================================================
</Table>
F-11
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 deferral of losses on certain short sales and the tax
recognition of unrealized gains and losses on certain future contracts. The
tax-basis unrealized appreciation (depreciation) on investments amount includes
appreciation (depreciation) on option contracts written of $(123,131).
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund utilized $17,534,096 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of October 31, 2004 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- ---------------------------------------------------------------------------
October 31, 2010 $11,167,878
___________________________________________________________________________
===========================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 11--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
October 31, 2004 was $484,801,295 and $583,758,364, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 59,374,425
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of:
Investment securities (12,736,237)
- ------------------------------------------------------------------------------
Securities sold short (477,726)
==============================================================================
Net unrealized appreciation of investment securities $ 46,160,462
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $326,632,221.
Proceeds from securities sold short for tax purposes are $6,094,823.
</Table>
NOTE 12--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of excise tax expense,
certain payments received on securities sold short and net operating losses, on
October 31, 2004, undistributed net investment income (loss) was increased by
$3,748,469, undistributed net realized gain (loss) decreased by $2,051 and
shares of beneficial interest decreased by $3,746,418. This reclassification had
no effect on the net assets of the Fund.
F-12
NOTE 13--SHARE INFORMATION
The Fund currently offers three different classes of shares: Class A shares,
Class B shares and Class C shares. Class A shares are sold with a front-end
sales charge. Class B shares and Class C shares are sold with CDSC. Under
certain circumstances, Class A shares are subject to CDSC. Generally, Class B
shares will automatically convert to Class A shares eight years after the end of
the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(a)
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
2004 2003
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 7,027,630 $ 99,332,700 10,039,678 $ 120,428,839
- ------------------------------------------------------------------------------------------------------------------------
Class B 1,730,073 23,139,764 1,688,285 18,864,088
- ------------------------------------------------------------------------------------------------------------------------
Class C 1,194,215 16,091,971 1,067,705 11,501,223
========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 182,735 2,548,207 178,721 1,979,010
- ------------------------------------------------------------------------------------------------------------------------
Class B (192,996) (2,548,207) (187,530) (1,979,010)
========================================================================================================================
Reacquired:
Class A (8,297,631) (113,556,981) (9,286,094) (105,696,135)
- ------------------------------------------------------------------------------------------------------------------------
Class B (3,302,379) (42,929,532) (3,070,346) (32,132,521)
- ------------------------------------------------------------------------------------------------------------------------
Class C (1,025,136) (13,334,435) (726,714) (7,564,636)
========================================================================================================================
(2,683,489) $ (31,256,513) (296,295) $ 5,400,858
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and owns 10% of the outstanding shares of the
Fund. AIM Distributors has an agreement with this entity to sell Fund
shares. The Fund, AIM and/or AIM affiliates may make payments to this
entity, which is considered to be related to the Fund, for providing
services to the Fund, AIM/or AIM affiliates including but not limited to
services such as, securities brokerage, distribution, third party record
keeping and account servicing. The Trust has no knowledge as to whether all
or any portion of the shares owned of record by this shareholder is also
owned beneficially.
F-13
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
------------------------------------------------------------------------------------
THREE MONTHS YEAR
YEAR ENDED OCTOBER 31, ENDED ENDED
----------------------------------------------------- OCTOBER 31, JULY 31,
2004 2003 2002 2001 2000 2000
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 13.37 $ 10.10 $ 12.49 $ 26.05 $ 25.79 $ 14.86
- --------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) (0.08)(a) (0.12)(a) (0.04)(b) 0.05 0.03 (0.14)(a)
- --------------------------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both realized
and unrealized) 0.20 3.39 (2.35) (3.51) 0.23 11.97
====================================================================================================================
Total from investment
operations 0.12 3.27 (2.39) (3.46) 0.26 11.83
====================================================================================================================
Less distributions:
Dividends from net
investment income -- -- -- (0.01) -- --
- --------------------------------------------------------------------------------------------------------------------
Distributions from net
realized gains -- -- -- (10.09) -- (0.90)
====================================================================================================================
Total distributions -- -- -- (10.10) -- (0.90)
====================================================================================================================
Net asset value, end of period $ 13.49 $ 13.37 $ 10.10 $ 12.49 $ 26.05 $ 25.79
____________________________________________________________________________________________________________________
====================================================================================================================
Total return(c) 0.90% 32.38% (19.14)% (18.27)% 1.01% 81.64%
____________________________________________________________________________________________________________________
====================================================================================================================
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $225,437 $237,846 $170,276 $267,260 $442,913 $449,044
____________________________________________________________________________________________________________________
====================================================================================================================
Ratio of expenses to average
net assets (including
interest expense and
dividends on short sales
expense):
With fee waivers and/or
expense reimbursements 1.01%(d) 1.40% 0.78% 1.15% 1.50%(e) 1.73%
- --------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or
expense reimbursements 1.02%(d) 1.40% 0.88% 1.25% 1.60%(e) 1.81%
====================================================================================================================
Ratio of expenses to average
net assets (excluding
interest expense and
dividends on short sales
expense):
With fee waivers and/or
expense reimbursements 0.94%(d) 1.29% 0.72% 1.13% 1.41%(e) 1.47%
- --------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or
expense reimbursements 0.95%(d) 1.29% 0.82% 1.23% 1.51%(e) 1.55%
====================================================================================================================
Ratio of interest expense and
dividends on short sales
expense to average net
assets 0.07%(d)(f) 0.11% 0.06% 0.02% 0.09%(e) 0.26%
====================================================================================================================
Ratio of net investment income
(loss) to average net assets (0.61)%(d) (1.09)% (0.30)%(b) 0.30% 0.39%(e) (0.63)%
____________________________________________________________________________________________________________________
====================================================================================================================
Portfolio turnover rate(g) 127% 223% 225% 250% 52% 198%
____________________________________________________________________________________________________________________
====================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective November 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share and the
ratio of net investment income to average net assets would have remained
the same. In accordance with the AICPA Audit and Accounting Guide for
Investment Companies, per share and ratios for periods prior to November
1, 2001, have not been restated to reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholders transactions. Does not include sales charges and is not
annualized for periods less than one year.
(d) Ratios are based on average daily net assets of $254,032,089.
(e) Annualized.
(f) Ratio includes interest expense and fees on the committed line of
credit.
(g) Not annualized for periods less than one year.
F-14
NOTE 14--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
---------------------------------------------------------------------------------------
THREE MONTHS YEAR
YEAR ENDED OCTOBER 31, ENDED ENDED
-------------------------------------------------------- OCTOBER 31, JULY 31,
2004 2003 2002 2001 2000 2000
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 12.70 $ 9.66 $ 12.03 $ 25.61 $ 25.41 $ 14.75
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.17)(a) (0.18)(a) (0.14)(b) (0.07) (0.02) (0.30)(a)
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 0.21 3.22 (2.23) (3.42) 0.22 11.86
============================================================================================================================
Total from investment
operations 0.04 3.04 (2.37) (3.49) 0.20 11.56
============================================================================================================================
Less distributions from net
realized gains -- -- -- (10.09) -- (0.90)
============================================================================================================================
Net asset value, end of period $ 12.74 $ 12.70 $ 9.66 $ 12.03 $ 25.61 $ 25.41
____________________________________________________________________________________________________________________________
============================================================================================================================
Total return(c) 0.31% 31.47% (19.70)% (18.93)% 0.79% 80.38%
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $123,703 $145,779 $126,022 $208,563 $325,957 $326,571
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratio of expenses to average net
assets (including interest
expense and dividends on short
sales expense) 1.66%(d)(e) 2.05% 1.53% 1.91% 2.27%(f) 2.48%
============================================================================================================================
Ratio of expenses to average net
assets (excluding interest
expense and dividends on short
sales expense) 1.59%(d)(g) 1.94% 1.47% 1.89% 2.18%(f) 2.22%
============================================================================================================================
Ratio of interest expense and
dividends on short sales expense
to average net assets 0.07%(d)(h) 0.11% 0.06% 0.02% 0.09%(f) 0.26%
============================================================================================================================
Ratio of net investment income
(loss) to average net assets (1.26)%(d) (1.74)% (1.05)%(b) (0.46)% (0.37)%(f) (1.38)%
____________________________________________________________________________________________________________________________
============================================================================================================================
Portfolio turnover rate(i) 127% 223% 225% 250% 52% 198%
____________________________________________________________________________________________________________________________
============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective November 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share and the
ratio of net investment income to average net assets would have remained
the same. In accordance with the AICPA Audit and Accounting Guide for
Investment Companies, per share and ratios for periods prior to November
1, 2001, have not been restated to reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholders transactions. Does not include sales charges and is not
annualized for periods less than one year.
(d) Ratios are based on average daily net assets of $144,177,236.
(e) After fee waivers and/or expense reimbursements. Ratio to expenses to
average net assets (including interest expense and dividends on short
sales expense) prior to fee waivers and/or expense reimbursements was
1.67%.
(f) Annualized.
(g) After fee waivers and/or expense reimbursements. Ratio to expenses to
average net assets (excluding interest expense and dividends on short
sales expense) prior to fee waivers and/or expense reimbursements was
1.60%.
(h) Ratio includes interest expense and fees on the committed line of
credit.
(i) Not annualized for periods less than one year.
F-15
NOTE 14--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
----------------------------------------------------------------------------------
THREE MONTHS YEAR
YEAR ENDED OCTOBER 31, ENDED ENDED
--------------------------------------------------- OCTOBER 31, JULY 31,
2004 2003 2002 2001 2000 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.72 $ 9.67 $ 12.05 $ 25.63 $ 25.43 $ 14.78
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.17)(a) (0.19)(a) (0.14)(b) (0.07) (0.02) (0.32)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.20 3.24 (2.24) (3.42) 0.22 11.87
=================================================================================================================================
Total from investment operations 0.03 3.05 (2.38) (3.49) 0.20 11.55
=================================================================================================================================
Less distributions from net realized gains -- -- -- (10.09) -- (0.90)
=================================================================================================================================
Net asset value, end of period $ 12.75 $ 12.72 $ 9.67 $ 12.05 $ 25.63 $ 25.43
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 0.24% 31.54% (19.75)% (18.91)% 0.79% 80.15%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $29,170 $26,942 $17,192 $26,637 $46,111 $44,557
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets
(including interest expense and dividends
on short sales expense) 1.66%(d)(e) 2.05% 1.53% 1.91% 2.27%(f) 2.48%
=================================================================================================================================
Ratio of expenses to average net assets
(excluding interest expense and dividends
on short sales expense) 1.59%(d)(g) 1.94% 1.47% 1.89% 2.18%(f) 2.22%
=================================================================================================================================
Ratio of interest expense and dividends on
short sales expense to average net assets 0.07%(d)(h) 0.11% 0.06% 0.02% 0.09%(f) 0.26%
=================================================================================================================================
Ratio of net investment income (loss) to
average net assets (1.26)%(d) (1.74)% (1.05)%(b) (0.46)% (0.37)%(f) (1.38)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(i) 127% 223% 225% 250% 52% 198%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective November 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share and the
ratio of net investment income to average net assets would have remained
the same. In accordance with the AICPA Audit and Accounting Guide for
Investment Companies, per share and ratios for periods prior to November
1, 2001, have not been restated to reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholders transactions. Does not include sales charges and is not
annualized for periods less than one year.
(d) Ratios are based on average daily net assets of $32,082,425.
(e) After fee waivers and/or expense reimbursements. Ratio to expenses to
average net assets (including interest expense and dividends on short
sales expense) prior to fee waivers and/or expense reimbursements was
1.67%.
(f) Annualized.
(g) After fee waivers and/or expense reimbursements. Ratio to expenses to
average net assets (excluding interest expense and dividends on short
sales expense) prior to fee waivers and/or expense reimbursements was
1.60%.
(h) Ratio includes interest expense and fees on the committed line of
credit.
(i) 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.
The mutual fund industry as a whole is currently subject to regulatory inquiries
and litigation related to a wide range of issues. These issues include, among
others, market timing activity, late trading, fair value pricing, excessive or
improper advisory and/or distribution fees, mutual fund sales practices,
including revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies, contractual plans, issues
related to Section 529 college savings plans and procedures for locating lost
securityholders.
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to certain AIM Funds, A I M Advisors, Inc. ("AIM"), the
Fund's investment advisor, and A I M Distributors, Inc. ("ADI"), the distributor
of the retail AIM Funds and a wholly owned subsidiary of AIM, reached final
settlements with the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG"), the Colorado Attorney General ("COAG"), the Colorado
Division of Securities ("CODS") and the Secretary of State of the State of
Georgia to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG.
In addition, as described more fully below, IFG and AIM are the subject of a
number of ongoing regulatory inquiries and civil lawsuits related to one or more
of the issues currently being scrutinized by various Federal and state
regulators, including but not limited to those issues described above.
Additional regulatory actions and/or civil lawsuits related to the above or
other issues may be filed against the AIM Funds, IFG, AIM and/or related
entities
F-16
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
and individuals in the future. Additional regulatory inquiries related to the
above or other issues also may be received by the AIM Funds, IFG, AIM and/or
related entities and individuals in the future.
As a result of the matters discussed below, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and
AIM, announced that final settlements had been reached with the SEC, the NYAG,
the COAG and the Secretary of State of Georgia to resolve civil enforcement
actions and investigations related to market timing activity and related issues
in the AIM Funds, including those formerly advised by IFG. A final settlement
also has been reached with the Colorado Division of Securities ("CODS") with
respect to this matter. In their enforcement actions and investigations, these
regulators alleged, in substance, that IFG and AIM failed to disclose in the
prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that IFG and AIM had entered into certain
arrangements permitting market timing of such Funds, thereby breaching their
fiduciary duties to such Funds. As a result of the foregoing, the regulators
alleged that IFG, AIM and ADI breached various Federal and state securities,
business and consumer protection laws. Under the terms of the settlements, IFG,
AIM and ADI consent to the entry of settlement orders or assurances of
discontinuance, as applicable, by the regulators containing certain terms, some
of which are described below, without admitting or denying any wrongdoing.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of the $325 million total
payment, half will be paid on or before December 31, 2004 and the remaining half
will be paid on or before December 31, 2005. AIM and ADI agreed to pay a total
of $50 million, of which $30 million is civil penalties. The entire $50 million
payment by AIM and ADI has been paid.
The entire $325 million IFG settlement payment will be available for
distribution to the shareholders of those AIM Funds that IFG formerly advised
that were harmed by market timing activity, and the entire $50 million
settlement payment by AIM and ADI will be available for distribution to the
shareholders of those AIM Funds advised by AIM that were harmed by market timing
activity, all as to be determined by an independent distribution consultant to
be appointed under the settlements. The settlement payments will be distributed
in accordance with a methodology to be determined by the independent
distribution consultant, in consultation with AIM and the independent trustees
of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on the AIM Funds by $15 million per year for the next five
years, based upon effective fee rates and assets under management as of July 1,
2004, and not to increase certain management fees. IFG will also pay $1.5
million to the COAG to be used for investor education purposes and to reimburse
the COAG for actual costs. Finally, IFG and AIM will pay $175,000 to the
Secretary of State of Georgia to be used for investor education purposes and to
reimburse the Secretary of State for actual costs.
None of the costs of the settlements will be borne by the AIM Funds or by
Fund shareholders.
Under the terms of the settlements, AIM will make certain governance
reforms, including maintaining an internal controls committee and retaining an
independent compliance consultant, a corporate ombudsman and, as stated above,
an independent distribution consultant. Also, commencing in 2007 and at least
once every other year thereafter, AIM will undergo a compliance review by an
independent third party.
In addition, under the terms of the settlements, AIM has undertaken to cause
the AIM Funds to operate in accordance with certain governance policies and
practices, including retaining a full-time independent senior officer whose
duties will include monitoring compliance and managing the process by which
proposed management fees to be charged the AIM Funds are negotiated. Also,
commencing in 2008 and not less than every fifth calendar year thereafter, the
AIM Funds will hold shareholder meetings at which their Boards of Trustees will
be elected.
On October 8, 2004, the SEC announced that it had settled a market timing
enforcement action against Raymond R. Cunningham, the former president and chief
executive officer of IFG and a former member of the board of directors of the
AIM Funds formerly advised by IFG. As part of the settlement, the SEC ordered
Mr. Cunningham to pay $1 in restitution and civil penalties in the amount of
$500,000. In addition, the SEC prohibited Mr. Cunningham from associating with
an investment advisor, broker, dealer or investment company for a period of two
years and further prohibited him from serving as an officer or director of an
investment advisor, broker, dealer or investment company for a period of five
years.
On August 31, 2004, the SEC announced that it had settled market timing
enforcement actions against Timothy J. Miller, the former chief investment
officer and a former portfolio manager for IFG, Thomas A. Kolbe, the former
national sales manager of IFG, and Michael D. Legoski, a former assistant vice
president in IFG's sales department. As part of the settlements, the SEC ordered
Messrs. Miller, Kolbe and Legoski to pay $1 in restitution each and civil
penalties in the amounts of $150,000, $150,000 and $40,000, respectively. In
addition, the SEC prohibited each of them from associating with an investment
advisor or investment company for a period of one year, prohibited Messrs.
Miller and Kolbe from serving as an officer or director of an investment advisor
or investment company for three years and two years, respectively, and
prohibited Mr. Legoski from associating with a broker or dealer for a period of
one year.
As referenced by the SEC in the SEC's settlement order, one former officer
of ADI and one current officer of AIM (who has taken a voluntary leave of
absence) have received regulatory inquiries in the form of subpoenas or other
oral or written requests for information and/or documents related to market
timing activity in the AIM Funds.
At the request of the trustees of the AIM Funds, AMVESCAP has agreed to pay
all of the expenses incurred by such Funds related to the market timing
investigations, including expenses incurred in connection with the regulatory
complaints against IFG alleging market timing and the market timing
investigations with respect to IFG and AIM.
The payments made in connection with the above-referenced settlements by
IFG, AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on the AIM Funds by $15 million per year for
the next five years, based upon effective fee rates and assets
F-17
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
under management as of July 1, 2004). The manner in which the settlement
payments will be distributed is unknown at the present time and will be
determined by an independent distribution consultant to be appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement amounts may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the ongoing matters described below may
have on AIM, ADI or the Fund.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the New York Stock Exchange, the United States
Attorney's Office for the Southern District of New York, the United States
Attorney's Office for the Central District of California, the United States
Attorney's Office for the District of Massachusetts, the Massachusetts
Securities Division and the U.S. Postal Inspection Service, some of which
concern one or more AIM Funds. AIM is providing full cooperation with respect to
these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, A I M Management Group Inc. ("AIM
Management"), AMVESCAP, certain related entities, certain of their current and
former officers and/or certain unrelated third parties) making allegations that
are similar in many respects to those in the settled regulatory actions brought
by the SEC, the NYAG and the COAG concerning market timing activity in the AIM
Funds. These lawsuits allege a variety of theories of recovery, including but
not limited to: (i) violation of various provisions of the Federal and state
securities laws; (ii) violation of various provisions of ERISA; (iii) breach of
fiduciary duty; and/or (iv) breach of contract. These lawsuits were initiated in
both Federal and state courts and seek such remedies as compensatory damages;
restitution; injunctive relief; disgorgement of management fees; imposition of a
constructive trust; removal of certain directors and/or employees; various
corrective measures under ERISA; rescission of certain Funds' advisory
agreements; interest; and attorneys' and experts' fees.
All lawsuits based on allegations of market timing, late trading, and
related issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act purportedly
brought on behalf of participants in AMVESCAP's 401(k) plan. Plaintiffs in one
of the underlying lawsuits transferred to the MDL Court continue to seek remand
of their action to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc., ADI and/or INVESCO
Distributors, Inc.) alleging that the defendants charged excessive advisory
and/or distribution fees and failed to pass on to shareholders the perceived
savings generated by economies of scale. Certain of these lawsuits also allege
F-18
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
that the defendants adopted unlawful distribution plans. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
various provisions of the Federal securities laws; (ii) breach of fiduciary
duty; and/or (iii) breach of contract. These lawsuits have been filed in Federal
courts and seek such remedies as damages; injunctive relief; rescission of
certain Funds' advisory agreements and distribution plans; interest; prospective
relief in the form of reduced fees; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Closed
Funds or Share Classes
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, ADI and/or certain of the trustees of the AIM Funds)
alleging that the defendants breached their fiduciary duties by charging
distribution fees while funds and/or specific share classes were closed
generally to new investors and/or while other share classes of the same fund
were not charged the same distribution fees. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal securities laws; and (ii) breach of fiduciary duty.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. and/or
certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
F-19
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of AIM Opportunities I Fund
And Board of Trustees of AIM Special Opportunities Funds:
We have audited the accompanying statement of assets and liabilities of AIM
Opportunities I Fund (a portfolio of AIM Special Opportunities Funds), including
the schedule of investments, as of October 31, 2004, and the related statement
of operations for the year then ended, the statements of changes in net assets
for each of the two years in the period then ended, and the financial highlights
for each of the four years in the period then ended. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial highlights for the
period ended October 31, 2000 were audited by other auditors whose report dated
December 6, 2000, expressed an unqualified opinion on those financial
highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2004, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Opportunities I Fund as of October 31, 2004, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the four years
in the period then ended, in conformity with U.S. generally accepted accounting
principles.
Houston, Texas -s- ERNST & YOUNG LLP
December 15, 2004
F-20
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of October 31, 2004
The address of each trustee and officer of AIM Special Opportunities Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1998 Director and Chairman, A I M Management Group Inc. None
Trustee and President (financial services holding company); Director and
Vice Chairman, AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a global
investment management firm)
Formerly: President and Chief Executive Officer,
A I M Management Group Inc.; Director, Chairman
and President, A I M Advisors, Inc. (registered
investment advisor); Director and Chairman, A I M
Capital Management, Inc. (registered investment
advisor), A I M Distributors, Inc. (registered
broker dealer), AIM Investment Services, Inc.,
(registered transfer agent), and Fund Management
Company (registered broker dealer); and Chief
Executive Officer, AMVESCAP PLC -- Managed
Products
- -------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive Officer, None
Trustee and Executive Vice A I M Management Group Inc. (financial services
President holding company); Director, Chairman and
President, A I M Advisors, Inc. (registered
investment advisor); Director, A I M Capital
Management, Inc. (registered investment advisor)
and A I M Distributors, Inc. (registered broker
dealer); Director and Chairman, AIM Investment
Services, Inc. (registered transfer agent), Fund
Management Company (registered broker dealer) and
INVESCO Distributors, Inc. (registered broker
dealer); and Chief Executive Officer, AMVESCAP
PLC -- AIM Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President and Chief
Executive Officer, INVESCO Funds Group, Inc.;
President and Chief Executive Officer, INVESCO
Distributors, Inc.; Chief Executive Officer,
AMVESCAP PLC -- Managed Products; Chairman and
Chief Executive Officer of NationsBanc Advisors,
Inc.; and Chairman of NationsBanc Investments,
Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 1998 Chairman, Crockett Technology Associates ACE Limited (insurance
Trustee and Chair (technology consulting company) company); and
Captaris, Inc.
(unified messaging
provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
Formerly: President and Chief Executive Officer,
AMC Cancer Research Center; and Chairman and Chief
Executive Officer, First Columbia Financial
Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc.
Trustee (registered investment
Formerly: Partner, law firm of Baker & McKenzie company)
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning & Bunch None
Trustee Ltd., (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder Insurance
Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private Cortland Trust, Inc.
Trustee business corporations, including the Boss Group (Chairman) (registered
Ltd. (private investment and management) and investment company);
Magellan Insurance Company Annuity and Life Re
(Holdings), Ltd.
Formerly: Director, President and Chief Executive (insurance company)
Officer, Volvo Group North America, Inc.; Senior
Vice President, AB Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage Corp.;
President and Chief Operating Officer,
Mercantile-Safe Deposit & Trust Co.; and
President, Mercantile Bankshares Corp.
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1998 Chief Executive Officer, Twenty First Century Administaff, and
Trustee Group, Inc. (government affairs company) and Discovery Global
Texana Timber LP (sustainable forestry company) Education Fund (non-
profit)
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
Trustees and Officers (continued)
As of October 31, 2004
The address of each trustee and officer of AIM Special Opportunities Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -----------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1998 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company)
- -----------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (California)
Formerly: Associate Justice of the
California Court of Appeals
- -----------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -----------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1998 Partner, law firm of Pennock & Cooper None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1998 Executive Vice President, Development None
Trustee and Operations, Hines Interests Limited
Partnership (real estate development
company)
- -----------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(4) -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc. (financial services holding
Chief Compliance Officer company); Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; and Vice President, AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds
- -----------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. (financial
Officer services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc.; Director, Vice President
and General Counsel, Fund Management
Company and Senior Vice President, A I M
Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC and Vice President, A I M
Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 2002 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 2004 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 1999 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior Vice
President, A I M Advisors, Inc., and
President, Director of Investments,
Chief Executive Officer and Chief
Investment Officer, A I M Capital
Management, Inc.
Formerly: Director of A I M Advisors,
Inc. and A I M Management Group Inc.,
A I M Advisors, Inc.; and Director and
Chairman, A I M Capital Management, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
(4) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Ernst & Young LLP
Suite 100 11 Greenway Plaza Inc. 5 Houston Center
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1401 McKinney
Houston, TX 77046-1173 Suite 100 Suite 1200
Houston, TX Houston, TX
77046-1173 77010-4035
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Ballard Spahr Kramer, Levin, Naftalis AIM Investment State Street Bank
Andrews & Ingersoll, & Frankel LLP Services, Inc. and Trust Company
LLP 919 Third Avenue P.O. Box 4739 225 Franklin Street
1735 Market Street New York, NY 10022-3852 Houston, TX Boston, MA
Philadelphia, PA 19103-7599 77210-4739 02110-2801
</Table>
<Table>
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE
AIM Balanced Fund* AIM Developing Markets Fund
AIM Basic Balanced Fund* AIM European Growth Fund AIM Floating Rate Fund
AIM Basic Value Fund AIM European Small Company Fund(5) AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Equity Fund(6) AIM Intermediate Government Fund
AIM Charter Fund AIM Global Growth Fund AIM Limited Maturity Treasury Fund
AIM Constellation Fund AIM Global Value Fund AIM Money Market Fund
AIM Core Stock Fund(1) AIM International Core Equity Fund(1) AIM Short Term Bond Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund(7) AIM Total Return Bond Fund
AIM Diversified Dividend Fund AIM International Growth Fund Premier U.S. Government Money Portfolio(1)
AIM Dynamics Fund(1) AIM Trimark Fund
AIM Emerging Growth Fund TAX-FREE
AIM Large Cap Basic Value Fund SECTOR EQUITY
AIM Large Cap Growth Fund AIM High Income Municipal Fund
AIM Libra Fund AIM Advantage Health Sciences Fund(1) AIM Municipal Bond Fund
AIM Mid Cap Basic Value Fund AIM Energy Fund(1) AIM Tax-Exempt Cash Fund
AIM Mid Cap Core Equity Fund(2) AIM Financial Services Fund(1) AIM Tax-Free Intermediate Fund
AIM Mid Cap Growth Fund AIM Global Health Care Fund
AIM Mid Cap Stock Fund(1) AIM Gold & Precious Metals Fund(1) AIM ALLOCATION SOLUTIONS
AIM Opportunities I Fund AIM Health Sciences Fund(1)
AIM Opportunities II Fund AIM Leisure Fund(1) AIM Aggressive Allocation Fund
AIM Opportunities III Fund AIM Multi-Sector Fund(1) AIM Conservative Allocation Fund
AIM Premier Equity Fund AIM Real Estate Fund AIM Moderate Allocation Fund
AIM S&P 500 Index Fund(1) AIM Technology Fund(1)
AIM Select Equity Fund AIM Utilities Fund(1)
AIM Small Cap Equity Fund(3)
AIM Small Cap Growth Fund(4)
AIM Small Company Growth Fund(1)
AIM Total Return Fund*(1)
AIM Trimark Endeavor Fund
AIM Trimark Small Companies Fund
AIM Weingarten Fund
</Table>
* Domestic equity and income fund
(1) The following name changes became effective October 15, 2004: INVESCO
Advantage Health Sciences Fund to AIM Advantage Health Sciences Fund, INVESCO
Core Equity Fund to AIM Core Stock Fund, INVESCO Dynamics Fund to AIM Dynamics
Fund, INVESCO Energy Fund to AIM Energy Fund, INVESCO Financial Services Fund to
AIM Financial Services Fund, INVESCO Gold & Precious Metals Fund to AIM Gold &
Precious Metals Fund, INVESCO Health Sciences Fund to AIM Health Sciences Fund,
INVESCO International Core Equity Fund to AIM International Core Equity Fund,
INVESCO Leisure Fund to AIM Leisure Fund, INVESCO Mid-Cap Growth Fund to AIM Mid
Cap Stock Fund, INVESCO Multi-Sector Fund to AIM Multi-Sector Fund, INVESCO S&P
500 Index Fund to AIM S&P 500 Index Fund, INVESCO Small Company Growth Fund to
AIM Small Company Growth Fund, INVESCO Technology Fund to AIM Technology Fund,
INVESCO Total Return Fund to AIM Total Return Fund, INVESCO U.S. Government
Money Fund to Premier U.S. Government Money Portfolio, INVESCO Utilities Fund to
AIM Utilities Fund. (2) As of the close of business on February 27, 2004, AIM
Mid Cap Core Equity Fund is available to new investors on a limited basis. For
information on who may continue to invest in AIM Mid Cap Core Equity Fund,
please contact your financial advisor. (3) Effective December 13, 2004, AIM
Small Cap Equity Fund is open to all investors. (4) AIM Small Cap Growth Fund
was closed to most investors on March 18, 2002. For information on who may
continue to invest in AIM Small Cap Growth Fund, please contact your financial
advisor. (5) AIM European Small Company Fund will close to new investors when
net assets reach $500 million. (6) Effective March 31, 2004, AIM Global Trends
Fund was renamed AIM Global Equity Fund. (7) AIM International Emerging Growth
Fund will close to new investors when net assets reach $500 million.
If used after January 20, 2005, this report must be accompanied by a fund
Performance & Commentary or by an AIM Quarterly Performance Review for the most
recent quarter-end. Mutual funds distributed by A I M Distributors, Inc.
A I M Management Group Inc. has provided leadership in the investment management
industry since 1976 and manages $132 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $363 billion in assets under management. Data as of September 30,
2004.
===============================================================================
CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
FOR THIS AND OTHER IMPORTANT INFORMATION ABOUT AIM AND INVESCO FUNDS, OBTAIN A
PROSPECTUS FROM YOUR FINANCIAL ADVISOR AND READ IT THOROUGHLY BEFORE INVESTING.
===============================================================================
AIMinvestments.com OPP1-AR-1 A I M Distributors, Inc.
<Table>
[YOUR GOALS. OUR SOLUTIONS.]--Registered Trademark--
- -------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Alternative Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Investments Management --Registered Trademark--
Plans Accounts
- -------------------------------------------------------------------------------------
</Table>
AIM OPPORTUNITIES II FUND
Annual Report to Shareholders o October 31, 2004
[COVER IMAGE]
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
<Table>
====================================================================================================================================
AIM OPPORTUNITIES II FUND SEEKS LONG-TERM GROWTH OF CAPITAL.
o Unless otherwise stated, information presented in this report is as of 10/31/04 and is based on total net assets.
====================================================================================================================================
o As discussed in a notice previously o The fund is nondiversified, which reflect sales charges. Performance of an
communicated to shareholders, the fund increases risks as well as potential index of funds reflects fund expenses;
changed its strategy and its management rewards. performance of a market index does not.
team effective November 30, 2004, after
the close of the reporting period. While o Investing in small and mid-size OTHER INFORMATION
the fund's objective continued to be companies involves risks not associated
long-term growth of capital, the fund's with investing in more established o Bloomberg, Inc. is a well-known
investment style changed from growth to companies, including business risk, independent financial research and
value. The individual members of the significant stock price fluctuations and reporting firm.
team who are primarily responsible for illiquidity.
the management of the fund's portfolio o The returns shown in the Management's
after that date are Roger J. Mortimer o The fund may participate in the Discussion of Fund Performance are based
(lead), Robert Leslie and Glen Hilton. initial public offering (IPO) market in on net asset values calculated for
some market cycles. A significant shareholder transactions. Generally
ABOUT SHARE CLASSES portion of the fund's returns during accepted accounting principles require
certain periods was attributable to its adjustments to be made to the net assets
o Effective 9/30/03, Class B shares are investments in IPOs. These investments of the fund at period end for financial
not available as an investment for have a magnified impact when the fund's reporting purposes, and as such, the net
retirement plans maintained pursuant to asset base is relatively small. As the asset values for shareholder
Section 401 of the Internal Revenue fund's assets grow, the impact of IPO transactions and the returns based on
Code, including 401(k) plans, money investments will decline, which may those net asset values may differ from
purchase pension plans and profit reduce the effect of IPO investments on the net asset values and returns
sharing plans. Plans that have existing the fund's total return. For additional reported in the Financial Highlights.
accounts invested in Class B shares will information regarding the impact of IPO
continue to be allowed to make investments on the fund's performance, o Industry classifications used in this
additional purchases. please see the fund's prospectus. report are generally according to the
Global Industry Classification Standard,
PRINCIPAL RISKS OF INVESTING IN THE FUND ABOUT INDEXES USED IN THIS REPORT which was developed by and is the
exclusive property and a service mark of
o International investing presents o The unmanaged Standard & Poor's Morgan Stanley Capital International
certain risks not associated with Composite Index of 500 Stocks (the S&P Inc. and Standard & Poor's.
investing solely in the United States. 500--Registered Trademark-- Index) is an
These include risks relating to index of common stocks frequently used The fund files its complete schedule of
fluctuations in the value of the U.S. as a general measure of U.S. stock portfolio holdings with the Securities
dollar relative to the values of other market performance. and Exchange Commission ("SEC") for the
currencies, the custody arrangements 1st and 3rd quarters of each fiscal year
made for the fund's foreign holdings, o The unmanaged Standard & Poor's MidCap on Form N-Q. The fund's Form N-Q filings
differences in accounting, political 400 Index (the S&P 400--Registered are available on the SEC's Web site at
risks and the lesser degree of public Trademark-- Index) represents the http://www.sec.gov. Copies of the fund's
information required to be provided by performance of mid-capitalization Forms N-Q may be reviewed and copied at
non-U.S. companies. The fund may invest stocks. the SEC's Public Reference Room at 450
up to 25% of its assets in the Fifth Street, N.W., Washington, D.C.
securities of non-U.S. issuers. o The unmanaged Lipper Mid-Cap Growth 20549-0102. You can obtain information
Fund Index represents an average of the on the operation of the Public Reference
o Leveraging and short-selling, along performance of the 30 largest Room, including information about
with other hedging strategies, present mid-capitalization growth funds tracked duplicating fee charges, by calling
higher risks, but also offer greater by Lipper, Inc., an independent mutual 1-202-942-8090 or by electronic request
potential rewards. Since stock prices fund performance monitor. at the following e-mail address:
can rise without limit, short sales are publicinfo@sec.gov. The SEC file numbers
riskier because of unlimited exposure to o The unmanaged MSCI World Index is a for the fund are 811-08697 and
loss until the position is covered. The group of global securities tracked by 333-47949. The fund's most recent
fund, which is not a complete investment Morgan Stanley Capital International. portfolio holdings, as filed on Form
program, may not be appropriate for all N-Q, are also available at
investors. There is no guarantee that o The fund is not managed to track the AIMinvestments.com.
the fund managers' investment strategies performance of any particular index,
will help investors attain their goals. including the indexes defined here, and A description of the policies and
Please see the prospectus for more consequently, the performance of the procedures that the fund uses to
information about specific investment fund may deviate significantly from the determine how to vote proxies relating
strategies and risks. performance of the indexes. to portfolio securities is available
without charge, upon request, from our
o A direct investment cannot be made in Client Services department at
an index. Unless otherwise indicated, 800-959-4246 or on the AIM Web site,
index results include reinvested AIMinvestments.com. On the home page,
dividends, and they do not scroll down and click on AIM Funds Proxy
Policy. The information is also
available on the Securities and Exchange
Commission's Web site, sec.gov.
Information regarding how the fund voted
proxies related to its portfolio
securities during the 12 months ended
6/30/04 is available at our Web site. Go
to AIMinvestments.com, access the About
Us tab, click on Required Notices and
then click on Proxy Voting Activity.
Next, select your fund from the
drop-down menu.
</Table>
=============================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
=============================================================================
===================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
===================================================
AIMinvestments.com
TO OUR SHAREHOLDERS
DEAR FELLOW SHAREHOLDER OF THE AIM FAMILY OF
FUNDS--Registered Trademark--:
NEW BOARD CHAIRMAN
[PHOTO OF It is our pleasure to introduce you to Bruce Crockett, the
ROBERT H. new Chairman of the Board of Trustees of the AIM Funds. Bob
GRAHAM] Graham has served as Chairman of the Board of Trustees of
the AIM Funds ever since Ted Bauer retired from that
position in 2000. However, as you may be aware, the U.S.
Securities and Exchange Commission recently adopted a rule
requiring that an independent fund trustee, meaning a
ROBERT H. GRAHAM trustee who is not an officer of the fund's investment
advisor, serve as chairman of the funds' Board. In addition,
a similar provision was included in the terms of AIM
Advisors' recent settlements with certain regulators.
Accordingly, the AIM Funds' Board recently elected Mr.
Crockett, one of the fourteen independent trustees on the
AIM Funds' Board, as Chairman. His appointment became
effective on October 4, 2004. Mr. Graham will remain on the
funds' Board, as will Mark Williamson, President and Chief
Executive Officer of AIM. Mr. Graham will also remain
Chairman of AIM Investments--Registered Trademark--.
Mr. Crockett has been a member of the AIM Funds' board
since 1992, when AIM acquired certain funds that had been
advised by CIGNA. He had been a member of the board of those
funds since 1978. Mr. Crockett has more than 30 years of
experience in finance and general management and has been
Chairman of Crockett Technologies Associates since 1996. He
is the first independent chairman of the funds' board in
[PHOTO OF AIM's history, as he is not affiliated with AIM or AMVESCAP
MARK H. in any way. He is committed to ensuring that the AIM Funds
WILLIAMSON] adhere to the highest standards of corporate governance for
the benefit of fund shareholders, and we at AIM share that
commitment.
MARKET CONDITIONS DURING THE FISCAL YEAR
Virtually every equity index, domestic and foreign, produced
MARK H. WILLIAMSON positive returns for the fiscal year ended October 31, 2004.
Domestically, the S&P 500 Index was up 9.41% for the year.
Globally, the MSCI World Index advanced more than 13%.
However, a goodly portion of this positive performance was
achieved during 2003. Year to date as of October 31, the S&P
500 Index was up just over 3%, the MSCI World Index just
about 5%. In the pages that follow, you will find a more
detailed discussion of the market conditions that affected
your fund during the fiscal year.
While it is agreeable to report positive market
performance for the year covered by this report, as ever, we
[PHOTO OF encourage our shareholders to look past short-term
BRUCE L. performance and focus on their long-term investment goals.
CROCKETT] Over the short term, the one sure thing about the investment
markets is their unpredictability. Over the long term,
equities have produced very attractive returns. For the
25-year period ended October 31, 2004, the S&P 500 Index
averaged 13.50% growth per year and the MSCI World Index
averaged 11.16%. While past performance cannot guarantee
future results, we believe staying invested for the long
BRUCE L. CROCKETT term offers the best opportunity for capital growth.
AN IMPORTANT ANNOUNCEMENT ABOUT YOUR FUND'S MANAGEMENT
Charles Scavone, who joined AIM in 1996 and has been
responsible for the fund since its inception, will retire
from the company December 31, 2004. All of us at AIM
appreciate Mr. Scavone's years of dedicated service to AIM
Investments and to the fund's shareholders. He has played an
important role in AIM's success, and we wish him the best in
his future endeavors.
The following pages of this report provide an explanation
of how your fund was managed during the fiscal year, how it
performed in comparison to various benchmarks, and a
presentation of its long-term performance. We hope you find
this information helpful. Current information about your
fund and about the markets in general is always available on
our Web site, AIMinvestments.com.
As always, AIM remains committed to building solutions
for your investment goals, and we thank you for your
continued participation in AIM Investments. If you have any
questions, please contact our Client Service representatives
at 800-959-4246.
Sincerely,
/S/ ROBERT H. GRAHAM /S/ MARK H. WILLIAMSON
-------------------------- ----------------------
Robert H. Graham Mark H. Williamson
Chairman, AIM Investments CEO & President,
President & Vice Chairman, AIM Investments
AIM Funds Trustee, AIM Funds
December 16, 2004
AIM Investments is a registered service mark of A I M
Management Group Inc. A I M Advisors, Inc. and A I M Capital
Management, Inc. are the investment advisors, and A I M
Distributors, Inc. is the distributor for the retail funds
represented by AIM Investments.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
WEAK YEAR FOR GROWTH STOCKS HAMPERS FUND
RESULTS
AIM Opportunities II Fund's Class A be a disadvantage in comparisons with YOUR FUND
shares returned 5.81% at net asset value the S&P 500 and the S&P 400 this fiscal
for the fiscal year ended October 31, year. We continued to use bottom-up selection
2004. PERFORMANCE SHOWN AT NAV DOES NOT criteria, examining the fundamentals of
INCLUDE FRONT-END SALES CHARGES, WHICH MARKET CONDITIONS individual prospective holdings, rather
WOULD HAVE REDUCED THE PERFORMANCE. than top-down considerations based on
Results for the fund's other share The U.S. economy showed signs of broad economic or sector trends.
classes and for its benchmark indexes strength during the fiscal year ended
are found in the table on page 3. The October 31, 2004. Economic news was We saw a significant change in
fund's performance was generally in line generally positive, marked by expansion expectations in the economy in April and
with that of its peers, as measured by of gross domestic product (GDP), the May of 2004 in a very short time. In
the Lipper Mid-Cap Growth Fund Index; it broadest measure of overall economic June, as the Fed abruptly reversed its
returned 6.18%. activity. While remaining positive, GDP course and began tightening credit
growth tapered off somewhat from an conditions, stocks that had been
The fund underperformed the 9.41% annualized rate of 4.2% in the fourth expected to perform well were revalued.
return of the S&P 500 Index, often cited quarter of 2003 to a more modest 3.9% in Historically, during periods when stocks
as a general measure of U.S. stock the third quarter of 2004. are reacting more to "big picture,"
market performance, as well as the macro effects such as rising oil prices
11.04% return of the S&P 400 Index, Despite this slippage, corporate and interest rates, terrorism and
which measures the performance of earnings remained strong. Bloomberg pre-election uncertainty, it has been
mid-cap stocks comparable to the fund's reported that 80% of the companies in difficult for us to find good short
holdings. The fund's growth orientation the S&P 500 Index that had reported selling opportunities. As a result, we
was part of the reason. The S&P 500 and third-quarter earnings by the close of carried a lower than usual level of
the S&P 400 also include value stocks, the fiscal year either met or exceeded short holdings during the period, and
and value stocks generally outperformed expectations; just 20% missed their net effect on fund performance was
growth stocks for the fiscal year. expectations. negative; but derivatives--especially
futures contracts--contributed
Since the beginning of 2004, we Generally positive economic significantly to net gains for the
continued to see the more economically developments prompted the U.S. Federal fiscal year.
sensitive or more cyclical sectors Reserve (the Fed) to raise its federal
(energy, utilities, and funds target rate from a decades-low As the annualized rate of economic
telecommunication services, which 1.00%, where it stood at the beginning growth slowed over the fund's fiscal
typically are not considered growth of the fiscal year, to 1.75% by the year, the information technology sector
sectors) perform the best. On the other fiscal year's close. In its anecdotal faced slowing capital spending, and many
hand, technology and health care--our report on the economy released in late tech stock values sagged. Consequently,
classic growth sectors--were the October, the Fed said economic activity our position in this sector hurt fund
worst-performing sectors. As a result, continued to expand in September and performance. In response, we focused on
the fund's focus on growth-oriented early October. the companies in which we had the most
stocks turned out to confidence and exited the rest. This
action reduced the fund's weighting in
that sector and decreased the number of
holdings in the fund.
====================================================================================================================================
PORTFOLIO COMPOSITION TOP 10 LONG HOLDINGS* SHORT HOLDINGS*
By sector; long and short holdings
1. Medicis Pharmaceutical Corp.- 1. Tidewater Inc. 0.8%
[PIE CHART] Class A 3.2%
2. Coors (Adolph) Co.-Class B 0.5
Information Technology 13.9% 2. Autoliv, Inc. 2.7
3. Network Appliance, Inc. 0.2
Financials 10.2% 3. Getty Images, Inc. 2.2
TOTAL NET ASSETS $159.4 MILLION
Industrials 6.0% 4. Comverse Technology, Inc. 1.9 TOTAL NUMBER OF LONG HOLDINGS* 84
TOTAL NUMBER OF SHORT HOLDINGS* 3
Energy 5.1% 5. XM Satellite Radio Holdings
Inc.- Class A 1.9
Telecommunication Services 3.9%
6. Pacific Sunwear of California,
Materials 1.7% Inc. 1.8
Consumer Staples 0.3% 7. National Instruments Corp. 1.7
Consumer Discretionary 20.9% 8. United Auto Group, Inc. 1.7
Health Care 17.9% 9. Norfolk Southern Corp. 1.5
Money Market Funds Plus Other 10. Crown Castle International Corp. 1.4
Assets Less Liabilities 20.1%
The fund's holdings are subject to change, and there is no assurance that the
fund will continue to hold any particular security.
*Excluding money market fund holdings.
====================================================================================================================================
</Table>
2
<Table>
On the other hand, the energy sector worked off over the next two or so BRANT H. DEMUTH
made the largest contribution to fund quarters. We exited both positions after Brant H. DeMuth, Chartered
performance during the period, driven by shares of the stocks declined due to [DEMUTH Financial Analyst, is co-
high oil prices and our stock lower guidance and PHOTO] manager of AIM Opportunities
selections. We added more energy-sector weaker-than-anticipated earnings. II Fund. He began his
stocks during the period and found the investment career in 1987
oil services industry especially IN CLOSING and joined AIM in 1996. Mr. DeMuth
interesting, as initial earnings reports received a B.S. in business
from some large players were positive. The fund continued to pursue long-term administration from Colorado State
growth of capital by holding equities of University and an M.B.A. in oil and gas
Other sectors that contributed mid-capitalization companies, which finance from the University of Denver.
positively were financials and health historically have provided returns
care. Financials helped fund results similar to those of small-cap stocks
when we took profits on some holdings with less volatility. We also continued
that had risen in price to levels where to apply alternative strategies and ROBERT C. LESLIE
we considered the stocks fully valued. techniques, such as short sales and Robert C. Leslie, Chartered
In the health care sector, favorable derivatives, which are designed to [LESLIE Financial Analyst, is co-
stock selection contributed to fund target risk-adjusted returns. PHOTO] manager of AIM Opportunities
performance. II Fund. He began his
The views and opinions expressed in investment career in 1985
Stocks that contributed to fund Management's Discussion of Fund and joined AIM in 1998. Mr. Leslie
returns during the period included air Performance are those of A I M Advisors, received a B.A. from Susquehanna
cargo firm Forward Air and XM Satellite Inc. These views and opinions are University and an M.B.A. in finance from
Radio Holdings, a provider of digital subject to change at any time based on the University of Maryland.
programming via satellite. Benefiting factors such as market and economic
from an increase in demand for its conditions. These views and opinions may
services, Forward Air experienced not be relied upon as investment advice
vigorous growth in operating revenue and or recommendations, or as an offer for a
net income. XM watched its revenue and particular security. The information is CHARLES C. SCAVONE
its stock price climb along with an not a complete analysis of every aspect Mr. Scavone, Chartered
increase in the number of subscribers. of any market, country, industry, [SCAVONE Financial Analyst, is co-
security or the fund. Statements of fact PHOTO] manager of AIM Opportunities
Holdings that hampered fund are from sources considered reliable, II Fund. He has been in the
performance included Merix Corporation, but A I M Advisors, Inc. makes no investment business since
a manufacturer of technologically representation or warranty as to their 1991 and joined AIM in 1996. Mr. Scavone
advanced printed circuit boards, and completeness or accuracy. Although received a B.B.A. from Southeastern
Fairchild Semiconductor International historical performance is no guarantee Louisiana University and an M.B.A. from
Inc., an independent semiconductor of future results, these insights may the University of Houston. Mr. Scavone
company. A slowing in market demand for help you understand our investment will retire from AIM December 31, 2004.
technology-related products led to an management philosophy.
inventory backup at a number of tech Assisted by the Opportunities Team
companies that we believe will have to See important fund and index
be disclosures inside front cover. Effective November 30, 2004, after the
close of the reporting period, the fund
changed its strategy and its management
team. While the fund's objective
continued to be long-term growth of
capital, the fund's investment style
changed from growth to value. The
individual members of the team who are
primarily responsible for the management
of the fund's portfolio after that date
are Roger J. Mortimer (lead), Robert
Leslie and Glen Hilton.
=========================================================================================
TOP 10 INDUSTRIES* FUND VS. INDEXES
Long holdings only
TOTAL RETURNS, 10/31/03-10/31/04, EXCLUDING
1. Pharmaceuticals 8.2% APPLICABLE SALES CHARGES. IF SALES CHARGES
WERE INCLUDED, RETURNS WOULD BE LOWER.
2. Broadcasting & Cable TV 5.1
CLASS A SHARES 5.81%
3. Health Care Services 4.7
CLASS B SHARES 5.20
4. Apparel Retail 4.0
CLASS C SHARES 5.20
5. Wireless Telecommunication
Services 3.9 S&P 500 INDEX (BROAD-MARKET
INDEX) 9.41
6. Specialty Stores 3.7
S&P 400 INDEX (STYLE-SPECIFIC
7. Investment Banking & Brokerage 3.4 INDEX) 11.04
8. Auto Parts & Equipment 3.1 LIPPER MID-CAP GROWTH FUND INDEX
(PEER GROUP INDEX) 6.18
9. Communications Equipment 3.1
SOURCE: LIPPER, INC.
10. Data Processing & Outsourced
Services 3.0
========================================================================================= [RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S
LONG-TERM PERFORMANCE RECORD, PLEASE
TURN TO PAGE 5.
</Table>
3
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE You may use the information in this or expenses you paid for the period. You
table, together with the amount you may use this information to compare the
As a shareholder of the fund, you incur invested, to estimate the expenses that ongoing costs of investing in the fund
two types of costs: (1) transaction you paid over the period. Simply divide and other funds. To do so, compare this
costs, which may include sales charges your account value by $1,000 (for 5% hypothetical example with the 5%
(loads) on purchase payments; contingent example, an $8,600 account value divided hypothetical examples that appear in the
deferred sales charges on redemptions; by $1,000 = 8.6), then multiply the shareholder reports of the other funds.
and redemption fees, if any; and (2) result by the number in the table under
ongoing costs, including management the heading entitled "Actual Expenses Please note that the expenses shown in
fees; distribution and/or service fees Paid During Period" to estimate the the table are meant to highlight your
(12b-1); and other fund expenses. This expenses you paid on your account during ongoing costs only and do not reflect
example is intended to help you this period. any transactional costs, such as sales
understand your ongoing costs (in charges (loads) on purchase payments,
dollars) of investing in the fund and to HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES contingent deferred sales charges on
compare these costs with ongoing costs redemptions, and redemption fees, if
of investing in other mutual funds. The The table below also provides any. Therefore, the hypothetical
example is based on an investment of information about hypothetical account information is useful in comparing
$1,000 invested at the beginning of the values and hypothetical expenses based ongoing costs only, and will not help
period and held for the entire period, on the fund's actual expense ratio and you determine the relative total costs
May 1, 2004-October 31, 2004. an assumed rate of return of 5% per year of owning different funds. In addition,
before expenses, which is not the fund's if these transactional costs were
ACTUAL EXPENSES actual return. The hypothetical account included, your costs would have been
values and expenses may not be used to higher.
The table below provides information estimate the actual ending account
about actual account values and actual balance
expenses.
</Table>
<Table>
<Caption>
===================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
VALUE VALUE PAID DURING VALUE PAID DURING
(5/01/04) (10/31/04)(1) PERIOD(2) (10/31/04) PERIOD(2)
Class A $1,000.00 $1,007.70 $5.96 $1,019.20 $5.99
Class B 1,000.00 1,005.10 9.22 1,015.94 9.27
Class C 1,000.00 1,005.10 9.22 1,015.94 9.27
(1) The actual ending account value is based on the actual total return of the fund for the period May 1,
2004, to October 31, 2004, after actual expenses and will differ from the hypothetical ending account
value which is based on the fund's expense ratio and a hypothetical annual return of 5% before expenses.
The actual cumulative return at net asset value for the period May 1, 2004 to October 31, 2004 was 0.77%,
0.51% and 0.51% for Class A, B and C shares, respectively.
(2) Expenses are equal to the fund's annualized expense ratio (1.18%, 1.83% and 1.83% for Class A, B and
C shares, respectively) multiplied by the average account value over the period, multiplied by 184/366
(to reflect the one-half year period).
===================================================================================================================================
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
</Table>
4
LONG-TERM PERFORMANCE
YOUR FUND'S LONG-TERM PERFORMANCE
<Table>
===================================================================================================================================
Past performance cannot guarantee RESULTS OF A $10,000 INVESTMENT
comparable future results.
12/30/98-10/31/04. Index results are
Your fund's total return includes from 12/31/98.
reinvested distributions, applicable
sales charges, fund expenses and [MOUNTAIN CHART]
management fees. Index results include
reinvested dividends, but they do not Date AIM Opportunities Lipper Mid-Cap S&P 500 S&P 400
reflect sales charges. Performance of an II Fund Growth Fund Index Index
index of funds reflects fund expenses Class A Shares Index
and management fees; performance of a 12/30/98 $ 9450
market index does not. Performance shown 12/98 9450 $10000 $10000 $10000
in the chart does not reflect deduction 1/99 10310 10496 10418 9611
of taxes a shareholder would pay on fund 2/99 9847 9681 10094 9107
distributions or sale of fund shares. 3/99 11255 10371 10498 9362
Performance of the indexes does not 4/99 12474 10797 10905 10100
reflect the effects of taxes. 5/99 13117 10752 10647 10144
6/99 13768 11618 11237 10687
In evaluating this chart, please note 7/99 14911 11459 10887 10460
that the chart uses a logarithmic scale 8/99 15526 11401 10833 10102
along the vertical axis (the value 9/99 16215 11734 10537 9790
scale). This means that each scale 10/99 17027 12772 11203 10289
increment always represents the same 11/99 19222 14374 11431 10829
percent change in price; in a linear 12/99 21311 17372 12103 11472
chart each scale increment always 1/00 21228 17074 11495 11149
represents the same absolute change in 2/00 27385 21352 11278 11929
price. In this example, the scale 3/00 27856 19849 12381 12928
increment between $5,000 and $10,000 is 4/00 25212 17231 12008 12476
the same as that between $10,000 and 5/00 23372 15682 11762 12321
$20,000. In a linear chart, the latter 6/00 25054 18119 12052 12502
scale increment would be twice as large. 7/00 24689 17367 11863 12699
The benefit of using a logarithmic scale 8/00 25911 19639 12600 14117
is that it better illustrates 9/00 25535 18695 11935 14020
performance during the fund's early 10/00 24302 17183 11884 13545
years before reinvested distributions 11/00 21585 13590 10948 12522
and compounding create the potential for 12/00 23467 14569 11002 13480
the original investment to grow to very 1/01 23174 14767 11392 13781
large numbers. Had the chart used a 2/01 21208 12552 10354 12994
linear scale along its vertical axis, 3/01 18992 11220 9698 12028
you would not be able to see as clearly 4/01 20225 12700 10451 13355
the movements in the value of the fund 5/01 19703 12804 10521 13666
and the indexes during the fund's early 6/01 19494 12754 10265 13611
years. We use a logarithmic scale in 7/01 18940 12084 10164 13408
financial reports of funds that have 8/01 18219 11274 9529 12970
more than five years of performance 9/01 16202 9648 8759 11356
history. 10/01 16850 10185 8926 11859
11/01 17686 11022 9611 12741
AVERAGE ANNUAL TOTAL RETURNS 12/01 18239 11500 9695 13399
As of 10/31/04, including applicable 1/02 17519 11060 9554 13329
sales charges 2/02 16463 10510 9369 13346
3/02 17383 11172 9722 14300
CLASS A SHARES 4/02 17112 10801 9133 14233
Inception (12/30/98) 11.67% 5/02 16934 10441 9066 13993
5 Years 1.10 6/02 15345 9503 8420 12969
1 Year 0.00 7/02 14092 8478 7764 11711
8/02 14113 8377 7815 11771
CLASS B SHARES 9/02 13486 7856 6966 10823
Inception (11/12/99) -0.65% 10/02 14322 8252 7579 11292
1 Year 0.20 11/02 15358 8743 8024 11945
12/02 14605 8226 7553 11455
CLASS C SHARES 1/03 14449 8104 7356 11120
Inception (11/12/99) -0.25% 2/03 13989 7979 7245 10855
1 Year 4.20 3/03 14104 8093 7315 10946
4/03 14910 8660 7918 11741
In addition to returns as of the close 5/03 15944 9377 8334 12714
of the fiscal year, industry regulations 6/03 16321 9523 8441 12876
require us to provide average annual 7/03 16750 9899 8590 13333
total returns as of 9/30/04, the most 8/03 17482 10386 8757 13938
recent calendar quarter-end. 9/03 17001 10037 8664 13725
10/03 17994 10825 9154 14762
11/03 18474 11082 9235 15277
12/03 18923 11139 9719 15534
1/04 19457 11420 9897 15871
2/04 19677 11578 10034 16252
3/04 19415 11575 9883 16321
4/04 18893 11208 9728 15785
5/04 19082 11452 9861 16113
6/04 19313 11727 10053 16480
7/04 18247 10894 9720 15711
8/04 17922 10705 9759 15670
9/04 18527 11163 9865 16134
10/04 $19039 $11493 $10016 $16392
Source: Lipper, Inc.
AVERAGE ANNUAL TOTAL RETURNS
As of 9/30/04, most recent calendar
quarter-end, including applicable sales
charges
CLASS A SHARES
Inception (12/30/98) 11.32%
5 Years 1.54
1 Year 2.96
CLASS B SHARES
Inception (11/12/99) -1.21%
1 Year 3.28
CLASS C SHARES
Inception (11/12/99) -0.80%
1 Year 7.28
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 due to different
sales charge structures and class
expenses.
</Table>
5
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
COMMON STOCKS-81.36%
AEROSPACE & DEFENSE-1.78%
Engineered Support Systems, Inc. 20,000 $ 960,800
- ------------------------------------------------------------------------
L-3 Communications Holdings, Inc. 15,000 988,950
- ------------------------------------------------------------------------
Rockwell Collins, Inc. 25,000 886,750
========================================================================
2,836,500
========================================================================
AIR FREIGHT & LOGISTICS-1.29%
Forward Air Corp.(a) 50,000 2,058,500
========================================================================
APPAREL RETAIL-3.96%
AnnTaylor Stores Corp.(a) 33,100 743,426
- ------------------------------------------------------------------------
Hot Topic, Inc.(a) 70,000 1,439,200
- ------------------------------------------------------------------------
Pacific Sunwear of California, Inc.(a) 120,000 2,812,800
- ------------------------------------------------------------------------
Ross Stores, Inc. 50,000 1,313,500
========================================================================
6,308,926
========================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.56%
Fossil, Inc.(a) 30,000 892,800
========================================================================
APPLICATION SOFTWARE-0.82%
Henry (Jack) & Associates, Inc. 70,000 1,304,800
========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-2.01%
Apollo Investment Corp. 61,500 836,400
- ------------------------------------------------------------------------
Federated Investors, Inc.-Class B 24,000 695,760
- ------------------------------------------------------------------------
Legg Mason, Inc. 26,250 1,672,387
========================================================================
3,204,547
========================================================================
AUTO PARTS & EQUIPMENT-3.13%
American Axle & Manufacturing Holdings, Inc. 25,000 717,500
- ------------------------------------------------------------------------
Autoliv, Inc. 100,000 4,275,000
========================================================================
4,992,500
========================================================================
BIOTECHNOLOGY-1.93%
Amylin Pharmaceuticals, Inc.(a) 30,000 639,000
- ------------------------------------------------------------------------
Invitrogen Corp.(a) 25,000 1,447,500
- ------------------------------------------------------------------------
MedImmune, Inc.(a) 35,000 994,700
========================================================================
3,081,200
========================================================================
BROADCASTING & CABLE TV-5.14%
Cox Radio, Inc.-Class A(a) 60,000 954,000
- ------------------------------------------------------------------------
Emmis Communications Corp.-Class A(a) 75,000 1,402,500
- ------------------------------------------------------------------------
Entercom Communications Corp.(a) 30,000 996,000
- ------------------------------------------------------------------------
Univision Communications Inc.-Class A(a) 57,500 1,780,200
- ------------------------------------------------------------------------
</Table>
<Table>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
BROADCASTING & CABLE TV-(CONTINUED)
XM Satellite Radio Holdings Inc.-Class
A(a)(b) 95,000 $ 3,070,400
========================================================================
8,203,100
========================================================================
COMMUNICATIONS EQUIPMENT-3.07%
Avaya Inc.(a) 125,000 1,800,000
- ------------------------------------------------------------------------
Comverse Technology, Inc.(a) 150,000 3,096,000
========================================================================
4,896,000
========================================================================
CONSUMER FINANCE-0.93%
Capital One Financial Corp. 20,000 1,475,200
========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-2.97%
Alliance Data Systems Corp.(a) 50,000 2,114,000
- ------------------------------------------------------------------------
DST Systems, Inc.(a) 20,000 897,000
- ------------------------------------------------------------------------
SunGard Data Systems Inc.(a) 65,000 1,721,850
========================================================================
4,732,850
========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-2.88%
National Instruments Corp. 100,000 2,753,000
- ------------------------------------------------------------------------
Symbol Technologies, Inc. 125,000 1,836,250
========================================================================
4,589,250
========================================================================
EMPLOYMENT SERVICES-0.50%
Robert Half International Inc. 30,000 795,900
========================================================================
GENERAL MERCHANDISE STORES-1.43%
Dollar Tree Stores, Inc.(a) 58,500 1,690,650
- ------------------------------------------------------------------------
Family Dollar Stores, Inc. 20,000 591,000
========================================================================
2,281,650
========================================================================
HEALTH CARE DISTRIBUTORS-1.19%
Henry Schein, Inc.(a) 30,000 1,896,900
========================================================================
HEALTH CARE EQUIPMENT-1.20%
Beckman Coulter, Inc. 17,500 1,041,250
- ------------------------------------------------------------------------
Kinetic Concepts, Inc.(a) 17,500 872,025
========================================================================
1,913,275
========================================================================
HEALTH CARE FACILITIES-0.67%
Community Health Systems Inc.(a) 40,000 1,072,800
========================================================================
HEALTH CARE SERVICES-4.71%
Caremark Rx, Inc.(a) 60,000 1,798,200
- ------------------------------------------------------------------------
DaVita, Inc.(a) 37,500 1,110,750
- ------------------------------------------------------------------------
Express Scripts, Inc.(a) 20,500 1,312,000
- ------------------------------------------------------------------------
Medco Health Solutions, Inc.(a) 55,000 1,865,050
- ------------------------------------------------------------------------
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
HEALTH CARE SERVICES-(CONTINUED)
Renal Care Group, Inc.(a) 45,000 $ 1,420,200
========================================================================
7,506,200
========================================================================
HOUSEHOLD PRODUCTS-0.75%
Clorox Co. (The)(b) 22,000 1,201,200
========================================================================
INDUSTRIAL GASES-1.08%
Airgas, Inc. 70,000 1,722,000
========================================================================
INTERNET SOFTWARE & SERVICES-1.56%
CNET Networks, Inc.(a) 75,000 612,750
- ------------------------------------------------------------------------
VeriSign, Inc.(a) 70,000 1,878,100
========================================================================
2,490,850
========================================================================
INVESTMENT BANKING & BROKERAGE-3.37%
Jefferies Group, Inc. 46,000 1,845,980
- ------------------------------------------------------------------------
Lehman Brothers Holdings Inc. 20,000 1,643,000
- ------------------------------------------------------------------------
Raymond James Financial, Inc. 72,500 1,892,250
========================================================================
5,381,230
========================================================================
LIFE & HEALTH INSURANCE-0.72%
AFLAC Inc. 32,200 1,155,336
========================================================================
OIL & GAS DRILLING-2.49%
Patterson-UTI Energy, Inc. 80,000 1,538,400
- ------------------------------------------------------------------------
Rowan Cos., Inc.(a) 47,000 1,199,910
- ------------------------------------------------------------------------
Transocean Inc. (Cayman Islands)(a) 35,000 1,233,750
========================================================================
3,972,060
========================================================================
OIL & GAS EQUIPMENT & SERVICES-1.12%
BJ Services Co. 35,000 1,785,000
========================================================================
OIL & GAS EXPLORATION & PRODUCTION-2.27%
Devon Energy Corp. 15,000 1,109,550
- ------------------------------------------------------------------------
Spinnaker Exploration Co.(a) 22,500 718,200
- ------------------------------------------------------------------------
Ultra Petroleum Corp. (Canada)(a) 37,000 1,798,200
========================================================================
3,625,950
========================================================================
PHARMACEUTICALS-8.20%
Allergan, Inc. 20,000 1,431,200
- ------------------------------------------------------------------------
Barr Pharmaceuticals Inc.(a) 45,000 1,694,250
- ------------------------------------------------------------------------
Corcept Therapeutics Inc.(a) 150,000 1,031,250
- ------------------------------------------------------------------------
IVAX Corp.(a) 31,875 576,938
- ------------------------------------------------------------------------
Medicis Pharmaceutical Corp.-Class A 125,000 5,083,750
- ------------------------------------------------------------------------
MGI Pharma, Inc.(a) 75,000 2,000,250
- ------------------------------------------------------------------------
Valeant Pharmaceuticals International 17,300 415,200
- ------------------------------------------------------------------------
</Table>
<Table>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
PHARMACEUTICALS-(CONTINUED)
Watson Pharmaceuticals, Inc.(a) 30,000 $ 840,900
========================================================================
13,073,738
========================================================================
PUBLISHING-2.23%
Getty Images, Inc.(a) 60,000 3,547,800
========================================================================
RAILROADS-2.46%
Canadian National Railway Co. (Canada) 28,500 1,540,425
- ------------------------------------------------------------------------
Norfolk Southern Corp. 70,000 2,376,500
========================================================================
3,916,925
========================================================================
REGIONAL BANKS-1.98%
Compass Bancshares, Inc. 25,000 1,194,250
- ------------------------------------------------------------------------
Cullen/Frost Bankers, Inc. 40,000 1,960,000
========================================================================
3,154,250
========================================================================
RESTAURANTS-0.71%
Brinker International, Inc.(a) 35,000 1,130,500
========================================================================
SEMICONDUCTOR EQUIPMENT-1.22%
Novellus Systems, Inc.(a) 75,000 1,943,250
========================================================================
SEMICONDUCTORS-0.46%
Intersil Corp.-Class A 45,000 734,400
========================================================================
SPECIALTY CHEMICALS-0.59%
Valspar Corp. (The) 20,000 933,200
========================================================================
SPECIALTY STORES-3.74%
PETsMART, Inc. 42,500 1,359,150
- ------------------------------------------------------------------------
United Auto Group, Inc. 100,000 2,700,000
- ------------------------------------------------------------------------
Williams-Sonoma, Inc.(a) 50,000 1,908,500
========================================================================
5,967,650
========================================================================
TECHNOLOGY DISTRIBUTORS-1.17%
CDW Corp. 30,000 1,860,900
========================================================================
THRIFTS & MORTGAGE FINANCE-1.20%
MGIC Investment Corp. 29,800 1,916,438
========================================================================
WIRELESS TELECOMMUNICATION SERVICES-3.87%
Crown Castle International Corp.(a) 150,000 2,296,500
- ------------------------------------------------------------------------
Nextel Partners, Inc.-Class A(a) 100,000 1,684,000
- ------------------------------------------------------------------------
Western Wireless Corp.-Class A(a) 75,000 2,185,500
========================================================================
6,166,000
========================================================================
Total Common Stocks (Cost $108,220,844) 129,721,575
========================================================================
<Caption>
PRINCIPAL
AMOUNT
U.S. TREASURY BILLS-0.63%
1.62%, 12/16/04 (Cost $997,882)(c) $1,000,000(d) $ 997,882
========================================================================
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
MONEY MARKET FUNDS-15.65%
Liquid Assets Portfolio-Institutional
Class(e) 12,473,814 $ 12,473,814
- ------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(e) 12,473,814 12,473,814
========================================================================
Total Money Market Funds (Cost
$24,947,628) 24,947,628
========================================================================
TOTAL INVESTMENTS-97.64% (Cost $134,166,354) 155,667,085
========================================================================
OTHER ASSETS LESS LIABILITIES-2.36% 3,763,428
========================================================================
NET ASSETS-100.00% $159,430,513
________________________________________________________________________
========================================================================
</Table>
<Table>
<Caption>
<Caption>
SHARES
SOLD MARKET
SHORT VALUE
- ------------------------------------------------------------------------
SECURITIES SOLD SHORT-1.51%(F)
COMMON STOCKS-1.51%
BREWERS-0.50%
Coors (Adolph) Co.-Class B 12,000 $ 800,400
========================================================================
COMPUTER STORAGE & PERIPHERALS-0.21%
Network Appliance, Inc. 13,600 332,792
========================================================================
OIL & GAS EQUIPMENT & SERVICES-0.80%
Tidewater Inc. 41,100 1,271,223
========================================================================
Total Common Stock Securities Sold Short
(Total Proceeds $2,229,292) $ 2,404,415
________________________________________________________________________
========================================================================
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) A portion of this security is subject to call options written. See Note 1G
and Note 8.
(c) Security traded on a discount basis. Unless otherwise indicated, the
interest rate shown represents the discount rate at the time of purchase by
the Fund.
(d) A portion of the principal balance was pledged as collateral to cover margin
requirements for open futures contracts. See Note 1I and Note 9.
(e) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(f) Collateral on short sales was segregated by the Fund in the amount of
$5,197,140 which represents 216.15% of the market value of the securities
sold short.
See accompanying notes which are an integral part of the financial statements.
F-3
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$109,218,726) $130,719,457
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $24,947,628) 24,947,628
===========================================================
Total investments (cost $134,166,354) 155,667,085
===========================================================
Receivables for:
Deposits with brokers for securities sold
short 4,375,137
- -----------------------------------------------------------
Investments sold 2,621,531
- -----------------------------------------------------------
Variation margin 17,250
- -----------------------------------------------------------
Fund shares sold 11,834
- -----------------------------------------------------------
Dividends and interest 47,221
- -----------------------------------------------------------
Short stock rebates 4,892
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 33,428
- -----------------------------------------------------------
Other assets 26,742
===========================================================
Total assets 162,805,120
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Fund shares reacquired 633,138
- -----------------------------------------------------------
Options written, at market value (premiums
received $83,562) 109,675
- -----------------------------------------------------------
Trustee deferred compensation and
retirement plans 40,938
- -----------------------------------------------------------
Securities sold short, at market value
(proceeds $2,229,292) 2,404,415
- -----------------------------------------------------------
Accrued distribution fees 93,463
- -----------------------------------------------------------
Accrued trustees' fees 1,255
- -----------------------------------------------------------
Accrued transfer agent fees 35,306
- -----------------------------------------------------------
Accrued operating expenses 56,417
===========================================================
Total liabilities 3,374,607
===========================================================
Net assets applicable to shares outstanding $159,430,513
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $321,958,006
- -----------------------------------------------------------
Undistributed net investment income (loss) (38,495)
- -----------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, futures contracts,
option contracts and securities sold short (183,876,167)
- -----------------------------------------------------------
Unrealized appreciation of investment
securities, futures contracts, option
contracts and securities sold short 21,387,169
===========================================================
$159,430,513
___________________________________________________________
===========================================================
NET ASSETS:
Class A $ 79,680,481
___________________________________________________________
===========================================================
Class B $ 59,702,285
___________________________________________________________
===========================================================
Class C $ 20,047,747
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 4,374,982
___________________________________________________________
===========================================================
Class B 3,393,283
___________________________________________________________
===========================================================
Class C 1,139,341
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 18.21
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $18.21 divided by
94.50%) $ 19.27
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 17.59
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 17.60
___________________________________________________________
===========================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF OPERATIONS
For the year ended October 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $5,505) $ 752,113
- -------------------------------------------------------------------------
Dividends from affiliated money market funds 190,957
- -------------------------------------------------------------------------
Interest 34,284
- -------------------------------------------------------------------------
Short stock rebates 83,637
=========================================================================
Total investment income 1,060,991
=========================================================================
EXPENSES:
Advisory fees 944,388
- -------------------------------------------------------------------------
Administrative services fees 50,000
- -------------------------------------------------------------------------
Custodian fees 32,844
- -------------------------------------------------------------------------
Distribution fees:
Class A 308,106
- -------------------------------------------------------------------------
Class B 697,842
- -------------------------------------------------------------------------
Class C 248,609
- -------------------------------------------------------------------------
Line of credit 71,213
- -------------------------------------------------------------------------
Transfer agent fees 376,404
- -------------------------------------------------------------------------
Trustees' fees and retirement benefits 15,522
- -------------------------------------------------------------------------
Dividends on short sales 60,800
- -------------------------------------------------------------------------
Other 169,923
=========================================================================
Total expenses 2,975,651
=========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (39,416)
=========================================================================
Net expenses 2,936,235
=========================================================================
Net investment income (loss) (1,875,244)
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FUTURES CONTRACTS, OPTION CONTRACTS AND
SECURITIES
SOLD SHORT:
Net realized gain (loss) from:
Investment securities 15,784,589
- -------------------------------------------------------------------------
Futures contracts 2,559,356
- -------------------------------------------------------------------------
Option contracts written 879,647
- -------------------------------------------------------------------------
Securities sold short (391,982)
=========================================================================
18,831,610
=========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (6,449,711)
- -------------------------------------------------------------------------
Futures contracts (479,380)
- -------------------------------------------------------------------------
Option contracts written 3,646
- -------------------------------------------------------------------------
Securities sold short (84,717)
=========================================================================
(7,010,162)
=========================================================================
Net gain from investment securities, futures contracts,
option contracts and securities sold short 11,821,448
=========================================================================
Net increase in net assets resulting from operations $ 9,946,204
_________________________________________________________________________
=========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-5
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (1,875,244) $ (4,034,294)
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities, futures
contracts, option contracts and securities sold short 18,831,610 3,340,879
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, futures contracts, option
contracts and securities
sold short (7,010,162) 42,284,844
==========================================================================================
Net increase in net assets resulting from operations 9,946,204 41,591,429
==========================================================================================
Share transactions-net:
Class A (15,926,486) (19,809,758)
- ------------------------------------------------------------------------------------------
Class B (19,693,655) (15,416,222)
- ------------------------------------------------------------------------------------------
Class C (8,800,002) (8,204,584)
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (44,420,143) (43,430,564)
==========================================================================================
Net increase (decrease) in net assets (34,473,939) (1,839,135)
==========================================================================================
NET ASSETS:
Beginning of year 193,904,452 195,743,587
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(38,495) and $(34,205), respectively). $159,430,513 $193,904,452
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-6
NOTES TO FINANCIAL STATEMENTS
October 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Opportunities II Fund (the "Fund") is a series portfolio of AIM Special
Opportunities Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of three
separate portfolios, each authorized to issue an unlimited number of shares of
beneficial interest. The Fund currently offers multiple classes of shares.
Matters affecting each portfolio or class will be voted on exclusively by the
shareholders of such portfolio or class. The assets, liabilities and operations
of each portfolio are accounted for separately. Information presented in these
financial statements pertains only to the Fund.
The Fund's investment objective is long-term growth of capital. Each company
listed in the Schedule of Investments is organized in the United States America
unless otherwise noted.
Under the Trust's organizational documents, the Fund's officers, trustees,
employees and agents are indemnified against certain liabilities that may arise
out of performance of their duties to the Fund. Additionally, in the normal
course of business, the Fund enters into contracts that contain a variety of
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, the Fund has not had prior claims or losses
pursuant to these contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
is valued on the basis of prices furnished by independent pricing services
or market makers. Each security reported on the NASDAQ National Market
System is valued at the NASDAQ Official Closing Price ("NOCP") as of the
close of the customary trading session on the valuation date or absent a
NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of
F-7
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 and short stock rebate income are recorded on the
accrual basis. Dividend income and dividend expense on short sales are
recorded on the ex-dividend date. Premiums and discounts are amortized
and/or accreted for financial reporting purposes.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
F. SECURITIES SOLD SHORT -- The Fund may enter into short sales of securities
which it concurrently holds (against the box) or for which it holds no
corresponding position (naked). Securities sold short represent a liability
of the Fund to acquire specific securities at prevailing market prices at a
future date in order to satisfy the obligation to deliver the securities
sold. The liability is recorded on the books of the Fund at the market
value of the common stock determined each day in accordance with the
procedures for security valuations disclosed in "A" above. The Fund will
incur a loss if the price of the security increases between the date of the
short sale and the date on which the Fund replaces the borrowed security.
The Fund realizes a gain if the price of the security declines between
those dates.
The Fund is required to segregate cash or securities as collateral in
margin accounts at a level that is equal to the obligation to the broker
who delivered such securities to the buyer on behalf of the Fund. The short
stock rebate presented in the Statement of Operations represents the net
income earned on short sale proceeds held on deposit with the broker and
margin interest earned or incurred on short sale transactions. The Fund may
also earn or incur margin interest on short sales transactions. Margin
interest is the income earned (or expense incurred) as a result of the
market value of securities sold short being less than (or greater than) the
proceeds received from the short sales.
G. CALL OPTIONS -- The Fund may write and buy call options, including
securities index options. Options written by the Fund normally will have
expiration dates between three and nine months from the date written. The
exercise price of a call option may be below, equal to, or above the
current market value of the underlying security at the time the option is
written. When the Fund writes a call option, an amount equal to the premium
received by the Fund is recorded as an asset and an equivalent liability.
The amount of the liability is subsequently "marked-to-market" to reflect
the current market value of the option written. The current market value of
a written option is the mean between the last bid and asked prices on that
day. If a written call option expires on the stipulated expiration date, or
if the Fund enters into a closing purchase transaction, the Fund realizes a
gain (or a loss if the closing purchase transaction exceeds the premium
received when the option was written) without regard to any unrealized gain
or loss on the underlying security, and the liability related to such
option is extinguished. If a written option is exercised, the Fund realizes
a gain or a loss from the sale of the underlying security and the proceeds
of the sale are increased by the premium originally received. A risk in
writing a call option is that the Fund gives up the opportunity for profit
if the market price of the security increases and the option is exercised.
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. The purchaser of a call
option has the right to acquire the security which is the subject of the
call option at any time during the option period. During the option period,
in return for the premium paid by the purchaser of the option, the Fund has
given up the opportunity for capital appreciation above the exercise price
should the market price of the underlying security increase, but has
retained the risk of loss should the price of the underlying security
decline. During the option period, the Fund may be required at any time to
deliver the underlying security against payment of the exercise price. This
obligation is terminated upon the expiration of the option period or at
such earlier time at which the Fund effects a closing purchase transaction
by purchasing (at a price which may be higher than that received when the
call option was written) a call option identical to the one originally
written.
An option on a securities index gives the holder the right to receive a
cash "exercise settlement amount" equal to the difference between the
exercise price of the option and the value of the underlying stock index on
the exercise date, multiplied by a fixed "index multiplier." A securities
index fluctuates with changes in the market values of the securities
included in the index. In the purchase of securities index options, the
principal risk is that the premium and transaction costs paid by the Fund
in purchasing an option will be lost if the changes in the level of the
index do not
F-8
exceed the cost of the option. In writing securities index options, the
principal risk is that the Fund could bear a loss on the options that would
be only partially offset (or not offset at all) by the increased value or
reduced cost of hedged securities. Moreover, in the event the Fund was
unable to close an option it had written, it might be unable to sell the
securities used as cover.
H. PUT OPTIONS -- The Fund may purchase and write put options including
securities index options. By purchasing a put option, the Fund obtains the
right (but not the obligation) to sell the option's underlying instrument
at a fixed strike price. In return for this right, the Fund pays an option
premium. The option's underlying instrument may be a security, 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 securities hedged. The Fund may write put
options to earn additional income in the form of option premiums if it
expects the price of the underlying securities 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. A risk in buying an option
is that the Fund pays a premium whether or not the option is exercised. In
addition, there can be no assurance that a liquid secondary market will
exist for any option purchased or sold.
I. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. If the Fund were unable
to liquidate a futures contract and/or enter into an offsetting closing
transaction, the Fund would continue to be subject to market risk with
respect to the value of the contracts and continue to be required to
maintain the margin deposits on the futures contracts.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays a base management fee calculated at the annual rate of 1.50% of
the Fund's average daily net assets. The base management fee will be adjusted,
on a monthly basis, (i) upward at the rate of 0.20%, on a pro rata basis, for
each percentage point the 12-month rolling investment performance of the Class A
shares exceeds the sum of 2.00% and the 12-month rolling investment record of
the S&P MidCap 400 Index, or (ii) downward at the rate of 0.20%, on a pro rata
basis, for each percentage point the 12-month rolling investment record of the
S&P MidCap 400 Index less 2.00% exceeds the 12-month rolling investment
performance of the Class A shares. 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 October 31, 2004, AIM waived
fees of $2,355.
For the year ended October 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $34,360 of expenses incurred
by the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended October 31, 2004, AIM was
paid $50,000 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the year ended
October 31, 2004, the Fund paid AISI $376,404. AISI may make payments to
intermediaries that provide omnibus account services, sub-accounting services
and/or networking services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A,
Class B and Class C shares (collectively the "Plans"). The Fund, pursuant to the
Plans, pays AIM Distributors compensation at the annual rate of 0.35% of the
Fund's average daily net assets of Class A shares and 1.00% of the average daily
net assets of Class B and Class C shares. Of these amounts, up to 0.25% of the
average daily net assets of the Class A, Class B or Class C shares may be paid
to furnish continuing personal shareholder services to customers who purchase
and own shares of such classes. Any amounts not paid as a service fee under the
Plans would constitute an asset-based sales charge. NASD Rules also impose a cap
on the total sales charges, including asset-based sales charges that may be paid
by any class of shares of the Fund. Pursuant to the Plans, for the year ended
October 31, 2004, the Class A, Class B and Class C shares paid $308,106,
$697,842 and $248,609, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the year
ended October 31, 2004, AIM Distributors advised the Fund that it retained
$23,105 in front-end sales commissions from the sale of Class A shares and $0,
$1,869 and $742 from Class A, Class B and Class C shares, respectively, for CDSC
imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
F-9
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC") and approved procedures by the Board of Trustees, to
invest daily available cash balances in affiliated money market funds. The Fund
and the money market funds below have the same investment advisor and therefore,
are considered to be affiliated. The table below shows the transactions in and
earnings from investments in affiliated money market funds for the year ended
October 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class 3,456,661 $ 60,271,031 $ (51,253,878) $ -- $12,473,814 $ 96,347 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 3,456,661 60,271,031 (51,253,878) -- 12,473,814 94,610 --
==================================================================================================================================
$6,913,322 $120,542,062 $(102,507,756) $ -- $24,947,628 $190,957 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended October 31, 2004, the Fund
engaged in purchases and sales of securities of $1,539,922 and $1,668,646,
respectively.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions and (ii) custodian credits which
result from periodic overnight cash balances at the custodian. For the year
ended October 31, 2004, the Fund received credits in transfer agency fees of
$2,660 and credits in custodian fees of $41 under expense offset arrangements,
which resulted in a reduction of the Fund's total expenses of $2,701.
NOTE 6--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended October 31, 2004, the Fund paid legal fees of $4,924
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
The Fund is a participant in a committed line of credit facility with a
syndicate administered by JP Morgan Chase Bank. The Fund may borrow up to the
lesser of (i) $240,000,000, or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. The funds which
are party to the line of credit are charged a commitment fee of 0.10% on the
unused balance of the committed line. During the year ended October 31, 2004,
the Fund did not borrow under the line of credit facility.
Effective November 1, 2004, the Fund entered into a new agreement whereby
the Fund may borrow up to the lesser of (i) $225,000,000 or (ii) the limits set
by its prospectus for borrowings and the funds that are parties to the line of
credit will be charged a commitment fee of 0.09% of the unused balance of the
committed line.
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be
F-10
secured by collateral if the Fund's aggregate borrowings from all sources
exceeds 10% of the Fund's total assets. To the extent that the loan is required
to be secured by collateral, the collateral is marked to market daily to ensure
that the market value is at least 102% of the outstanding principal value of the
loan. During the year ended October 31, 2004, the Fund did not borrow or lend
under the interfund lending facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--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 2,140 $ 132,241 -- $ --
- ----------------------------------------------------------------------------------------------------------------
Written 17,285 2,020,554 2,853 168,294
- ----------------------------------------------------------------------------------------------------------------
Closed (8,138) (1,265,011) (2,573) (144,135)
- ----------------------------------------------------------------------------------------------------------------
Exercised (3,087) (342,004) (200) (15,599)
- ----------------------------------------------------------------------------------------------------------------
Expired (7,505) (462,218) (80) (8,560)
================================================================================================================
End of period 695 $ 83,562 -- $ --
________________________________________________________________________________________________________________
================================================================================================================
</Table>
<Table>
<Caption>
OPEN OPTIONS WRITTEN AT PERIOD END
- ------------------------------------------------------------------------------------------------------------------------------
OCTOBER 31,
2004 UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUMS MARKET APPRECIATION
MONTH PRICE CONTRACTS RECEIVED VALUE (DEPRECIATION)
- ------------------------------------------------------------------------------------------------------------------------------
CALLS
Clorox Co. (The) Nov-04 $55.0 220 $24,426 $ 17,050 $ 7,376
- ------------------------------------------------------------------------------------------------------------------------------
XM Satellite Radio Holdings Inc.-Class A Dec-04 32.5 475 59,136 92,625 (33,489)
==============================================================================================================================
695 $83,562 $109,675 $(26,113)
______________________________________________________________________________________________________________________________
==============================================================================================================================
</Table>
NOTE 9--FUTURES CONTRACTS
On October 31, 2004, $239,000 principal amount of U.S. Treasury obligations was
pledged as collateral to cover margin requirements for open futures contracts.
<Table>
<Caption>
OPEN FUTURES CONTRACTS AT PERIOD END
- --------------------------------------------------------------------------------------------------------------------
NO. OF MONTH/ MARKET UNREALIZED
CONTRACT CONTRACTS COMMITMENT VALUE APPRECIATION
- --------------------------------------------------------------------------------------------------------------------
MidCap 400 Futures 15 Dec-04/Long $4,521,000 $87,675
____________________________________________________________________________________________________________________
====================================================================================================================
</Table>
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 October 31, 2004 and 2003.
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- ---------------------------------------------------------------------------
Unrealized appreciation -- investments 20,824,721
- ---------------------------------------------------------------------------
Temporary book/tax differences (38,495)
- ---------------------------------------------------------------------------
Capital loss carryforward (183,313,719)
- ---------------------------------------------------------------------------
Shares of beneficial interest 321,958,006
===========================================================================
Total net assets $ 159,430,513
___________________________________________________________________________
===========================================================================
</Table>
F-11
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation difference is attributable primarily to losses on wash sales,
straddle deferrals and the tax recognition of unrealized gains or losses on
certain futures contracts. The tax-basis unrealized appreciation on investments
amount includes appreciation (depreciation) on option contracts written of
$(26,113).
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund utilized $19,256,129 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of October 31, 2004 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
October 31, 2008 $ 24,128,728
- -----------------------------------------------------------------------------
October 31, 2009 123,630,363
- -----------------------------------------------------------------------------
October 31, 2010 34,956,611
- -----------------------------------------------------------------------------
October 31, 2011 598,017
=============================================================================
Total capital loss carryforward $183,313,719
_____________________________________________________________________________
=============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 11--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
October 31, 2004 was $168,898,919 and $231,282,461, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of:
Investment securities $25,055,827
- -------------------------------------------------------------------------------
Securities sold short 21,482
===============================================================================
Aggregate unrealized (depreciation) of:
Investment securities (4,029,870)
- -------------------------------------------------------------------------------
Securities sold short (196,605)
===============================================================================
Net unrealized appreciation of investment securities $20,850,834
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $134,641,128.
</Table>
Proceeds from securities sold short for tax purposes are $2,229,292.
NOTE 12--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses
and other reclassifications, on October 31, 2004, undistributed net investment
income was increased by $1,870,954, undistributed net realized gain (loss) was
decreased by $3,775 and shares of beneficial interest decreased by $1,867,179.
This reclassification had no effect on the net assets of the Fund.
F-12
NOTE 13--SHARE INFORMATION
The Fund currently offers three different classes of shares: Class A shares,
Class B shares and Class C shares. Class A shares are sold with a front-end
sales charge. Class B shares and Class C shares are sold with CDSC. Under
certain circumstances, Class A shares are subject to CDSC. Generally, Class B
shares will automatically convert to Class A shares eight years after the end of
the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(a)
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------
2004 2003
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 670,900 $ 12,251,244 546,626 $ 8,026,367
- ----------------------------------------------------------------------------------------------------------------------
Class B 198,887 3,508,448 294,449 4,342,900
- ----------------------------------------------------------------------------------------------------------------------
Class C 122,489 2,186,895 94,923 1,374,838
======================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 115,458 2,104,929 96,537 1,456,537
- ----------------------------------------------------------------------------------------------------------------------
Class B (119,114) (2,104,929) (99,005) (1,456,537)
======================================================================================================================
Reacquired:
Class A (1,682,409) (30,282,659) (1,990,836) (29,292,662)
- ----------------------------------------------------------------------------------------------------------------------
Class B (1,207,527) (21,097,174) (1,285,596) (18,302,585)
- ----------------------------------------------------------------------------------------------------------------------
Class C (630,921) (10,986,897) (668,940) (9,579,422)
======================================================================================================================
(2,532,237) $(44,420,143) (3,011,842) $(43,430,564)
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and owns 11% of the outstanding shares of the
Fund. AIM Distributors has an agreement with this entity to sell Fund
shares. The Fund, AIM and/or AIM affiliates may make payments to this
entity, which is considered to be related to the Fund, for providing
services to the Fund, AIM and/or AIM affiliates including but not limited to
services such as, securities brokerage, distributions, third party record
keeping and account servicing. The Trust has no knowledge as to whether all
or any portion of the shares owned of record by this shareholder are also
owned beneficially.
F-13
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
------------------------------------------------------------------------------
THREE MONTHS
YEAR ENDED OCTOBER 31, ENDED YEAR ENDED
------------------------------------------------ OCTOBER 31, JULY 31,
2004 2003 2002 2001 2000 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 17.21 $ 13.70 $ 16.11 $ 23.17 $ 23.62 $ 15.78
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.12)(a) (0.27)(a) (0.07)(a)(b) 0.04(a) (0.01) (0.18)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 1.12 3.78 (2.34) (7.10) (0.44) 9.92
=================================================================================================================================
Total from investment operations 1.00 3.51 (2.41) (7.06) (0.45) 9.74
=================================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- -- -- (0.02)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- -- (1.88)
=================================================================================================================================
Total distributions -- -- -- -- -- (1.90)
=================================================================================================================================
Net asset value, end of period $ 18.21 $ 17.21 $ 13.70 $ 16.11 $ 23.17 $ 23.62
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 5.81% 25.62% (14.96)% (30.47)% (1.91)% 65.58%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $79,680 $90,696 $90,696 $155,356 $309,391 $336,203
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets
(including interest expense and dividends on
short sale expense):
With fee waivers and/or expense reimbursements 1.27%(d) 2.45% 1.18% 1.33% 2.06%(e) 2.33%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.29%(d) 2.45% 1.28% 1.43% 2.16%(e) 2.40%
=================================================================================================================================
Ratio of expenses to average net assets
(excluding interest expense and dividends on
short sale expense):
With fee waivers and/or expense reimbursements 1.20%(d) 2.30% 1.07% 1.24% 1.93%(e) 2.08%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.22%(d) 2.30% 1.17% 1.34% 2.03%(e) 2.15%
=================================================================================================================================
Ratio of net investment income (loss) to average
net assets (0.69)%(d) (1.82)% (0.44)%(b) 0.20% (0.08)%(e) (0.80)%
=================================================================================================================================
Ratio of interest expense and dividends on short
sale expense to average net assets(f) 0.07%(d) 0.15% 0.11% 0.09% 0.13%(e) 0.25%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(g) 107% 216% 203% 289% 49% 196%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective November 1, 2001, the Fund adopted provisions of
the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share and the
ratio of net investment income to average net assets would have remained
the same. In accordance with the AICPA Audit and Accounting Guide for
Investment Companies, per share and ratios for periods prior to November
1, 2001 have not been restated to reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(d) Ratios are based on average daily net assets of $88,030,198.
(e) Annualized.
(f) Ratio includes interest expense and fees on the committed line of
credit.
(g) Not annualized for periods less than one year.
F-14
NOTE 14--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
----------------------------------------------------------------------------------------------
NOVEMBER 12, 1999
THREE MONTHS (DATE SALES
YEAR ENDED OCTOBER 31, ENDED COMMENCED) TO
------------------------------------------------------ OCTOBER 31, JULY 31,
2004 2003 2002 2001 2000 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 16.73 $ 13.41 $ 15.89 $ 23.02 $ 23.51 $ 17.83
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) (0.23)(a) (0.36)(a) (0.18)(a)(b) (0.11)(a) (0.05) (0.28)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both realized and
unrealized) 1.09 3.68 (2.30) (7.02) (0.44) 5.97
=================================================================================================================================
Total from investment
operations 0.86 3.32 (2.48) (7.13) (0.49) 5.69
=================================================================================================================================
Less distributions from net
investment income -- -- -- -- -- (0.01)
=================================================================================================================================
Net asset value, end of period $ 17.59 $ 16.73 $ 13.41 $ 15.89 $ 23.02 $ 23.51
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 5.14% 24.76% (15.61)% (30.97)% (2.08)% 31.95%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $59,702 $75,639 $75,250 $124,588 $225,060 $255,439
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets (including interest
expense and dividends on short
sale expense) 1.92%(d)(e) 3.10% 1.93% 2.10% 2.81%(f) 3.08%(f)
=================================================================================================================================
Ratio of expenses to average net
assets (excluding interest
expense and dividends on short
sale expense) 1.85%(d)(e) 2.95% 1.82% 2.00% 2.68%(f) 2.83%(f)
=================================================================================================================================
Ratio of net investment income
(loss) to average net assets (1.34)%(d) (2.47)% (1.19)%(b) (0.57)% (0.83)%(f) (1.55)%(f)
=================================================================================================================================
Ratio of interest expense and
dividends on short sale expense
to average net assets(g) 0.07%(d) 0.15% 0.11% 0.09% 0.13%(f) 0.25%(f)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(h) 107% 216% 203% 289% 49% 196%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective November 1, 2001, the Fund adopted provisions of
the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share and the
ratio of net investment income to average net assets would have remained
the same. In accordance with the AICPA Audit and Accounting Guide for
Investment Companies, per share and ratios for periods prior to November
1, 2001 have not been restated to reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(d) Ratios are based on average daily net assets of $69,784,200.
(e) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.94% and 1.87% including interest expense and dividends on short
sale expense and excluding interest expense and dividends on short sale
expense, respectively.
(f) Annualized.
(g) Ratio includes interest expense and fees on the committed line of
credit.
(h) Not annualized for periods less than one year.
F-15
NOTE 14--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
------------------------------------------------------------------------------------------
NOVEMBER 12, 1999
THREE MONTHS (DATE SALES
YEAR ENDED OCTOBER 31, ENDED COMMENCED) TO
----------------------------------------------------- OCTOBER 31, JULY 31,
2004 2003 2002 2001 2000 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 16.73 $ 13.41 $ 15.89 $ 23.02 $ 23.51 $ 17.83
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.23)(a) (0.36)(a) (0.18)(a)(b) (0.11)(a) (0.05) (0.28)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 1.10 3.68 (2.30) (7.02) (0.44) 5.97
=================================================================================================================================
Total from investment operations 0.87 3.32 (2.48) (7.13) (0.49) 5.69
=================================================================================================================================
Less distributions from net
investment income -- -- -- -- -- (0.01)
=================================================================================================================================
Net asset value, end of period $ 17.60 $ 16.73 $ 13.41 $ 15.89 $ 23.02 $ 23.51
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 5.20% 24.76% (15.61)% (30.97)% (2.08)% 31.95%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $20,048 $27,570 $29,798 $51,412 $96,817 $100,452
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets (including interest expense
and dividends on short sale
expense) 1.92%(d)(e) 3.10% 1.93% 2.10% 2.81%(f) 3.08%(f)
=================================================================================================================================
Ratio of expenses to average net
assets (excluding interest expense
and dividends on short sale
expense) 1.85%(d)(e) 2.95% 1.82% 2.00% 2.68%(f) 2.83%(f)
=================================================================================================================================
Ratio of net investment income (loss)
to average net assets (1.34)%(d) (2.47)% (1.19)%(b) (0.57)% (0.83)%(f) (1.55)%(f)
=================================================================================================================================
Ratio of interest expense and
dividends on short sale expense to
average net assets(g) 0.07%(d) 0.15% 0.11% 0.09% 0.13%(f) 0.25%(f)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(h) 107% 216% 203% 289% 49% 196%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective November 1, 2001, the Fund adopted provisions of
the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share and the
ratio of net investment income to average net assets would have remained
the same. In accordance with the AICPA Audit and Accounting Guide for
Investment Companies, per share and ratios for periods prior to November
1, 2001 have not been restated to reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(d) Ratios are based on average daily net assets of $24,860,928.
(e) After fee waivers and/or expense reimbursements. Ratio to expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.94% and 1.87% including interest expense and dividends on short
sale expense and excluding interest expense and dividends on short sale
expense, respectively.
(f) Annualized.
(g) Ratio includes interest expense and fees on the committed line of
credit.
(h) 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.
The mutual fund industry as a whole is currently subject to regulatory inquiries
and litigation related to a wide range of issues. These issues include, among
others, market timing activity, late trading, fair value pricing, excessive or
improper advisory and/or distribution fees, mutual fund sales practices,
including revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies, contractual plans, issues
related to Section 529 college savings plans and procedures for locating lost
securityholders.
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to certain AIM Funds, A I M Advisors, Inc. ("AIM"), the
Fund's investment advisor, and A I M Distributors, Inc. ("ADI"), the distributor
of the retail AIM Funds and a wholly owned subsidiary of AIM, reached final
settlements with the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG"), the Colorado Attorney General ("COAG"), the Colorado
Division of Securities ("CODS") and the Secretary of State of the State of
Georgia to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG.
In addition, as described more fully below, IFG and AIM are the subject of a
number of ongoing regulatory inquiries and civil lawsuits related to one or more
of the issues currently being scrutinized by various Federal and state
regulators, including but not limited to those issues described above.
Additional regulatory actions and/or civil lawsuits related to the above or
other issues may be filed against the AIM Funds, IFG, AIM and/or related
entities
F-16
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
and individuals in the future. Additional regulatory inquiries related to the
above or other issues also may be received by the AIM Funds, IFG, AIM and/or
related entities and individuals in the future.
As a result of the matters discussed below, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and
AIM, announced that final settlements had been reached with the SEC, the NYAG,
the COAG and the Secretary of State of Georgia to resolve civil enforcement
actions and investigations related to market timing activity and related issues
in the AIM Funds, including those formerly advised by IFG. A final settlement
also has been reached with the Colorado Division of Securities ("CODS") with
respect to this matter. In their enforcement actions and investigations, these
regulators alleged, in substance, that IFG and AIM failed to disclose in the
prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that IFG and AIM had entered into certain
arrangements permitting market timing of such Funds, thereby breaching their
fiduciary duties to such Funds. As a result of the foregoing, the regulators
alleged that IFG, AIM and ADI breached various Federal and state securities,
business and consumer protection laws. Under the terms of the settlements, IFG,
AIM and ADI consent to the entry of settlement orders or assurances of
discontinuance, as applicable, by the regulators containing certain terms, some
of which are described below, without admitting or denying any wrongdoing.
Under the terms of the settlements, IFG agreed to pay a total of $325 million,
of which $110 million is civil penalties. Of the $325 million total payment,
half will be paid on or before December 31, 2004 and the remaining half will be
paid on or before December 31, 2005. AIM and ADI agreed to pay a total of $50
million, of which $30 million is civil penalties. The entire $50 million payment
by AIM and ADI has been paid.
The entire $325 million IFG settlement payment will be available for
distribution to the shareholders of those AIM Funds that IFG formerly advised
that were harmed by market timing activity, and the entire $50 million
settlement payment by AIM and ADI will be available for distribution to the
shareholders of those AIM Funds advised by AIM that were harmed by market timing
activity, all as to be determined by an independent distribution consultant to
be appointed under the settlements. The settlement payments will be distributed
in accordance with a methodology to be determined by the independent
distribution consultant, in consultation with AIM and the independent trustees
of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on the AIM Funds by $15 million per year for the next five
years, based upon effective fee rates and assets under management as of July 1,
2004, and not to increase certain management fees. IFG will also pay $1.5
million to the COAG to be used for investor education purposes and to reimburse
the COAG for actual costs. Finally, IFG and AIM will pay $175,000 to the
Secretary of State of Georgia to be used for investor education purposes and to
reimburse the Secretary of State for actual costs.
None of the costs of the settlements will be borne by the AIM Funds or by Fund
shareholders.
Under the terms of the settlements, AIM will make certain governance reforms,
including maintaining an internal controls committee and retaining an
independent compliance consultant, a corporate ombudsman and, as stated above,
an independent distribution consultant. Also, commencing in 2007 and at least
once every other year thereafter, AIM will undergo a compliance review by an
independent third party.
In addition, under the terms of the settlements, AIM has undertaken to cause
the AIM Funds to operate in accordance with certain governance policies and
practices, including retaining a full-time independent senior officer whose
duties will include monitoring compliance and managing the process by which
proposed management fees to be charged the AIM Funds are negotiated. Also,
commencing in 2008 and not less than every fifth calendar year thereafter, the
AIM Funds will hold shareholder meetings at which their Boards of Trustees will
be elected.
On October 8, 2004, the SEC announced that it had settled a market timing
enforcement action against Raymond R. Cunningham, the former president and chief
executive officer of IFG and a former member of the board of directors of the
AIM Funds formerly advised by IFG. As part of the settlement, the SEC ordered
Mr. Cunningham to pay $1 in restitution and civil penalties in the amount of
$500,000. In addition, the SEC prohibited Mr. Cunningham from associating with
an investment advisor, broker, dealer or investment company for a period of two
years and further prohibited him from serving as an officer or director of an
investment advisor, broker, dealer or investment company for a period of five
years.
On August 31, 2004, the SEC announced that it had settled market timing
enforcement actions against Timothy J. Miller, the former chief investment
officer and a former portfolio manager for IFG, Thomas A. Kolbe, the former
national sales manager of IFG, and Michael D. Legoski, a former assistant vice
president in IFG's sales department. As part of the settlements, the SEC ordered
Messrs. Miller, Kolbe and Legoski to pay $1 in restitution each and civil
penalties in the amounts of $150,000, $150,000 and $40,000, respectively. In
addition, the SEC prohibited each of them from associating with an investment
advisor or investment company for a period of one year, prohibited Messrs.
Miller and Kolbe from serving as an officer or director of an investment advisor
or investment company for three years and two years, respectively, and
prohibited Mr. Legoski from associating with a broker or dealer for a period of
one year.
As referenced by the SEC in the SEC's settlement order, one former officer of
ADI and one current officer of AIM (who has taken a voluntary leave of absence)
have received regulatory inquiries in the form of subpoenas or other oral or
written requests for information and/or documents related to market timing
activity in the AIM Funds.
At the request of the trustees of the AIM Funds, AMVESCAP has agreed to pay
all of the expenses incurred by such Funds related to the market timing
investigations, including expenses incurred in connection with the regulatory
complaints against IFG alleging market timing and the market timing
investigations with respect to IFG and AIM.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's agreement
to reduce management fees on the AIM Funds by $15 million per year for the next
five years, based upon effective fee rates and assets
F-17
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
under management as of July 1, 2004). The manner in which the settlement
payments will be distributed is unknown at the present time and will be
determined by an independent distribution consultant to be appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement amounts may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the ongoing matters described below may have
on AIM, ADI or the Fund.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the New York Stock Exchange, the United States
Attorney's Office for the Southern District of New York, the United States
Attorney's Office for the Central District of California, the United States
Attorney's Office for the District of Massachusetts, the Massachusetts
Securities Division and the U.S. Postal Inspection Service, some of which
concern one or more AIM Funds. AIM is providing full cooperation with respect to
these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, A I M Management Group Inc. ("AIM
Management"), AMVESCAP, certain related entities, certain of their current and
former officers and/or certain unrelated third parties) making allegations that
are similar in many respects to those in the settled regulatory actions brought
by the SEC, the NYAG and the COAG concerning market timing activity in the AIM
Funds. These lawsuits allege a variety of theories of recovery, including but
not limited to: (i) violation of various provisions of the Federal and state
securities laws; (ii) violation of various provisions of ERISA; (iii) breach of
fiduciary duty; and/or (iv) breach of contract. These lawsuits were initiated in
both Federal and state courts and seek such remedies as compensatory damages;
restitution; injunctive relief; disgorgement of management fees; imposition of a
constructive trust; removal of certain directors and/or employees; various
corrective measures under ERISA; rescission of certain Funds' advisory
agreements; interest; and attorneys' and experts' fees.
All lawsuits based on allegations of market timing, late trading, and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act purportedly
brought on behalf of participants in AMVESCAP's 401(k) plan. Plaintiffs in one
of the underlying lawsuits transferred to the MDL Court continue to seek remand
of their action to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc., ADI and/or INVESCO
Distributors, Inc.) alleging that the defendants charged excessive advisory
and/or distribution fees and failed to pass on to shareholders the perceived
savings generated by economies of scale. Certain of these lawsuits also allege
F-18
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
that the defendants adopted unlawful distribution plans. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
various provisions of the Federal securities laws; (ii) breach of fiduciary
duty; and/or (iii) breach of contract. These lawsuits have been filed in Federal
courts and seek such remedies as damages; injunctive relief; rescission of
certain Funds' advisory agreements and distribution plans; interest; prospective
relief in the form of reduced fees; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Closed
Funds or Share Classes
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, ADI and/or certain of the trustees of the AIM Funds)
alleging that the defendants breached their fiduciary duties by charging
distribution fees while funds and/or specific share classes were closed
generally to new investors and/or while other share classes of the same fund
were not charged the same distribution fees. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal securities laws; and (ii) breach of fiduciary duty.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. and/or
certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
F-19
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of AIM Opportunities II Fund
And Board of Trustees of AIM Special Opportunities Funds:
We have audited the accompanying statement of assets and liabilities of AIM
Opportunities II Fund (a portfolio of AIM Special Opportunities Funds),
including the schedule of investments, as of October 31, 2004, and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the financial
highlights for each of the four years in the period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits. The financial
highlights for the period ended October 31, 2000 were audited by other auditors
whose report dated December 6, 2000, expressed an unqualified opinion on those
financial highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2004, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Opportunities II Fund as of October 31, 2004, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the four years
in the period then ended, in conformity with U.S. generally accepted accounting
principles.
Houston, Texas -s- ERNST & YOUNG LLP
December 15, 2004
F-20
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of October 31, 2004
The address of each trustee and officer of AIM Special Opportunities Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ---------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1998 Director and Chairman, A I M Management None
Trustee and President Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- ---------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.
President (financial services holding company);
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director, A I M Capital
Management, Inc. (registered investment
advisor) and A I M Distributors, Inc.
(registered broker dealer); Director and
Chairman, AIM Investment Services, Inc.
(registered transfer agent), Fund
Management Company (registered broker
dealer) and INVESCO Distributors, Inc.
(registered broker dealer); and Chief
Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products; Chairman and
Chief Executive Officer of NationsBanc
Advisors, Inc.; and Chairman of
NationsBanc Investments, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 1998 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- ---------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
Formerly: President and Chief Executive
Officer, AMC Cancer Research Center; and
Chairman and Chief Executive Officer,
First Columbia Financial Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company)
Formerly: Partner, law firm of Baker &
McKenzie
- ---------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and Cortland Trust, Inc. (Chairman)
Trustee private business corporations, including (registered investment company);
the Boss Group Ltd. (private investment Annuity and Life Re (Holdings),
and management) and Magellan Insurance Ltd. (insurance company)
Company
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- ---------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile
Bankshares Corp.
- ---------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1998 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company) and Texana Timber LP
(sustainable forestry company)
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
Trustees and Officers (continued)
As of October 31, 2004
The address of each trustee and officer of AIM Special Opportunities Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -----------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1998 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company)
- -----------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (California)
Formerly: Associate Justice of the
California Court of Appeals
- -----------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -----------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1998 Partner, law firm of Pennock & Cooper None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1998 Executive Vice President, Development None
Trustee and Operations, Hines Interests Limited
Partnership (real estate development
company)
- -----------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(4) -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc. (financial services holding
Chief Compliance Officer company); Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; and Vice President, AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds
- -----------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. (financial
Officer services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc.; Director, Vice President
and General Counsel, Fund Management
Company and Senior Vice President, A I M
Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC and Vice President, A I M
Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 2002 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 2004 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 1999 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior Vice
President, A I M Advisors, Inc., and
President, Director of Investments,
Chief Executive Officer and Chief
Investment Officer, A I M Capital
Management, Inc. and A I M Management
Group Inc., A I M Advisors, Inc.; and
Director and Chairman, A I M Capital
Management, Inc.
Formerly: Director of A I M Advisors,
Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
(4) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. Ernst & Young LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 5 Houston Center
Houston, TX 77046-1173 Suite 100 Suite 100 1401 McKinney
Houston, TX 77046-1173 Houston, TX 77046-1173 Suite 1200
Houston, TX 77010-4035
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Ballard Spahr Kramer, Levin, Naftalis AIM Investment Services, State Street Bank and
Andrews & Ingersoll, LLP & Frankel LLP Inc. Trust Company
1735 Market Street 919 Third Avenue P.O. Box 4739 225 Franklin Street
Philadelphia, PA 19103-7599 New York, NY 10022-3852 Houston, TX 77210-4739 Boston, MA 02110-2801
</Table>
<Table>
DOMESTIC EQUITY SECTOR EQUITY
AIM Aggressive Growth Fund AIM Advantage Health Sciences Fund(1)
AIM Balanced Fund* AIM Energy Fund(1)
AIM Basic Balanced Fund* AIM Financial Services Fund(1)
AIM Basic Value Fund AIM Global Health Care Fund
AIM Blue Chip Fund AIM Gold & Precious Metals Fund(1)
AIM Capital Development Fund AIM Health Sciences Fund(1)
AIM Charter Fund AIM Leisure Fund(1)
AIM Constellation Fund AIM Multi-Sector Fund(1)
AIM Core Stock Fund(1) AIM Real Estate Fund
AIM Dent Demographic Trends Fund AIM Technology Fund(1)
AIM Diversified Dividend Fund AIM Utilities Fund(1)
AIM Dynamics Fund(1)
AIM Emerging Growth Fund FIXED INCOME
AIM Large Cap Basic Value Fund
AIM Large Cap Growth Fund TAXABLE
AIM Libra Fund
AIM Mid Cap Basic Value Fund AIM Floating Rate Fund
AIM Mid Cap Core Equity Fund(2) AIM High Yield Fund
AIM Mid Cap Growth Fund AIM Income Fund
AIM Mid Cap Stock Fund(1) AIM Intermediate Government Fund
AIM Opportunities I Fund AIM Limited Maturity Treasury Fund
AIM Opportunities II Fund AIM Money Market Fund
AIM Opportunities III Fund AIM Short Term Bond Fund
AIM Premier Equity Fund AIM Total Return Bond Fund
AIM S&P 500 Index Fund(1) Premier U.S. Government Money Portfolio(1)
AIM Select Equity Fund
AIM Small Cap Equity Fund(3) TAX-FREE
AIM Small Cap Growth Fund(4)
AIM Small Company Growth Fund(1) AIM High Income Municipal Fund
AIM Total Return Fund*(1) AIM Municipal Bond Fund
AIM Trimark Endeavor Fund AIM Tax-Exempt Cash Fund
AIM Trimark Small Companies Fund AIM Tax-Free Intermediate Fund
AIM Weingarten Fund
AIM ALLOCATION SOLUTIONS
INTERNATIONAL/GLOBAL EQUITY AIM Aggressive Allocation Fund
AIM Conservative Allocation Fund
AIM Asia Pacific Growth Fund AIM Moderate Allocation Fund
AIM Developing Markets Fund
AIM European Growth Fund
AIM European Small Company Fund(5)
AIM Global Aggressive Growth Fund
AIM Global Equity Fund(6)
AIM Global Growth Fund
AIM Global Value Fund
AIM International Core Equity Fund(1)
AIM International Emerging Growth Fund(7)
AIM International Growth Fund
AIM Trimark Fund
</Table>
* Domestic equity and income fund
(1)The following name changes became effective October 15, 2004: INVESCO
Advantage Health Sciences Fund to AIM Advantage Health Sciences Fund, INVESCO
Core Equity Fund to AIM Core Stock Fund, INVESCO Dynamics Fund to AIM Dynamics
Fund, INVESCO Energy Fund to AIM Energy Fund, INVESCO Financial Services Fund to
AIM Financial Services Fund, INVESCO Gold & Precious Metals Fund to AIM Gold &
Precious Metals Fund, INVESCO Health Sciences Fund to AIM Health Sciences Fund,
INVESCO International Core Equity Fund to AIM International Core Equity Fund,
INVESCO Leisure Fund to AIM Leisure Fund, INVESCO Mid-Cap Growth Fund to AIM Mid
Cap Stock Fund, INVESCO Multi-Sector Fund to AIM Multi-Sector Fund, INVESCO S&P
500 Index Fund to AIM S&P 500 Index Fund, INVESCO Small Company Growth Fund to
AIM Small Company Growth Fund, INVESCO Technology Fund to AIM Technology Fund,
INVESCO Total Return Fund to AIM Total Return Fund, INVESCO U.S. Government
Money Fund to Premier U.S. Government Money Portfolio, INVESCO Utilities Fund to
AIM Utilities Fund. (2)As of the close of business on February 27, 2004, AIM Mid
Cap Core Equity Fund is available to new investors on a limited basis. For
information on who may continue to invest in AIM Mid Cap Core Equity Fund,
please contact your financial advisor. (3)Effective December 13, 2004, AIM Small
Cap Equity Fund is open to all investors. (4)AIM Small Cap Growth Fund was
closed to most investors on March 18, 2002. For information on who may continue
to invest in AIM Small Cap Growth Fund, please contact your financial advisor.
(5)AIM European Small Company Fund will close to new investors when net assets
reach $500 million. (6)Effective March 31, 2004, AIM Global Trends Fund was
renamed AIM Global Equity Fund. (7)AIM International Emerging Growth Fund will
close to new investors when net assets reach $500 million.
If used after January 20, 2005, this report must be accompanied by a fund
Performance & Commentary or by an AIM Quarterly Performance Review for the most
recent quarter-end. Mutual funds distributed by A I M Distributors, Inc.
A I M Management Group Inc. has provided leadership in the investment management
industry since 1976 and manages $132 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $363 billion in assets under management. Data as of September 30,
2004.
CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
FOR THIS AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR
FINANCIAL ADVISOR AND READ IT THOROUGHLY BEFORE INVESTING.
AIMinvestments.com OPP2-AR-1 A I M Distributors, Inc.
<Table>
[YOUR GOALS. OUR SOLUTIONS.]--Registered Trademark--
- --------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Alternative Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Investments Management --Registered Trademark--
Plans Accounts
- --------------------------------------------------------------------------------------
</Table>
AIM OPPORTUNITIES III FUND
Annual Report to Shareholders o October 31, 2004
[COVER IMAGE]
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
<Table>
====================================================================================================================================
AIM OPPORTUNITIES III FUND SEEKS LONG-TERM GROWTH OF CAPITAL.
o Unless otherwise stated, information presented in this report is as of 10/31/04 and is based on total net assets.
====================================================================================================================================
o As discussed in a notice previously There is no guarantee that the fund OTHER INFORMATION
communicated to shareholders, the fund managers' investment strategies will
changed its strategy and its management help investors attain their goals. o Bloomberg, Inc. is an independent
team effective November 30, 2004, after Please see the prospectus for more financial research and reporting firm.
the close of the reporting period. While information about specific investment
the fund's objective continued to be strategies and risks. o The returns shown in the Management's
long-term growth of capital, the fund's Discussion of Fund Performance are based
investment style changed from growth to o The fund may participate in the on net asset values calculated for
value. The individual members of the initial public offering (IPO) market in shareholder transactions. Generally
team who are primarily responsible for some market cycles. Because of the accepted accounting principles require
the management of the fund's portfolio fund's small asset base, any investment adjustments to be made to the net assets
after that date are Roger J. Mortimer the fund may make in IPOs may of the fund at period end for financial
(lead), Robert Leslie and Glen Hilton. significantly affect the fund's total reporting purposes, and as such, the net
return. As the fund's assets grow, the asset values for shareholder
ABOUT SHARE CLASSES impact of IPO investments will decline, transactions and the returns based on
which may reduce the effect of IPO those net asset values may differ from
o Effective 9/30/03, Class B shares are investments on the fund's total return. the net asset values and returns
not available as an investment for reported in the Financial Highlights.
retirement plans maintained pursuant to ABOUT INDEXES USED IN THIS REPORT
Section 401 of the Internal Revenue o Industry classifications used in this
Code, including 401(k) plans, money o The unmanaged Standard & Poor's report are generally according to the
purchase pension plans and profit Composite Index of 500 Stocks (the S&P Global Industry Classification Standard,
sharing plans. Plans that have existing 500--Registered Trademark-- Index) is an which was developed by and is the
accounts invested in Class B shares will index of common stocks frequently used exclusive property and a service mark of
continue to be allowed to make as a general measure of U.S. stock Morgan Stanley Capital International
additional purchases. market performance. Inc. and Standard & Poor's.
PRINCIPAL RISKS OF INVESTING IN THE FUND o The unmanaged Lipper Large-Cap Growth The fund files its complete schedule of
Fund Index represents an average of the portfolio holdings with the Securities
o International investing presents performance of the 30 largest large- and Exchange Commission ("SEC") for the
certain risks not associated with capitalization growth funds tracked by 1st and 3rd quarters of each fiscal year
investing solely in the United States. Lipper, Inc., an independent mutual fund on Form N-Q. The fund's Form N-Q filings
These include risks relating to performance monitor. are available on the SEC's Web site at
fluctuations in the value of the U.S. http://www.sec.gov. Copies of the fund's
dollar relative to the values of other o The unmanaged MSCI World Index is a Forms N-Q may be reviewed and copied at
currencies, the custody arrangements group of global securities tracked by the SEC's Public Reference Room at 450
made for the fund's foreign holdings, Morgan Stanley Capital International. Fifth Street, N.W., Washington, D.C.
differences in accounting, political 20549-0102. You can obtain information
risks and the lesser degree of public o The fund is not managed to track the on the operation of the Public Reference
information required to be provided by performance of any particular index, Room, including information about
non-U.S. companies. The fund may invest including the indexes defined here, and duplicating fee charges, by calling
up to 25% of its assets in the consequently, the performance of the 1-202-942-8090 or by electronic request
securities of non-U.S. issuers. fund may deviate significantly from the at the following e-mail address:
performance of the indexes. publicinfo@sec.gov. The SEC file numbers
o The fund is nondiversified, which for the Fund are 811-08697 and
increases risks as well as potential o A direct investment cannot be made in 333-47949. The Fund's most recent
rewards. an index. Unless otherwise indicated, portfolio holdings, as filed on Form
index results include reinvested N-Q, are also available at
o Leveraging and short-selling, along dividends, and they do not reflect sales AIMinvestments.com.
with other hedging strategies, present charges. Performance of an index of
higher risks, but also offer greater funds reflects fund expenses; A description of the policies and
potential rewards. Since stock prices performance of a market index does not. procedures that the fund uses to
can rise without limit, short sales are determine how to vote proxies relating
riskier because of unlimited exposure to to portfolio securities is available
loss until the position is covered. The without charge, upon request, from our
fund, which is not a complete investment Client Services department at
program, may not be appropriate for all 800-959-4246 or on the AIM Web site,
investors. AIMinvestments.com. On the home page,
scroll down and click on AIM Funds Proxy
Policy. The information is also
available on the Securities and Exchange
Commission's Web site, sec.gov.
Information regarding how the fund voted
proxies related to its portfolio
securities during the 12 months ended
6/30/04 is available at our Web site. Go
to AIMinvestments.com, access the About
Us tab, click on Required Notices and
then click on Proxy Voting Activity.
Next, select your fund from the
drop-down menu.
</Table>
=============================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
=============================================================================
=====================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
=====================================================
AIMinvestments.com
TO OUR SHAREHOLDERS
Dear Fellow Shareholder of The AIM Family of
Funds--Registered Trademark--:
NEW BOARD CHAIRMAN
[PHOTO OF It is our pleasure to introduce you to Bruce Crockett, the
ROBERT H. new Chairman of the Board of Trustees of the AIM Funds. Bob
GRAHAM] Graham has served as Chairman of the Board of Trustees of
the AIM Funds ever since Ted Bauer retired from that
ROBERT H. GRAHAM position in 2000. However, as you may be aware, the U.S.
Securities and Exchange Commission recently adopted a rule
requiring that an independent fund trustee, meaning a
[PHOTO OF trustee who is not an officer of the fund's investment
MARK H. advisor, serve as chairman of the funds' Board. In addition,
WILLIAMSON] a similar provision was included in the terms of AIM
Advisors' recent settlements with certain regulators.
MARK H. WILLIAMSON Accordingly, the AIM Funds' Board recently elected Mr.
Crockett, one of the fourteen independent trustees on the
AIM Funds' Board, as Chairman. His appointment became
[PHOTO OF effective on October 4, 2004. Mr. Graham will remain on the
BRUCE L. funds' Board, as will Mark Williamson, President and Chief
CROCKETT] Executive Officer of AIM. Mr. Graham will also remain
Chairman of AIM Investments--Registered Trademark--.
BRUCE L. CROCKETT
Mr. Crockett has been a member of the AIM Funds' board
since 1992, when AIM acquired certain funds that had been
advised by CIGNA. He had been a member of the board of those funds since 1978.
Mr. Crockett has more than 30 years of experience in finance and general
management and has been Chairman of Crockett Technologies Associates since 1996.
He is the first independent chairman of the funds' board in AIM's history, as he
is not affiliated with AIM or AMVESCAP in any way. He is committed to ensuring
that the AIM Funds adhere to the highest standards of corporate governance for
the benefit of fund shareholders, and we at AIM share that commitment.
MARKET CONDITIONS DURING THE FISCAL YEAR
Virtually every equity index, domestic and foreign, produced positive returns
for the fiscal year ended October 31, 2004. Domestically, the S&P 500 Index was
up 9.41% for the year. Globally, the MSCI World Index advanced more than 13%.
However, a goodly portion of this positive performance was achieved during 2003.
Year to date as of October 31, the S&P 500 Index was up just over 3%, the MSCI
World Index just about 5%. In the pages that follow, you will find a more
detailed discussion of the market conditions that affected your fund during the
fiscal year.
While it is agreeable to report positive market performance for the year
covered by this report, as ever, we encourage our shareholders to look past
short-term performance and focus on their long-term investment goals. Over the
short term, the one sure thing about the investment markets is their
unpredictability. Over the long term, equities have produced very attractive
returns. For the 25-year period ended October 31, 2004, the S&P 500 Index
averaged 13.50% growth per year and the MSCI World Index averaged 11.16%. While
past performance cannot guarantee future results, we believe staying invested
for the long term offers the best opportunity for capital growth.
AN IMPORTANT ANNOUNCEMENT ABOUT YOUR FUND'S MANAGEMENT
Charles Scavone, who joined AIM in 1996 and has been responsible for the fund
since its inception, will retire from the company December 31, 2004. All of us
at AIM appreciate Mr. Scavone's years of dedicated service to AIM Investments
and to the fund's shareholders. He has played an important role in AIM's
success, and we wish him the best in his future endeavors.
The following pages of this report provide an explanation of how your fund
was managed during the fiscal year, how it performed in comparison to various
benchmarks, and a presentation of its long-term performance. We hope you find
this information helpful. Current information about your fund and about the
markets in general is always available on our Web site, AIMinvestments.com.
As always, AIM remains committed to building solutions for your investment
goals, and we thank you for your continued participation in AIM Investments. If
you have any questions, please contact our Client Service representatives at
800-959-4246.
Sincerely,
/S/ ROBERT H. GRAHAM /S/ MARK H. WILLIAMSON
- ------------------------------------ --------------------------------
Robert H. Graham Mark H. Williamson
Chairman, AIM Investments CEO & President, AIM Investments
President & Vice Chairman, AIM Funds Trustee, AIM Funds December 16, 2004
AIM Investments is a registered service mark of A I M Management Group Inc.
A I M Advisors, Inc. and A I M Capital Management, Inc. are the investment
advisors, and A I M Distributors, Inc. is the distributor for the retail funds
represented by AIM Investments.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
ADVERSE MARKET CONDITIONS UNDERMINED MARKET CONDITIONS the value of the stock, and thereby
FUND RESULTS achieve capital growth for the fund.
The U.S. economy showed signs of
AIM Opportunities III Fund's Class A strength during the fiscal year ended We saw a significant change in
shares returned 0.25% at net asset value October 31, 2004. Economic news was expectations in the economy in April and
for the fiscal year ended October 31, generally positive, marked by expansion May of 2004 in a very short time. In
2004. PERFORMANCE SHOWN AT NAV DOES NOT of gross domestic product (GDP), the June, as the Fed abruptly reversed its
INCLUDE FRONT-END SALES CHARGES, WHICH broadest measure of overall economic course and began tightening credit
WOULD HAVE REDUCED THE PERFORMANCE. activity. While remaining positive, GDP conditions, stocks that had been
Results for the fund's other share growth tapered off somewhat from an expected to perform well were revalued.
classes and for its benchmark indexes annualized rate of 4.2% in the fourth Historically, during periods when stocks
are shown in the table on page 3. quarter of 2003 to a more modest 3.9% in are reacting more to "big picture,"
the third quarter of 2004. macro effects, such as rising oil prices
The fund underperformed its peer and interest rates, terrorism and
group, as measured by the Lipper Despite this slippage, corporate pre-election uncertainty, it has been
Large-Cap Growth Fund Index, which earnings remained strong. Bloomberg difficult for us to find good
returned 2.63% for the period. The reported that 80% of the companies in short-selling opportunities. As a
fund's results also trailed the 9.41% the S&P 500 Index that had reported result, we carried a lower than usual
return of the S&P 500 Index, often cited third-quarter earnings by the close of level of short holdings during the
as a measure of U.S. stock market the fiscal year either met or exceeded period, and their net effect on fund
performance, in part because of the expectations; just 20% missed performance was negative; but
fund's growth orientation; the S&P 500 expectations. derivatives--especially option
Index also includes value stocks. In contracts--contributed significantly to
general, value stocks outperformed Generally positive economic net gains for the fiscal year.
growth stocks for the fiscal year. developments prompted the U.S. Federal
Reserve (the Fed) to raise its federal As the annualized rate of economic
Since the beginning of 2004, we funds target rate from a decades-low growth slowed over the fund's fiscal
continued to see the more economically 1.00%, where it stood at the beginning year, the information technology sector
sensitive or more cyclical sectors of the fiscal year, to 1.75% by the faced slowing capital spending, and many
(energy, utilities and fiscal year's close. tech stock values sagged.
telecommunications services, which
typically are not considered growth YOUR FUND Consequently, our position in this
sectors) perform the best. On the other sector hurt fund performance. In
hand, technology and health care--our We continued to use bottom-up selection response, we focused on the companies in
classic growth sectors--were the criteria, examining the fundamentals of which we had the most confidence and
worst-performing sectors. As a result, individual prospective holdings, rather exited the rest. This action reduced the
the fund's focus on growth-oriented than top-down considerations based on fund's weighting in that sector and
stocks placed it at a disadvantage when broad economic or sector trends. Using decreased the number of holdings in the
compared with the S&P 500 Index for this these criteria, we selected companies fund.
fiscal year. that we believed had the potential for
above-average earnings growth that may On the other hand, the energy sector
increase performed well for the fund during the
period, driven by the rising price of
oil and our favorable stock selections.
In the health care sector, large
pharmaceutical companies generally
detracted from fund
</Table>
<Table>
====================================================================================================================================
PORTFOLIO COMPOSITION TOP 10 LONG POSITIONS* SHORT POSITIONS
By sector; long and short holdings
1. Exxon Mobil Corp. 3.5% 1. Occidental Petroleum Corp. 1.1%
[PIE CHART]
2. General Electric Co. 3.0 2. Tidewater Inc. 0.8
Health Care 12.1%
3. Citigroup Inc. 2.9 3. Coors (Adolph) Co.-Class B 0.5
Money Market Funds Plus Other
Assets Less Liabilities 14.1% 4. Bear Stearns Cos. Inc. (The) 2.6 4. Network Appliance, Inc. 0.2
Consumer Staples 8.4% 5. Procter & Gamble Co. (The) 2.1 TOTAL NET ASSETS $126.7 MILLION
TOTAL NUMBER OF LONG HOLDINGS* 67
Energy 6.0% 6. Wal-Mart Stores, Inc. 2.1 TOTAL NUMBER OF SHORT HOLDINGS* 4
Financials 17.7% 7. Pfizer Inc. 2.1
Information Technology 16.4% 8. Freddie Mac 2.1
Consumer Discretionary 12.8% 9. Target Corp. 2.0
Industrials 12.5% 10. Wells Fargo & Co. 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.
====================================================================================================================================
</Table>
2
<Table>
results. A high level of inventory in does much business for the Department of BRANT H. DEMUTH
the distribution channel, along with Defense, the Department of Homeland Brant H. DeMuth,
competition from generics, pressured Security and other U.S. government [DEMUTH Chartered Financial
profitability. agencies. Its stock declined when major PHOTO] Analyst, is
defense contractor Lockheed Martin co-manager of AIM
Stocks that contributed to fund backed out of plans to acquire the Opportunities III
returns during the period included the company, citing Titan's inability to Fund. He began his investment career in
following: sort out some legal problems. The fund 1987 and joined AIM in 1996. Mr. DeMuth
sold the stock short and profited from received a B.S. in business
o Energy giant Exxon Mobil was a strong the price drop. administration from Colorado State
contributor for the fund during the University and an M.B.A. in oil and
period. In addition to the industry-wide IN CLOSING gas finance from the University
rise in oil prices, Exxon benefited from of Denver.
an increase in production. The fund continued to pursue long-term
growth of capital by holding equities of ROBERT C. LESLIE
o Gilead Sciences specializes in large-capitalization companies. We also Robert C. Leslie,
biopharmaceuticals to combat continued to apply alternative [LESLIE Chartered Financial
life-threatening infectious diseases. strategies and techniques, such as short PHOTO] Analyst, is
Its best seller is HIV treatment drug sales and derivatives, which are co-manager of AIM
Viread. In view of the firm's notable designed to target risk-adjusted Opportunities III
one-year increase in sales, we sold our returns. Fund. He began his investment career in
Gilead position to take profits. 1985 and joined AIM in 1998. Mr. Leslie
THE VIEWS AND OPINIONS EXPRESSED IN received a B.A. from Susquehanna
Holdings that hampered fund MANAGEMENT'S DISCUSSION OF FUND University and an M.B.A. in finance from
performance included the following: PERFORMANCE ARE THOSE OF A I M ADVISORS, the University of Maryland.
INC. THESE VIEWS AND OPINIONS ARE
o Computer chip maker Intel lowered its SUBJECT TO CHANGE AT ANY TIME BASED ON
revenue forecast due to lower than FACTORS SUCH AS MARKET AND ECONOMIC CHARLES C. SCAVONE
expected demand for its products. CONDITIONS. THESE VIEWS AND OPINIONS MAY Mr. Scavone,
However, since it is the world's NOT BE RELIED UPON AS INVESTMENT ADVICE [SCAVONE Chartered Financial
foremost semiconductor maker, we felt OR RECOMMENDATIONS, OR AS AN OFFER FOR A PHOTO] Analyst, is
confident Intel would recover and we PARTICULAR SECURITY. THE INFORMATION IS co-manager of AIM
retained a position in its stock. NOT A COMPLETE ANALYSIS OF EVERY ASPECT Opportunities I Fund.
OF ANY MARKET, COUNTRY, INDUSTRY, he has been in the investment business
o Pharmaceutical giant Merck pulled its SECURITY OR THE FUND. STATEMENTS OF FACT since 1991 and joined AIM in 1996. Mr.
arthritis drug VIOXX--registered ARE FROM SOURCES CONSIDERED RELIABLE, Scavone received a B.B.A. from
trademark-- from the market after a BUT A I M ADVISORS, INC. MAKES NO Southeastern Louisiana University and an
study indicated it could increase REPRESENTATION OR WARRANTY AS TO THEIR M.B.A. from the University of Houston.
patients' chances of a heart attack or COMPLETENESS OR ACCURACY. ALTHOUGH Mr. Scavone will retire from AIM
stroke. Merck expects its 2004 earnings HISTORICAL PERFORMANCE IS NO GUARANTEE December 31, 2004.
to be negatively affected. However, we OF FUTURE RESULTS, THESE INSIGHTS MAY
felt that the company's longer-term HELP YOU UNDERSTAND OUR INVESTMENT Assisted by the Opportunities Team
fundamentals remained solid and we MANAGEMENT PHILOSOPHY.
retained a position in its stock. Effective November 30, 2004, after the
See important fund and index close of the reporting period, the fund
One of the top individual disclosures inside front cover. changed its strategy and its management
contributors to fund performance was our team. While the fund's objective
short position in Titan, a technology continued to be long-term growth of
developer and systems integrator that capital, the fund's investment style
changed from growth to value. The
individual members of the team who are
primarily responsible for the management
of the fund's portfolio after that date
are Roger J. Mortimer (lead), Robert
Leslie and Glen Hilton.
========================================= =========================================== [RIGHT ARROW GRAPHIC]
TOP 10 INDUSTRIES* FUND VS. INDEXES FOR A PRESENTATION OF YOUR FUND'S
Long holdings only LONG-TERM PERFORMANCE RECORD, PLEASE
TOTAL RETURNS, 10/31/03-10/31/04, TURN TO PAGE 5.
1. Pharmaceuticals 7.4% EXCLUDING APPLICABLE SALES CHARGES. IF
SALES CHARGES WERE INCLUDED, RETURNS
2. Investment Banking & Brokerage 6.4 WOULD BE LOWER.
3. Household Products 4.8 Class A Shares 0.25%
Class B Shares -0.51
4. Aerospace & Defense 4.4 Class C Shares -0.51
S&P 500 Index (Broad Market
5. Integrated Oil & Gas 3.5 and Style-Specific Index) 9.41
6. Communications Equipment 3.4 Lipper Large-Cap Growth Fund Index
(Peer Group Index) 2.63
7. Thrifts & Mortgage Finance 3.3
SOURCE: LIPPER, INC.
8. Industrial Conglomerates 3.0 ===========================================
9. Other Diversified
Financial Services 2.9
10. Semiconductors 2.9
=========================================
</Table>
3
INFORMATION ABOUT YOUR FUND'S EXPENSES
<Table>
CALCULATING YOUR ONGOING FUND EXPENSES You may use the information in this or expenses you paid for the period. You
table, together with the amount you may use this information to compare the
EXAMPLE invested, to estimate the expenses that ongoing costs of investing in the fund
you paid over the period. Simply divide and other funds. To do so, compare this
As a shareholder of the fund, you incur your account value by $1,000 (for 5% hypothetical example with the 5%
two types of costs: (1) transaction example, an $8,600 account value divided hypothetical examples that appear in the
costs, which may include sales charges by $1,000 = 8.6), then multiply the shareholder reports of the other funds.
(loads) on purchase payments; contingent result by the number in the table under
deferred sales charges on redemptions; the heading entitled "Actual Expenses Please note that the expenses shown in
and redemption fees, if any; and (2) Paid During Period" to estimate the the table are meant to highlight your
ongoing costs, including management expenses you paid on your account during ongoing costs only and do not reflect
fees; distribution and/or service fees this period. any transactional costs, such as sales
(12b-1); and other fund expenses. This charges (loads) on purchase payments,
example is intended to help you HYPOTHETICAL EXAMPLE FOR COMPARISON contingent deferred sales charges on
understand your ongoing costs (in PURPOSES redemptions, and redemption fees, if
dollars) of investing in the fund and to any. Therefore, the hypothetical
compare these costs with ongoing costs The table below also provides information is useful in comparing
of investing in other mutual funds. The information about hypothetical account ongoing costs only, and will not help
example is based on an investment of values and hypothetical expenses based you determine the relative total costs
$1,000 invested at the beginning of the on the fund's actual expense ratio and of owning different funds. In addition,
period and held for the entire period, an assumed rate of return of 5% per year if these transactional costs were
May 1, 2004 - October 31, 2004. before expenses, which is not the fund's included, your costs would have been
actual return. The hypothetical account higher.
ACTUAL EXPENSES values and expenses may not be used to
estimate the actual ending account
The table below provides information balance
about actual account values and actual
expenses.
</Table>
<Table>
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
VALUE VALUE PAID DURING VALUE PAID DURING
(5/01/04) (10/31/04)(1) PERIOD(2) (10/31/04) PERIOD(2)
Class A $1,000.00 $993.80 $ 7.02 $1,018.10 $ 7.10
Class B 1,000.00 989.90 10.25 1,014.83 10.38
Class C 1,000.00 989.90 10.25 1,014.83 10.38
(1)The actual ending account value is based on the actual total return of the fund for the period May 1, 2004, to October 31, 2004,
after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio and a
hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period May 1, 2004, to
October 31, 2004, was -0.62%, -1.01%, and -1.01% for Classes A, B, and C shares, respectively.
(2)Expenses are equal to the fund's annualized expense ratio (1.40%, 2.05%, and 2.05% for Class A, B, and C shares, respectively)
multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
====================================================================================================================================
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
</Table>
4
LONG-TERM PERFORMANCE
YOUR FUND'S LONG-TERM PERFORMANCE
<Table>
====================================================================================================================================
Past performance cannot guarantee RESULTS OF A $10,000 INVESTMENT
comparable future results. 12/30/99-10/31/04; index data from 12/31/99.
Your fund's total return includes [MOUNTAIN CHART]
reinvested distributions, applicable
sales charges, fund expenses and DATE AIM LIPPER LARGE-CAP
management fees. Index results include OPPORTUNITIES III FUND GROWTH FUND S&P 500
reinvested dividends, but they do not CLASS A SHARES INDEX INDEX
reflect sales charges. Performance of an 12/30/99 $ 9450
index of funds reflects fund expenses 12/99 9450 $10000 $10000
and management fees; performance of a 1/00 9800 9599 9498
market index does not. Performance shown 2/00 11670 10103 9318
in the chart does not reflect deduction 3/00 12095 10813 10229
of taxes a shareholder would pay on fund 4/00 11538 9976 9921
distributions or sale of fund shares. 5/00 10952 9402 9718
Performance of the indexes does not 6/00 12132 10023 9957
reflect the effects of taxes. 7/00 12397 9820 9802
8/00 13654 10670 10410
9/00 13427 9856 9861
1000 12907 9335 9819
11/00 11632 8082 9045
12/00 12366 8032 9090
1/01 12220 8266 9412
2/01 11023 6986 8554
3/01 10400 6260 8013
4/01 10750 6932 8635
5/01 10712 6880 8693
6/01 10293 6682 8481
7/01 9991 6442 8398
8/01 9349 5952 7873
9/01 8531 5354 7237
10/01 8599 5576 7375
11/01 9086 6087 7941
12/01 9076 6115 8010
1/02 8832 5977 7893
2/02 8355 5729 7741
3/02 8648 5960 8032
4/02 8171 5563 7546
5/02 8131 5462 7490
6/02 7615 5017 6957
7/02 7167 4639 6415
8/02 7070 4665 6457
9/02 6466 4213 5756
10/02 6875 4537 6262
11/02 7177 4725 6630
12/02 6719 4396 6241
1/03 6622 4295 6077
2/03 6534 4248 5986
3/03 6564 4328 6044
4/03 7021 4645 6542
5/03 7323 4873 6886
6/03 7421 4913 6974
7/03 7625 5055 7097
8/03 7762 5180 7235
9/03 7606 5069 7159
10/03 7830 5377 7563
11/03 7888 5428 7630
12/03 8151 5581 8030
1/04 8267 5688 8177
2/04 8287 5713 8291
3/04 8112 5649 8166
4/04 7897 5522 8038
5/04 7965 5622 8148
6/04 8082 5703 8306
7/04 7615 5366 8031
8/04 7615 5328 8063
9/04 7674 5452 8151
10/04 $ 7850 $ 5518 $ 8275
Source: Lipper, Inc.
AVERAGE ANNUAL TOTAL RETURNS The performance data quoted represent
As of 10/31/04, including applicable past performance and cannot guarantee
sales charges comparable future results; current
performance may be lower or higher.
Please visit AIMinvestments.com for the
CLASS A SHARES most recent month-end performance.
Inception (12/30/99) -4.88% Performance figures reflect reinvested
1 Year -5.29 distributions, changes in net asset
value and the effect of the maximum
CLASS B SHARES sales charge unless otherwise stated.
Inception (3/31/00) -10.05% Investment return and principal value
1 Year -5.48 will fluctuate so that you may have a
gain or loss when you sell shares.
CLASS C SHARES
Inception (3/31/00) -9.66% Class A share performance reflects the
1 Year -1.51 maximum 5.50% sales charge, and Class B
and Class C share performance reflects
In addition to returns as of the close the applicable contingent deferred sales
of the fiscal year, industry regulations charge (CDSC) for the period involved.
require us to provide average annual The CDSC on Class B shares declines from
total returns as of 9/30/04, the most 5% beginning at the time of purchase to
recent calendar quarter-end. 0% at the beginning of the seventh year.
The CDSC on Class C shares is 1% for the
AVERAGE ANNUAL TOTAL RETURNS first year after purchase.
As of 9/30/04, most recent calendar The performance of the fund's share
quarter-end, including applicable sales classes will differ due to different
charges sales charge structures and class
expenses.
CLASS A SHARES
Inception (12/30/99) -5.42%
1 Year -4.60
CLASS B SHARES
Inception (3/31/00) -10.64%
1 Year -4.74
CLASS C SHARES
Inception (3/31/00) -10.25%
1 Year -0.74
====================================================================================================================================
</Table>
5
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-88.59%
AEROSPACE & DEFENSE-4.39%
General Dynamics Corp. 10,000 $ 1,021,200
- -----------------------------------------------------------------------
Rockwell Collins, Inc. 20,000 709,400
- -----------------------------------------------------------------------
Rolls-Royce Group PLC (United Kingdom)(a)(b) 415,000 1,980,743
- -----------------------------------------------------------------------
United Technologies Corp. 20,000 1,856,400
=======================================================================
5,567,743
=======================================================================
AIR FREIGHT & LOGISTICS-1.25%
United Parcel Service, Inc.-Class B 20,000 1,583,600
=======================================================================
APPAREL RETAIL-1.04%
Ross Stores, Inc. 50,000 1,313,500
=======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.25%
Legg Mason, Inc. 24,750 1,576,822
=======================================================================
AUTO PARTS & EQUIPMENT-0.45%
American Axle & Manufacturing Holdings, Inc. 20,000 574,000
=======================================================================
BIOTECHNOLOGY-0.79%
Amgen Inc.(b) 17,500 994,000
=======================================================================
BROADCASTING & CABLE TV-2.13%
Clear Channel Communications, Inc. 30,000 1,002,000
- -----------------------------------------------------------------------
Univision Communications Inc.-Class A(b) 54,700 1,693,512
=======================================================================
2,695,512
=======================================================================
COMMUNICATIONS EQUIPMENT-3.37%
Avaya Inc.(b) 100,000 1,440,000
- -----------------------------------------------------------------------
Cisco Systems, Inc.(b) 40,000 768,400
- -----------------------------------------------------------------------
Comverse Technology, Inc.(b) 100,000 2,064,000
=======================================================================
4,272,400
=======================================================================
COMPUTER & ELECTRONICS RETAIL-1.40%
Best Buy Co., Inc. 30,000 1,776,600
=======================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.94%
Deere & Co. 20,000 1,195,600
=======================================================================
CONSUMER FINANCE-1.16%
Capital One Financial Corp. 20,000 1,475,200
=======================================================================
DATA PROCESSING & OUTSOURCED SERVICES-2.71%
First Data Corp. 35,000 1,444,800
- -----------------------------------------------------------------------
SunGard Data Systems Inc.(b) 75,000 1,986,750
=======================================================================
3,431,550
=======================================================================
DEPARTMENT STORES-1.20%
Kohl's Corp.(b) 30,000 1,522,800
=======================================================================
DIVERSIFIED BANKS-1.95%
Wells Fargo & Co. 41,400 2,472,408
=======================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
ELECTRONIC EQUIPMENT MANUFACTURERS-2.54%
Agilent Technologies, Inc.(b) 55,000 $ 1,378,300
- -----------------------------------------------------------------------
Symbol Technologies, Inc. 125,000 1,836,250
=======================================================================
3,214,550
=======================================================================
GENERAL MERCHANDISE STORES-1.97%
Target Corp. 50,000 2,501,000
=======================================================================
HEALTH CARE EQUIPMENT-2.74%
Boston Scientific Corp.(b) 35,000 1,235,500
- -----------------------------------------------------------------------
Guidant Corp. 15,000 999,300
- -----------------------------------------------------------------------
Medtronic, Inc. 24,300 1,241,973
=======================================================================
3,476,773
=======================================================================
HEALTH CARE SERVICES-1.20%
Medco Health Solutions, Inc.(b) 45,000 1,525,950
=======================================================================
HOME IMPROVEMENT RETAIL-1.71%
Home Depot, Inc. (The) 52,600 2,160,808
=======================================================================
HOUSEHOLD PRODUCTS-4.84%
Clorox Co. (The)(c) 22,000 1,201,200
- -----------------------------------------------------------------------
Colgate-Palmolive Co. 50,000 2,231,000
- -----------------------------------------------------------------------
Procter & Gamble Co. (The) 52,800 2,702,304
=======================================================================
6,134,504
=======================================================================
HYPERMARKETS & SUPER CENTERS-2.13%
Wal-Mart Stores, Inc. 50,000 2,696,000
=======================================================================
INDUSTRIAL CONGLOMERATES-3.03%
General Electric Co. 112,600 3,841,912
=======================================================================
INTEGRATED OIL & GAS-3.50%
Exxon Mobil Corp. 90,000 4,429,800
=======================================================================
INTERNET SOFTWARE & SERVICES-1.27%
VeriSign, Inc.(b) 60,000 1,609,800
=======================================================================
INVESTMENT BANKING & BROKERAGE-6.39%
Bear Stearns Cos. Inc. (The) 35,000 3,316,250
- -----------------------------------------------------------------------
Lehman Brothers Holdings Inc. 19,500 1,601,925
- -----------------------------------------------------------------------
Merrill Lynch & Co., Inc. 20,000 1,078,800
- -----------------------------------------------------------------------
Morgan Stanley 22,000 1,123,980
- -----------------------------------------------------------------------
Raymond James Financial, Inc. 37,500 978,750
=======================================================================
8,099,705
=======================================================================
LIFE & HEALTH INSURANCE-0.76%
AFLAC Inc. 26,900 965,172
=======================================================================
OIL & GAS DRILLING-2.80%
Nabors Industries, Ltd. (Bermuda)(b) 30,000 1,473,600
- -----------------------------------------------------------------------
Rowan Cos., Inc.(b) 40,000 1,021,200
- -----------------------------------------------------------------------
Transocean Inc. (Cayman Islands)(b) 30,000 1,057,500
=======================================================================
3,552,300
=======================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES-1.21%
BJ Services Co. 30,000 $ 1,530,000
=======================================================================
OIL & GAS EXPLORATION & PRODUCTION-0.45%
Spinnaker Exploration Co.(b) 18,000 574,560
=======================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-2.91%
Citigroup Inc. 83,200 3,691,584
=======================================================================
PHARMACEUTICALS-7.41%
Allergan, Inc. 20,000 1,431,200
- -----------------------------------------------------------------------
Barr Pharmaceuticals Inc.(b) 42,000 1,581,300
- -----------------------------------------------------------------------
Merck & Co. Inc. 68,600 2,147,866
- -----------------------------------------------------------------------
Pfizer Inc. 90,000 2,605,500
- -----------------------------------------------------------------------
Teva Pharmaceuticals Industries Ltd.-ADR
(Israel) 50,000 1,300,000
- -----------------------------------------------------------------------
Valeant Pharmaceuticals International 13,300 319,200
=======================================================================
9,385,066
=======================================================================
PUBLISHING-1.15%
Gannett Co., Inc. 17,500 1,451,625
=======================================================================
RAILROADS-2.86%
Canadian National Railway Co. (Canada) 26,250 1,418,813
- -----------------------------------------------------------------------
Norfolk Southern Corp. 65,000 2,206,750
=======================================================================
3,625,563
=======================================================================
SEMICONDUCTOR EQUIPMENT-2.13%
KLA-Tencor Corp.(b) 25,000 1,138,250
- -----------------------------------------------------------------------
Novellus Systems, Inc.(b) 60,000 1,554,600
=======================================================================
2,692,850
=======================================================================
SEMICONDUCTORS-2.91%
Analog Devices, Inc. 20,000 805,200
- -----------------------------------------------------------------------
Intel Corp. 100,000 2,226,000
- -----------------------------------------------------------------------
Intersil Corp.-Class A 40,000 652,800
=======================================================================
3,684,000
=======================================================================
SOFT DRINKS-1.94%
Coca-Cola Co. (The) 22,000 894,520
- -----------------------------------------------------------------------
PepsiCo, Inc. 31,600 1,566,728
=======================================================================
2,461,248
=======================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
SPECIALTY STORES-1.78%
Bed Bath & Beyond Inc.(b) 22,500 $ 917,775
- -----------------------------------------------------------------------
Williams-Sonoma, Inc.(b) 35,000 1,335,950
=======================================================================
2,253,725
=======================================================================
SYSTEMS SOFTWARE-1.66%
Microsoft Corp. 75,000 2,099,250
=======================================================================
THRIFTS & MORTGAGE FINANCE-3.27%
Freddie Mac(c) 39,000 2,597,400
- -----------------------------------------------------------------------
MGIC Investment Corp. 24,000 1,543,440
=======================================================================
4,140,840
=======================================================================
Common Stocks & Other Equity Interests (Cost
$99,316,682) 112,250,320
=======================================================================
MONEY MARKET FUNDS-9.04%
Liquid Assets Portfolio-Institutional
Class(d) 5,724,049 5,724,049
- -----------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(d) 5,724,049 5,724,049
=======================================================================
Total Money Market Funds (Cost
$11,448,098) 11,448,098
=======================================================================
TOTAL INVESTMENTS-97.63% (Cost $110,764,780) 123,698,418
=======================================================================
OTHER ASSETS LESS LIABILITIES-2.37% 3,007,144
=======================================================================
NET ASSETS-100.00% 126,705,562
=======================================================================
</Table>
<Table>
<Caption>
SHARES
SOLD
SHORT
SECURITIES SOLD SHORT-2.68%(E)
COMMON STOCKS-2.68%
BREWERS-0.53%
Coors (Adolph) Co.-Class B 10,000 667,000
==================================================================
COMPUTER STORAGE & PERIPHERALS-0.21%
Network Appliance, Inc. 10,700 261,829
==================================================================
INTEGRATED OIL & GAS-1.10%
Occidental Petroleum Corp. 25,000 1,395,750
==================================================================
OIL & GAS EQUIPMENT & SERVICES-0.84%
Tidewater Inc. 34,600 1,070,178
==================================================================
Total Common Stock Securities Sold Short
(Total Proceeds $3,096,429) $3,394,757
__________________________________________________________________
==================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
market value of this security at October 31, 2004, represented 1.60% of the
Fund's Total Investments. See Note 1A.
(b) Non-income producing security.
(c) A portion of this security is subject to call options written. See Note 1I
and Note 8.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(e) Collateral on short sales was segregated by the Fund in the amount of
$5,662,820, which represents 166.81% of the market value of securities sold
short.
See accompanying notes which are an integral part of the financial statements.
F-2
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$99,316,682) $ 112,250,320
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $11,448,098) 11,448,098
============================================================
Total investments (cost $110,764,780) 123,698,418
============================================================
Receivables for:
Deposits with brokers for securities sold
short 4,734,287
- ------------------------------------------------------------
Investments sold 2,257,429
- ------------------------------------------------------------
Fund shares sold 13,735
- ------------------------------------------------------------
Dividends and interest 117,461
- ------------------------------------------------------------
Short stock rebates 5,851
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 30,009
- ------------------------------------------------------------
Other assets 11,196
============================================================
Total assets 130,868,386
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 579,472
- ------------------------------------------------------------
Options written, at market value (premiums
received $26,649) 17,570
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 36,916
- ------------------------------------------------------------
Securities sold short, at market value
(proceeds $3,096,429) 3,394,757
- ------------------------------------------------------------
Accrued distribution fees 76,961
- ------------------------------------------------------------
Accrued trustees' fees 1,197
- ------------------------------------------------------------
Accrued transfer agent fees 17,978
- ------------------------------------------------------------
Accrued operating expenses 37,973
============================================================
Total liabilities 4,162,824
============================================================
Net assets applicable to shares outstanding $ 126,705,562
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 401,263,167
- ------------------------------------------------------------
Undistributed net investment income (loss) (31,909)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies,
futures contracts, option contracts and
securities sold short (287,170,760)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies, futures
contracts, option contracts and securities
sold short 12,645,064
============================================================
$ 126,705,562
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 54,788,241
____________________________________________________________
============================================================
Class B $ 54,796,736
____________________________________________________________
============================================================
Class C $ 17,120,585
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 6,801,164
____________________________________________________________
============================================================
Class B 7,021,558
____________________________________________________________
============================================================
Class C 2,194,279
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 8.06
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $8.06 divided by
94.50%) $ 8.53
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 7.80
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 7.80
____________________________________________________________
============================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-3
STATEMENT OF OPERATIONS
For the year ended October 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $7,547) $ 1,759,806
- -------------------------------------------------------------------------
Dividends from affiliated money market funds 78,156
- -------------------------------------------------------------------------
Interest 18,280
- -------------------------------------------------------------------------
Short stock rebates 71,885
=========================================================================
Total investment income 1,928,127
=========================================================================
EXPENSES:
Advisory fees 790,522
- -------------------------------------------------------------------------
Administrative services fees 50,000
- -------------------------------------------------------------------------
Custodian fees 35,824
- -------------------------------------------------------------------------
Distribution fees:
Class A 245,760
- -------------------------------------------------------------------------
Class B 669,217
- -------------------------------------------------------------------------
Class C 218,651
- -------------------------------------------------------------------------
Interest and line of credit 299,251
- -------------------------------------------------------------------------
Transfer agent fees 414,934
- -------------------------------------------------------------------------
Trustees' fees and retirement benefits 15,047
- -------------------------------------------------------------------------
Dividends on short sales 59,573
- -------------------------------------------------------------------------
Other 230,522
=========================================================================
Total expenses 3,029,301
=========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangement (36,961)
=========================================================================
Net expenses 2,992,340
=========================================================================
Net investment income (loss) (1,064,213)
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES, FUTURES CONTRACTS, OPTION
CONTRACTS AND SECURITIES SOLD SHORT:
Net realized gain (loss) from:
Investment securities 7,467,734
- -------------------------------------------------------------------------
Foreign currencies 7,238
- -------------------------------------------------------------------------
Futures contracts 795,909
- -------------------------------------------------------------------------
Option contracts written 762,718
- -------------------------------------------------------------------------
Securities sold short (821,567)
=========================================================================
8,212,032
=========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (6,741,711)
- -------------------------------------------------------------------------
Foreign currencies 676
- -------------------------------------------------------------------------
Futures contracts (77,735)
- -------------------------------------------------------------------------
Option contracts written 84,497
- -------------------------------------------------------------------------
Securities sold short (20,079)
=========================================================================
(6,754,352)
=========================================================================
Net gain from investment securities, foreign currencies,
futures contracts, option contracts and securities sold
short 1,457,680
=========================================================================
Net increase in net assets resulting from operations $ 393,467
_________________________________________________________________________
=========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- --------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (1,064,213) $ (2,205,484)
- --------------------------------------------------------------------------------
Net realized gain (loss) from investment
securities, foreign currencies, futures
contracts, option contracts and securities
sold short 8,212,032 (8,142,133)
- --------------------------------------------------------------------------------
Change in net unrealized appreciation
(depreciation) of investment securities,
foreign currencies, futures contracts, option
contracts and securities sold short (6,754,352) 32,535,883
================================================================================
Net increase in net assets resulting from
operations 393,467 22,188,266
================================================================================
Share transactions-net:
Class A (24,073,386) (21,211,606)
- --------------------------------------------------------------------------------
Class B (16,058,824) (15,744,252)
- --------------------------------------------------------------------------------
Class C (6,959,632) (9,396,783)
================================================================================
Net increase (decrease) in net assets
resulting from share transactions (47,091,842) (46,352,641)
================================================================================
Net increase (decrease) in net assets (46,698,375) (24,164,375)
================================================================================
NET ASSETS:
Beginning of year 173,403,937 197,568,312
================================================================================
End of year (including undistributed net
investment income (loss) of $(31,909) and
$(26,276), respectively) $126,705,562 $173,403,937
________________________________________________________________________________
================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
October 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Opportunities III Fund (the "Fund") is a series portfolio of AIM Special
Opportunities Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of three
separate portfolios, each authorized to issue an unlimited number of shares of
beneficial interest. The Fund currently offers multiple classes of shares.
Matters affecting each portfolio or class will be voted on exclusively by the
shareholders of such portfolio or class. The assets, liabilities and operations
of each portfolio are accounted for separately. Information presented in these
financial statements pertains only to the Fund.
The Fund's objective is long-term growth of capital. Each company listed in
the Schedule of Investments is organized in the United States of America unless
otherwise noted.
Under the Trust's organizational documents, the Fund's officers, trustees,
employees and agents are indemnified against certain liabilities that may arise
out of performance of their duties to the Fund. Additionally, in the normal
course of business, the Fund enters into contracts that contain a variety of
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, the Fund has not had prior claims or losses
pursuant to these contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
is valued on the basis of prices furnished by independent pricing services
or market makers. Each security reported on the NASDAQ National Market
System is valued at the NASDAQ Official Closing Price ("NOCP") as of the
close of the customary trading session on the valuation date or absent a
NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
F-5
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of 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 and short stock rebate income are recorded on the
accrual basis. Dividend income and dividend expense on short sales are
recorded on the ex-dividend date. Premiums and discounts are amortized
and/or accreted for financial reporting purposes.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
F. SECURITIES SOLD SHORT -- The Fund may enter into short sales of securities
which it concurrently holds (against the box) or for which it holds no
corresponding position (naked). Securities sold short represent a liability
of the Fund to acquire specific securities at prevailing market prices at a
future date in order to satisfy the obligation to deliver the securities
sold. The liability is recorded on the books of the Fund at the market
value of the common stock determined each day in accordance with the
procedures for security valuations disclosed in "A" above. The Fund will
incur a loss if the price of the security increases between the date of the
short sale and the date on which the Fund replaces the borrowed security.
The Fund realizes a gain if the price of the security declines between
those dates. The Fund is required to segregate cash or securities as
collateral in margin accounts at a level that is equal to the obligation to
the broker who delivered such securities to the buyer on behalf of the
Fund. The short stock rebate presented in the Statement of Operations
represents the net income earned on short sale proceeds held on deposit
with the broker and margin interest earned or incurred on short sale
transactions. The Fund may also earn or incur margin interest on short
sales transactions. Margin interest is the income earned (or expense
incurred) as a result of the market value of securities sold short being
less than (or greater than) the proceeds received from the short sales.
G. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities (net of foreign taxes withheld on disposition) and income items
denominated in foreign currencies are translated into U.S. dollar amounts
on the respective dates of such transactions. The Fund does not separately
account for the portion of the results of operations resulting from changes
in foreign exchange rates on investments and the fluctuations arising from
changes in market prices of securities held. The combined results of
changes in foreign exchange rates and the fluctuation of market prices on
investments (net of estimated foreign tax withholding) are included with
the net realized and unrealized gain or loss from investments in the
F-6
Statement of Operations. Reported net realized foreign currency gains or
losses arise from, (i) sales of foreign currencies, (ii) currency gains or
losses realized between the trade and settlement dates on securities
transactions, and (iii) the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the Fund's books and
the U.S. dollar equivalent of the amounts actually received or paid. Net
unrealized foreign currency gains and losses arise from changes in the fair
values of assets and liabilities, other than investments in securities at
fiscal period end, resulting from changes in exchange rates.
H. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
I. CALL OPTIONS -- The Fund may write and buy call options, including
securities index options. Options written by the Fund normally will have
expiration dates between three and nine months from the date written. The
exercise price of a call option may be below, equal to, or above the
current market value of the underlying security at the time the option is
written. When the Fund writes a call option, an amount equal to the premium
received by the Fund is recorded as an asset and an equivalent liability.
The amount of the liability is subsequently "marked-to-market" to reflect
the current market value of the option written. The current market value of
a written option is the mean between the last bid and asked prices on that
day. If a written call option expires on the stipulated expiration date, or
if the Fund enters into a closing purchase transaction, the Fund realizes a
gain (or a loss if the closing purchase transaction exceeds the premium
received when the option was written) without regard to any unrealized gain
or loss on the underlying security, and the liability related to such
option is extinguished. If a written option is exercised, the Fund realizes
a gain or a loss from the sale of the underlying security and the proceeds
of the sale are increased by the premium originally received. A risk in
writing a call option is that the Fund gives up the opportunity for profit
if the market price of the security increases and the option is exercised.
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. The purchaser of a call
option has the right to acquire the security which is the subject of the
call option at any time during the option period. During the option period,
in return for the premium paid by the purchaser of the option, the Fund has
given up the opportunity for capital appreciation above the exercise price
should the market price of the underlying security increase, but has
retained the risk of loss should the price of the underlying security
decline. During the option period, the Fund may be required at any time to
deliver the underlying security against payment of the exercise price. This
obligation is terminated upon the expiration of the option period or at
such earlier time at which the Fund effects a closing purchase transaction
by purchasing (at a price which may be higher than that received when the
call option was written) a call option identical to the one originally
written.
An option on a securities index gives the holder the right to receive a
cash "exercise settlement amount" equal to the difference between the
exercise price of the option and the value of the underlying stock index on
the exercise date, multiplied by a fixed "index multiplier." A securities
index fluctuates with changes in the market values of the securities
included in the index. In the purchase of securities index options, the
principal risk is that the premium and transaction costs paid by the Fund
in purchasing an option will be lost if the changes in the level of the
index do not exceed the cost of the option. In writing securities index
options, the principal risk is that the Fund could bear a loss on the
options that would be only partially offset (or not offset at all) by the
increased value or reduced cost of hedged securities. Moreover, in the
event the Fund was unable to close an option it had written, it might be
unable to sell the securities used as cover.
J. PUT OPTIONS -- The Fund may purchase and write put options including
securities index options. By purchasing a put option, the Fund obtains the
right (but not the obligation) to sell the option's underlying instrument
at a fixed strike price. In return for this right, the Fund pays an option
premium. The option's underlying instrument may be a security, 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 securities hedged. The Fund may write put
options to earn additional income in the form of option premiums if it
expects the price of the underlying securities 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. A risk in buying an option
is that the Fund pays a premium whether or not the option is exercised. In
addition, there can be no assurance that a liquid secondary market will
exist for any option purchased or sold.
K. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. If the Fund were unable
to liquidate a futures contract and/or enter into an offsetting closing
transaction, the Fund would continue to be subject to market risk with
respect to the value of the contracts and continue to be required to
maintain the margin deposits on the futures contracts.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays a base management fee calculated at the annual rate of 1.50% of
the Fund's average daily net assets. The base management fee will be adjusted,
on a monthly basis, (i) upward at the rate of 0.20%, on a pro rata basis, for
each percentage point the 12-month rolling investment performance of the Class A
shares exceeds the sum of 2.00% and the 12-month rolling investment record of
the S&P 500 Index, or (ii) downward at the
F-7
rate of 0.20%, on a pro rata basis, for each percentage point the 12-month
rolling investment record of the S&P 500 Index less 2.00% exceeds the 12-month
rolling investment performance of the Class A shares. 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 October 31,
2004, AIM waived fees of $1,139.
For the year ended October 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $33,387 of expenses incurred
by the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended October 31, 2004, AIM was
paid $50,000 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to pay
AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency and
shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the year ended
October 31, 2004, the Fund paid AISI $414,934. AISI may make payments to
intermediaries that provide omnibus account services, sub-accounting services
and/or networking services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A,
Class B and Class C shares (collectively the "Plans"). The Fund, pursuant to the
Plans, pays AIM Distributors compensation at the annual rate of 0.35% of the
Fund's average daily net assets of Class A shares and 1.00% of the average daily
net assets of Class B and Class C shares. Of these amounts, up to 0.25% of the
average daily net assets of the Class A, Class B or Class C shares may be paid
to furnish continuing personal shareholder services to customers who purchase
and own shares of such classes. Any amounts not paid as a service fee under the
Plans would constitute an asset-based sales charge. NASD Rules also impose a cap
on the total sales charges, including asset-based sales charges that may be paid
by any class of shares of the Fund. Pursuant to the Plans, for the year ended
October 31, 2004, the Class A, Class B and Class C shares paid $245,760,
$669,217 and $218,651, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the year
ended October 31, 2004, AIM Distributors advised the Fund that it retained
$5,510 in front-end sales commissions from the sale of Class A shares and $0,
$1,017 and $336 from Class A, Class B shares and Class C shares, respectively,
for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of AIM,
AISI and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC") and approved procedures by the Board of Trustees, to
invest daily available cash balances in affiliated money market funds. The Fund
and the money market funds below have the same investment advisor and therefore,
are considered to be affiliated. The table below shows the transactions in and
earnings from investments in affiliated money market funds for the year ended
October 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $4,191,881 $ 50,891,600 $(49,359,432) $ -- $ 5,724,049 $39,255 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 4,191,881 50,891,600 (49,359,432) -- 5,724,049 38,901 --
==================================================================================================================================
Total $8,383,762 $101,783,200 $(98,718,864) $ -- $11,448,098 $78,156 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended October 31, 2004, the Fund
engaged in purchases and sales of securities of $1,367,800 and $4,812,546,
respectively.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer agent
for clearing shareholder transactions. For the year ended October 31, 2004, the
Fund received credits in transfer agency fees of $2,435 under an expense offset
arrangement, which resulted in a reduction of the Fund's total expenses of
$2,435.
F-8
NOTE 6--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that provides
for benefits to be paid upon retirement to Trustees over a period of time based
on the number of years of service. The Fund may have certain former Trustees
that also participate in a retirement plan and receive benefits under such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended October 31, 2004, the Fund paid legal fees of $4,858 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
The Fund is a participant in a committed line of credit facility with a
syndicate administered by JP Morgan Chase Bank. The Fund may borrow up to the
lessor of (i) $240,000,000, or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. The funds which
are party to the line of credit are charged a commitment fee of 0.10% on the
unused balance of the committed line. During the year ended October 31, 2004,
the fund had average borrowings for the number of days the borrowings were
outstanding in the amount of $19,698,795 with a weighted average interest rate
of 1.82% and interest expense of $243,781.
Effective November 1, 2004, the Fund entered into a new agreement whereby the
Fund may borrow up to the lesser of (i) $225,000,000, or (ii) the limits set by
its prospectus for borrowings and the funds that are parties to the line of
credit will be charged a commitment fee of 0.09% on the unused balance of the
committed line.
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan. The Fund did not borrow or
lend under the facility during the year ended October 31, 2004.
Additionally, the Fund is permitted to temporarily carry a negative or overdrawn
balance in its account with SSB, the custodian bank. To compensate the custodian
bank for such overdrafts, the overdrawn Fund may either (i) leave funds in the
account so the custodian can be compensated by earning the additional interest;
or (ii) compensate by paying the custodian bank. In either case, the custodian
bank will be compensated at an amount equal to the Federal Funds rate plus 100
basis points.
NOTE 8--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 year 2,463 $ 300,549 -- $ --
- ----------------------------------------------------------------------------------------------------------------
Written 15,066 1,650,667 4,005 220,512
- ----------------------------------------------------------------------------------------------------------------
Closed (8,731) (1,282,034) (2,975) (148,105)
- ----------------------------------------------------------------------------------------------------------------
Exercised (3,044) (309,723) (1,030) (72,407)
- ----------------------------------------------------------------------------------------------------------------
Expired (5,508) (332,810) -- --
================================================================================================================
End of year 246 $ 26,649 -- $ --
________________________________________________________________________________________________________________
================================================================================================================
</Table>
<Table>
<Caption>
OPEN CALL OPTIONS WRITTEN AT PERIOD END
- ----------------------------------------------------------------------------------------------------------------
OCTOBER 1,
2004
CONTRACT STRIKE NUMBER OF PREMIUMS MARKET UNREALIZED
MONTH PRICE CONTRACTS RECEIVED VALUE APPRECIATION
- ----------------------------------------------------------------------------------------------------------------
Clorox Co. (The) Nov-04 $55.0 220 $24,426 $17,050 $7,376
- ----------------------------------------------------------------------------------------------------------------
Freddie Mac Nov-04 70.0 26 2,223 520 1,703
================================================================================================================
Total outstanding options written 246 $26,649 $17,570 $9,079
________________________________________________________________________________________________________________
================================================================================================================
</Table>
F-9
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long-term capital gain distributions paid
during the years ended October 31, 2004 and 2003.
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- -----------------------------------------------------------------------------
Unrealized appreciation -- investments $ 10,164,065
- -----------------------------------------------------------------------------
Temporary book/tax differences (31,909)
- -----------------------------------------------------------------------------
Capital loss carryforward (284,689,761)
- -----------------------------------------------------------------------------
Shares of beneficial interest 401,263,167
=============================================================================
Total net assets $ 126,705,562
_____________________________________________________________________________
=============================================================================
</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 deferral of losses on straddles. The tax-basis unrealized
appreciation on investments amount includes appreciation on foreign currencies
of $675 and appreciation on option contracts of $9,079.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions. Under these limitation rules, the Fund is limited as of October
31, 2004 to utilizing $279,652,604 of capital loss carryforward in the fiscal
year ended October 31, 2005.
The Fund utilized $8,567,548 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of October 31, 2004 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
October 31, 2009 $179,286,150
- -----------------------------------------------------------------------------
October 31, 2010 91,348,699
- -----------------------------------------------------------------------------
October 31, 2011 14,054,912
=============================================================================
Total capital loss carryforward $284,689,761
_____________________________________________________________________________
=============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code. To
the extent that unrealized gains as of November 3, 2003, the date of the
reorganization of INVESCO Advantage 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 reorganization.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
October 31, 2004 was $140,234,303 and $215,512,881, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of:
Investment securities $14,668,954
- -------------------------------------------------------------------------------
Securities sold short 17,902
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of:
Investment securities (4,216,315)
- -------------------------------------------------------------------------------
Securities sold short (316,230)
===============================================================================
Net unrealized appreciation of investment securities $10,154,311
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $113,245,779.
Securities sold short have the same costs for tax and financial statement
purposes.
</Table>
F-10
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of a net operating losses
and foreign currency transactions, on October 31, 2004, undistributed net
investment income (loss) was increased by $1,060,630, undistributed net realized
gain (loss) was increased by certain payments received on securities sold short
and capital loss limitations $37,103,817 and shares of beneficial interest
decreased by $38,164,447. Further, as result of tax deferrals acquired in the
reorganization of INVESCO Advantage Fund into the Fund, undistributed net income
was decreased by $2,050, undistributed net realized gain (loss) was decreased by
$43,304,976 and shares of beneficial interest increased by $43,307,026. These
reclassifications had no effect on the net assets of the Fund.
NOTE 12--SHARE INFORMATION
The Fund currently offers three different classes of shares: Class A shares,
Class B shares and Class C shares. Class A shares are sold with a front-end
sales charge. Class B shares and Class C shares are sold with CDSC. Under
certain circumstances, Class A shares are subject to CDSC. Generally, Class B
shares will automatically convert to Class A shares eight years after the end of
the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(a)
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------
2004 2003
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 501,197 $ 4,153,216 1,071,035 $ 7,833,471
- ----------------------------------------------------------------------------------------------------------------------
Class B 186,041 1,484,901 693,006 4,950,673
- ----------------------------------------------------------------------------------------------------------------------
Class C 110,586 883,122 151,992 1,085,912
======================================================================================================================
Issued in connection with acquisitions:(b)
Class A 530,892 4,270,935 -- --
- ----------------------------------------------------------------------------------------------------------------------
Class B 740,509 5,801,027 -- --
- ----------------------------------------------------------------------------------------------------------------------
Class C 311,873 2,444,143 -- --
======================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 163,800 1,352,401 125,000 919,786
- ----------------------------------------------------------------------------------------------------------------------
Class B (168,500) (1,352,401) (127,822) (919,786)
======================================================================================================================
Reacquired:
Class A (4,145,780) (33,849,938) (4,084,004) (29,964,863)
- ----------------------------------------------------------------------------------------------------------------------
Class B (2,775,151) (21,992,351) (2,773,275) (19,775,139)
- ----------------------------------------------------------------------------------------------------------------------
Class C (1,295,910) (10,286,897) (1,477,213) (10,482,695)
======================================================================================================================
(5,840,443) $(47,091,842) (6,421,281) $(46,352,641)
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and owns 13% of the outstanding shares of the
Fund. AIM Distributors has an agreement with this entity to sell Fund
shares. The Fund, AIM and or AIM affiliates may make payments to this
entity, which is considered to be related, for providing services to the
Fund, AIM and or AIM affiliates including but not limited to services such
as, securities brokerage, distribution, third party record keeping and
account servicing. The Trust has no knowledge as to whether all or any
portion of the shares owned of record are also owned beneficially.
(b) As of the opening of business on November 3, 2003, the Fund acquired all of
the net assets of INVESCO Advantage Fund, pursuant to a plan of
reorganization approved by the Trustees of the Fund on June 11, 2003 and
INVESCO Advantage Fund shareholders on October 21, 2003. The acquisition was
accomplished by a tax-free exchange of 1,583,274 shares of the Fund for
2,180,862 shares of INVESCO Advantage Fund outstanding as of the close of
business on October 31, 2003. INVESCO Advantage Fund's net assets at that
date of $12,516,105, including $2,028,124 of unrealized appreciation, were
combined with those of the Fund. The aggregate net assets of the Fund
immediately before the acquisition were $173,469,765.
F-11
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
---------------------------------------------------------------------------------------------
DECEMBER 30, 1999
THREE MONTHS (DATE OPERATIONS
YEAR ENDED OCTOBER 31, ENDED COMMENCED) TO
-------------------------------------------------- OCTOBER 31, JULY 31,
2004 2003 2002 2001 2000 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 8.04 $ 7.06 $ 8.83 $ 13.60 $ 13.12 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03)(a) (0.06)(a) (0.02)(a)(b) (0.03)(a) 0.00(a) (0.01)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 0.05 1.04 (1.75) (4.37) 0.48 3.13
=================================================================================================================================
Total from investment
operations 0.02 0.98 (1.77) (4.40) 0.48 3.12
=================================================================================================================================
Less distributions from net
realized gains -- -- -- (0.37) -- --
=================================================================================================================================
Net asset value, end of period $ 8.06 $ 8.04 $ 7.06 $ 8.83 $ 13.60 $ 13.12
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 0.25% 13.88% (20.05)% (33.10)% 3.66% 31.20%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $54,788 $78,440 $89,218 $171,324 $373,614 $138,205
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets (including interest
expense and dividends on short
sales expense):
With fee waivers and/or expense
reimbursements 1.52%(d) 2.21% 1.26% 2.16% 2.07%(e) 2.41%(e)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or
expense reimbursements 1.54%(d) 2.21% 1.36% 2.26% 2.10%(e) 2.49%(e)
=================================================================================================================================
Ratio of expenses to average net
assets (excluding interest
expense and dividends on short
sales expense):
With fee waivers and/or expense
reimbursements 1.29%(d) 1.95% 1.11% 2.12% 2.03%(e) 2.34%(e)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or
expense reimbursements 1.31%(d) 1.95% 1.21% 2.22% 2.06%(e) 2.42%(e)
=================================================================================================================================
Ratio of net investment income
(loss) to average net assets (0.31)%(d) (0.87)% (0.19)%(b) (0.30)% 0.04%(e) (0.20)%(e)
=================================================================================================================================
Ratio of interest expense and
dividends on short sales expense
to average net assets(f) 0.23%(d) 0.26% 0.15% 0.04% 0.04%(e) 0.07%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(g) 87% 215% 195% 269% 38% 125%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective November 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income (loss) per share
would have been $(0.01) and the ratio of net investment income (loss) to
average net assets would have been (0.17)%. In accordance with the AICPA
Audit and Accounting Guide for Investment Companies, per share and
ratios for periods prior to November 1, 2001 have not been restated to
reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(d) Ratios are based on average daily net assets of $70,217,065.
(e) Annualized.
(f) Ratio includes interest expense and fees on the committed line of
credit.
(g) Not annualized for periods less than one year.
F-12
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
----------------------------------------------------------------------------------------
MARCH 31, 2000
THREE MONTHS (DATE SALES
YEAR ENDED OCTOBER 31, ENDED COMMENCED) TO
--------------------------------------------------- OCTOBER 31, JULY 31,
2004 2003 2002 2001 2000 2000
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.84 $ 6.93 $ 8.74 $ 13.55 $ 13.10 $ 12.81
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.08)(a) (0.11)(a) (0.08)(a)(b) (0.12)(a) (0.02)(a) (0.02)
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 0.04 1.02 (1.73) (4.32) 0.47 0.31
================================================================================================================================
Total from investment operations (0.04) 0.91 (1.81) (4.44) 0.45 0.29
================================================================================================================================
Less distributions from net realized
gains -- -- -- (0.37) -- --
================================================================================================================================
Net asset value, end of period $ 7.80 $ 7.84 $ 6.93 $ 8.74 $ 13.55 $ 13.10
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(c) (0.51)% 13.13% (20.71)% (33.53)% 3.44% 2.26%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $54,797 $70,905 $77,920 $143,331 $282,120 $102,795
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratio of expenses to average net
assets (including interest expense
and dividends on short sales
expense) 2.17%(d)(e) 2.86% 2.01% 2.92% 2.77%(f) 3.10%(e)(f)
================================================================================================================================
Ratio of expenses to average net
assets (excluding interest expense
and dividends on short sales
expense) 1.94%(d)(g) 2.60% 1.86% 2.88% 2.73%(f) 3.03%(f)(g)
================================================================================================================================
Ratio of net investment income (loss)
to average net assets (0.96)%(d) (1.52)% (0.94)%(b) (1.06)% (0.66)%(f) (0.89)%(f)
================================================================================================================================
Ratio of interest expense and
dividends on short sales expense to
average net assets(h) 0.23%(d) 0.26% 0.15% 0.04% 0.04%(f) 0.07%(f)
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate(i) 87% 215% 195% 269% 38% 125%
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective November 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share would
have remained the same and the ratio of net investment income (loss) to
average net assets would have been (0.92)%. In accordance with the AICPA
Audit and Accounting Guide for Investment Companies, per share and
ratios for periods prior to November 1, 2001 have not been restated to
reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(d) Ratios are based on average daily net assets of $66,921,710.
(e) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
including interest expense and dividends on short sales expense. was
2.19% and 3.18% (annualized), for the year ended October 31, 2004 and
the four months ended July 31, 2000, respectively.
(f) Annualized.
(g) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
and excluding interest expense and dividends on short sales expense was
1.96% and 3.11% (annualized), for the year ended October 31, 2004 and
the four months ended July 31, 2000, respectively.
(h) Ratio includes interest expense and fees on the committed line of
credit.
(i) Not annualized for periods less than one year.
F-13
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
------------------------------------------------------------------------------------------------
MARCH 31, 2000
THREE MONTHS (DATE SALES
YEAR ENDED OCTOBER 31, ENDED COMMENCED) TO
-------------------------------------------------- OCTOBER 31, JULY 31,
2004 2003 2002 2001 2000 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 7.84 $ 6.93 $ 8.73 $ 13.55 $ 13.09 $ 12.81
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) (0.08)(a) (0.11)(a) (0.08)(a)(b) (0.12)(a) (0.02)(a) (0.02)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both realized
and unrealized) 0.04 1.02 (1.72) (4.33) 0.48 0.30
=================================================================================================================================
Total from investment
operations (0.04) 0.91 (1.80) (4.45) 0.46 0.28
=================================================================================================================================
Less distributions from net
realized gains -- -- -- (0.37) -- --
=================================================================================================================================
Net asset value, end of period $ 7.80 $ 7.84 $ 6.93 $ 8.73 $ 13.55 $ 13.09
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) (0.51)% 13.13% (20.62)% (33.60)% 3.51% 2.19%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $17,121 $24,060 $30,430 $59,675 $111,084 $34,972
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average
net assets (including
interest expense and
dividends on short sales
expense) 2.17%(d)(e) 2.86% 2.01% 2.92% 2.77%(f) 3.10%(e)(f)
=================================================================================================================================
Ratio of expenses to average
net assets (excluding
interest expense and
dividends on short sales
expense) 1.94%(d)(g) 2.60% 1.86% 2.88% 2.73%(f) 3.03%(f)(g)
=================================================================================================================================
Ratio of net investment income
(loss) to average net assets (0.96)%(d) (1.52)% (0.94)%(b) (1.06)% (0.66)%(f) (0.89)%(f)
=================================================================================================================================
Ratio of interest expense and
dividends on short sales
expense to average net
assets(h) 0.23%(d) 0.26% 0.15% 0.04% 0.04%(f) 0.07%(f)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(i) 87% 215% 195% 269% 38% 125%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective November 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share would
have remained the same and the ratio of net investment income (loss) to
average net assets would have been (0.92)%. In accordance with the AICPA
Audit and Accounting Guide for Investment Companies, per share and
ratios for periods prior to November 1, 2001 have not been restated to
reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$21,865,137.
(e) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
including interest expense and dividends on short sales expense was
2.19% and 3.18% (annualized), for the year ended October 31, 2004 and
the four months ended July 31, 2000, respectively.
(f) Annualized.
(g) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
and excluding interest expense and dividends on short sales expense. was
1.96% and 3.11% (annualized), for the year ended October 31, 2004 and
the four months ended July 31, 2000, respectively.
(h) Ratio includes interest expense and fees on the committed line of
credit.
(i) Not annualized for periods less than one year.
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
The mutual fund industry as a whole is currently subject to regulatory inquiries
and litigation related to a wide range of issues. These issues include, among
others, market timing activity, late trading, fair value pricing, excessive or
improper advisory and/or distribution fees, mutual fund sales practices,
including revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies, contractual plans, issues
related to Section 529 college savings plans and procedures for locating lost
securityholders.
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to certain AIM Funds, A I M Advisors, Inc. ("AIM"), the
Fund's investment advisor, and A I M Distributors, Inc. ("ADI"), the distributor
of the retail AIM Funds and a wholly owned subsidiary of AIM, reached final
settlements with the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG"), the Colorado Attorney General ("COAG"), the Colorado
Division of Securities ("CODS") and the Secretary of State of the State of
Georgia to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG.
In addition, as described more fully below, IFG and AIM are the subject of a
number of ongoing regulatory inquiries and civil lawsuits related to one or more
of the issues currently being scrutinized by various Federal and state
regulators, including but not limited to those issues described above.
Additional regulatory actions and/or civil lawsuits related to the above or
other issues may be filed against the AIM Funds, IFG, AIM and/or related
entities
F-14
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
and individuals in the future. Additional regulatory inquiries related to the
above or other issues also may be received by the AIM Funds, IFG, AIM and/or
related entities and individuals in the future.
As a result of the matters discussed below, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and
AIM, announced that final settlements had been reached with the SEC, the NYAG,
the COAG and the Secretary of State of Georgia to resolve civil enforcement
actions and investigations related to market timing activity and related issues
in the AIM Funds, including those formerly advised by IFG. A final settlement
also has been reached with the Colorado Division of Securities ("CODS") with
respect to this matter. In their enforcement actions and investigations, these
regulators alleged, in substance, that IFG and AIM failed to disclose in the
prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that IFG and AIM had entered into certain
arrangements permitting market timing of such Funds, thereby breaching their
fiduciary duties to such Funds. As a result of the foregoing, the regulators
alleged that IFG, AIM and ADI breached various Federal and state securities,
business and consumer protection laws. Under the terms of the settlements, IFG,
AIM and ADI consent to the entry of settlement orders or assurances of
discontinuance, as applicable, by the regulators containing certain terms, some
of which are described below, without admitting or denying any wrongdoing.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of the $325 million total
payment, half will be paid on or before December 31, 2004 and the remaining half
will be paid on or before December 31, 2005. AIM and ADI agreed to pay a total
of $50 million, of which $30 million is civil penalties. The entire $50 million
payment by AIM and ADI has been paid.
The entire $325 million IFG settlement payment will be available for
distribution to the shareholders of those AIM Funds that IFG formerly advised
that were harmed by market timing activity, and the entire $50 million
settlement payment by AIM and ADI will be available for distribution to the
shareholders of those AIM Funds advised by AIM that were harmed by market timing
activity, all as to be determined by an independent distribution consultant to
be appointed under the settlements. The settlement payments will be distributed
in accordance with a methodology to be determined by the independent
distribution consultant, in consultation with AIM and the independent trustees
of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on the AIM Funds by $15 million per year for the next five
years, based upon effective fee rates and assets under management as of July 1,
2004, and not to increase certain management fees. IFG will also pay $1.5
million to the COAG to be used for investor education purposes and to reimburse
the COAG for actual costs. Finally, IFG and AIM will pay $175,000 to the
Secretary of State of Georgia to be used for investor education purposes and to
reimburse the Secretary of State for actual costs.
None of the costs of the settlements will be borne by the AIM Funds or by
Fund shareholders.
Under the terms of the settlements, AIM will make certain governance
reforms, including maintaining an internal controls committee and retaining an
independent compliance consultant, a corporate ombudsman and, as stated above,
an independent distribution consultant. Also, commencing in 2007 and at least
once every other year thereafter, AIM will undergo a compliance review by an
independent third party.
In addition, under the terms of the settlements, AIM has undertaken to cause
the AIM Funds to operate in accordance with certain governance policies and
practices, including retaining a full-time independent senior officer whose
duties will include monitoring compliance and managing the process by which
proposed management fees to be charged the AIM Funds are negotiated. Also,
commencing in 2008 and not less than every fifth calendar year thereafter, the
AIM Funds will hold shareholder meetings at which their Boards of Trustees will
be elected.
On October 8, 2004, the SEC announced that it had settled a market timing
enforcement action against Raymond R. Cunningham, the former president and chief
executive officer of IFG and a former member of the board of directors of the
AIM Funds formerly advised by IFG. As part of the settlement, the SEC ordered
Mr. Cunningham to pay $1 in restitution and civil penalties in the amount of
$500,000. In addition, the SEC prohibited Mr. Cunningham from associating with
an investment advisor, broker, dealer or investment company for a period of two
years and further prohibited him from serving as an officer or director of an
investment advisor, broker, dealer or investment company for a period of five
years.
On August 31, 2004, the SEC announced that it had settled market timing
enforcement actions against Timothy J. Miller, the former chief investment
officer and a former portfolio manager for IFG, Thomas A. Kolbe, the former
national sales manager of IFG, and Michael D. Legoski, a former assistant vice
president in IFG's sales department. As part of the settlements, the SEC ordered
Messrs. Miller, Kolbe and Legoski to pay $1 in restitution each and civil
penalties in the amounts of $150,000, $150,000 and $40,000, respectively. In
addition, the SEC prohibited each of them from associating with an investment
advisor or investment company for a period of one year, prohibited Messrs.
Miller and Kolbe from serving as an officer or director of an investment advisor
or investment company for three years and two years, respectively, and
prohibited Mr. Legoski from associating with a broker or dealer for a period of
one year.
As referenced by the SEC in the SEC's settlement order, one former officer
of ADI and one current officer of AIM (who has taken a voluntary leave of
absence) have received regulatory inquiries in the form of subpoenas or other
oral or written requests for information and/or documents related to market
timing activity in the AIM Funds.
At the request of the trustees of the AIM Funds, AMVESCAP has agreed to pay
all of the expenses incurred by such Funds related to the market timing
investigations, including expenses incurred in connection with the regulatory
complaints against IFG alleging market timing and the market timing
investigations with respect to IFG and AIM.
The payments made in connection with the above-referenced settlements by
IFG, AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on the AIM Funds by $15 million per year for
the next five years, based upon effective fee rates and assets under management
as of July 1, 2004). The manner in which the settlement payments will be
distributed is unknown at the present time and will be determined by an
independent distribution consultant to be appointed under the settlement
agreements. Therefore, management of AIM and the Fund are unable at the present
time to estimate the impact, if any, that the distribution of the settlement
amounts may have on the Fund or whether such distribution will have an impact on
the Fund's financial statements in the future.
F-15
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the ongoing matters described below may
have on AIM, ADI or the Fund.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the New York Stock Exchange, the United States
Attorney's Office for the Southern District of New York, the United States
Attorney's Office for the Central District of California, the United States
Attorney's Office for the District of Massachusetts, the Massachusetts
Securities Division and the U.S. Postal Inspection Service, some of which
concern one or more AIM Funds. AIM is providing full cooperation with respect to
these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, A I M Management Group Inc. ("AIM
Management"), AMVESCAP, certain related entities, certain of their current and
former officers and/or certain unrelated third parties) making allegations that
are similar in many respects to those in the settled regulatory actions brought
by the SEC, the NYAG and the COAG concerning market timing activity in the AIM
Funds. These lawsuits allege a variety of theories of recovery, including but
not limited to: (i) violation of various provisions of the Federal and state
securities laws; (ii) violation of various provisions of ERISA; (iii) breach of
fiduciary duty; and/or (iv) breach of contract. These lawsuits were initiated in
both Federal and state courts and seek such remedies as compensatory damages;
restitution; injunctive relief; disgorgement of management fees; imposition of a
constructive trust; removal of certain directors and/or employees; various
corrective measures under ERISA; rescission of certain Funds' advisory
agreements; interest; and attorneys' and experts' fees.
All lawsuits based on allegations of market timing, late trading, and
related issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act purportedly
brought on behalf of participants in AMVESCAP's 401(k) plan. Plaintiffs in one
of the underlying lawsuits transferred to the MDL Court continue to seek remand
of their action to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc., ADI and/or INVESCO
Distributors, Inc.) alleging that the defendants charged excessive advisory
and/or distribution fees and failed to pass on to shareholders the perceived
savings generated by economies of scale. Certain of these lawsuits also allege
that the defendants adopted unlawful distribution plans. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
various provisions of the Federal securities laws; (ii) breach of fiduciary
duty; and/or (iii) breach of contract. These lawsuits have been filed in Federal
courts and seek such remedies as damages; injunctive relief; rescission of
certain Funds' advisory agreements and distribution plans; interest; prospective
relief in the form of reduced fees; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Closed
Funds or Share Classes
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, ADI and/or certain of the trustees of the AIM Funds)
alleging that the defendants breached their fiduciary duties by charging
distribution fees while funds and/or specific share classes were closed
generally to new investors and/or while other share classes of the same fund
were not
F-16
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
charged the same distribution fees. These lawsuits allege a variety of theories
of recovery, including but not limited to: (i) violation of various provisions
of the Federal securities laws; and (ii) breach of fiduciary duty. These
lawsuits have been filed in Federal courts and seek such remedies as damages;
injunctive relief; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. and/or
certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
F-17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of AIM Opportunities III Fund
And Board of Trustees of AIM Special Opportunities Funds:
We have audited the accompanying statement of assets and liabilities of AIM
Opportunities III Fund (a portfolio of AIM Special Opportunities Funds),
including the schedule of investments, as of October 31, 2004, and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the financial
highlights for each of the four years in the period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits. The financial
highlights for the period ended October 31, 2000 were audited by other auditors
whose report dated December 6, 2000, expressed an unqualified opinion on those
financial highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2004, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Opportunities III Fund as of October 31, 2004, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the four years
in the period then ended, in conformity with U.S. generally accepted accounting
principles.
Houston, Texas -s- ERNST & YOUNG LLP
December 15, 2004
F-18
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of October 31, 2004
The address of each trustee and officer of AIM Special Opportunities Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1998 Director and Chairman, A I M Management Group Inc. None
Trustee and President (financial services holding company); Director and
Vice Chairman, AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a global
investment management firm)
Formerly: President and Chief Executive Officer,
A I M Management Group Inc.; Director, Chairman
and President, A I M Advisors, Inc. (registered
investment advisor); Director and Chairman, A I M
Capital Management, Inc. (registered investment
advisor), A I M Distributors, Inc. (registered
broker dealer), AIM Investment Services, Inc.,
(registered transfer agent), and Fund Management
Company (registered broker dealer); and Chief
Executive Officer, AMVESCAP PLC -- Managed
Products
- -------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive Officer, None
Trustee and Executive Vice A I M Management Group Inc. (financial services
President holding company); Director, Chairman and
President, A I M Advisors, Inc. (registered
investment advisor); Director, A I M Capital
Management, Inc. (registered investment advisor)
and A I M Distributors, Inc. (registered broker
dealer); Director and Chairman, AIM Investment
Services, Inc. (registered transfer agent), Fund
Management Company (registered broker dealer) and
INVESCO Distributors, Inc. (registered broker
dealer); and Chief Executive Officer, AMVESCAP
PLC -- AIM Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President and Chief
Executive Officer, INVESCO Funds Group, Inc.;
President and Chief Executive Officer, INVESCO
Distributors, Inc.; Chief Executive Officer,
AMVESCAP PLC -- Managed Products; Chairman and
Chief Executive Officer of NationsBanc Advisors,
Inc.; and Chairman of NationsBanc Investments,
Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 1998 Chairman, Crockett Technology Associates ACE Limited (insurance
Trustee and Chair (technology consulting company) company); and
Captaris, Inc.
(unified messaging
provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
Formerly: President and Chief Executive Officer,
AMC Cancer Research Center; and Chairman and Chief
Executive Officer, First Columbia Financial
Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc.
Trustee (registered investment
Formerly: Partner, law firm of Baker & McKenzie company)
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning & Bunch None
Trustee Ltd., (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder Insurance
Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private Cortland Trust, Inc.
Trustee business corporations, including the Boss Group (Chairman) (registered
Ltd. (private investment and management) and investment company);
Magellan Insurance Company Annuity and Life Re
(Holdings), Ltd.
Formerly: Director, President and Chief Executive (insurance company)
Officer, Volvo Group North America, Inc.; Senior
Vice President, AB Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage Corp.;
President and Chief Operating Officer,
Mercantile-Safe Deposit & Trust Co.; and
President, Mercantile Bankshares Corp.
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1998 Chief Executive Officer, Twenty First Century Administaff, and
Trustee Group, Inc. (government affairs company) and Discovery Global
Texana Timber LP (sustainable forestry company) Education Fund (non-
profit)
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
Trustees and Officers (continued)
As of October 31, 2004
The address of each trustee and officer of AIM Special Opportunities Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1998 Partner, law firm of Kramer Levin Naftalis and Cortland Trust, Inc.
Trustee Frankel LLP (registered investment
company)
- ---------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services (California) General Chemical
Trustee Group, Inc.
Formerly: Associate Justice of the California
Court of Appeals
- ---------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the USA None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1998 Partner, law firm of Pennock & Cooper None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1998 Executive Vice President, Development and None
Trustee Operations, Hines Interests Limited Partnership
(real estate development company)
- ---------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ---------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(4) -- 1959 2004 Senior Vice President, A I M Management Group Inc. N/A
Senior Vice President and (financial services holding company); Senior Vice
Chief Compliance Officer President and Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital Management, Inc.
and A I M Distributors, Inc.; and Vice President,
AIM Investment Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and Compliance
Director, Delaware Investments Family of Funds
- ---------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, Secretary and N/A
Senior Vice President, General Counsel, A I M Management Group Inc.
Secretary and Chief Legal (financial services holding company) and A I M
Officer Advisors, Inc.; Director and Vice President,
INVESCO Distributors, Inc.; Vice President, A I M
Capital Management, Inc., and AIM Investment
Services, Inc.; Director, Vice President and
General Counsel, Fund Management Company and
Senior Vice President, A I M Distributors, Inc.
Formerly: Senior Vice President and General
Counsel, Liberty Financial Companies, Inc.; Senior
Vice President and General Counsel, Liberty Funds
Group, LLC and Vice President, A I M Distributors,
Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 2002 Managing Director and Director of Money Market N/A
Vice President Research and Special Projects, A I M Capital
Management, Inc.; and Vice President, A I M
Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M Advisors, N/A
Vice President and Treasurer Inc.
Formerly: Senior Vice President, AIM Investment
Services, Inc.; and Vice President, A I M
Distributors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 2004 Director of Cash Management, Managing Director and N/A
Vice President Chief Cash Management Officer, A I M Capital
Management, Inc; Director and President, Fund
Management Company; and Vice President, A I M
Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 1999 Executive Vice President, A I M Management Group, N/A
Vice President Inc.; Senior Vice President, A I M Advisors, Inc.,
and President, Director of Investments, Chief
Executive Officer and Chief Investment Officer,
A I M Capital Management, Inc.
Formerly: Director of A I M Advisors, Inc. and
A I M Management Group Inc., A I M Advisors, Inc.;
and Director and Chairman, A IM Capital
Management, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(4) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Ernst & Young LLP
Suite 100 11 Greenway Plaza Inc. 5 Houston Center
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1401 McKinney
Houston, TX 77046-1173 Suite 100 Suite 1200
Houston, TX Houston, Texas
77046-1173 77010-4035
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Ballard Spahr Kramer, Levin, Naftalis AIM Investment State Street Bank
Andrews & Ingersoll, & Frankel LLP Services, Inc. and Trust Company
LLP 919 Third Avenue P.O. Box 4739 225 Franklin Street
1735 Market Street New York, NY 10022-3852 Houston, TX Boston, MA
Philadelphia, PA 19103-7599 77210-4739 02110-2801
</Table>
<Table>
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE
AIM Balanced Fund* AIM Developing Markets Fund
AIM Basic Balanced Fund* AIM European Growth Fund AIM Floating Rate Fund
AIM Basic Value Fund AIM High Yield Fund
AIM Blue Chip Fund AIM European Small Company Fund(5)
AIM Capital Development Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Charter Fund AIM Global Equity Fund(6) AIM Intermediate Government Fund
AIM Constellation Fund AIM Global Growth Fund AIM Limited Maturity Treasury Fund
AIM Core Stock Fund(1) AIM Global Value Fund AIM Money Market Fund
AIM Dent Demographic Trends Fund AIM International Core Equity Fund(1) AIM Short Term Bond Fund
AIM Diversified Dividend Fund AIM International Emerging Growth Fund(7) AIM Total Return Bond Fund
AIM Dynamics Fund(1) AIM International Growth Fund Premier U.S. Government Money Portfolio(1)
AIM Emerging Growth Fund AIM Trimark Fund
AIM Large Cap Basic Value Fund TAX-FREE
AIM Large Cap Growth Fund SECTOR EQUITY
AIM Libra Fund AIM High Income Municipal Fund
AIM Mid Cap Basic Value Fund AIM Advantage Health Sciences Fund(1) AIM Municipal Bond Fund
AIM Mid Cap Core Equity Fund(2) AIM Energy Fund(1) AIM Tax-Exempt Cash Fund
AIM Mid Cap Growth Fund AIM Financial Services Fund(1) AIM Tax-Free Intermediate Fund
AIM Mid Cap Stock Fund(1) AIM Global Health Care Fund
AIM Opportunities I Fund AIM Gold & Precious Metals Fund(1) AIM ALLOCATION SOLUTIONS
AIM Opportunities II Fund AIM Health Sciences Fund(1)
AIM Opportunities III Fund AIM Leisure Fund(1) AIM Aggressive Allocation Fund
AIM Premier Equity Fund AIM Multi-Sector Fund(1) AIM Conservative Allocation Fund
AIM S&P 500 Index Fund(1) AIM Real Estate Fund AIM Moderate Allocation Fund
AIM Select Equity Fund AIM Technology Fund(1)
AIM Small Cap Equity Fund(3) AIM Utilities Fund(1)
AIM Small Cap Growth Fund(4)
AIM Small Company Growth Fund(1) =======================================================================================
AIM Total Return Fund*(1) CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
AIM Trimark Endeavor Fund FOR THIS AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR
AIM Trimark Small Companies Fund FINANCIAL ADVISOR AND READ IT THOROUGHLY BEFORE INVESTING.
AIM Weingarten Fund =======================================================================================
</Table>
* Domestic equity and income fund
(1) The following name changes became effective October 15, 2004: INVESCO
Advantage Health Sciences Fund to AIM Advantage Health Sciences Fund, INVESCO
Core Equity Fund to AIM Core Stock Fund, INVESCO Dynamics Fund to AIM Dynamics
Fund, INVESCO Energy Fund to AIM Energy Fund, INVESCO Financial Services Fund to
AIM Financial Services Fund, INVESCO Gold & Precious Metals Fund to AIM Gold &
Precious Metals Fund, INVESCO Health Sciences Fund to AIM Health Sciences Fund,
INVESCO International Core Equity Fund to AIM International Core Equity Fund,
INVESCO Leisure Fund to AIM Leisure Fund, INVESCO Mid-Cap Growth Fund to AIM Mid
Cap Stock Fund, INVESCO Multi-Sector Fund to AIM Multi-Sector Fund, INVESCO S&P
500 Index Fund to AIM S&P 500 Index Fund, INVESCO Small Company Growth Fund to
AIM Small Company Growth Fund, INVESCO Technology Fund to AIM Technology Fund,
INVESCO Total Return Fund to AIM Total Return Fund, INVESCO U.S. Government
Money Fund to Premier U.S. Government Money Portfolio, INVESCO Utilities Fund to
AIM Utilities Fund. (2) As of the close of business on February 27, 2004, AIM
Mid Cap Core Equity Fund is available to new investors on a limited basis. For
information on who may continue to invest in AIM Mid Cap Core Equity Fund,
please contact your financial advisor. (3) Effective December 13, 2004, AIM
Small Cap Equity Fund is open to all investors. (4) AIM Small Cap Growth Fund
was closed to most investors on March 18, 2002. For information on who may
continue to invest in AIM Small Cap Growth Fund, please contact your financial
advisor. (5) AIM European Small Company Fund will close to new investors when
net assets reach $500 million. (6) Effective March 31, 2004, AIM Global Trends
Fund was renamed AIM Global Equity Fund. (7) AIM International Emerging Growth
Fund will close to new investors when net assets reach $500 million.
If used after January 20, 2005, this report must be accompanied by a fund
Performance & Commentary or by an AIM Quarterly Performance Review for the most
recent quarter-end. Mutual funds distributed by A I M Distributors, Inc.
A I M Management Group Inc. has provided leadership in the investment management
industry since 1976 and manages $132 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $363 billion in assets under management. Data as of September 30,
2004.
AIMINVESTMENTS.COM OPP3-AR-1 A I M Distributors, Inc.
<Table>
YOUR GOALS. OUR SOLUTIONS.--Registered Trademark--
- -------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Alternative Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Investments Management --Registered Trademark--
Plans Accounts
- -------------------------------------------------------------------------------------
</Table>
ITEM 2. CODE OF ETHICS.
As of the end of the period covered by this report, the Registrant had
adopted a code of ethics (the "Code") that applies to the Registrant's
principal executive officer ("PEO") and principal financial officer
("PFO"). There were no amendments to the Code during the period covered
by the report. The Registrant did not grant any waivers, including
implicit waivers, from any provisions of the Code to the PEO or PFO
during the period covered by this report.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees has determined that the Registrant has at least
one audit committee financial expert serving on its Audit Committee.
The Audit Committee financial expert is Prema Mathai-Davis. Dr.
Mathai-Davis is "independent" within the meaning of that term as used
in Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
FEES BILLED BY E&Y RELATED TO THE REGISTRANT
E&Y billed the Registrant aggregate fees for services rendered to the
Registrant for the last two fiscal years as follows:
<Table>
<Caption>
Percentage of Fees
Billed Applicable Percentage of Fees
to Non-Audit Billed Applicable to
Services Provided Non-Audit Services
Fees Billed for for fiscal year end Provided for fiscal
Services Rendered 2004 Pursuant to Fees Billed for year end 2003
to the Registrant Waiver of Services Rendered to Pursuant to Waiver
for fiscal year end Pre-Approval the Registrant for of Pre-Approval
2004 Requirement(1) fiscal year end 2003 Requirement(1)(2)
------------------- ------------------- -------------------- --------------------
Audit Fees $ 111,094 N/A $ 62,580 N/A
Audit-Related Fees(3) $ 5,600 0% $ 0 0%
Tax Fees(4) $ 8,039 0% $ 4,622 0%
All Other Fees $ 0 0% $ 0 0%
------------ ------------
Total Fees $ 124,733 0% $ 67,202 0%
</Table>
E&Y billed the Registrant aggregate non-audit fees of $13,639 for the fiscal
year ended 2004, and $4,622 for the fiscal year ended 2003, for non-audit
services rendered to the Registrant.
- --------------------------------------------------------------------------------
(1) With respect to the provision of non-audit services, the pre-approval
requirement is waived pursuant to a de minimis exception if (i) such
services were not recognized as non-audit services by the Registrant at
the time of engagement, (ii) the aggregate amount of all such services
provided is no more than 5% of the aggregate audit and non-audit fees
paid by the Registrant to E&Y during a fiscal year; and (iii) such
services are promptly approved by the Registrant's Audit Committee
prior to the completion of the audit by the Audit Committee.
(2) Prior to May 6, 2003, the Registrant's Audit Committee was not required
to pre-approve non-audit services. Therefore, the percentage of fees
shown in this column only represents fees billed for non-audit services
rendered after May 6, 2003, pursuant to a waiver of the pre-approval
requirement.
(3) Audit-Related Fees for the fiscal year end October 31, 2004 includes
fees billed for agreed upon procedures for fund mergers.
(4) Tax Fees for the fiscal year end October 31, 2004 includes fees billed
for reviewing tax returns and consultation services. Tax fees for
fiscal year end October 31, 2003 includes fees billed for reviewing tax
returns.
FEES BILLED BY E&Y RELATED TO AIM AND AIM AFFILIATES
E&Y billed AIM Advisors, Inc. ("AIM"), the Registrant's adviser, and
any entity controlling, controlled by or under common control with AIM that
provides ongoing services to the Registrant ("AIM Affiliates") aggregate fees
for pre-approved non-audit services rendered to AIM and AIM Affiliates for the
last two fiscal years as follows:
<Table>
<Caption>
Fees Billed for Fees Billed for
Non-Audit Services Percentage of Fees Non-Audit Services Percentage of Fees
Rendered to AIM and Billed Applicable to Rendered to AIM and Billed Applicable to
AIM Affiliates for Non-Audit Services AIM Affiliates for Non-Audit Services
fiscal year end 2004 Provided for fiscal fiscal year end 2003 Provided for fiscal
That Were Required year end 2004 That Were Required year end 2003
to be Pre-Approved Pursuant to Waiver to be Pre-Approved Pursuant to Waiver of
by the Registrant's of Pre-Approval by the Registrant's Pre-Approval
Audit Committee Requirement(1) Audit Committee(2) Requirement(1)(3)
-------------------- -------------------- -------------------- ---------------------
Audit-Related Fees(4) $ 185,000 0% $ 196,777 0%
Tax Fees $ 0 0% $ 0 0%
All Other Fees $ 0 0% $ 0 0%
------------ ------------
Total Fees(5) $ 185,000 0% $ 196,777 0%
</Table>
- --------------------------------------------------------------------------------
(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 E&Y during a fiscal
year; and (iii) such services are promptly approved by the Registrant's
Audit Committee prior to the completion of the audit by the Audit
Committee.
(2) Prior to May 6, 2003, the Registrant's Audit Committee was not required
to pre-approve non-audit services. Therefore, the fees billed for
non-audit services shown in this column only represents fees for
pre-approved non-audit services rendered after May 6, 2003, to AIM and
AIM Affiliates.
(3) Prior to May 6, 2003, the Registrant's Audit Committee was not required
to pre-approve non-audit services. Therefore, the percentage of fees
shown in this column only represents fees billed for non-audit services
rendered after May 6, 2003, pursuant to a waiver of the pre-approval
requirement.
(4) Audit-Related Fees for the fiscal year ended October 31, 2004 includes
fees billed for services to test and report on the controls and
operations of an affiliated transfer agent. Audit-Related Fees for the
fiscal year ended October 31, 2003 includes fees billed for services to
test and report on the controls and operations of an affiliated
transfer agent.
(5) Including the fees for services not required to be pre-approved by the
registrant's audit committee, E&Y billed AIM and AIM Affiliates
aggregate non-audit fees of $265,511 for the fiscal year ended 2004,
and $258,650 for the fiscal year ended 2003, for non-audit services
rendered to AIM and AIM Affiliates.
The Audit Committee also has considered whether the provision of
non-audit services that were rendered to AIM and AIM Affiliates that
were not required to be pre-approved pursuant to SEC regulations, if
any, is compatible with maintaining E&Y's independence. To the extent
that such services were provided, the Audit Committee determined that
the provision of such services is compatible with E&Y maintaining
independence with respect to the Registrant.
PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES
POLICIES AND PROCEDURES
As adopted by the Audit Committees of
the AIM Funds and the INVESCO Funds (the "Funds")
Last Amended September 14, 2004
STATEMENT OF PRINCIPLES
Under the Sarbanes-Oxley Act of 2002 and rules adopted by the Securities and
Exchange Commission ("SEC") ("Rules"), the Audit Committees of the Funds' (the
"Audit Committee") Board of Directors/Trustees (the "Board") are responsible for
the appointment, compensation and oversight of the work of independent
accountants (an "Auditor"). As part of this responsibility and to assure that
the Auditor's independence is not impaired, the Audit Committees pre-approve the
audit and non-audit services provided to the Funds by each Auditor, as well as
all non-audit services provided by the Auditor to the Funds' investment adviser
and to affiliates of the adviser that provide ongoing services to the Funds
("Service Affiliates") if the services directly impact the Funds' operations or
financial reporting. The SEC Rules also specify the types of services that an
Auditor may not provide to its audit client. The following policies and
procedures comply with the requirements for pre-approval and provide a mechanism
by which management of the Funds may request and secure pre-approval of audit
and non-audit services in an orderly manner with minimal disruption to normal
business operations.
Proposed services either may be pre-approved without consideration of specific
case-by-case services by the Audit Committees ("general pre-approval") or
require the specific pre-approval of the Audit Committees ("specific
pre-approval"). As set forth in these policies and procedures, unless a type of
service has received general pre-approval, it will require specific pre-approval
by the Audit Committees. Additionally, any fees exceeding 110% of general
pre-approved fee levels will also require specific pre-approval by the Audit
Committees.
The Audit Committees will annually review and generally pre-approve the services
that may be provided by each Auditor without obtaining specific pre-approval
from the Audit Committee. The term of any general pre-approval runs from the
date of such pre-approval through September 30th of the following year, unless
the Audit Committees consider a different period and states otherwise. The Audit
Committees will add to or subtract from the list of general pre-approved
services from time to time, based on subsequent determinations.
The purpose of these policies and procedures is to set forth the guidelines to
assist the Audit Committees in fulfilling their responsibilities.
DELEGATION
The Audit Committees may from time to time delegate pre-approval authority to
one or more of its members who are Independent Directors. All decisions to
pre-approve a service by a delegated member shall be reported to the Audit
Committee at its next quarterly meeting.
AUDIT SERVICES
The annual audit services engagement terms (including fees) will be subject to
specific pre-approval of the Audit Committees. Audit services include the annual
financial statement audit and other procedures such as tax provision work that
is required to be performed by the independent auditor to be able to form an
opinion on the Funds' financial statements. The Audit Committee will obtain,
review and consider sufficient information concerning the proposed Auditor to
make a reasonable evaluation of the Auditor's qualifications and independence.
In addition to the annual Audit services engagement, the Audit Committees may
grant general pre-approval for other audit services, which are those services
that only the independent auditor reasonably can provide.
Other Audit services may include services such as issuing consents for the
inclusion of audited financial statements with SEC registration statements,
periodic reports and other documents filed with the SEC or other documents
issued in connection with securities offerings.
GENERAL PRE-APPROVAL OF NON-AUDIT SERVICES
The Audit Committees may provide general pre-approval of types of non-audit
services described in this Section IV to the Funds and its Service Affiliates if
the Audit Committees believe that the provision of the service will not impair
the independence of the Auditor, is consistent with the SEC's Rules on auditor
independence, and otherwise conforms to the Audit Committee's general principles
and policies as set forth herein.
AUDIT-RELATED SERVICES
"Audit-related services" are assurance and related services that are reasonably
related to the performance of the audit or review of the Fund's financial
statements or that are traditionally performed by the independent auditor.
Audit-related services include, among others, accounting consultations related
to accounting, financial reporting or disclosure matters not classified as
"Audit services"; assistance with understanding and implementing new accounting
and financial reporting guidance from rulemaking authorities; and agreed-upon
procedures related to mergers.
TAX SERVICES
"Tax services" include, but are not limited to, the review and signing of the
Funds' federal tax returns, the review of required distributions by the Funds
and consultations regarding tax matters such as the tax treatment of new
investments or the impact of new regulations. The Audit Committee will
scrutinize carefully the retention of the Auditor in connection with a
transaction initially recommended by the Auditor, the major business purpose of
which may be tax avoidance or the tax treatment of which may not be supported in
the Internal Revenue Code and related regulations. The Audit Committee will
consult with the Funds' Treasurer (or his or her designee) and may consult with
outside counsel or advisors as necessary to ensure the consistency of Tax
services rendered by the Auditor with the foregoing policy.
No Auditor shall represent any Fund or any Service Provider before a tax court,
district court or federal court of claims.
ALL OTHER SERVICES
The Audit Committees may pre-approve non-audit services classified as "All other
services" that are not categorically prohibited by the SEC, as listed in Exhibit
1 to this policy.
SPECIFIC PRE-APPROVAL OF NON-AUDIT SERVICES
The Audit Committees may provide specific pre-approval of any non-audit services
to the Funds and its Service Affiliates if the Audit Committees believe that the
provision of the service will not impair the independence of the auditor, is
consistent with the SEC Rules on auditor independence, and otherwise conforms to
the Audit Committees' general principles and policies as set forth herein.
PRE-APPROVAL FEE LEVELS OR ESTABLISHED AMOUNTS
Pre-approval of fees or established amounts for services to be provided by the
Auditor under general pre-approval policies will be set periodically by the
Audit Committees. Any proposed fees exceeding 110% of the maximum such amounts
will be reported to the Audit Committees at the quarterly Audit Committees
meeting and will require specific pre-approval by the Audit Committees. The
Audit Committee will always factor in the overall relationship of fees for audit
and non-audit services in determining whether to pre-approve any such services.
PROCEDURES
On an annual basis, A I M Advisors, Inc. ("AIM") will submit to the Audit
Committees for general pre-approval, a list of non-audit services that the Funds
or Service Affiliates of the Funds may request from the
Auditor. The list will describe the non-audit services in reasonable detail and
will include an estimated range of fees where possible and such other
information as the Audit Committee may request.
Each request for services to be provided by the Auditor under the general
pre-approval of the Audit Committees will be submitted to the Funds' Treasurer
(or his or her designee) and must include a detailed description of the services
to be rendered. The Treasurer or his or her designee will ensure that such
services are included within the list of services that have received the general
pre-approval of the Audit Committees. The Audit Committees will be informed at
the next quarterly scheduled Audit Committees meeting of any such services for
which the Auditor rendered an invoice and whether such services and fees had
been pre-approved and if so, by what means.
Each request to provide services that require specific approval by the Audit
Committees shall be submitted to the Audit Committees jointly by the Fund's
Treasurer or his or her designee and the Auditor, and must include a joint
statement that, in their view, such request is consistent with the policies and
procedures and the SEC Rules.
Non-audit services pursuant to the de minimis exception provided by the SEC
Rules will be promptly brought to the attention of the Audit Committees for
approval, including documentation that each of the conditions for this
exception, as set forth in the SEC Rules, has been satisfied.
On at least an annual basis, the Auditor will prepare a summary of all the
services provided to any entity in the investment company complex as defined in
section 2-01(f)(14) of Regulation S-X in sufficient detail as to the nature of
the engagement and the fees associated with those services.
The Audit Committees have designated the Funds' Treasurer to monitor the
performance of all services provided by the Auditor and to ensure such services
are in compliance with these policies and procedures. The Funds' Treasurer will
report to the Audit Committee on a periodic basis as to the results of such
monitoring. Both the Funds' Treasurer and management of AIM will immediately
report to the chairman of the Audit Committee any breach of these policies and
procedures that comes to the attention of the Funds' Treasurer or senior
management of AIM.
EXHIBIT 1 TO PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES POLICIES AND
PROCEDURES
Conditionally Prohibited Non-Audit Services (not prohibited if the Fund can
reasonably conclude that the results of the service would not be subject to
audit procedures in connection with the audit of the Fund's financial
statements)
o Bookkeeping or other services related to the accounting
records or financial statements of the audit client
o Financial information systems design and implementation
Appraisal or valuation services, fairness opinions, or
contribution-in-kind reports
o Actuarial services
o Internal audit outsourcing services
Categorically Prohibited Non-Audit Services
o Management functions
o Human resources
o Broker-dealer, investment adviser, or investment banking
services
o Legal services
o Expert services unrelated to the audit
o Any other service that the Public Company Oversight Board
determines by regulation is impermissible
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Investments in securities of unaffiliated issuers is included as part
of the reports to stockholders filed under Item 1 of this Form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 11. CONTROLS AND PROCEDURES.
(a) As of December 16, 2004, an evaluation was performed under the
supervision and with the participation of the officers of the
Registrant, including the PEO and PFO, to assess the effectiveness of
the Registrant's disclosure controls and procedures, as that term is
defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the
"Act"), as amended. Based on that evaluation, the Registrant's
officers, including the PEO and PFO, concluded that, as of December 16,
2004, the Registrant's disclosure controls and procedures were
reasonably designed to ensure: (1) that information required to be
disclosed by the Registrant on Form N-CSR is recorded, processed,
summarized and reported within the time periods specified by the rules
and forms of the Securities and Exchange Commission; and (2) that
material information relating to the Registrant is made known to the
PEO and PFO as appropriate to allow timely decisions regarding required
disclosure.
(b) There have been no changes in the Registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act) that
occurred during the second fiscal quarter of the period covered by this
report that have materially affected, or are reasonably likely to
materially affect, the Registrant's internal control over financial
reporting. However, on September 20, 2004, the Registrant appointed a
Chief Compliance Officer ("Registrant CCO") who reports to the
Registrant's Board of Trustees. The Registrant CCO also serves as Chief
Compliance Officer of A I M Advisors, Inc. ("AIM"), the investment
advisor for the series portfolios of the Registrant. The Registrant CCO
is a member of the Disclosure Controls Committee ("DCC") for the
Registrant, which reports to the Registrant's PEO and PFO. The DCC is
made up of employees of AIM some of whom are officers of the
Registrant. Among other things, the DCC assists the PEO and
PFO in their responsibilities related to internal control over
financial reporting. The addition of the Registrant CCO is expected to
enhance 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 Special Opportunities Funds
By: /s/ ROBERT H. GRAHAM
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Robert H. Graham
Principal Executive Officer
Date: January 5, 2005
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Pursuant to the requirements of the Securities and Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
By: /s/ ROBERT H. GRAHAM
----------------------------
Robert H. Graham
Principal Executive Officer
Date: January 5, 2005
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By: /s/ SIDNEY M. DILGREN
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Sidney M. Dilgren
Principal Financial Officer
Date: January 5, 2005
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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.