-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UbsycrjFYLlKFXY0vVNViaGFVSIFCJyj6zJO/ztLtTFnAaYwqWTjKrZvP1uu1+w0 1gV/k/n3Jr5oes2jysSMdw== 0000950129-08-000067.txt : 20080104 0000950129-08-000067.hdr.sgml : 20080104 20080104123705 ACCESSION NUMBER: 0000950129-08-000067 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20071031 FILED AS OF DATE: 20080104 DATE AS OF CHANGE: 20080104 EFFECTIVENESS DATE: 20080104 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AIM EQUITY FUNDS CENTRAL INDEX KEY: 0000105377 IRS NUMBER: 132576643 STATE OF INCORPORATION: MD FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-01424 FILM NUMBER: 08510218 BUSINESS ADDRESS: STREET 1: ELEVEN GREENWAY PLZ STREET 2: STE 100 CITY: HOUSTON STATE: TX ZIP: 77046 BUSINESS PHONE: 7136261919 MAIL ADDRESS: STREET 1: 11 GREENWAY PLAZA STREET 2: SUITE 100 CITY: HOUSTON STATE: TX ZIP: 77046 FORMER COMPANY: FORMER CONFORMED NAME: AIM EQUITY FUNDS INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: WEINGARTEN EQUITY FUND INC DATE OF NAME CHANGE: 19880929 FORMER COMPANY: FORMER CONFORMED NAME: COMPUFUND INC DATE OF NAME CHANGE: 19880616 0000105377 S000000260 AIM Large Cap Basic Value Fund C000000635 Class A LCBAX C000000636 Class B LCBBX C000000637 Class C LCBCX C000000638 Class R LCBRX C000000639 Investor Class LCINX C000021921 Institutional Class LCBIX 0000105377 S000000261 AIM Large Cap Growth Fund C000000640 Class A LCGAX C000000641 Class B LCGBX C000000642 Class C LCGCX C000000643 Class R LCRGX C000000644 Investor Class LCGIX C000021922 Institutional Class LCIGX 0000105377 S000000276 AIM Capital Development Fund C000000673 Class A ACDAX C000000674 Class B ACDBX C000000675 Class C ACDCX C000000676 Class R ACDRX C000021942 Institutional Class ACDVX C000029593 Investor Class ACDIX 0000105377 S000000277 AIM Charter Fund C000000677 Class A CHTRX C000000678 Class B BCHTX C000000679 Class C CHTCX C000000680 Class R CHRRX C000021943 Institutional Class CHTVX 0000105377 S000000278 AIM Constellation Fund C000000681 Class A CSTGX C000000682 Class B CSTBX C000000683 Class C CSTCX C000000684 Class R CSTRX C000021944 Institutional Class CSITX 0000105377 S000000281 AIM Diversified Dividend Fund C000000691 Class A LCEAX C000000692 Class B LCEDX C000000693 Class C LCEVX C000021945 Institutional Class DDFIX C000029594 Class R DDFRX C000029595 Investor Class LCEIX N-CSR 1 h51959nvcsr.txt FORM N-CSR ------------------------- OMB APPROVAL ------------------------- OMB Number: 3235-0570 Expires: August 31, 2010 Estimated average burden hours per response: 18.9 ------------------------- 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 811-01424 AIM Equity Funds (Exact name of registrant as specified in charter) 11 Greenway Plaza, Suite 100 Houston, Texas 77046 (Address of principal executive offices) (Zip code) Philip A. Taylor 11 Greenway Plaza, Suite 100 Houston, Texas 77046 (Name and address of agent for service) Registrant's telephone number, including area code: (713) 626-1919 Date of fiscal year end: 10/31 Date of reporting period: 10/31/07 Item 1. Reports to Stockholders. DOMESTIC EQUITY AIM Captial Development Fund Annual Report to Shareholders - October 31, 2007 Mid-Cap Growth Table of Contents Letters to Shareholders ......... 2 Performance Summary ............. 4 Management Discussion ........... 4 Long-term Fund Performance ...... 6 Supplemental Information ........ 8 Schedule of Investments ......... 9 Financial Statements ............ 13 Notes to Financial Statements ... 16 Financial Highlights ............ 24 Auditor's Report ................ 28 Fund Expenses ................... 29 Approval of Advisory Agreement .. 30 [COVER GLOBE IMAGE] Tax Information ................. 32 Trustees and Officers ........... 33
[AIM INVESTMENT SOLUTIONS] [GRAPHIC] [GRAPHIC] [DOMESTIC [FIXED EQUITY] INCOME] [GRAPHIC] [GRAPHIC] [GRAPHIC] [TARGET [TARGET [DIVERSIFIED RISK] MATURITY] PORTFOLIOS] [GRAPHIC] [GRAPHIC] [SECTOR [INTERNATIONAL/ EQUITY] GLOBAL EQUITY] [AIM INVESTMENTS LOGO] - -- REGISTERED TRADEMARK -- AIM Capital Development Fund Dear Shareholders of the AIM Family of Funds: I'm pleased to provide you with this report, which includes a discussion of how your Fund was managed during the period under review and factors that affected its performance. The following pages contain important information that answers questions you may have about your investment. [TAYLOR Despite notable volatility at points throughout the fiscal year ended October 31, 2007, major stock PHOTO] market indexes in the U.S. and abroad generally performed well. Reasons for their favorable performance included positive economic growth, particularly overseas; strong corporate profits; and action by the U.S. Federal Reserve Board (the Fed) to reassure skittish markets, among other factors. Philip Taylor At its September 18, 2007, meeting, the Fed cut the federal funds target rate for the first time since June 2003.(1) The cut followed 17 rate increases from June 2004 to June 2006(1) and was intended to address investor concerns about a weak housing market generally and problems in the subprime mortgage market specifically. The Fed's action triggered an immediate and broad stock market rally. The Fed cut this key interest rate again on October 31, 2007.(1) At AIM Investments --REGISTERED TRADEMARK--, we know that market conditions change--often suddenly and sometimes dramatically. We can help you deal with market volatility by offering a broad range of mutual funds, including: o Domestic, global and international equity funds o Taxable and tax-exempt fixed-income funds o Allocation portfolios, with risk/return characteristics to match your needs o AIM Independence Funds--target-maturity funds that combine retail mutual funds and PowerShares --REGISTERED TRADEMARK-- exchange-traded funds--with risk/return characteristics that change as your target retirement date nears I encourage you to talk with your financial advisor if you have concerns about your portfolio. We believe in the value of working with a trusted financial advisor who can recommend AIM funds that are appropriate for your portfolio and that address your long-term investment goals and risk tolerance regardless of prevailing short-term market conditions. In conclusion My colleague, Bob Graham, recently announced his decision to step down as vice chair of the AIM Funds board of directors. In 1976, Bob was one of three men who co-founded AIM. In the three decades since, he has been instrumental in transforming AIM from a small investment management firm into one of Amercia's most respected mutual fund companies--and, in 1997, into a global independent retail and institutional investment manager. In May, with shareholder approval, AIM Investments' parent company changed its name from AMVESCAP PLC to Invesco Ltd., uniting our worldwide operations and global expertise under one new name. While the name of our parent company may be new to you, I can assure you that our commitment to excellent customer service remains unchanged. Our highly trained, courteous client service representatives are eager to answer your questions, provide you with product information or assist you with account transactions. I encourage you to give us an opportunity to serve you by calling us at 800-959-4246. We at AIM are committed to helping you achieve your financial goals. We work every day to earn your trust, and we're grateful for the confidence you've placed in us. Sincerely, /S/ PHILIP TAYLOR Philip Taylor President - AIM Funds CEO, AIM Investments December 17, 2007 Source: (1)U.S. Federal Reserve Board AIM Investments is a registered service mark of A I M Management Group Inc. A I M Advisors, Inc. and A I M Capital Management, Inc. are the investment advisors. A I M Distributors, Inc. is the distributor for the retail mutual funds represented by AIM Investments and the PowerShares Exchange-Traded Fund Trust.
2 AIM Capital Development Fund Dear Fellow Shareholders: In overseeing the management of the AIM family of funds on your behalf, your Board of Trustees of the AIM Funds continues to focus on improved investment performance, reduced shareholder costs, and high ethical standards. [CROCKETT Your Board welcomes two new members: Marty Flanagan, President and CEO of INVESCO, AIM's parent company, PHOTO] and Phil Taylor, who was named CEO of AIM Investments --REGISTERED TRADEMARK-- in April 2006. Robert Graham, who has given more than 30 years of leadership to the company and the mutual fund industry since founding AIM in 1976, has retired, stepping down in the process from his most recent role as vice chairman Bruce L. Crockett of the Board. We thank Bob for his many contributions and wish him a long and happy future. Our review of fund performance has shown healthy progress, but the process is necessarily one of continuous improvement. In general, as of October 31, 2007, we have seen persistent investment discipline and more consistently good results. While this statement may not apply to every AIM Fund all the time, as I write this letter, the overall trend in fund management and performance has been positive. The investment management talent at AIM has recently been enhanced by the promotion of Karen Dunn Kelley to Head of INVESCO's Worldwide Fixed Income as well as Director of AIM Global and Cash Management, with responsibility for all fixed income and money market funds that serve both institutional and individual investors. Under Karen's direction, AIM's cash management organization grew to one of the world's largest and most respected, with top-tier performance. The operations now combined under her charge represent more than $150 billion in assets, 120 investment professionals, and products that span the entire yield curve (as of October 31, 2007). In other news, your Board took a more active role in preparing for "proxy season," the period when fund managers must vote the shares held by their funds "for" or "against" various proposals on the ballots of the issuing companies. Beginning in the 2007 proxy season, AIM implemented new proxy voting policies, developed by management in conjunction with an ad hoc Board committee, which provided a solid framework for properly evaluating and executing the many decisions the AIM Funds are required to make to vote shares. In general, the AIM Funds voted for proposals that would allow shareholders a greater role in election of directors, proxy access and "say for pay." The AIM Funds voted against directors whom AIM believed failed to govern well in cases of corporate mismanagement, such as the backdating of options grants, and against "poison pill" and "take under" proposals that would favor the financial interests of managers at the expense of investors in the case of a merger or acquisition. You can view the proxy votes cast for your fund by going to AIMinvestments.com. Click the "About Us" tab, then go to "Required Notices" and "Proxy Voting Activity." Additionally, your Board raised the amount its members are recommended to invest in the AIM Funds within three years of joining the Board, with the goal of aligning our interests even more closely with yours. Furthermore, at our June meeting we renewed the investment advisory contracts between the AIM Funds and AIM for another year, applying the same rigorous evaluation process that was enhanced and formalized in 2005. For more information on this process, please visit AIMinvestments.com. Click on the "Products and Performance" tab and go to "Investment Advisory Agreement Renewals." Your Board's ability to best represent your interests depends on our knowledge of your opinions and concerns. Please send me an email (bruce@brucecrockett.com) with your thoughts on the following: 1) How important is it to you to hear about your Board's decisions and activities in these letters? 2) What other information (on overall performance, specific funds, managers, etc.) would make the letters more meaningful to you? 3) Would you prefer that communications from your Board continue to be delivered in paper form by regular mail or be sent electronically by email? If you would prefer to communicate through a quick online survey, please go to AIMinvestments.com and provide your responses there. We need to hear from you to do our best job, and I look forward to your responses. Sincerely, /S/ BRUCE L. CROCKETT Bruce L. Crockett Independent Chair AIM Funds Board of Directors December 17, 2007 AIM Investments is a registered service mark of A I M Management Group Inc. A I M Advisors, Inc. and A I M Capital Management, Inc. are the investment advisors. A I M Distributors, Inc. is the distributor for the retail mutual funds represented by AIM Investments and the PowerShares Exchange-Traded Fund Trust.
3 AIM Capital Development Fund Management's discussion of Fund performance o Quality-- focus on companies with sustainable earnings growth and management teams that PERFORMANCE SUMMARY profitably reinvest shareholder cash flow For the fiscal year ended October 31, 2007, Class A shares of AIM Capital o Valuation--focus on companies that are Development Fund, excluding applicable sales charges, had double-digit attractively valued given their growth potential returns and outperformed the broad market, as measured by the S&P 500 Index, and the Fund's style-specific benchmark, the Russell Stocks that are ranked highest by our Midcap Growth Index.* quantitative model are the focus of our fundamental research efforts. Our fundamental Solid stock selection and strong performance by mid-cap stocks enabled the analysis focuses on identifying both industries Fund to outperform the large-cap oriented S&P 500 Index.* Stock selection and companies with style-specific benchmark, the across sectors also enabled the Fund to outperform the Russell Midcap Growth strong drivers of growth. Index.* Risk management plays an important role in Your Fund's long-term performance appears later in this report. portfolio construction, as our target portfolio attempts to limit volatility and downside risk. FUND VS. INDEXES We seek to accomplish this goal by investing in sectors, industries and companies with attractive Total returns,10/31/06-10/31/07,excluding applicable sales charges. If sales fundamental prospects. We limit the Fund's sector charges were included, returns would be lower. exposure and also seek to minimize stock-specific risk by building a diversified portfolio of 100 Class A Shares 21.13% to 120 holdings with an approximate weight of 1% Class B Shares 20.27 at the time of purchase. Class C Shares 20.23 Class R Shares 20.86 Factors we consider when selling a stock may Investor Class Shares 21.12 include: S&P 500 Index* (Broad Market Index) 14.55 Russell Midcap Growth Index* (Style-Specific Index) 19.72 o The stock is overvalued based on our analysis Lipper Mid-Cap Growth Funds Index* (Peer Group Index) 32.07 SOURCE: * LIPPER INC. o A change in fundamental metrics indicates ================================================================================ potential problems How we invest Our quantitative model ranks o A change in market capitalization--if a stock companies based on factors we have grows and moves into the large-cap range We believe a growth investment strategy found to be highly correlated with is an essential component of a outperformance in the mid-cap growth o A better stock candidate with higher potential diversified portfolio. Our investment universe, including: return is found process combines quantitative and fundamental analysis to uncover o Earnings--focus on companies Market conditions and your Fund companies exhibiting long-term, exhibiting strong growth in earnings, sustainable earnings and cash flow revenue and cash flows Domestic equities posted solid returns during the growth that is not yet reflected by the fiscal year, leaving several major market indexes stock's market price. near multi-year highs.(1) Strong economic growth, favorable corporate earnings and increased merger ======================================= ====================================== and acquisition activity drove equity markets, offsetting high energy prices, the slowing PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* housing market and subprime loan concerns that contributed to high market volatility late in the By sector 1. Foster Wheeler Ltd. 2.3% year. Information Technology 20.9% 2. Precision Castparts Corp. 1.4 Consumer Discretionary 19.8 3. Southwestern Energy Co. 1.4 Industrials 15.6 4. VeriFone Holdings, Inc. 1.3 In this environment, mid-cap stocks generally Health Care 12.8 5. Apollo Group, Inc.-Class A 1.3 performed in-line with large-cap stocks, but Energy 9.3 6. Corrections Corp. of America 1.3 outperformed small-cap stocks.(1) Additionally, Financials 5.7 7. Owens-Illinois, Inc. 1.2 growth stocks generally outperformed value Materials 5.4 8. Shoppers Drug Mart stocks.(1) Positive performance was broad among Telecommunication Services 3.6 Corp. (Canada) 1.2 Russell Midcap Growth Index sectors with the best Utilities 1.7 9. IHS Inc.-Class A 1.2 returns found in the energy, materials and Consumer Staples 1.2 10. Aeropostale, Inc. 1.2 industrials sectors. Money Market Funds Plus Other Assets Less Total Net Assets $2.1 billion The Fund benefited from positive absolute Liabilities 4.0 performance in nine out of 10 economic sectors, Total Number of Holdings* 112 with the highest positive impact on performance The Fund's holdings are subject to coming from holdings in the industrials and change, and there is no assurance that energy sectors. On a relative the Fund will continue to hold any particular security. *Excluding money market fund holdings. ======================================= ====================================== (continued)
4 AIM Capital Development Fund basis, the Fund outperformed the Russell stocks had weak performance due to Paul J. Rasplicka Midcap Growth Index in five out of 10 concerns about the extent of potential [RASPLICKA Chartered Financial Analyst, sectors, with the widest margin of subprime loan defaults and the general PHOTO] is lead manager of AIM Capital outperformance in the industrials, consumer impact of rising interest rates. Within Development Fund. discretionary and consumer staples sectors. this sector, key detractors to Mr. Rasplicka has been performance included REIT holding RAIT associated with the advisor and/or its The industrials sector rallied during FINANCIAL TRUST, which we sold, real affiliates since 1994. He began his much of the reporting period, and the Fund estate management services provider investment career in 1982 as an equity benefited from solid stock selection in Meruelo Maddux Properties and insurance research analyst. A native of Denver, Mr. several industries, led by aerospace and provider SECURITY CAPITAL ASSURANCE. Rasplicka is a magna cum laude graduate of defense and construction/engineering. The the University of Colorado in Boulder with leading contributor to overall Fund In the information technology sector, a B.S. in business administration. He performance during the year was FOSTER under performance was driven largely by earned an M.B.A. from the University of WHEELER, a company that designs and builds stock selection in communications Chicago. He is a Chartered Investment power generating facilities. PRECISION equipment holdings. Examples of key Counselor. CASTPARTS, a leading manufacturer of detractors included COMMSCOPE, which we casting, forgings and fasteners for the sold, and COMVERSE TECHNOLOGIES. Stock Karl F. Farmer aerospace and defense, industrials and selection in software holdings also [FARMER Chartered Financial Analyst, automotive industries, was also a key contributed to underperformance. PHOTO] portfolio manager, is manager contributor to Fund performance during the of AIM Capital Development period. A third holding among the top five During the reporting period, the most Fund. He began his investment career in contributors to overall Fund performance significant changes to portfolio 1993 and joined AIM in 1998. Mr. Farmer is was technical document publisher IHS. All positioning included additions to the a magna cum laude graduate from Texas A&M three holdings benefited from solid growth materials, IT and industrials sectors, University,where he earned a B.S. in in revenue, earnings and cash flow during and reductions in the telecommunication economics. He subsequently earned his the fiscal year. services, financials, health care and M.B.A. in finance from The Wharton School consumer staples sectors. All changes to at the University of Pennsylvania. The Fund also benefited from strong the Fund were based on our bottom-up stock selection in the consumer stock selection process of identifying Warren Tennant discretionary sector. Within this sector, high quality growth companies trading at [TENNANT Chartered Financial one holding that made a meaningful what we believe are attractive PHOTO] Analyst, portfolio manager, is contribution to performance was HILTON valuations. manager of AIM Capital HOTELS. In early July, private equity firm Development Fund. Mr. Tennant worked as an Blackstone offered to buy Hilton Hotels at We are pleased to have provided internal auditor in the energy industry a 40% premium to where the stock price positive returns for our investors for and as a senior equity analyst at AIM closed before news of the deal began the fiscal year by focusing on what we before assuming his current position in circulating within the market. We sold the believed were attractively priced stocks 2007. He earned both his Bachelor of stock after the announcement, locking in of mid-cap companies with sustainable Business Administration degree in finance the relatively sizable gain for revenue, earnings and cash flow growth. and his Master of Business Administration shareholders. Two other holdings that made We thank you for your commitment to AIM degree from The University of Texas at meaningful contributions to performance Capital Development Fund. Austin. were FOCUS MEDIA and BURGER KING. An underweight position in multi-line and Source: (1)Lipper Inc. Assisted by the Mid Cap Growth Team specialty retail stocks also contributed to (formerly known as Mid Cap out-performance of the style-specific The views and opinions expressed in Growth/GARPTeam) index, as many stocks in these industries management's discussion of Fund faced selling pressure during the year. performance are those of A I M Advisors, Inc. These views and opinions are subject In the consumer staples sector, to change at any time based on factors outperformance was driven largely by strong such as market and economic conditions. performance from Fund holding SHOPPER'S These views and opinions may not be relied DRUGMART, Canada's only nationwide drug upon as investment advice or store chain. recommendations, or as an offer for a particular security. The information is not Two other holdings that were significant a complete analysis of every aspect of any contributors to performance were POTASH market, country, industry, security or the CORP. of Saskatchewan in the materials Fund. Statements of fact are from sources sector and FMC TECHNOLOGIES in the energy considered reliable, but A I M Advisors, sector. Inc. makes no representation or only warranty as to their completeness or Underperformance versus the Russell accuracy. Although historical performance Midcap Growth Index was largely is no guarantee of future results, these concentrated in the financials and insights may help you understand our information technology (IT) sectors. In the investment management philosophy. financials sector, underperformance was the result of both stock selection and an See important Fund and index overweight position. Many financials disclosures later in this report.
5 AIM Capital Development Fund Your Fund's long-term performance Past performance cannot guarantee compa- This chart, which is a logarithmic rable future results. chart, presents the fluctuations in the value of the Fund and its indexes. We The data shown in the chart include believe that a logarithmic chart is more reinvested distributions, applicable effective than other types of charts in sales charges, Fund expenses and management illustrating changes in value during the fees. Index results include reinvested early years shown in the chart. The dividends, but they do not reflect sales vertical axis, the one that indicates the charges. Performance of an index of funds dollar value of an investment, is reflects fund expenses and management fees; constructed with each segment performance of a market index does not. representing a percent change in the Performance shown in the chart and table(s) value of the investment. In this chart, does not reflect deduction of taxes a each segment represents a doubling, or shareholder would pay on Fund distributions 100% change, in the value of the or sale of Fund shares. Performance of the investment. In other words, the space indexes does not reflect the effects of between $5,000 and $10,000 is the same taxes. size as the space between $10,000 and $20,000, and so on.
6 ==================================================================================================================================== [MOUNTAIN CHART] RESULTS OF A $10,000 INVESTMENT FUND DATA FROM 6/17/96, INDEX DATA FROM 6/30/96 AIM CAPITAL LIPPER MID-CAP DEVELOPMENT FUND RUSSELL MIDCAP GROWTH FUNDS DATE -CLASS A SHARES S&P 500 INDEX(1) GROWTH INDEX(1) INDEX(1) 06/17/96 $ 9450 6/96 9563 $10000 $10000 $10000 7/96 8977 9558 9224 8906 8/96 9904 9760 9722 9483 9/96 10669 10309 10340 10127 10/96 10480 10593 10219 9747 11/96 10744 11393 10821 9970 12/96 10971 11168 10638 9919 1/97 11131 11865 11109 10172 2/97 10470 11958 10864 9496 3/97 9752 11468 10251 8774 4/97 9648 12152 10502 8698 5/97 11046 12895 11443 9831 6/97 11831 13468 11759 10245 7/97 12766 14539 12885 10871 8/97 13183 13725 12759 10841 9/97 14241 14477 13405 11617 10/97 13768 13994 12734 10966 11/97 13485 14641 12868 10791 12/97 13570 14892 13036 11044 1/98 13503 15057 12802 10835 2/98 14836 16142 14005 11755 3/98 15697 16968 14592 12364 4/98 15744 17142 14791 12417 5/98 14714 16848 14182 11694 6/98 14902 17532 14583 12232 7/98 13797 17346 13959 11417 8/98 10829 14840 11295 8956 9/98 11783 15792 12149 9890 10/98 12180 17074 13044 10254 11/98 13002 18109 13923 11033 12/98 14183 19151 15365 12456 1/99 13974 19952 15826 13074 2/99 12689 19332 15052 12059 3/99 12953 20105 15890 12918 4/99 13302 20884 16614 13448 5/99 13454 20391 16401 13392 6/99 14285 21520 17546 14472 7/99 14144 20851 16987 14274 8/99 13464 20747 16810 14201 9/99 13842 20179 16667 14616 10/99 14400 21456 17956 15908 11/99 15893 21892 19815 17904 12/99 18123 23180 23247 21638 1/00 17811 22015 23242 21267 2/00 22148 21599 28128 26596 3/00 22177 23710 28157 24724 4/00 20296 22997 25424 21463 5/00 19125 22526 23570 19533 6/00 20391 23081 26072 22569 7/00 19835 22720 24421 21633 8/00 22019 24131 28103 24462 9/00 21083 22857 26730 23286 10/00 20591 22760 24900 21403 11/00 18267 20967 19489 16927 12/00 19905 21070 20515 18148 1/01 20387 21817 21687 18394 2/01 18829 19829 17936 15635 3/01 17304 18573 15369 13976 4/01 18927 20016 17931 15819 5/01 19387 20150 17847 15949 6/01 19562 19660 17856 15887 7/01 19047 19466 16652 15051 8/01 18192 18249 15445 14043 9/01 15791 16775 12892 12017 10/01 16108 17095 14247 12686 11/01 17326 18406 15781 13728 12/01 18182 18568 16381 14324 ==================================================================================================================================== SOURCE: (1)LIPPER INC.
==================================================================================================================================== [MOUNTAIN CHART] 1/02 17787 18297 15849 13776 2/02 17721 17944 14951 13091 3/02 19125 18619 16092 13916 4/02 18949 17490 15240 13454 5/02 18598 17362 14785 13005 6/02 17228 16126 13154 11836 7/02 15178 14869 11876 10560 8/02 15024 14966 11834 10434 9/02 13565 13341 10894 9786 10/02 14038 14514 11738 10279 11/02 14860 15368 12657 10890 12/02 14235 14466 11892 10246 1/03 13971 14087 11775 10094 2/03 13818 13876 11673 9938 3/03 13905 14010 11890 10080 4/03 14815 15163 12700 10787 5/03 15869 15962 13922 11679 6/03 16286 16165 14120 11862 7/03 16670 16451 14625 12330 8/03 17372 16771 15430 12936 9/03 16966 16593 15131 12502 10/03 18270 17531 16350 13483 11/03 18764 17686 16788 13804 12/03 19253 18612 16971 13875 1/04 19771 18954 17532 14225 2/04 20311 19217 17826 14421 3/04 20311 18927 17792 14418 4/04 19738 18631 17289 13960 5/04 19851 18886 17697 14264 6/04 20290 19253 17979 14608 7/04 19086 18616 16788 13570 8/04 18829 18690 16581 13335 9/04 19604 18893 17200 13905 10/04 20077 19182 17784 14316 11/04 21302 19957 18702 15112 12/04 22228 20636 19598 15821 1/05 21815 20133 19074 15310 2/05 22094 20557 19557 15508 3/05 21681 20193 19271 15199 4/05 20638 19810 18508 14467 5/05 21827 20440 19568 15325 6/05 22409 20469 19932 15676 7/05 23622 21230 21095 16578 8/05 23634 21037 20966 16526 9/05 23766 21207 21238 16815 10/05 22856 20853 20613 16347 11/05 24044 21641 21731 17231 12/05 24354 21649 21969 17337 1/06 26257 22222 23285 18527 2/06 26228 22282 22999 18367 3/06 27159 22560 23641 18980 4/06 27868 22862 23741 19158 5/06 26494 22205 22624 18091 6/06 26438 22235 22531 18099 7/06 25507 22372 21724 17334 8/06 26035 22903 22224 17617 9/06 26481 23493 22732 17869 10/06 27397 24258 23604 18495 11/06 28452 24719 24530 19264 12/06 28312 25065 24311 19248 1/07 29326 25444 25195 19890 2/07 29402 24948 25141 19834 3/07 29849 25226 25273 20161 4/07 30816 26343 26383 20985 5/07 32751 27262 27453 22169 6/07 32506 26809 26977 22078 7/07 31339 25979 26373 21792 8/07 31016 26368 26516 22021 9/07 32508 27353 27556 23374 10/07 33192 27788 28259 24426 ====================================================================================================================================
AIM Capital Development Fund =========================================== ========================================= AVERAGE ANNUAL TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS As of 10/31/07, including applicable sales As of 9/30/07,the most recent calendar charges quarter-end, including applicable sales charges CLASS A SHARES Inception (6/17/96) 11.13% CLASS A SHARES 10 Years 8.58 Inception (6/17/96) 11.01% 5 Years 17.45 10 Years 7.99 1 Year 14.46 5 Years 17.76 1 Year 16.01 CLASS B SHARES Inception (10/1/96) 10.26% CLASS B SHARES 10 Years 8.60 Inception (10/1/96) 10.13% 5 Years 17.74 10 Years 8.01 1 Year 15.27 5 Years 18.07 1 Year 16.77 CLASS C SHARES Inception (8/4/97) 8.96% CLASS C SHARES 10 Years 8.43 Inception (8/4/97) 8.83% 5 Years 17.94 10 Years 7.84 1 Year 19.23 5 Years 18.28 1 Year 20.80 CLASS R SHARES 10 Years 9.00% CLASS R SHARES 5 Years 18.53 10 Years 8.41% 1 Year 20.86 5 Years 18.85 1 Year 22.37 INVESTOR CLASS SHARES 10 Years 9.20% INVESTOR CLASS SHARES 5 Years 18.78 10 Years 8.61% 1 Year 21.12 5 Years 19.11 1 Year 22.76 =========================================== ========================================= CLASS R SHARES' INCEPTION DATE IS JUNE 3, SHARES FOR THE PERIOD USING BLENDED 1.52% AND 1.27%,RESPECTIVELY. THE EXPENSE 2002. RETURNS SINCE THAT DATE ARE RETURNS. CLASS A DATE IS JUNE 17,1996. RATIOS PRESENTED ABOVE MAY VARY FROM THE HISTORICAL RETURNS. ALL OTHER RETURNS ARE EXPENSE RATIOS PRESENTED IN OTHER SECTIONS BLENDED RETURNS OF HISTORICAL CLASS R THE PERFORMANCE DATA QUOTED REPRESENT OF THIS REPORT THAT ARE BASED ON EXPENSES SHARE PERFORMANCE AND RESTATED CLASS A PAST PERFORMANCE AND CANNOT GUARANTEE INCURRED DURING THE PERIOD COVERED BY THIS SHARE PERFORMANCE (FOR PERIODS PRIOR TO COMPARABLE FUTURE RESULTS; CURRENT REPORT. THE INCEPTION DATE OF CLASS R SHARES) PERFORMANCE MAY BE LOWER OR HIGHER. AT NET ASSET VALUE, ADJUSTED TO REFLECT PLEASE VISIT AIMINVESTMENTS.COM FOR THE CLASS A SHARE PERFORMANCE REFLECTS THE THE HIGHER RULE 12B-1 FEES APPLICABLE MOST RECENT MONTH-END PERFORMANCE. MAXIMUM 5.50% SALES CHARGE, AND CLASS B TO CLASS R SHARES. CLASS A DATE IS PERFORMANCE FIGURES REFLECT REINVESTED AND CLASS C SHARE PERFORMANCE REFLECTS THE JUNE 17, 1996. DISTRIBUTIONS, CHANGES IN NET ASSET VALUE APPLICABLE CONTINGENT DEFERRED SALES AND THE EFFECT OF THE MAXIMUM SALES CHARGE (CDSC) FOR THE PERIOD INVOLVED. THE INVESTOR CLASS SHARES' INCEPTION DATE IS CHARGE UNLESS OTHERWISE STATED. CDSC ON CLASS B SHARES DECLINES FROM 5% NOVEMBER 30, 2004. RETURNS SINCE THAT DATE INVESTMENT RETURN AND PRINCIPAL VALUE BEGINNING AT THE TIME OF PURCHASE TO 0% AT ARE HISTORICAL RETURNS. ALL OTHER RETURNS WILL FLUCTUATE SO THAT YOU MAY HAVE A THE BEGINNING OF THE SEVENTH YEAR. THE ARE BLENDED RETURNS OF HISTORICAL INVESTOR GAIN OR LOSS WHEN YOU SELL SHARES. CDSC ON CLASS C SHARES IS 1% FOR THE FIRST CLASS SHARE PERFORMANCE AND RESTATED CLASS YEAR AFTER PURCHASE. CLASS R SHARES DO NOT A SHARE PERFORMANCE (FOR PERIODS PRIOR TO THE TOTAL ANNUAL FUND OPERATING HAVE A FRONT-END SALES CHARGE; RETURNS THE INCEPTION DATE OF INVESTOR CLASS EXPENSE RATIO SET FORTH IN THE MOST SHOWN ARE AT NET ASSET VALUE AND DO NOT SHARES) AT NET ASSET VALUE, WHICH RESTATED RECENT FUND PROSPECTUS AS OF THE DATE OF REFLECT A 0.75% CDSC THAT MAY BE IMPOSED PERFORMANCE WILL REFLECT THE RULE 12B-1 THIS REPORT FOR CLASS A, CLASS B,CLASS ON A TOTAL REDEMPTION OF RETIREMENT PLAN FEES APPLICABLE TO CLASS A C, CLASS R AND INVESTOR CLASS SHARES WAS ASSETS WITHIN THE FIRST YEAR. INVESTOR 1.27%,2.02%,2.02%, CLASS SHARES DO NOT HAVE A FRONT-END SALES CHARGE OR A CDSC; THEREFORE, PERFORMANCE IS AT NET ASSET VALUE. THE PERFORMANCE OF THE SHARE CLASSES WILL DIFFER PRIMARILY DUE TO DIFFERENT SALES CHARGE STRUCTURES DATE IS AND CLASS EXPENSES. ========================================== FOR A DISCUSSION OF THE RISKS OF INVESTING IN YOUR FUND AND INDEXES USED IN THIS REPORT, PLEASE TURN THE PAGE. ==========================================
7 AIM Capital Development Fund AIM CAPITAL DEVELOPMENT FUND'S INVESTMENT OBJECTIVE IS LONG-TERM GROWTH OF CAPITAL. o Unless otherwise stated, information presented in this report is as of October 31, 2007, and is based on total net assets. o Unless otherwise noted, all data in this report are from A I M Management Group Inc. About share classes o Class B shares are not available as an o The prices of securities held by the o The Fund is not managed to track the investment for retirement plans maintained Fund may decline in response to market performance of any particular index, pursuant to Section 401 of the Internal risks. including the indexes defined here, and Revenue Code, including 401(k) plans, money consequently, the performance of the Fund purchase pension plans and profit sharing o Mid-capitalization companies tend to be may deviate significantly from the plans. Plans that had existing accounts more vulnerable to adverse developments performance of the indexes. invested in Class B shares prior to and more volatile than larger companies. September 30, 2003, will continue to be Investments in mid-capitalization sized o A direct investment cannot be made in an allowed to make additional purchases. companies may involve special risks index. Unless otherwise indicated, index including those associated with results include reinvested dividends, and o Class R shares are available only to dependence on a small management group, they do not reflect sales charges. certain retirement plans. Please see the little or no operating history, little or Performance of an index of funds reflects prospectus for more information. no track record of success, limited fund expenses; performance of a market product lines, less publicly available index does not. o Investor Class shares are closed to most information, illiquidity, restricted investors. For more information on who may resale or less frequent trading. Other information continue to invest in Investor Class shares, please see the prospectus. About indexes used in this report o The returns shown in the management's discussion of Fund performance are based Principal risks of investing in the Fund o The S&P 500 --REGISTERED TRADEMARK-- on net asset values calculated for Index is a market capitalization-weighted shareholder transactions. Generally o Prices of equity securities change in index covering all major areas of the accepted accounting principles require response to many factors including the U.S. economy. It is not the 500 largest adjustments to be made to the net assets historical and prospective earnings of the companies, but rather the most widely of the Fund at period end for financial issuer, the value of its assets, general held 500 companies chosen with respect to reporting purposes, and as such, the net economic conditions, interest rates, market size, liquidity, and their asset values for shareholder transactions investor perceptions and market liquidity. industry. and the returns based on those net asset values may differ from the net asset o The Fund invests in "growth" stocks, o The Russell Midcap --REGISTERED values and returns reported in the which may be more volatile than other TRADEMARK-- Growth Index measures the Financial Highlights. investment styles because growth stocks are performance of those Russell Midcap more sensitive to investor perceptions of companies with higher price-to-book o Industry classifications used in this an issuing growth potential. ratios and higher forecasted growth report are generally according to the values. The Russell Midcap Growth Index Global Industry Classification Standard, o There is no guarantee that the investment is a trademark/service mark of the Frank which was developed by and is the techniques and risk analyses used by the Russell Company. Russell --REGISTERED exclusive property and a service mark of Fund's portfolio managers will produce TRADEMARK-- is a trademark of the Frank Morgan Stanley Capital International Inc. the desired results. Russell Company. and Standard & Poor's. o The Lipper Mid-Cap Growth Funds Index o The Chartered Financial Analyst is an equally weighted representation of --REGISTERED TRADEMARK-- (CFA --REGISTERED the largest funds in the Lipper TRADEMARK--) designation is a globally Mid-Cap Growth Funds category. These recognized standard for measuring the funds have an above-average competence and integrity of investment price-to-earnings ratio, price-to-book professionals. ratio, and three-year sales-per-share growth value, compared to the S&P MidCap 400 Index. ======================================================================================= THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND PROSPECTUS, ========================================== WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING. FUND NASDAQ SYMBOLS ======================================================================================= Class A Shares ACDAX Class B Shares ACDBX NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE Class C Shares ACDCX Class R Shares ACDRX AIMINVESTMENTS.COM Investor Class Shares ACDIX ==========================================
8 AIM Capital Development Fund SCHEDULE OF INVESTMENTS(A) October 31, 2007
SHARES VALUE - ------------------------------------------------------------------------- COMMON STOCKS & OTHER EQUITY INTERESTS-95.25% ADVERTISING-1.04% Focus Media Holding Ltd.-ADR (China)(b)(c) 353,832 $ 21,937,584 - ------------------------------------------------------------------------- AEROSPACE & DEFENSE-4.65% AerCap Holdings N.V. (Netherlands)(c) 380,957 9,603,926 - ------------------------------------------------------------------------- BE Aerospace, Inc.(c) 373,127 18,548,143 - ------------------------------------------------------------------------- L-3 Communications Holdings, Inc. 180,818 19,824,886 - ------------------------------------------------------------------------- Precision Castparts Corp. 199,809 29,933,386 - ------------------------------------------------------------------------- Spirit AeroSystems Holdings Inc.-Class A(c) 568,295 19,731,202 ========================================================================= 97,641,543 ========================================================================= AIR FREIGHT & LOGISTICS-1.09% Robinson (C.H.) Worldwide, Inc. 245,948 12,277,724 - ------------------------------------------------------------------------- UTI Worldwide, Inc. 420,552 10,728,282 ========================================================================= 23,006,006 ========================================================================= APPAREL RETAIL-3.00% Abercrombie & Fitch Co.-Class A 235,951 18,687,319 - ------------------------------------------------------------------------- Aeropostale, Inc.(c) 1,079,402 24,718,306 - ------------------------------------------------------------------------- Guess?, Inc. 382,871 19,675,741 ========================================================================= 63,081,366 ========================================================================= APPAREL, ACCESSORIES & LUXURY GOODS-3.48% Coach, Inc.(c) 415,694 15,197,773 - ------------------------------------------------------------------------- Hanesbrands, Inc.(c) 720,917 22,377,264 - ------------------------------------------------------------------------- Polo Ralph Lauren Corp. 272,203 18,727,566 - ------------------------------------------------------------------------- Under Armour, Inc.-Class A(b)(c) 268,834 16,734,916 ========================================================================= 73,037,519 ========================================================================= APPLICATION SOFTWARE-3.16% ANSYS, Inc.(c) 139,386 5,409,571 - ------------------------------------------------------------------------- Cadence Design Systems, Inc.(c) 796,226 15,606,029 - ------------------------------------------------------------------------- Citrix Systems, Inc.(c) 512,118 22,015,953 - ------------------------------------------------------------------------- Solera Holdings Inc.(c) 1,090,704 23,461,043 ========================================================================= 66,492,596 ========================================================================= ASSET MANAGEMENT & CUSTODY BANKS-0.39% FBR Capital Markets Corp.(b)(c) 163,101 2,087,693 - ------------------------------------------------------------------------- FBR Capital Markets Corp. (Acquired 07/14/06; Cost $7,044,000)(c)(d)(e) 469,600 6,010,880 ========================================================================= 8,098,573 ========================================================================= BIOTECHNOLOGY-1.14% Genzyme Corp.(c) 316,000 24,006,520 =========================================================================
SHARES VALUE - -------------------------------------------------------------------------
CASINOS & GAMING-1.92% International Game Technology 470,654 $ 20,525,221 - ------------------------------------------------------------------------- Scientific Games Corp.-Class A(b)(c) 550,371 19,895,912 ========================================================================= 40,421,133 ========================================================================= COMMUNICATIONS EQUIPMENT-1.57% Comverse Technology, Inc.(c) 621,452 11,944,308 - ------------------------------------------------------------------------- Infinera Corp.(c) 454,873 10,039,047 - ------------------------------------------------------------------------- Polycom, Inc.(c) 393,450 11,008,731 ========================================================================= 32,992,086 ========================================================================= COMPUTER & ELECTRONICS RETAIL-0.80% GameStop Corp.-Class A(c) 283,857 16,810,012 ========================================================================= COMPUTER STORAGE & PERIPHERALS-0.92% Intermec Inc.(b)(c) 173,549 4,411,615 - ------------------------------------------------------------------------- SanDisk Corp.(c) 337,012 14,963,333 ========================================================================= 19,374,948 ========================================================================= CONSTRUCTION & ENGINEERING-3.23% Aecom Technology Corp.(c) 570,840 19,277,267 - ------------------------------------------------------------------------- Foster Wheeler Ltd.(c) 327,926 48,615,029 ========================================================================= 67,892,296 ========================================================================= CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS-1.04% Joy Global Inc. 376,777 21,875,673 ========================================================================= DATA PROCESSING & OUTSOURCED SERVICES-3.41% Euronet Worldwide, Inc.(b)(c) 767,671 24,588,502 - ------------------------------------------------------------------------- Fidelity National Information Services, Inc. 421,800 19,453,416 - ------------------------------------------------------------------------- VeriFone Holdings, Inc.(c) 556,904 27,527,765 ========================================================================= 71,569,683 ========================================================================= DISTRIBUTORS-1.08% LKQ Corp.(c) 588,269 22,683,653 ========================================================================= DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES-2.47% Corrections Corp. of America(c) 960,770 27,180,183 - ------------------------------------------------------------------------- IHS Inc.-Class A(c) 393,554 24,813,580 ========================================================================= 51,993,763 ========================================================================= DIVERSIFIED METALS & MINING-0.42% Titanium Metals Corp.(b)(c) 252,831 8,899,651 ========================================================================= DRUG RETAIL-1.19% Shoppers Drug Mart Corp. (Canada) 427,700 25,086,599 =========================================================================
9 AIM Capital Development Fund
SHARES VALUE - ------------------------------------------------------------------------- EDUCATION SERVICES-1.30% Apollo Group, Inc.-Class A(c) 343,200 $ 27,202,032 ========================================================================= ELECTRICAL COMPONENTS & EQUIPMENT-2.02% Cooper Industries, Ltd.-Class A 361,600 18,944,224 - ------------------------------------------------------------------------- General Cable Corp.(c) 327,521 23,578,237 ========================================================================= 42,522,461 ========================================================================= ELECTRONIC EQUIPMENT MANUFACTURERS-1.15% Amphenol Corp.-Class A 547,786 24,250,486 ========================================================================= FERTILIZERS & AGRICULTURAL CHEMICALS-1.07% Potash Corp. of Saskatchewan Inc. (Canada) 182,373 22,399,052 ========================================================================= FOOTWEAR-0.67% Crocs, Inc.(b)(c) 188,441 14,085,965 ========================================================================= HEALTH CARE DISTRIBUTORS-0.26% AmerisourceBergen Corp. 117,000 5,511,870 ========================================================================= HEALTH CARE EQUIPMENT-2.65% ev3 Inc.(b)(c) 878,293 12,893,341 - ------------------------------------------------------------------------- Hologic, Inc.(b)(c) 317,000 21,533,810 - ------------------------------------------------------------------------- St. Jude Medical, Inc.(c) 522,222 21,270,102 ========================================================================= 55,697,253 ========================================================================= HEALTH CARE SERVICES-2.86% DaVita, Inc.(c) 316,639 20,641,696 - ------------------------------------------------------------------------- Express Scripts, Inc.(c) 300,000 18,930,000 - ------------------------------------------------------------------------- Pediatrix Medical Group, Inc.(c) 312,520 20,470,060 ========================================================================= 60,041,756 ========================================================================= HEALTH CARE SUPPLIES-1.03% Inverness Medical Innovations, Inc.(b)(c) 360,000 21,632,400 ========================================================================= HOME ENTERTAINMENT SOFTWARE-1.57% Electronic Arts Inc.(c) 180,503 11,032,344 - ------------------------------------------------------------------------- THQ Inc.(c) 812,892 22,021,244 ========================================================================= 33,053,588 ========================================================================= HOTELS, RESORTS & CRUISE LINES-1.00% Choice Hotels International, Inc. 540,382 20,934,399 ========================================================================= HOUSEWARES & SPECIALTIES-1.03% Jarden Corp.(c) 608,781 21,623,901 ========================================================================= INDEPENDENT POWER PRODUCERS & ENERGY TRADERS-1.69% Dynegy Inc.-Class A(c) 2,270,430 20,910,660 - ------------------------------------------------------------------------- KGEN Power Corp. (Acquired 01/12/07; Cost $12,297,138)(c)(e) 878,367 14,493,056 ========================================================================= 35,403,716 =========================================================================
SHARES VALUE - -------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES-1.06% McDermott International, Inc.(c) 363,118 $ 22,171,985 ========================================================================= INSURANCE BROKERS-0.81% National Financial Partners Corp. 310,523 16,976,292 ========================================================================= INTERNET RETAIL-0.79% Orbitz Worldwide, Inc.(b)(c) 1,576,988 16,637,223 ========================================================================= INTERNET SOFTWARE & SERVICES-0.63% Akamai Technologies, Inc.(b)(c) 337,831 13,239,597 ========================================================================= INVESTMENT BANKING & BROKERAGE-1.07% MF Global Ltd.(c) 762,693 22,545,205 ========================================================================= IT CONSULTING & OTHER SERVICES-1.84% Cognizant Technology Solutions Corp.-Class A(c) 484,900 20,103,954 - ------------------------------------------------------------------------- Gartner, Inc.(c) 845,871 18,524,575 ========================================================================= 38,628,529 ========================================================================= LIFE SCIENCES TOOLS & SERVICES-1.78% Applera Corp.-Applied Biosystems Group 450,000 16,713,000 - ------------------------------------------------------------------------- Pharmaceutical Product Development, Inc. 492,000 20,782,080 ========================================================================= 37,495,080 ========================================================================= MANAGED HEALTH CARE-1.53% Aveta, Inc. (Acquired 12/21/05-02/21/06; Cost $13,947,028)(c)(e) 1,014,837 8,118,696 - ------------------------------------------------------------------------- Humana Inc.(c) 321,000 24,058,950 ========================================================================= 32,177,646 ========================================================================= METAL & GLASS CONTAINERS-2.26% Crown Holdings, Inc.(c) 884,599 21,938,055 - ------------------------------------------------------------------------- Owens-Illinois, Inc.(c) 576,182 25,594,005 ========================================================================= 47,532,060 ========================================================================= OIL & GAS DRILLING-1.99% Diamond Offshore Drilling, Inc.(b) 182,000 20,607,860 - ------------------------------------------------------------------------- Noble Corp. 398,954 21,124,614 ========================================================================= 41,732,474 ========================================================================= OIL & GAS EQUIPMENT & SERVICES-2.53% Cameron International Corp.(c) 108,000 10,514,880 - ------------------------------------------------------------------------- Compagnie Generale de Geophysique-Veritas-ADR (France)(c) 321,337 21,092,561 - ------------------------------------------------------------------------- FMC Technologies, Inc.(c) 357,000 21,644,910 ========================================================================= 53,252,351 =========================================================================
10 AIM Capital Development Fund
SHARES VALUE - ------------------------------------------------------------------------- OIL & GAS EXPLORATION & PRODUCTION-2.92% Pioneer Natural Resources Co. 286,664 $ 14,625,597 - ------------------------------------------------------------------------- Quicksilver Resources Inc.(c) 310,000 17,670,000 - ------------------------------------------------------------------------- Southwestern Energy Co.(c) 560,000 28,968,800 ========================================================================= 61,264,397 ========================================================================= OIL & GAS REFINING & MARKETING-0.86% Tesoro Corp. 298,257 18,053,496 ========================================================================= OIL & GAS STORAGE & TRANSPORTATION-1.02% Williams Cos., Inc. (The) 590,000 21,529,100 ========================================================================= PHARMACEUTICALS-1.58% Adams Respiratory Therapeutics, Inc.(b)(c) 270,000 11,863,800 - ------------------------------------------------------------------------- Shire PLC-ADR (United Kingdom) 282,500 21,229,875 ========================================================================= 33,093,675 ========================================================================= PROPERTY & CASUALTY INSURANCE-0.56% Security Capital Assurance Ltd.(b) 902,752 11,844,106 ========================================================================= PUBLISHING-0.91% R.H. Donnelley Corp.(c) 348,850 19,134,422 ========================================================================= REAL ESTATE MANAGEMENT & DEVELOPMENT-0.77% CB Richard Ellis Group, Inc.-Class A(c)(f) 348,282 8,491,115 - ------------------------------------------------------------------------- Meruelo Maddux Properties, Inc.(c) 1,595,258 7,673,191 ========================================================================= 16,164,306 ========================================================================= REGIONAL BANKS-0.52% Signature Bank(c) 322,364 11,008,731 ========================================================================= RESTAURANTS-0.93% Burger King Holdings Inc. 736,964 19,485,328 ========================================================================= SEMICONDUCTOR EQUIPMENT-1.44% FormFactor Inc.(c) 461,322 18,042,303 - ------------------------------------------------------------------------- MEMC Electronic Materials, Inc.(c) 166,613 12,199,404 ========================================================================= 30,241,707 ========================================================================= SEMICONDUCTORS-4.53% Broadcom Corp.-Class A(c) 608,552 19,808,368 - ------------------------------------------------------------------------- Marvell Technology Group Ltd.(c) 932,163 16,806,899 - ------------------------------------------------------------------------- Maxim Integrated Products, Inc. 719,701 19,503,897 - ------------------------------------------------------------------------- NVIDIA Corp.(c) 615,409 21,773,170 - ------------------------------------------------------------------------- ON Semiconductor Corp.(c) 1,705,217 17,393,213 ========================================================================= 95,285,547 =========================================================================
SHARES VALUE - -------------------------------------------------------------------------
SPECIALIZED FINANCE-0.85% IntercontinentalExchange Inc.(c) 87,000 $ 15,503,400 - ------------------------------------------------------------------------- KKR Financial Holdings LLC 151,813 2,369,801 ========================================================================= 17,873,201 ========================================================================= SPECIALTY CHEMICALS-0.78% Wacker Chemie A.G. (Germany)(g) 66,625 16,480,069 ========================================================================= SPECIALTY STORES-0.92% PetSmart, Inc. 645,280 19,326,136 ========================================================================= STEEL-0.83% Allegheny Technologies, Inc. 170,836 17,454,314 ========================================================================= SYSTEMS SOFTWARE-0.71% Quality Systems, Inc.(b) 410,000 14,854,300 ========================================================================= TIRES & RUBBER-0.95% Goodyear Tire & Rubber Co. (The)(c) 663,348 19,999,942 ========================================================================= WIRELESS TELECOMMUNICATION SERVICES-3.58% American Tower Corp.-Class A(c) 406,967 17,979,802 - ------------------------------------------------------------------------- Crown Castle International Corp.(c) 487,865 20,036,616 - ------------------------------------------------------------------------- NII Holdings Inc.(c) 324,400 18,815,200 - ------------------------------------------------------------------------- SBA Communications Corp.-Class A(c) 517,459 18,421,540 ========================================================================= 75,253,158 ========================================================================= Total Common Stocks & Other Equity Interests (Cost $1,573,402,727) 2,001,994,460 ========================================================================= PREFERRED STOCK-0.72% MORTGAGE REIT'S-0.72% Thornburg Mortgage Inc.-Series F $2.50 Conv. Pfd. (Cost $15,625,000) 625,000 15,212,500 =========================================================================
NUMBER OF EXERCISE EXPIRATION CONTRACTS PRICE DATE PUT OPTIONS PURCHASED-0.02% REAL ESTATE MANAGEMENT & DEVELOPMENT-0.02% CB Richard Ellis Group, Inc.-Class A (Cost $618,882)(c) 3,482 $25 Nov-07 504,890 =================================================================================================
SHARES VALUE - -------------------------------------------------------------------------- MONEY MARKET FUNDS-3.42% Liquid Assets Portfolio-Institutional Class(h) 35,784,678 35,784,678 - -------------------------------------------------------------------------- Premier Portfolio-Institutional Class(h) 35,784,678 35,784,678 ========================================================================== Total Money Market Funds (Cost $71,569,356) 71,569,356 ========================================================================== Total Investments (excluding investments purchased with cash collateral from securities loaned)-99.41% (Cost $1,661,215,965) 2,089,281,206 ==========================================================================
11 AIM Capital Development Fund
SHARES VALUE - -------------------------------------------------------------------------- INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES ON LOAN MONEY MARKET FUNDS-6.84% Liquid Assets Portfolio-Institutional Class (Cost $143,722,105)(h)(i) 143,722,105 $ 143,722,105 - -------------------------------------------------------------------------- TOTAL INVESTMENTS-106.25% (Cost $1,804,938,070) 2,233,003,311 ========================================================================== OTHER ASSETS LESS LIABILITIES-(6.25)% (131,266,014) ========================================================================== NET ASSETS-100.00% $2,101,737,297 __________________________________________________________________________ ==========================================================================
Investment Abbreviations: ADR - American Depositary Receipt Conv. - Convertible Pfd. - Preferred REIT - Real Estate Investment Trust
Notes to Schedule of Investments: (a) Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of Morgan Stanley Capital International Inc. and Standard & Poor's. (b) All or a portion of this security was out on loan at October 31, 2007. (c) Non-income producing security. (d) Security fair valued in good faith in accordance with the procedures established by the Board of Trustees. The value of this security at October 31, 2007 represented 0.29% of the Fund's Net Assets. See Note 1A. (e) Security not registered under the Securities Act of 1933, as amended (e.g., the security was purchased in a Rule 144A transaction or a Regulation D transaction). The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The Fund has no rights to demand registration of these securities. The aggregate value of these securities at October 31, 2007 was $28,622,632, which represented 1.36% of the Fund's Net Assets. These securities are considered to be illiquid. The Fund is limited to investing 15% of net assets in illiquid securities at the time of purchase. (f) A portion of this security is subject to call options written. See Note 1K and Note 9. (g) In accordance with the procedures established by the Board of Trustees, the foreign security is fair valued using adjusted closing market prices. The value of this security at October 31, 2007 represented 0.78% of the Fund's Net Assets. See Note 1A. (h) The money market fund and the Fund are affiliated by having the same investment advisor. See Note 3. (i) The security has been segregated to satisfy the commitment to return the cash collateral received in securities lending transactions upon the borrower's return of the securities loaned. See Note 8. See accompanying Notes to Financial Statements which are an integral part of the financial statements. 12 AIM Capital Development Fund STATEMENT OF ASSETS AND LIABILITIES October 31, 2007 ASSETS: Investments, at value (Cost $1,589,646,609)* $2,017,711,850 - ------------------------------------------------------------ Investments in affiliated money market funds (Cost $215,291,461) 215,291,461 ============================================================ Total investments (Cost $1,804,938,070) 2,233,003,311 ============================================================ Foreign currencies, at value (Cost $1,501,856) 1,503,225 - ------------------------------------------------------------ Receivables for: Investments sold 37,620,624 - ------------------------------------------------------------ Investments sold to affiliates 2,011,649 - ------------------------------------------------------------ Fund shares sold 3,201,220 - ------------------------------------------------------------ Dividends 833,822 - ------------------------------------------------------------ Investment for trustee deferred compensation and retirement plans 82,246 - ------------------------------------------------------------ Other assets 46,207 ============================================================ Total assets 2,278,302,304 ____________________________________________________________ ============================================================ LIABILITIES: Payables for: Investments purchased 21,100,968 - ------------------------------------------------------------ Fund shares reacquired 9,764,558 - ------------------------------------------------------------ Options written, at value (premiums received $191,387) 147,985 - ------------------------------------------------------------ Trustee deferred compensation and retirement plans 189,632 - ------------------------------------------------------------ Collateral upon return of securities loaned 143,722,105 - ------------------------------------------------------------ Accrued distribution fees 663,434 - ------------------------------------------------------------ Accrued trustees' and officer's fees and benefits 3,763 - ------------------------------------------------------------ Accrued transfer agent fees 785,088 - ------------------------------------------------------------ Accrued operating expenses 187,474 ============================================================ Total liabilities 176,565,007 ============================================================ Net assets applicable to shares outstanding $2,101,737,297 ____________________________________________________________ ============================================================ NET ASSETS CONSIST OF: Shares of beneficial interest $1,472,849,396 - ------------------------------------------------------------ Undistributed net investment income (loss) (163,585) - ------------------------------------------------------------ Undistributed net realized gain 200,941,473 - ------------------------------------------------------------ Unrealized appreciation 428,110,013 ============================================================ $2,101,737,297 ____________________________________________________________ ============================================================ NET ASSETS: Class A $1,511,917,706 ____________________________________________________________ ============================================================ Class B $ 213,235,378 ____________________________________________________________ ============================================================ Class C $ 151,259,118 ____________________________________________________________ ============================================================ Class R $ 79,655,087 ____________________________________________________________ ============================================================ Investor Class $ 12,236,796 ____________________________________________________________ ============================================================ Institutional Class $ 133,433,212 ____________________________________________________________ ============================================================ SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Class A 70,036,763 ____________________________________________________________ ============================================================ Class B 11,033,565 ____________________________________________________________ ============================================================ Class C 7,835,713 ____________________________________________________________ ============================================================ Class R 3,740,526 ____________________________________________________________ ============================================================ Investor Class 566,410 ____________________________________________________________ ============================================================ Institutional Class 5,951,754 ____________________________________________________________ ============================================================ Class A: Net asset value per share $ 21.59 - ------------------------------------------------------------ Offering price per share (Net asset value of $21.59 divided by 94.50%) $ 22.85 ____________________________________________________________ ============================================================ Class B: Net asset value and offering price per share $ 19.33 ____________________________________________________________ ============================================================ Class C: Net asset value and offering price per share $ 19.30 ____________________________________________________________ ============================================================ Class R: Net asset value and offering price per share $ 21.30 ____________________________________________________________ ============================================================ Investor Class: Net asset value and offering price per share $ 21.60 ____________________________________________________________ ============================================================ Institutional Class: Net asset value and offering price per share $ 22.42 ____________________________________________________________ ============================================================
* At October 31, 2007, securities with an aggregate value of $142,030,519 were on loan to brokers. See accompanying Notes to Financial Statements which are an integral part of the financial statements. 13 AIM Capital Development Fund STATEMENT OF OPERATIONS For the year ended October 31, 2007 INVESTMENT INCOME: Dividends (net of foreign withholding taxes of $40,928) $ 7,543,890 - -------------------------------------------------------------------------- Dividends from affiliated money market funds (includes securities lending income of $530,175) 3,005,317 ========================================================================== Total investment income 10,549,207 ========================================================================== EXPENSES: Advisory fees 11,812,507 - -------------------------------------------------------------------------- Administrative services fees 436,600 - -------------------------------------------------------------------------- Custodian fees 84,143 - -------------------------------------------------------------------------- Distribution fees: Class A 3,304,483 - -------------------------------------------------------------------------- Class B 2,256,919 - -------------------------------------------------------------------------- Class C 1,322,169 - -------------------------------------------------------------------------- Class R 251,724 - -------------------------------------------------------------------------- Investor Class 29,841 - -------------------------------------------------------------------------- Transfer agent fees -- A, B, C, R and Investor 4,169,370 - -------------------------------------------------------------------------- Transfer agent fees -- Institutional 29,738 - -------------------------------------------------------------------------- Trustees' and officer's fees and benefits 75,886 - -------------------------------------------------------------------------- Other 571,082 ========================================================================== Total expenses 24,344,462 ========================================================================== Less: Fees waived, expenses reimbursed and expense offset arrangement(s) (181,602) ========================================================================== Net expenses 24,162,860 ========================================================================== Net investment income (loss) (13,613,653) ========================================================================== REALIZED AND UNREALIZED GAIN (LOSS) FROM: Net realized gain from: Investment securities (includes net gains (losses) from securities sold to affiliates of $(576,816)) 215,814,706 - -------------------------------------------------------------------------- Foreign currencies 26,916 - -------------------------------------------------------------------------- Option contracts written 360,613 ========================================================================== 216,202,235 ========================================================================== Change in net unrealized appreciation of: Investment securities 134,418,170 - -------------------------------------------------------------------------- Foreign currencies 1,369 - -------------------------------------------------------------------------- Option contracts written 554,765 ========================================================================== 134,974,304 ========================================================================== Net realized and unrealized gain 351,176,539 ========================================================================== Net increase in net assets resulting from operations $337,562,886 __________________________________________________________________________ ==========================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. 14 AIM Capital Development Fund STATEMENT OF CHANGES IN NET ASSETS For the years ended October 31, 2007 and 2006
2007 2006 - ---------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ (13,613,653) $ (10,075,763) - ---------------------------------------------------------------------------------------------- Net realized gain 216,202,235 169,097,441 - ---------------------------------------------------------------------------------------------- Change in net unrealized appreciation 134,974,304 82,374,314 ============================================================================================== Net increase in net assets resulting from operations 337,562,886 241,395,992 ============================================================================================== Distributions to shareholders from net realized gains: Class A (111,966,779) (107,817,775) - ---------------------------------------------------------------------------------------------- Class B (25,421,735) (44,259,534) - ---------------------------------------------------------------------------------------------- Class C (12,433,367) (12,706,433) - ---------------------------------------------------------------------------------------------- Class R (2,721,934) (1,177,080) - ---------------------------------------------------------------------------------------------- Investor Class (1,002,814) (945,563) - ---------------------------------------------------------------------------------------------- Institutional Class (4,923,981) (3,635,659) ============================================================================================== Decrease in net assets resulting from distributions (158,470,610) (170,542,044) ============================================================================================== Share transactions-net: Class A 281,394,711 239,870,039 - ---------------------------------------------------------------------------------------------- Class B (39,250,068) (90,057,266) - ---------------------------------------------------------------------------------------------- Class C 30,554,611 17,249,712 - ---------------------------------------------------------------------------------------------- Class R 51,074,920 13,214,775 - ---------------------------------------------------------------------------------------------- Investor Class 1,293,869 2,708,301 - ---------------------------------------------------------------------------------------------- Institutional Class 79,313,970 17,652,216 ============================================================================================== Net increase in net assets resulting from share transactions 404,382,013 200,637,777 ============================================================================================== Net increase in net assets 583,474,289 271,491,725 ============================================================================================== NET ASSETS: Beginning of year 1,518,263,008 1,246,771,283 ============================================================================================== End of year (including undistributed net investment income (loss) of $(163,585) and $(139,752), respectively) $2,101,737,297 $1,518,263,008 ______________________________________________________________________________________________ ==============================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. 15 AIM Capital Development Fund NOTES TO FINANCIAL STATEMENTS October 31, 2007 NOTE 1--SIGNIFICANT ACCOUNTING POLICIES AIM Capital Development Fund (the "Fund") is a series portfolio of AIM Equity Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of six separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The Fund currently consists of multiple classes of shares. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. The Fund's investment objective is long-term growth of capital. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements. A. SECURITY VALUATIONS -- Securities, including restricted securities, are valued according to the following policy. A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and the ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange ("NYSE"). Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and may make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, ADRs and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust's officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security's fair value. Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer's assets, general economic conditions, interest rates, investor perceptions and market liquidity. B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. 16 AIM Capital Development Fund The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds as received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund's net asset value and, accordingly, they reduce the Fund's total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the advisor. The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. C. COUNTRY DETERMINATION -- For the purposes of making investment selection decisions and presentation in the Schedule of Investments, AIM may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer's securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America unless otherwise noted. D. DISTRIBUTIONS -- Distributions from income and net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to treat a portion of the proceeds from redemptions as distributions for federal income tax purposes. E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund's taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular class of the Fund are charged to the operations of such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses attributable to the Institutional Class are charged to such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses relating to all other classes are allocated among those classes based on relative net assets. All other expenses are allocated among the classes based on relative net assets. G. ACCOUNTING ESTIMATES -- The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates. H. INDEMNIFICATIONS -- Under the Trust's organizational documents, each Trustee, officer, employee or other agent of the Trust (including the Trust's investment manager) is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts that contain a variety of indemnification clauses. The Fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. I. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (i) sales of foreign currencies, (ii) currency gains or losses realized between the trade and settlement dates on securities transactions, and (iii) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. Taxes are accrued based on the Fund's current interpretation of tax regulations and rates that exist in the foreign markets in which the Fund invests. J. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a foreign currency contract to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. The Fund may also enter into a foreign currency contract for the purchase or sale of a security denominated in a 17 AIM Capital Development Fund foreign currency in order to "lock in" the U.S. dollar price of that security. Fluctuations in the value of these contracts are recorded as unrealized appreciation (depreciation) until the contracts are closed. When these contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains and losses on these contracts are included in the Statement of Operations. The Fund could be exposed to risk, which may be in excess of the amount reflected in the Statement of Assets and Liabilities, if counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. K. CALL OPTIONS WRITTEN AND PURCHASED -- The Fund may write and buy call options. A call option gives the purchaser of such option the right to buy, and the writer the obligation to sell, the underlying security at the stated exercise price during the option period. 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 in the Statement of Assets and Liabilities. The amount of the liability is subsequently "marked-to-market" to reflect the current market value of the option written. If a written call option expires on the stipulated expiration date, or if the Fund enters into a closing purchase transaction, the Fund realizes a gain (or a loss if the closing purchase transaction exceeds the premium received when the option was written) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a written option is exercised, the Fund realizes a gain or a loss from the sale of the underlying security and the proceeds of the sale are increased by the premium originally received. Realized and unrealized gains and losses on these contracts are included in the Statement of Operation. A risk in writing a call option is that the Fund gives up the opportunity for profit if the market price of the security increases and the option is exercised. L. PUT OPTIONS PURCHASED -- The Fund may purchase put options including options on securities indexes and/or futures contracts. By purchasing a put option, the Fund obtains the right (but not the obligation) to sell the option's underlying instrument at a fixed strike price. In return for this right, the Fund pays an option premium. The option's underlying instrument may be a security, securities index, or a futures contract. Put options may be used by the Fund to hedge securities it owns by locking in a minimum price at which the Fund can sell. If security prices fall, the put option could be exercised to offset all or a portion of the Fund's resulting losses. At the same time, because the maximum the Fund has at risk is the cost of the option, purchasing put options does not eliminate the potential for the Fund to profit from an increase in the value of the securities hedged. Realized and unrealized gains and losses on these contracts are included in the Statement of Operations. A risk in buying an option is that the Fund pays a premium whether or not the option is exercised. In addition, there can be no assurance that a liquid secondary market will exist for any option purchased. M. COLLATERAL -- To the extent the Fund has pledged or segregated a security as collateral and that security is subsequently sold, it is the Fund's practice to replace such collateral no later than the next business day. This practice does not apply to securities pledged as collateral for securities lending transactions. NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES The Trust has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to AIM based on the annual rate of the Fund's average daily net assets as follows:
AVERAGE NET ASSETS RATE - -------------------------------------------------------------------- First $350 million 0.75% - -------------------------------------------------------------------- Over $350 million 0.625% ___________________________________________________________________ ====================================================================
Effective July 1, 2007, AIM has contractually agreed, through at least June 30, 2008, to waive 100% of the advisory fee AIM receives from the affiliated money market funds on investments by the Fund in such affiliated money market funds. Prior to July 1, 2007, AIM had voluntarily agreed to waive 25% of the advisory fee AIM receives from the affiliated money market funds on investments by the Fund in such affiliated money market funds. For the year ended October 31, 2007, AIM waived advisory fees of $30,230. At the request of the Trustees of the Trust, Invesco Ltd. ("Invesco") agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. These expenses along with the related expense reimbursement are included in the Statement of Operations. For the year ended October 31, 2007, Invesco reimbursed expenses of the Fund in the amount of $1,180. The Trust has entered into a master administrative services agreement with AIM pursuant to which the Fund has agreed to pay AIM for certain administrative costs incurred in providing accounting services, to the Fund. For the year ended October 31, 2007, expenses incurred under the agreement are shown in the Statement of Operations as administrative services fees. The Trust has entered into a transfer agency and service agreement with AIM Investment Services, Inc. ("AIS") pursuant to which the Fund has agreed to pay AIS a fee for providing transfer agency and shareholder services to the Fund and reimburse AIS for certain expenses incurred by AIS in the course of providing such services. AIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. All fees payable by AIS to intermediaries that provide omnibus account services or sub-accounting are charged back to the Fund, subject to certain limitations approved by the Trust's Board of Trustees. For the year ended October 31, 2007, expenses incurred under the agreement are shown in the Statement of Operations as transfer agent fees. 18 AIM Capital Development Fund The Trust has entered into master distribution agreements with A I M Distributors, Inc. ("ADI") to serve as the distributor for the Class A, Class B, Class C, Class R, Investor Class and Institutional Class shares of the Fund. The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A, Class B, Class C, Class R and Investor Class shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays ADI compensation at the annual rate of 0.25% of the Fund's average daily net assets of Class A shares, 1.00% of the average daily net assets of Class B and Class C shares, 0.50% of the average daily net assets of Class R shares and 0.25% of the average daily net assets of Investor Class shares. Of the Plan payments, up to 0.25% of the average daily net assets of each class of shares may be paid to furnish continuing personal shareholder services to customers who purchase and own shares of such classes. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. Financial Industry Regulatory Authority ("FINRA"), formerly known as National Association of Securities Dealers, 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. For the year ended October 31, 2007, expenses incurred under the Plans are shown in the Statement of Operations as distribution fees. Front-end sales commissions and contingent deferred sales charges ("CDSC") (collectively the "sales charges") are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. During the year ended October 31, 2007, ADI advised the Fund that it retained $226,892 in front-end sales commissions from the sale of Class A shares and $1,426, $116,967, $12,555 and $0 from Class A, Class B, Class C and Class R shares, respectively, for CDSC imposed on redemptions by shareholders. Certain officers and trustees of the Trust are officers and directors of AIM, AIS and/or ADI. NOTE 3--INVESTMENTS IN AFFILIATES The Fund is permitted, pursuant to procedures approved by the Board of Trustees, to invest daily available cash balances and cash collateral from securities lending transactions in affiliated money market funds. The Fund and the money market funds below have the same investment advisor and therefore, are considered to be affiliated. The tables below show the transactions in and earnings from investments in affiliated money market funds for the year ended October 31, 2007. During the period each investment maintained a $1.00 net asset value, as such there is no realized gain/(loss) and no change in unrealized appreciation/(depreciation). INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
VALUE PURCHASES PROCEEDS VALUE DIVIDEND FUND 10/31/06 AT COST FROM SALES 10/31/07 INCOME - -------------------------------------------------------------------------------------------------- Liquid Assets Portfolio-Institutional Class $ 38,764,321 $ 408,183,392 $ (411,163,035) $ 35,784,678 $1,240,168 - -------------------------------------------------------------------------------------------------- Premier Portfolio-Institutional Class 38,764,321 408,183,392 (411,163,035) 35,784,678 1,234,974 ================================================================================================== Subtotal $ 77,528,642 $ 816,366,784 $ (822,326,070) $ 71,569,356 $2,475,142 __________________________________________________________________________________________________ ==================================================================================================
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
VALUE PURCHASES PROCEEDS VALUE DIVIDEND FUND 10/31/06 AT COST FROM SALES 10/31/07 INCOME* - -------------------------------------------------------------------------------------------------- Liquid Assets Portfolio-Institutional Class $ 17,687,319 $ 480,397,513 $ (354,362,727) $143,722,105 $ 390,363 - -------------------------------------------------------------------------------------------------- STIC Prime Portfolio-Institutional Class 17,687,318 135,272,774 (152,960,092) -- 139,812 - -------------------------------------------------------------------------------------------------- Subtotal $ 35,374,637 $ 615,670,287 $ (507,322,819) $143,722,105 $ 530,175 ================================================================================================== Total Investments in Affiliates $112,903,279 $1,432,037,071 $(1,329,648,889) $215,291,461 $3,005,317 __________________________________________________________________________________________________ ==================================================================================================
* Net of compensation to counterparties. NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS The Fund is permitted to purchase or sell securities from or to certain other AIM Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment advisor (or affiliated investment advisors), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the year ended October 31, 2007, the Fund engaged in securities sales of $45,550,493, which resulted in net realized gains (losses) of $(576,816), and securities purchases of $7,180,657. NOTE 5--EXPENSE OFFSET ARRANGEMENTS The expense offset arrangements are comprised of (i) transfer agency credits which result from balances in Demand Deposit Accounts (DDA) used by the transfer agent for clearing shareholder transactions, (ii) custodian credits which result from periodic overnight cash balances at the custodian and (iii) a one time custodian fee credit used to offset custodian fees. For the year ended October 31, 2007, the Fund received credits from these arrangements, which resulted in the reduction of the Fund's total expenses of $150,192. 19 AIM Capital Development Fund NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various AIM Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. During the year ended October 31, 2007, the Fund paid legal fees of $12,213 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust. NOTE 7--BORROWINGS Pursuant to an exemptive order from the Securities and Exchange Commission, the Fund may participate in an interfund lending facility that AIM has established for temporary borrowings by the AIM Funds. An interfund loan will be made under this facility only if the loan rate (an average of the rate available on bank loans and the rate available on investments in overnight repurchase agreements) is favorable to both the lending fund and the borrowing fund. A loan will be secured by collateral if the Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total assets. To the extent that the loan is required to be secured by collateral, the collateral is marked to market daily to ensure that the market value is at least 102% of the outstanding principal value of the loan. The Fund is a party to an uncommitted unsecured revolving credit facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM, which are parties to the credit facility, can borrow on a first come, first served basis. Principal on each loan outstanding shall bear interest at the bid rate quoted by SSB at the time of the request for the loan. During the year ended October 31, 2007, the Fund did not borrow or lend under the interfund lending facility or borrow under the uncommitted unsecured revolving credit facility. Additionally, the Fund is permitted to temporarily carry a negative or overdrawn balance in its account with SSB, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (ii) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and AIM, not to exceed the contractually agreed upon rate. NOTE 8--PORTFOLIO SECURITIES LOANED The Fund may lend portfolio securities having a market value up to one-third of the Fund's total assets. Such loans are secured by collateral equal to no less than the market value of the loaned securities determined daily. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds. It is the Fund's policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. Lending securities entails a risk of loss to the Fund if and to the extent that the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower fails to return the securities. The Fund could also experience delays and costs in gaining access to the collateral. The Fund bears the risk of any deficiency in the amount of the collateral available for return to the borrower due to any loss on the collateral invested. At October 31, 2007, securities with an aggregate value of $142,030,519 were on loan to brokers. The loans were secured by cash collateral of $143,722,105 received by the Fund and subsequently invested in affiliated money market funds. For the year ended October 31, 2007, the Fund received dividends on cash collateral investments of $530,175 for securities lending transactions, which are net of compensation to counterparties. 20 AIM Capital Development Fund NOTE 9--OPTION CONTRACTS WRITTEN
TRANSACTIONS DURING THE PERIOD - ----------------------------------------------------------------------------------- CALL OPTION CONTRACTS --------------------- NUMBER OF PREMIUMS CONTRACTS RECEIVED - ----------------------------------------------------------------------------------- Beginning of period 2,584 $409,932 - ----------------------------------------------------------------------------------- Written 4,607 418,097 - ----------------------------------------------------------------------------------- Closed (786) (113,860) - ----------------------------------------------------------------------------------- Exercised (1,459) (246,965) - ----------------------------------------------------------------------------------- Expired (1,464) (275,817) =================================================================================== End of period 3,482 $191,387 ___________________________________________________________________________________ ===================================================================================
OPEN OPTIONS WRITTEN AT PERIOD END - -------------------------------------------------------------------------------------------------------------------------------- CONTRACT STRIKE NUMBER OF PREMIUMS VALUE UNREALIZED MONTH PRICE CONTRACTS RECEIVED 10/31/07 APPRECIATION - -------------------------------------------------------------------------------------------------------------------------------- CALLS CB Richard Ellis Group, Inc.-Class A Dec-07 $30 3,482 $191,387 $147,985 $43,402 ________________________________________________________________________________________________________________________________ ================================================================================================================================
NOTE 10--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS DISTRIBUTIONS TO SHAREHOLDERS: The tax character of distributions paid during the years October 31, 2007 and 2006 was as follows:
2007 2006 - ------------------------------------------------------------------------------------------ Distributions paid from: Ordinary income $ 45,460,737 $ 21,613,933 - ------------------------------------------------------------------------------------------ Long-term capital gain 113,009,873 148,928,111 ========================================================================================== Total distributions $158,470,610 $170,542,044 __________________________________________________________________________________________ ==========================================================================================
TAX COMPONENTS OF NET ASSETS: As of October 31, 2007, the components of net assets on a tax basis were as follows:
2007 - ------------------------------------------------------------------------------ Undistributed ordinary income $ 37,147,019 - ------------------------------------------------------------------------------ Undistributed long-term gain 164,457,806 - ------------------------------------------------------------------------------ Net unrealized appreciation -- investments 427,446,661 - ------------------------------------------------------------------------------ Temporary book/tax differences (163,585) - ------------------------------------------------------------------------------ Shares of beneficial interest 1,472,849,396 ============================================================================== Total net assets $2,101,737,297 ______________________________________________________________________________ ==============================================================================
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund's net unrealized appreciation difference is attributable primarily to losses on wash sales and certain straddles. The tax-basis net unrealized appreciation on investments amount includes appreciation on foreign currencies of $1,369 and options written of $43,402. The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund's temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits. The Fund does not have a capital loss carryforward as of October 31, 2007. 21 AIM Capital Development Fund NOTE 11--INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended October 31, 2007 was $1,954,865,678 and $1,744,334,489, respectively.
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS - ------------------------------------------------------------------------------ Aggregate unrealized appreciation of investment securities $486,336,630 - ------------------------------------------------------------------------------ Aggregate unrealized (depreciation) of investment securities (58,934,740) ============================================================================== Net unrealized appreciation of investment securities $427,401,890 ______________________________________________________________________________ ============================================================================== Cost of investments for tax purposes is $1,805,601,421.
NOTE 12--RECLASSIFICATION OF PERMANENT DIFFERENCES Primarily as a result of differing book/tax treatment of net operating losses and foreign currency transactions, on October 31, 2007, undistributed net investment income (loss) was increased by $13,589,820 and undistributed net realized gain was decreased by $13,589,820. This reclassification had no effect on the net assets of the Fund. 22 AIM Capital Development Fund NOTE 13--SHARE INFORMATION The Fund currently consists of six different classes of shares: Class A, Class B, Class C, Class R, Investor Class and Institutional Class. Investor Class shares of the Fund are offered only to certain grandfathered investors. Class A shares are sold with a front-end sales charge unless certain waiver criteria are met and under certain circumstances load waiver shares may be subject to a CDSC. Class B shares and Class C shares are sold with a CDSC. Class R shares, Investor Class and Institutional Class shares are sold at net asset value. Under certain circumstances, Class R shares are subject to a CDSC. Generally, Class B shares will automatically convert to Class A shares on or about the month-end which is at least eight years after the date of purchase.
CHANGES IN SHARES OUTSTANDING - -------------------------------------------------------------------------------------------------------------------------- YEAR ENDED OCTOBER 31, ------------------------------------------------------------ 2007(A) 2006 ---------------------------- ---------------------------- SHARES AMOUNT SHARES AMOUNT - -------------------------------------------------------------------------------------------------------------------------- Sold: Class A 20,594,296 $ 412,511,708 14,936,052 $ 282,982,886 - -------------------------------------------------------------------------------------------------------------------------- Class B 1,530,248 27,587,051 2,475,593 42,932,168 - -------------------------------------------------------------------------------------------------------------------------- Class C 2,801,785 50,388,647 1,776,759 30,953,586 - -------------------------------------------------------------------------------------------------------------------------- Class R 3,277,975 65,142,036 869,095 16,294,099 - -------------------------------------------------------------------------------------------------------------------------- Investor Class 346,766 6,991,681 382,671 7,315,702 - -------------------------------------------------------------------------------------------------------------------------- Institutional Class 4,506,438 96,552,871 1,196,492 22,967,887 ========================================================================================================================== Issued as reinvestment of dividends: Class A 5,642,820 105,407,880 5,748,823 101,006,824 - -------------------------------------------------------------------------------------------------------------------------- Class B 1,427,154 24,018,992 2,598,963 41,895,285 - -------------------------------------------------------------------------------------------------------------------------- Class C 712,014 11,968,948 759,877 12,234,018 - -------------------------------------------------------------------------------------------------------------------------- Class R 145,071 2,679,461 67,532 1,177,080 - -------------------------------------------------------------------------------------------------------------------------- Investor Class 52,684 984,665 53,056 932,721 - -------------------------------------------------------------------------------------------------------------------------- Institutional Class 253,347 4,894,668 201,601 3,632,851 ========================================================================================================================== Automatic conversion of Class B shares to Class A shares: Class A 2,364,228 46,708,741 5,789,200 109,833,095 - -------------------------------------------------------------------------------------------------------------------------- Class B (2,624,574) (46,708,741) (6,322,555) (109,833,095) ========================================================================================================================== Reacquired: Class A (14,084,493) (283,233,618) (13,432,084) (253,952,766) - -------------------------------------------------------------------------------------------------------------------------- Class B (2,433,445) (44,147,370) (3,748,272) (65,051,624) - -------------------------------------------------------------------------------------------------------------------------- Class C (1,769,464) (31,802,984) (1,492,559) (25,937,892) - -------------------------------------------------------------------------------------------------------------------------- Class R (838,520) (16,746,577) (227,925) (4,256,404) - -------------------------------------------------------------------------------------------------------------------------- Investor Class (332,841) (6,682,477) (295,877) (5,540,122) - -------------------------------------------------------------------------------------------------------------------------- Institutional Class (1,022,405) (22,133,569) (479,208) (8,948,522) ========================================================================================================================== 20,549,084 $ 404,382,013 10,857,234 $ 200,637,777 __________________________________________________________________________________________________________________________ ==========================================================================================================================
(a) There are two entities that are each record owners of more than 5% of the outstanding shares of the Fund and in the aggregate they own 18% of the outstanding shares of the Fund. ADI has an agreement with these entities to sell Fund shares. The Fund, AIM and/or AIM affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, AIM and/or AIM affiliates including but not limited to services such as securities brokerage, distribution, third party record keeping and account servicing. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. NOTE 14--NEW ACCOUNTING STANDARD In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48"). FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement for a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The provisions for FIN 48 are effective for fiscal years beginning after December 15, 2006. Management has assessed the application of FIN 48 to the Fund and has determined that the adopting of FIN 48 is not expected to have a material impact on the Fund. Management intends for the Fund to adopt FIN 48 provisions during the fiscal year ending October 31, 2008 as required. 23 AIM Capital Development Fund NOTE 15--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
CLASS A --------------------------------------------------------------- YEAR ENDED OCTOBER 31, --------------------------------------------------------------- 2007 2006 2005 2004 2003 - ----------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 19.73 $ 18.85 $ 17.86 $ 16.66 $ 12.80 - ----------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss)(a) (0.13) (0.10) (0.11) (0.08) (0.08) - ----------------------------------------------------------------------------------------------------------------------------- Net gains on securities (both realized and unrealized) 3.99 3.53 2.52 1.70 3.94 ============================================================================================================================= Total from investment operations 3.86 3.43 2.41 1.62 3.86 ============================================================================================================================= Less distributions from net realized gains (2.00) (2.55) (1.42) (0.42) -- ============================================================================================================================= Net asset value, end of period $ 21.59 $ 19.73 $ 18.85 $ 17.86 $ 16.66 _____________________________________________________________________________________________________________________________ ============================================================================================================================= Total return(b) 21.13% 19.86% 13.87% 9.87% 30.16% _____________________________________________________________________________________________________________________________ ============================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $1,511,918 $1,095,204 $800,830 $617,194 $545,691 _____________________________________________________________________________________________________________________________ ============================================================================================================================= Ratio of expenses to average net assets 1.20%(c) 1.26% 1.36% 1.40%(d) 1.53% ============================================================================================================================= Ratio of net investment income (loss) to average net assets (0.62)%(c) (0.52)% (0.58)% (0.46)% (0.56)% _____________________________________________________________________________________________________________________________ ============================================================================================================================= Portfolio turnover rate 99% 126% 120% 74% 101% _____________________________________________________________________________________________________________________________ =============================================================================================================================
(a) Calculated using average shares outstanding. (b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges. (c) Ratios are based on average daily net assets of $1,321,793,158. (d) After fee waivers and/or expense reimbursements. Ratio of expenses to average net assets prior to fee waivers and/or expense reimbursements was 1.41%.
CLASS B ----------------------------------------------------------- YEAR ENDED OCTOBER 31, ----------------------------------------------------------- 2007 2006 2005 2004 2003 - ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 17.98 $ 17.51 $ 16.79 $ 15.79 $ 12.21 - ------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss)(a) (0.25) (0.22) (0.22) (0.18) (0.16) - ------------------------------------------------------------------------------------------------------------------------- Net gains on securities (both realized and unrealized) 3.60 3.24 2.36 1.60 3.74 ========================================================================================================================= Total from investment operations 3.35 3.02 2.14 1.42 3.58 ========================================================================================================================= Less distributions from net realized gains (2.00) (2.55) (1.42) (0.42) -- ========================================================================================================================= Net asset value, end of period $ 19.33 $ 17.98 $ 17.51 $ 16.79 $ 15.79 _________________________________________________________________________________________________________________________ ========================================================================================================================= Total return(b) 20.27% 18.92% 13.09% 9.13% 29.32% _________________________________________________________________________________________________________________________ ========================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $213,235 $236,175 $317,492 $376,355 $392,382 _________________________________________________________________________________________________________________________ ========================================================================================================================= Ratio of expenses to average net assets 1.95%(c) 2.01% 2.04% 2.05%(d) 2.18% ========================================================================================================================= Ratio of net investment income (loss) to average net assets (1.37)%(c) (1.27)% (1.26)% (1.11)% (1.21)% _________________________________________________________________________________________________________________________ ========================================================================================================================= Portfolio turnover rate 99% 126% 120% 74% 101% _________________________________________________________________________________________________________________________ =========================================================================================================================
(a) Calculated using average shares outstanding. (b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges. (c) Ratios are based on average daily net assets of $225,691,917. (d) After fee waivers and/or expense reimbursements. Ratio of expenses to average net assets prior to fee waivers and/or expense reimbursements was 2.06%. 24 AIM Capital Development Fund NOTE 15--FINANCIAL HIGHLIGHTS.--(CONTINUED)
CLASS C -------------------------------------------------------- YEAR ENDED OCTOBER 31, -------------------------------------------------------- 2007 2006 2005 2004 2003 - ---------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 17.96 $ 17.50 $ 16.77 $ 15.78 $ 12.20 - ---------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss)(a) (0.25) (0.22) (0.22) (0.18) (0.16) - ---------------------------------------------------------------------------------------------------------------------- Net gains on securities (both realized and unrealized) 3.59 3.23 2.37 1.59 3.74 ====================================================================================================================== Total from investment operations 3.34 3.01 2.15 1.41 3.58 ====================================================================================================================== Less distributions from net realized gains (2.00) (2.55) (1.42) (0.42) -- ====================================================================================================================== Net asset value, end of period $ 19.30 $ 17.96 $ 17.50 $ 16.77 $ 15.78 ______________________________________________________________________________________________________________________ ====================================================================================================================== Total return(b) 20.23% 18.88% 13.16% 9.07% 29.34% ______________________________________________________________________________________________________________________ ====================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $151,259 $109,424 $88,316 $73,929 $68,356 ______________________________________________________________________________________________________________________ ====================================================================================================================== Ratio of expenses to average net assets 1.95%(c) 2.01% 2.04% 2.05%(d) 2.18% ====================================================================================================================== Ratio of net investment income (loss) to average net assets (1.37)%(c) (1.27)% (1.26)% (1.11)% (1.21)% ______________________________________________________________________________________________________________________ ====================================================================================================================== Portfolio turnover rate 99% 126% 120% 74% 101% ______________________________________________________________________________________________________________________ ======================================================================================================================
(a) Calculated using average shares outstanding. (b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges. (c) Ratios are based on average daily net assets of $132,216,907. (d) After fee waivers and/or expense reimbursements. Ratio of expenses to average net assets prior to fee waivers and/or expense reimbursements was 2.06%.
CLASS R --------------------------------------------------- YEAR ENDED OCTOBER 31, --------------------------------------------------- 2007 2006 2005 2004 2003 - ----------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 19.53 $ 18.73 $17.78 $16.62 $12.79 - ----------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss)(a) (0.18) (0.14) (0.14) (0.10) (0.10) - ----------------------------------------------------------------------------------------------------------------- Net gains on securities (both realized and unrealized) 3.95 3.49 2.51 1.68 3.93 ================================================================================================================= Total from investment operations 3.77 3.35 2.37 1.58 3.83 ================================================================================================================= Less distributions from net realized gains (2.00) (2.55) (1.42) (0.42) -- ================================================================================================================= Net asset value, end of period $ 21.30 $ 19.53 $18.73 $17.78 $16.62 _________________________________________________________________________________________________________________ ================================================================================================================= Total return(b) 20.86% 19.52% 13.69% 9.65% 29.95% _________________________________________________________________________________________________________________ ================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $79,655 $22,577 $8,379 $5,622 $1,154 _________________________________________________________________________________________________________________ ================================================================================================================= Ratio of expenses to average net assets 1.45%(c) 1.51% 1.54% 1.55%(d) 1.68% ================================================================================================================= Ratio of net investment income (loss) to average net assets (0.87)%(c) (0.77)% (0.76)% (0.61)% (0.71)% _________________________________________________________________________________________________________________ ================================================================================================================= Portfolio turnover rate 99% 126% 120% 74% 101% _________________________________________________________________________________________________________________ =================================================================================================================
(a) Calculated using average shares outstanding. (b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. (c) Ratios are based on average daily net assets of $50,344,723. (d) After fee waivers and/or expense reimbursements. Ratio of expenses to average net assets prior to fee waivers and/or expense reimbursements was 1.56%. 25 AIM Capital Development Fund NOTE 15--FINANCIAL HIGHLIGHTS.--(CONTINUED)
INVESTOR CLASS ---------------------------------------------- YEAR ENDED NOVEMBER 30, 2004 OCTOBER 31, (COMMENCEMENT DATE) TO -------------------- OCTOBER 31, 2007 2006 2005 - ------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 19.74 $18.87 $18.95 - ------------------------------------------------------------------------------------------------------------ Income from investment operations: Net investment income (loss)(a) (0.13) (0.10) (0.09) - ------------------------------------------------------------------------------------------------------------ Net gains on securities (both realized and unrealized) 3.99 3.52 1.43 ============================================================================================================ Total from investment operations 3.86 3.42 1.34 ============================================================================================================ Less distributions from net realized gains (2.00) (2.55) (1.42) ============================================================================================================ Net asset value, end of period $ 21.60 $19.74 $18.87 ____________________________________________________________________________________________________________ ============================================================================================================ Total return(b) 21.12% 19.78% 7.43% ____________________________________________________________________________________________________________ ============================================================================================================ Ratios/supplemental data: Net assets, end of period (000s omitted) $12,237 $9,866 $6,791 ____________________________________________________________________________________________________________ ============================================================================================================ Ratio of expenses to average net assets 1.20%(c) 1.26% 1.29%(d) ============================================================================================================ Ratio of net investment income to average net assets (0.62)%(c) (0.52)% (0.51)%(d) ____________________________________________________________________________________________________________ ============================================================================================================ Portfolio turnover rate(e) 99% 126% 120% ____________________________________________________________________________________________________________ ============================================================================================================
(a) Calculated using average shares outstanding. (b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Not annualized for periods less than one year. (c) Ratios are based on average daily net assets of $11,936,490. (d) Annualized. (e) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year.
INSTITUTIONAL CLASS ----------------------------------------------------- YEAR ENDED OCTOBER 31, ----------------------------------------------------- 2007 2006 2005 2004 2003 - ------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 20.33 $ 19.27 $ 18.13 $16.83 $12.84 - ------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss)(a) (0.04) (0.00) (0.01) 0.01 0.01 - ------------------------------------------------------------------------------------------------------------------- Net gains on securities (both realized and unrealized) 4.13 3.61 2.57 1.71 3.98 =================================================================================================================== Total from investment operations 4.09 3.61 2.56 1.72 3.99 =================================================================================================================== Less distributions from net realized gains (2.00) (2.55) (1.42) (0.42) -- =================================================================================================================== Net asset value, end of period $ 22.42 $ 20.33 $ 19.27 $18.13 $16.83 ___________________________________________________________________________________________________________________ =================================================================================================================== Total return(b) 21.68% 20.43% 14.52% 10.38% 31.08% ___________________________________________________________________________________________________________________ =================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $133,433 $45,017 $24,964 $ 67 $ 10 ___________________________________________________________________________________________________________________ =================================================================================================================== Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 0.75%(c) 0.76% 0.81% 0.86% 0.87% - ------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 0.75%(c) 0.76% 0.81% 1.15% 1.25% =================================================================================================================== Ratio of net investment income (loss) to average net assets (0.17)%(c) (0.02)% (0.03)% 0.08% 0.10% ___________________________________________________________________________________________________________________ =================================================================================================================== Portfolio turnover rate 99% 126% 120% 74% 101% ___________________________________________________________________________________________________________________ ===================================================================================================================
(a) Calculated using average shares outstanding. (b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. (c) Ratios are based on average daily net assets of $78,017,950. 26 AIM Capital Development Fund NOTE 16--LEGAL PROCEEDINGS Terms used in the Legal Proceedings Note are defined terms solely for the purpose of this note. SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING On July 6, 2007, the Securities and Exchange Commission ("SEC") published notice of two proposed distribution plans ("Distribution Plans") for the distribution of monies placed into two separate Fair Funds created pursuant to a settlement reached on October 8, 2004 between Invesco Funds Group, Inc. ("IFG"), A I M Advisors, Inc. ("AIM") and A I M Distributors, Inc. and the SEC (the "Order"). One of the Fair Funds consists of $325 million, plus interest and any contributions by other settling parties, for distribution to shareholders of certain mutual funds formerly advised by IFG who may have been harmed by market timing and related activity. The second Fair Fund consists of $50 million, plus interest and any contributions by other settling parties, for distribution to shareholders of mutual funds advised by AIM who may have been harmed by market timing and related activity. Comments on the Distribution Plans were due no later than August 6, 2007 and the Distribution Plans are awaiting final approval by the SEC. Distributions from the Fair Funds will begin after the SEC finally approves the Distribution Plans. The proposed Distribution Plans provide for distribution to all eligible investors, for the periods spanning January 1, 2000 through July 31, 2003 (for the IFG Fair Fund) and January 1, 2001 through September 30, 2003 (for the AIM Fair Fund), their proportionate share of the applicable Fair Fund to compensate such investors for injury they may have suffered as a result of market timing in the affected funds. The Distribution Plans include a provision for any residual amounts in the Fair Funds to be distributed in the future to the affected funds. Because the Distribution Plans have not received final approval from the SEC and distribution of the Fair Funds has not yet commenced, management of AIM and the Fund are unable to estimate the amount of distribution to be made to the Fund, if any. At the request of the trustees of the AIM Funds, Invesco Ltd. ("Invesco"), the parent company of IFG and AIM, has agreed to reimburse expenses incurred by the AIM Funds related to market timing matters. PENDING LITIGATION AND REGULATORY INQUIRIES On August 30, 2005, the West Virginia Office of the State Auditor -- Securities Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of Right to Hearing to AIM and ADI (Order No. 05-1318). The WVASC makes findings of fact that AIM and ADI entered into certain arrangements permitting market timing of the AIM Funds and failed to disclose these arrangements in the prospectuses for such Funds, and conclusions of law to the effect that AIM and ADI violated the West Virginia securities laws. The WVASC orders AIM and ADI to cease any further violations and seeks to impose monetary sanctions, including restitution to affected investors, disgorgement of fees, reimbursement of investigatory, administrative and legal costs and an "administrative assessment," to be determined by the Commissioner. Initial research indicates that these damages could be limited or capped by statute. By agreement with the Commissioner of Securities, AIM's time to respond to that Order has been indefinitely suspended. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or related entities and individuals, depending on the lawsuit, alleging: - that the defendants permitted improper market timing and related activity in the AIM Funds; and - that certain AIM Funds inadequately employed fair value pricing. These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws and ERISA, negligence, breach of fiduciary duty and/or breach of contract. These lawsuits seek remedies that include, depending on the lawsuit, damages, restitution, injunctive relief, imposition of a constructive trust, removal of certain directors and/or employees, various corrective measures under ERISA, rescission of certain AIM Funds' advisory agreements and/or distribution plans and recovery of all fees paid. All lawsuits based on allegations of market timing, late trading and related issues have been transferred to the United States District Court for the District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court, plaintiffs in these lawsuits consolidated their claims for pre-trial purposes into three amended complaints against various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint for Violations of the Employee Retirement Income Securities Act ("ERISA") purportedly brought on behalf of participants in Invesco's 401(k) plan. Based on orders issued by the MDL Court, all claims asserted against the AIM Funds that have been transferred to the MDL Court have been dismissed, although certain Funds remain nominal defendants in the Consolidated Amended Fund Derivative Complaint. On September 15, 2006, the MDL Court granted the Invesco defendants' motion to dismiss the Amended Class Action Complaint for Violations of ERISA and dismissed such Complaint. The plaintiff has commenced an appeal from that decision. IFG, AIM, ADI and/or related entities and individuals have received inquiries from numerous regulators in the form of subpoenas or other oral or written requests for information and/or documents related to one or more of the following issues, among others, some of which concern one or more AIM Funds: market timing activity, late trading, fair value pricing, excessive or improper advisory and/or distribution fees, mutual fund sales practices, including revenue sharing and directed-brokerage arrangements, investments in securities of other registered investment companies, contractual plans, issues related to Section 529 college savings plans and procedures for locating lost security holders. IFG, AIM and ADI have advised the Fund that they are providing full cooperation with respect to these inquiries. Regulatory actions and/or additional civil lawsuits related to these or other issues may be filed against the AIM Funds, IFG, AIM and/or related entities and individuals in the future. At the present time, management of AIM and the Fund are unable to estimate the impact, if any, that the outcome of the Pending Litigation and Regulatory Inquiries described above may have on AIM, ADI or the Fund. 27 AIM Capital Development Fund REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Trustees of AIM Equity Funds and Shareholders of AIM Capital Development Fund: In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of AIM Capital Development Fund (one of the funds constituting AIM Equity Funds, hereafter referred to as the "Fund") at October 31, 2007, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the periods indicated in the three years then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at October 31, 2007 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights for each of the periods ended on or before October 31, 2004 were audited by another independent registered public accounting firm whose report, dated December 15, 2004, expressed an unqualified opinion on those financial highlights. PRICEWATERHOUSECOOPERS LLP December 19, 2007 Houston, TX 28 AIM Capital Development Fund CALCULATING YOUR ONGOING FUND EXPENSES EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments or contingent deferred sales charges on redemptions, and redemption fees, if any; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period May 1, 2007, through October 31, 2007. ACTUAL EXPENSES The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions, and redemption fees, if any. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
HYPOTHETICAL (5% ANNUAL RETURN BEFORE ACTUAL EXPENSES) BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE CLASS (5/1/07) (10/31/07)(1) PERIOD(2) (10/31/07) PERIOD(2) RATIO A $1,000.00 $1,076.80 $ 6.23 $1,019.21 $6.06 1.19% B 1,000.00 1,073.30 10.14 1,015.43 9.86 1.94 C 1,000.00 1,072.80 10.14 1,015.43 9.86 1.94 R 1,000.00 1,075.80 7.53 1,017.95 7.32 1.44 Investor 1,000.00 1,076.80 6.23 1,019.21 6.06 1.19
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2007, through October 31, 2007, 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. (2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. 29 Supplement to Annual Report dated 10/31/07 AIM Capital Development Fund ========================================== Institutional Class Shares AVERAGE ANNUAL TOTAL RETURNS PLEASE NOTE THAT PAST PERFORMANCE IS For periods ended 10/31/07 NOT INDICATIVE OF FUTURE RESULTS. MORE The following information has been RECENT RETURNS MAY BE MORE OR LESS THAN prepared to provide Institutional Class Inception (3/15/02) 11.08% THOSE SHOWN. ALL RETURNS ASSUME shareholders with a performance overview 5 Years 19.41 REINVESTMENT OF DISTRIBUTIONS AT NAV. specific to their holdings. Institutional 1 Year 21.68 INVESTMENT RETURN AND PRINCIPAL VALUE WILL Class shares are offered exclusively to FLUCTUATE SO YOUR SHARES, WHEN REDEEMED, institutional investors, including defined AVERAGE ANNUAL TOTAL RETURNS MAY BE WORTH MORE OR LESS THAN THEIR contribution plans that meet certain For periods ended 9/30/07, most recent ORIGINAL COST. SEE FULL REPORT FOR criteria. calendar quarter-end INFORMATION ON COMPARATIVE BENCHMARKS. PLEASE CONSULT YOUR FUND PROSPECTUS FOR Inception (3/15/02) 10.84% MORE INFORMATION. FOR THE MOST CURRENT 5 Years 19.74 MONTH-END PERFORMANCE, PLEASE CALL 1 Year 23.32 800-451-4246 OR VISIT AIMINVESTMENTS.COM. ========================================== INSTITUTIONAL CLASS SHARES HAVE NO SALES CHARGE; THEREFORE, PERFORMANCE IS AT NET ASSET VALUE (NAV). PERFORMANCE OF INSTITUTIONAL CLASS SHARES WILL DIFFER FROM PERFORMANCE OF OTHER SHARE CLASSES PRIMARILY DUE TO DIFFERING SALES CHARGES AND CLASS EXPENSES. ========================================== NASDAQ SYMBOL ACDVX ========================================== Over for information on your Fund's expenses. ======================================================================================= THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING. ======================================================================================= FOR INSTITUTIONAL INVESTOR USE ONLY This material is for institutional investor use only and may not be quoted, reproduced or shown to the public, nor used in written form as sales literature for public use.
AIMinvestments.com CDV-INS-1 A I M Distributors, Inc. [AIM INVESTMENTS LOGO] -- REGISTERED TRADEMARK -- AIM Capital Development Fund CALCULATING YOUR ONGOING FUND EXPENSES EXAMPLE As a shareholder of the Fund, you incur ongoing costs, including management fees and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period May 1, 2007, through October 31, 2007. ACTUAL EXPENSES The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL (5% ANNUAL RETURN BEFORE ACTUAL EXPENSES) BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE SHARE CLASS (5/1/07) (10/31/07)(1) PERIOD(2) (10/31/07) PERIOD(2) RATIO Institutional $1,000.00 $1,079.40 $3.88 $1,021.48 $3.77 0.74%
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2007, through October 31, 2007, 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. (2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. AIMinvestments.com CDV-INS-1 A I M Distributors, Inc. AIM Capital Development Fund Approval of Investment Advisory Agreement The Board of Trustees (the Board) of AIM Committee considers each Sub-Committee's A. NATURE, EXTENT AND QUALITY OF SERVICES Equity Funds is required under the recommendations and makes its own PROVIDED BY AIM Investment Company Act of 1940 to approve recommendations regarding the annually the renewal of the AIM Capital performance, fees and expenses of the AIM The Board reviewed the advisory services Development Fund (the Fund) investment Funds to the full Board. Moreover, the provided to the Fund by AIM under the advisory agreement with A I M Advisors, Investments Committee considers each Sub- Fund's advisory agreement, the performance Inc. (AIM). During contract renewal Committee's recommendations in making its of AIM in providing these services, and meetings held on June 25-27, 2007, the annual recommendation to the Board the credentials and experience of the Board as a whole and the disinterested or whether to approve the continuance of officers and employees of AIM who provide "independent" Trustees, voting separately, each AIM Fund's investment advisory these services. The Board's review of the approved the continuance of the Fund's agreement and sub-advisory agreement, if qualifications of AIM to provide these investment advisory agreement for another applicable (advisory agreements), for services included the Board's year, effective July 1, 2007. In doing so, another year. consideration of AIM's portfolio and the Board determined that the Fund's product review process, various back advisory agreement is in the best interests The independent Trustees, as mentioned office support functions provided by AIM, of the Fund and its shareholders and that above, are assisted in their annual and AIM's equity and fixed income trading the compensation to AIM under the Fund's evaluation of the advisory agreements by operations. The Board concluded that the advisory agreement is fair and reasonable. the independent Senior Officer. One nature, extent and quality of the advisory responsibility of the Senior Officer is services provided to the Fund by AIM were The independent Trustees met separately to manage the process by which the AIM appropriate and that AIM currently is during their evaluation of the Fund's Funds' proposed management fees are providing satisfactory advisory services investment advisory agreement with negotiated during the annual contract in accordance with the terms of the Fund's independent legal counsel from whom they renewal process to ensure that they are advisory agreement. In addition, based on received independent legal advice, and the negotiated in a manner which is at arms' their ongoing meetings throughout the year independent Trustees also received length and reasonable. Accordingly, the with the Fund's portfolio managers, the assistance during their deliberations from Senior Officer must either supervise a Board concluded that these individuals are the independent Senior Officer, a full-time competitive bidding process or prepare an competent and able to continue to carry officer of the AIM Funds who reports independent written evaluation. The out their responsibilities under the directly to the independent Trustees. The Senior Officer has recommended that an Fund's advisory agreement. following discussion more fully describes independent written evaluation be the process employed by the Board to provided and, upon the direction of the In determining whether to continue the evaluate the performance of the AIM Funds Board, has prepared an independent Fund's advisory agreement, the Board (including the Fund) throughout the year written evaluation. considered the prior relationship between and, more specifically, during the annual AIM and the Fund, as well as the Board's contract renewal meetings. During the annual contract renewal knowledge of AIM's operations, and process, the Board considered the factors concluded that it was beneficial to THE BOARD'S FUND EVALUATION PROCESS discussed below under the heading maintain the current relationship, in "Factors and Conclusions and Summary of part, because of such knowledge. The Board The Board's Investments Committee has Independent Written Fee Evaluation" in also considered the steps that AIM and its established three Sub-Committees which are evaluating the fairness and affiliates have taken over the last responsible for overseeing the management reasonableness of the Fund's advisory several years to improve the quality and of a number of the series portfolios of the agreement at the contract renewal efficiency of the services they provide to AIM Funds. This Sub- Committee structure meetings and at their meetings throughout the Funds in the areas of investment permits the Trustees to focus on the the year as part of their ongoing performance, product line diversification, performance of the AIM Funds that have been oversight of the Fund. The Fund's distribution, fund operations, shareholder assigned to them. The Sub-Committees meet advisory agreement was considered services and compliance. The Board throughout the year to review the separately, although the Board also concluded that the quality and efficiency performance of their assigned funds, and considered the common interests of all of of the services AIM and its affiliates the Sub-Committees review monthly and the AIM Funds in their deliberations. The provide to the AIM Funds in each of these quarterly comparative performance Board comprehensively considered all of areas have generally improved, and support information and periodic asset flow data the information provided to them and did the Board's approval of the continuance of for their assigned funds. These materials not identify any particular factor that the Fund's advisory agreement. are prepared under the direction and was controlling. Furthermore, each supervision of the independent Senior Trustee may have evaluated the B. FUND PERFORMANCE Officer. Over the course of each year, the information provided differently from one Sub- Committees meet with portfolio another and attributed different weight The Board compared the Fund's performance managers for their assigned funds and other to the various factors. The Trustees during the past one, three and five members of management and review with these recognized that the advisory arrangements calendar years to the performance of funds individuals the performance, investment and resulting advisory fees for the Fund in the Fund's Lipper peer group that are objective(s), policies, strategies and and the other AIM Funds are the result of not managed by AIM, and against the limitations of these funds. years of review and negotiation between performance of all funds in the Lipper the Trustees and AIM, that the Trustees Mid-Cap Growth Funds Index. The Board also In addition to their meetings throughout may focus to a greater extent on certain reviewed the methodology used by Lipper to the year, the Sub-Committees meet at aspects of these arrangements in some identify the Fund's peers. The Board noted designated contract renewal meetings each years than others, and that the Trustees' that the Fund's performance was above the year to conduct an in-depth review of the deliberations and conclusions in a median performance of its peers for the performance, fees and expenses of their particular year may be based in part on one, three and five year periods. The assigned funds. During the contract renewal their deliberations and conclusions of Board noted that the Fund's performance process, the Trustees receive comparative these same arrangements throughout the was above the performance of the Index for performance and fee data regarding all the year and in prior years. the one, three and five year periods. The AIM Funds prepared by an independent Board also considered the steps AIM has company, Lipper, Inc., under the direction FACTORS AND CONCLUSIONS AND SUMMARY OF taken over the last several years to and supervision of the independent Senior INDEPENDENT WRITTEN FEE EVALUATION improve the quality and efficiency of the Officer who also prepares a separate services that AIM provides to the AIM analysis of this information for the The discussion below serves as a summary Funds. The Board concluded that AIM Trustees. Each Sub-Committee then makes of the Senior Officer's independent continues to be responsive to the Board's recommendations to the Investments written evaluation, as well as a focus on fund performance. Although the Committee regarding the performance, fees discussion of the material factors and independent written evaluation of the and expenses of their assigned funds. The related conclusions that formed the basis Fund's Senior Officer (discussed below) Investments for the Board's approval of the Fund's only considered Fund performance through advisory agreement. Unless otherwise the most recent calendar year, the Board stated, information set forth below is as also reviewed more recent Fund performance of June 27, 2007 and does not reflect any and this review did not change their changes that may have occurred since that conclusions. date, including but not limited to changes to the Fund's performance, advisory fees, expense limitations and/or fee waivers. (continued)
30 AIM Capital Development Fund C. ADVISORY FEES AND FEE WAIVERS has decreased as net assets increased manner and in accordance with the terms because of the breakpoint. Based on this of their contracts, and were qualified to The Board compared the Fund's contractual information, the Board concluded that the continue to provide these services to the advisory fee rate to the contractual Fund's advisory fees appropriately Fund. advisory fee rates of funds in the Fund's reflect economies of scale at current Lipper peer group that are not managed by asset levels. The Board also noted that The Board considered the benefits AIM, at a common asset level and as of the the Fund shares directly in economies of realized by AIM as a result of portfolio end of the past calendar year. The Board scale through lower fees charged by third brokerage transactions executed through noted that the Fund's advisory fee rate was party service providers based on the "soft dollar" arrangements. Under these below the median advisory fee rate of its combined size of all of the AIM Funds and arrangements, portfolio brokerage peers. The Board also reviewed the affiliates. commissions paid by the Fund and/or other methodology used by Lipper and noted that funds advised by AIM are used to pay for the contractual fee rates shown by Lipper E. PROFITABILITY AND FINANCIAL RESOURCES research and execution services. The Board include any applicable long-term OF AIM noted that soft dollar arrangements shift contractual fee waivers. The Board also the payment obligation for the research compared the Fund's contractual advisory The Board reviewed information and executions services from AIM to the fee rate to the contractual advisory fee from AIM concerning the costs of the funds and therefore may reduce AIM's rates of other clients of AIM and its advisory and other services that AIM and expenses. The Board also noted that affiliates with investment strategies its affiliates provide to the Fund and research obtained through soft dollar comparable to those of the Fund, including the profitability of AIM and its arrangements may be used by AIM in making three mutual funds advised by AIM, one affiliates in providing these services. investment decisions for the Fund and may mutual fund sub-advised by an AIM The Board also reviewed information therefore benefit Fund shareholders. The affiliate, and one offshore fund advised concerning the financial condition of AIM Board concluded that AIM's soft dollar and sub-advised by AIM affiliates. The and its affiliates. The Board also arrangements were appropriate. The Board Board noted that the Fund's rate was: (i) reviewed with AIM the methodology used to also concluded that, based on their review below the rates for two of the mutual funds prepare the profitability information. and representations made by AIM, these and above the rate for the third mutual The Board considered the overall arrangements were consistent with fund; (ii) above the subadvisory fee rate profitability of AIM, as well as the regulatory requirements. for the sub-advised mutual fund, although profitability of AIM in connection with the advisory fee rate for such sub-advised managing the Fund. The Board noted that The Board considered the fact that the mutual fund was above the Fund's; and (iii) AIM continues to operate at a net profit, Fund's uninvested cash and cash collateral below the advisory fee rate for the although increased expenses in recent from any securities lending arrangements offshore fund. years have reduced the profitability of may be invested in money market funds AIM and its affiliates. The Board advised by AIM pursuant to procedures The Board noted that AIM has proposed concluded that the Fund's advisory fees approved by the Board. The Board noted that the contractual advisory fee waiver were fair and reasonable, and that the that AIM will receive advisory fees from that had been formerly committed to by AIM level of profits realized by AIM and its these affiliated money market funds through at least June 30, 2007 expire on affiliates from providing services to the attributable to such investments, although such date and that AIM has not proposed any Fund was not excessive in light of the AIM has contractually agreed to waive the fee waivers or expense limitations for the nature, quality and extent of the advisory fees payable by the Fund with Fund. However, the Board also noted that at services provided. The Board considered respect to its investment of uninvested its current asset level the Fund has an whether AIM is financially sound and has cash in these affiliated money market effective fee rate under its contractual the resources necessary to perform its funds through at least June 30, 2008. The advisory fee schedule that is lower than obligations under the Fund's advisory Board considered the contractual nature of the fee rate under the contractual advisory agreement, and concluded that AIM has the this fee waiver and noted that it remains fee waiver and that AIM therefore is not financial resources necessary to fulfill in effect until at least June 30, 2008. currently waiving any of the Fund's these obligations. The Board concluded that the Fund's advisory fees. The Board noted that AIM's investment of uninvested cash and cash recommendation was made in response to the F. INDEPENDENT WRITTEN EVALUATION OF THE collateral from any securities lending recommendation of the independent Senior FUND'S SENIOR OFFICER arrangements in the affiliated money Officer that AIM consider whether the market funds is in the best interests of advisory fee waivers for certain equity AIM The Board noted that, upon their the Fund and its shareholders. Funds, including the Fund, should be direction, the Senior Officer of the simplified. The Board concluded that it was Fund, who is independent of AIM and AIM's not necessary at this time to discuss with affiliates, had prepared an independent AIM whether to implement any such waivers written evaluation to assist the Board in or expense limitations because the Fund's determining the reasonableness of the overall expense ratio was below the median proposed management fees of the AIM expense ratio of the funds in the Fund's Funds, including the Fund. The Board Lipper peer group that are not managed by noted that they had relied upon the AIM. Senior Officer's written evaluation instead of a competitive bidding process. After taking account of the Fund's In determining whether to continue the contractual advisory fee rate, as well as Fund's advisory agreement, the Board the comparative advisory fee information considered the Senior Officer's written discussed above, the Board concluded that evaluation. the Fund's advisory fees were fair and reasonable. G. COLLATERAL BENEFITS TO AIM AND ITS AFFILIATES D. ECONOMIES OF SCALE AND BREAKPOINTS The Board considered various The Board considered the extent to which other benefits received by AIM and its there are economies of scale in AIM's affiliates resulting from AIM's provision of advisory services to the Fund. relationship with the Fund, including the The Board also considered whether the Fund fees received by AIM and its affiliates benefits from such economies of scale for their provision of administrative, through contractual breakpoints in the transfer agency and distribution services Fund's advisory fee schedule or through to the Fund. The Board considered the advisory fee waivers or expense performance of AIM and its affiliates in limitations. The Board noted that the providing these services and the Fund's contractual advisory fee schedule organizational structure employed by AIM includes one breakpoint and that the level and its affiliates to provide these of the Fund's advisory fees, as a services. The Board also considered that percentage of the Fund's net assets, these services are provided to the Fund pursuant to written contracts which are reviewed and approved on an annual basis by the Board. The Board concluded that AIM and its affiliates were providing these services in a satisfactory
31 AIM Capital Development Fund TAX INFORMATION Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors. The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state's requirement. The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended October 31, 2007: FEDERAL AND STATE INCOME TAX Long-Term Capital Gain Dividends $113,009,873 Qualified Dividend Income* 15.61% Corporate Dividends Received Deduction* 14.40%
* The above percentages are based on ordinary income dividends paid to shareholders during the fund's fiscal year. NON-RESIDENT ALIEN SHAREHOLDERS Qualified Interest Income** 0%
** The above percentage is based on income dividends paid to shareholders during the fund's fiscal year. ADDITIONAL NON-RESIDENT ALIEN SHAREHOLDER INFORMATION The percentages of qualifying assets not subject to the U.S. estate tax for the fiscal quarters ended January 31, 2007, April 30, 2007, July 31, 2007 and October 31, 2007 were 5.96%, 7.28%, 7.42%, and 9.89%, respectively. 32 AIM Capital Development Fund TRUSTEES AND OFFICERS The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. Each trustee oversees 104 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. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
OTHER TRUSTEE TRUSTEESHIP(S)/ NAME, YEAR OF BIRTH AND AND/OR DIRECTORSHIP(S) POSITION(S) HELD WITH THE OFFICER PRINCIPAL OCCUPATION(S) HELD BY TRUST SINCE DURING PAST 5 YEARS TRUSTEE/ DIRECTOR - ------------------------------------------------------------------------------------------------------------------------- Interested Persons - ------------------------------------------------------------------------------------------------------------------------- Martin L. Flanagan(1) -- 1960 2007 Director, Chief Executive Officer and None Trustee President, Invesco Ltd. (ultimate parent of AIM and a global investment management firm) and, INVESCO PLC (parent of AIM and a global investment management firm); Chairman, A I M Advisors, Inc. (registered investment advisor); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company); and INVESCO North American Holdings, Inc. (holding company); Chairman and President, INVESCO Group Services, Inc. (service provider); Trustee, The AIM Family of Funds(R); Vice Chairman, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business Formerly: Chairman, Investment Company Institute; President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) - ------------------------------------------------------------------------------------------------------------------------- Philip A. Taylor(2) -- 1954 2006 Director, Chief Executive Officer and None Trustee, President and President, AIM Mutual Fund Dealer Inc. Principal (registered broker dealer), A I M Executive Officer Advisors, Inc., AIM Funds Management Inc. d/b/a INVESCO Enterprise Services (registered investment advisor and registered transfer agent) and 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, A I M Management Group Inc. (financial services holding company) and A I M Capital Management, Inc. (registered investment advisor); Director and President, INVESCO Funds Group, Inc. (registered investment advisor and register transfer agent) and AIM GP Canada Inc. (general partner for a limited partnership); Director, A I M Distributors, Inc. (registered broker dealer); Director and Chairman, AIM Investment Services, Inc. (registered transfer agent) and INVESCO Distributors, Inc. (registered broker dealer); Director, President and Chairman, IVZ Callco Inc. (holding company), INVESCO Inc. (holding company) and AIM Canada Holdings Inc. (holding company); Director and Chief Executive Officer, AIM Trimark Corporate Class Inc. (formerly AIM Trimark Global Fund Inc.) (corporate mutual fund company) and AIM Trimark Canada Fund Inc. (corporate mutual fund company); Trustee, President and Principal Executive Officer of The AIM Family of Funds--Registered Trademark-- (other than AIM Treasurer's Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust); Trustee and Executive Vice President, The AIM Family of Funds--Registered Trademark-- (AIM Treasurer's Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only); and Manager, PowerShares Capital Management LLC Formerly: Director and Chairman, Fund Management Company (registered broker dealer); President and Principal Executive Officer, The AIM Family of Funds--Registered Trademark-- (AIM Treasurer's Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only); Chairman, AIM Canada Holdings, Inc.; President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc.; and Director, Trimark Trust (federally regulated Canadian Trust Company) - ------------------------------------------------------------------------------------------------------------------------- Independent Trustees - ------------------------------------------------------------------------------------------------------------------------- Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company); Trustee and Chair (technology consulting company) and Captaris, Inc. (unified messaging provider) - ------------------------------------------------------------------------------------------------------------------------- Bob R. Baker -- 1936 2003 Retired None Trustee - ------------------------------------------------------------------------------------------------------------------------- Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered Trustee investment company) (2 portfolios) Formerly: Partner, law firm of Baker & McKenzie - ------------------------------------------------------------------------------------------------------------------------- James T. Bunch -- 1942 2003 Founder, Green, Manning & Bunch Ltd., None Trustee (investment banking firm); and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation - ------------------------------------------------------------------------------------------------------------------------- Albert R. Dowden -- 1941 2000 Director of a number of public and None Trustee private business corporations, including the Boss Group Ltd. (private investment and management); Reich & Tang Funds (Chairman) (registered investment company) (7 portfolios), Daily Income Fund (4 portfolios), California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc. and New Jersey Daily Municipal Fund, Inc., Annuity and Life Re (Holdings), Ltd. (insurance company), and Homeowners of America Holding Corporation (property casualty company) Formerly: Director, CompuDyne Corporation (provider of product and services to the public security market); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various affiliated Volvo companies; and Director, Magellan Insurance Company - ------------------------------------------------------------------------------------------------------------------------- Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff Trustee Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), and Discovery Global Education Fund (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) - ------------------------------------------------------------------------------------------------------------------------- Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Director, Reich & Tang Funds) (7 Trustee Naftalis and Frankel LLP portfolios) - ------------------------------------------------------------------------------------------------------------------------- Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None Trustee of the USA - ------------------------------------------------------------------------------------------------------------------------- Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper None Trustee - ------------------------------------------------------------------------------------------------------------------------- Ruth H. Quigley -- 1935 2001 Retired None Trustee - ------------------------------------------------------------------------------------------------------------------------- Larry Soll -- 1942 2003 Retired None Trustee - ------------------------------------------------------------------------------------------------------------------------- Raymond Stickel, Jr. -- 1944 2005 Retired None Trustee Formerly: Partner, Deloitte & Touche; and Director, Mainstay VP Series Funds, Inc. (25 portfolios) - -------------------------------------------------------------------------------------------------------------------------
(1) Mr. Flanagan was appointed as Trustee of the Trust on February 24, 2007. Mr. Flanagan is considered an interested person of the Trust because he is an officer of the advisor to the Trust, and an officer and a director of INVESCO PLC, parent of the advisor to the Trust. (2) Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the advisor to, and a director of the principal underwriter of, the Trust. 33 TRUSTEES AND OFFICERS--(CONTINUED) AIM Capital Development Fund
OTHER TRUSTEE TRUSTEESHIP(S)/ NAME, YEAR OF BIRTH AND AND/OR DIRECTORSHIP(S) POSITION(S) HELD WITH THE OFFICER PRINCIPAL OCCUPATION(S) HELD BY TRUSTEE/ TRUST SINCE DURING PAST 5 YEARS DIRECTOR - ------------------------------------------------------------------------------------------------------------------------- Other Officers - ------------------------------------------------------------------------------------------------------------------------- Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer N/A Senior Vice President and of The AIM Family of Funds--Registered Senior Officer Trademark-- Formerly: Director of Compliance and Assistant General Counsel, ICON Advisers, Inc.; Financial Consultant, Merrill Lynch; General Counsel and Director of Compliance, ALPS Mutual Funds, Inc. - ------------------------------------------------------------------------------------------------------------------------- John M. Zerr -- 1962 2006 Director, Senior Vice President, N/A Senior Vice President, Chief Secretary and General Counsel, A I M Legal Officer and Secretary Management Group Inc., A I M Advisors, Inc. and A I M Capital Management, Inc.; Director, Vice President and Secretary, AIM Investment Services, Inc. and INVESCO Distributors, Inc.; Director, Senior Vice President and Secretary, A I M Distributors, Inc.; Director and Vice President, INVESCO Funds Group Inc.; Senior Vice President, Chief Legal Officer and Secretary of The AIM Family of Funds--Registered Trademark--; and Manager, PowerShares Capital Management LLC Formerly: Director, Vice President and Secretary, Fund Management Company; Vice President, A I M Capital Management, Inc.; Chief Operating Officer, Senior Vice President, General Counsel and Secretary, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company); Vice President and Secretary, PBHG Insurance Series Fund (an investment company); General Counsel and Secretary, Pilgrim Baxter Value Investors (an investment adviser); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator); General Counsel and Secretary, Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) - ------------------------------------------------------------------------------------------------------------------------- Lisa O. Brinkley -- 1959 2004 Global Compliance Director, INVESCO PLC; N/A Vice President and Vice President of The AIM Family of Funds--Registered Trademark-- Formerly: Senior Vice President, A I M Management Group Inc. (financial services holding company); Senior Vice President and Chief Compliance Officer, A I M Advisors, Inc. and The AIM Family of Funds--Registered Trademark--; Vice President and Chief Compliance Officer, A I M Capital Management, Inc. and A I M Distributors, Inc.; Vice President, AIM Investment Services, Inc. and Fund Management Company; Senior Vice President and Chief Compliance Officer of The AIM Family of Funds--Registered Trademark--; and Senior Vice President and Compliance Director, Delaware Investments Family of Funds - ------------------------------------------------------------------------------------------------------------------------- Kevin M. Carome -- 1956 2003 Senior Vice President and General Vice President Counsel, INVESCO PLC; Director, INVESCO Funds Group, Inc.; Director and Secretary, IVZ, Inc. and INVESCO Group Services, Inc.; Secretary, INVESCO North American Holdings, Inc.; and Vice President of The AIM Family of Funds--Registered Trademark-- Formerly: Director, Senior Vice N/A President, Secretary and General Counsel, A I M Management Group Inc. and A I M Advisors, Inc.; Senior Vice President, A I M Distributors, Inc.; Director, General Counsel and Vice President, Fund Management Company; Vice President, A I M Capital Management, Inc. and AIM Investment Services, Inc.; Senior Vice President, Chief Legal Officer and Secretary of The AIM Family of Funds--Registered Trademark--; Director and Vice President, INVESCO Distributors, Inc.; Chief Executive Officer and President, INVESCO Funds Group, Inc.; and Senior Vice President and General Counsel, Liberty Financial Companies, Inc. - ------------------------------------------------------------------------------------------------------------------------- Sidney M. Dilgren -- 1961 2004 Vice President, A I M Advisors, Inc. and N/A Vice President, Principal A I M Capital Management, Inc.; and Vice Financial Officer and President, Treasurer and Principal Treasurer Financial Officer of The AIM Family of Funds--Registered Trademark-- Formerly: Fund Treasurer, A I M Advisors, Inc.; Senior Vice President, AIM Investment Services, Inc.; and Vice President, A I M Distributors, Inc. - ------------------------------------------------------------------------------------------------------------------------- Karen Dunn Kelley -- 1960 2004 Head of INVESCO's World Wide Fixed N/A Vice President Income and Cash Management Group; Director of Cash Management and Senior Vice President, A I M Advisors, Inc. and A I M Capital Management, Inc; Executive Vice President, A I M Distributors, Inc.; Senior Vice President, A I M Management Group Inc.; Vice President, The AIM Family of Funds--Registered Trademark-- (other than AIM Treasurer's Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust); and President and Principal Executive Officer, The AIM Family of Funds--Registered Trademark-- (AIM Treasurer's Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only) Formerly: Director and President, Fund Management Company; Chief Cash Management Officer and Managing Director, A I M Capital Management, Inc.; Vice President, A I M Advisors, Inc. and The AIM Family of Funds--Registered Trademark-- (AIM Treasurer's Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only) - ------------------------------------------------------------------------------------------------------------------------- Lance A. Rejsek -- 1967 2005 Anti-Money Laundering Compliance N/A Anti-Money Laundering Officer, A I M Advisors, Inc., A I M Compliance Officer Capital Management, Inc., A I M Distributors, Inc., AIM Investment Services, Inc., AIM Private Asset Management, Inc. and The AIM Family of Funds--Registered Trademark-- Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company; and Manager of the Fraud Prevention Department, AIM Investment Services, Inc. - ------------------------------------------------------------------------------------------------------------------------- Todd L. Spillane -- 1958 2006 Senior Vice President, A I M Management N/A Chief Compliance Officer Group Inc.; Senior Vice President and Chief Compliance Officer, A I M Advisors, Inc. and A I M Capital Management, Inc.; Chief Compliance Officer of The AIM Family of Funds--Registered Trademark--, INVESCO Global Asset Management (N.A.), Inc., (registered investment advisor), INVESCO Institutional (N.A.), Inc., (registered investment advisor), INVESCO Private Capital Investments, Inc. (holding company), INVESCO Private Capital, Inc. (registered investment advisor) and INVESCO Senior Secured Management, Inc. (registered investment advisor); and Vice President, A I M Distributors, Inc. and AIM Investment Services, Inc. Formerly: Vice President, A I M Capital Management, Inc. and Fund Management Company; Global Head of Product Development, AIG-Global Investment Group, Inc.; and Chief Compliance Officer and Deputy General Counsel, AIG-SunAmerica Asset Management - -------------------------------------------------------------------------------------------------------------------------
The Statement of Additional Information of the Trust includes additional information about the Fund's Trustees and is available upon request, without charge, by calling 1.800.959.4246. OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS 11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers Suite 100 11 Greenway Plaza Inc. LLP Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street Houston, TX 77046-1173 Suite 100 Suite 2900 Houston, TX 77046-1173 Houston, TX 77002-5678 COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN Ballard Spahr INDEPENDENT TRUSTEES AIM Investment State Street Bank and Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust 1735 Market Street, 51st & Frankel LLP P.O. Box 4739 Company Floor 1177 Avenue of the Houston, TX 77210-4739 225 Franklin Street Philadelphia, PA 19103-7599 Americas Boston, MA 02110-2801 New York, NY 10036-2714
34 [EDELIVERY Fund holdings and proxy voting information GO PAPERLESS AIMINVESTMENTS.COM/EDELIVERY The Fund provides a complete list of its holdings four times in GRAPHIC] each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund's semiannual and annual REGISTER FOR EDELIVERY reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission eDelivery is the process of receiving your fund and account (SEC) on Form N-Q. The most recent list of portfolio holdings is information via e-mail. Once your quarterly statements, tax available at AIMinvestments.com. From our home page, click on forms, fund reports, and prospectuses are available, we will send Products & Performance, then Mutual Funds, then Fund Overview. you an e-mail notification containing links to these documents. Select your Fund from the drop-down menu and click on Complete For security purposes, you will need to log in to your account to Quarterly Holdings. Shareholders can also look up the Fund's view your statements and tax forms. Forms N-Q on the SEC Web site at sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied at the SEC Public Reference WHY SIGN UP? Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information Register for eDelivery to: about duplicating fee charges, by calling 202-942-8090 or 800-732-0330, or by electronic request at the following e-mail o save your Fund the cost of printing and postage. address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-01424 and 002-25469. o reduce the amount of paper you receive. A description of the policies and procedures that the Fund uses o gain access to your documents faster by not waiting for the to determine how to vote proxies relating to portfolio mail. securities is available without charge, upon request, from our Client Services department at 800-959-4246 or on the AIM Web o view your documents online anytime at your convenience. site, AIMinvestments.com. On the home page, scroll down and click on Proxy Policy. The information is also available on the o save the documents to your personal computer or print them out SEC Web site, sec.gov. for your records. Information regarding how the Fund voted proxies related to its HOW DO I SIGN UP? portfolio securities during the 12 months ended June 30, 2007, is available at our Web site. Go to AIMinvestments.com, access It's easy. Just follow these simple steps: the About Us tab, click on Required Notices and then click on Proxy Voting Activity. Next, select the Fund from the drop-down 1. Log in to your account. menu. The information is also available on the SEC Web site, sec.gov. 2. Click on the "Service Center" tab. If used after January 20, 2008, this report must be accompanied 3. Select "Register for eDelivery" and complete the consent by a Fund fact sheet or by an AIM Quarterly Performance Review process. for the most recent quarter-end. Mutual funds and exchange-traded funds distributed by A I M Distributors, Inc. This AIM service is provided by AIM Investment Services, Inc. CDV-AR-1 A I M Distributors, Inc. [AIM INVESTMENTS LOGO] -- REGISTERED TRADEMARK --
DOMESTIC EQUITY AIM Charter Fund Annual Report to Shareholders o October 31, 2007 Large-Cap Blend Table of Contents Letters to Shareholders ......... 2 Performance Summary ............. 4 Management Discussion ........... 4 Long-term Fund Performance ...... 6 Supplemental Information ........ 8 Schedule of Investments ......... 9 Financial Statements ............ 12 Notes to Financial Statements ... 15 Financial Highlights ............ 23 Auditor's Report ................ 27 Fund Expenses ................... 28 Approval of Advisory Agreement .. 29 [COVER GLOBE IMAGE] Tax Information ................. 31 Trustees and Officers ........... 32
[AIM INVESTMENT SOLUTIONS] [GRAPHIC] [GRAPHIC] [DOMESTIC [FIXED EQUITY] INCOME] [GRAPHIC] [GRAPHIC] [GRAPHIC] [TARGET [TARGET [DIVERSIFIED RISK] MATURITY] PORTFOLIOS] [GRAPHIC] [GRAPHIC] [SECTOR [INTERNATIONAL/ EQUITY] GLOBAL EQUITY] [AIM INVESTMENTS LOGO] - -- REGISTERED TRADEMARK -- AIM Charter Fund Dear Shareholders of the AIM Family of Funds: I'm pleased to provide you with this report, which includes a discussion of how your Fund was managed during the period under review and factors that affected its performance. The following pages contain important information that answers questions you may have about your investment. [TAYLOR PHOTO] Despite notable volatility at points throughout the fiscal year ended October 31, 2007, major stock market indexes in the U.S. and abroad generally performed well. Reasons for their favorable performance included positive economic growth, particularly overseas; strong corporate profits; and action by the U.S. Federal Reserve Board (the Fed) to reassure skittish markets, among other factors. Philip Taylor At its September 18, 2007, meeting, the Fed cut the federal funds target rate for the first time since June 2003.(1) The cut followed 17 rate increases from June 2004 to June 2006(1) and was intended to address investor concerns about a weak housing market generally and problems in the subprime mortgage market specifically. The Fed's action triggered an immediate and broad stock market rally. The Fed cut this key interest rate again on October 31, 2007.(1) At AIM Investments --REGISTERED TRADEMARK--, we know that market conditions change--often suddenly and sometimes dramatically. We can help you deal with market volatility by offering a broad range of mutual funds, including: o Domestic, global and international equity funds o Taxable and tax-exempt fixed-income funds o Allocation portfolios, with risk/return characteristics to match your needs o AIM Independence Funds--target-maturity funds that combine retail mutual funds and PowerShares --REGISTERED TRADEMARK-- exchange-traded funds--with risk/return characteristics that change as your target retirement date nears I encourage you to talk with your financial advisor if you have concerns about your portfolio. We believe in the value of working with a trusted financial advisor who can recommend AIM funds that are appropriate for your portfolio and that address your long-term investment goals and risk tolerance regardless of prevailing short-term market conditions. IN CONCLUSION My colleague, Bob Graham, recently announced his decision to step down as vice chair of the AIM Funds board of directors. In 1976, Bob was one of three men who co-founded AIM. In the three decades since, he has been instrumental in transforming AIM from a small investment management firm into one of America's most respected mutual fund companies--and, in 1997, into a global independent retail and institutional investment manager. In May, with shareholder approval, AIM Investments' parent company changed its name from AMVESCAP PLC to Invesco Ltd., uniting our worldwide operations and global expertise under one new name. While the name of our parent company may be new to you, I can assure you that our commitment to excellent customer service remains unchanged. Our highly trained, courteous client service representatives are eager to answer your questions, provide you with product information or assist you with account transactions. I encourage you to give us an opportunity to serve you by calling us at 800-959-4246. We at AIM are committed to helping you achieve your financial goals. We work every day to earn your trust, and we're grateful for the confidence you've placed in us. Sincerely, /S/ PHILIP TAYLOR Philip Taylor President - AIM Funds CEO, AIM Investments December 17, 2007 Source: (1)U.S. Federal Reserve Board AIM Investments is a registered service mark of A I M Management Group Inc. A I M Advisors, Inc. and A I M Capital Management, Inc. are the investment advisors. A I M Distributors, Inc. is the distributor for the retail mutual funds represented by AIM Investments and the PowerShares Exchange-Traded Fund Trust.
2 AIM Charter Fund Dear Fellow Shareholders: In overseeing the management of the AIM family of funds on your behalf, your Board of Trustees of the AIM Funds continues to focus on improved investment performance, reduced shareholder costs, and high ethical standards. [CROCKETT PHOTO] Your Board welcomes two new members: Marty Flanagan, President and CEO of INVESCO, AIM's parent company, and Phil Taylor, who was named CEO of AIM Investments --REGISTERED TRADEMARK-- in April 2006. Robert Graham, who has given more than 30 years of leadership to the company and the mutual fund industry since founding AIM in 1976, has retired, stepping down in the process from his most recent role as vice Bruce L. Crockett chairman of the Board. We thank Bob for his many contributions and wish him a long and happy future. Our review of fund performance has shown healthy progress, but the process is necessarily one of continuous improvement. In general, as of October 31, 2007, we have seen persistent investment discipline and more consistently good results. While this statement may not apply to every AIM Fund all the time, as I write this letter, the overall trend in fund management and performance has been positive. The investment management talent at AIM has recently been enhanced by the promotion of Karen Dunn Kelley to Head of INVESCO's Worldwide Fixed Income as well as Director of AIM Global and Cash Management, with responsibility for all fixed income and money market funds that serve both institutional and individual investors. Under Karen's direction, AIM's cash management organization grew to one of the world's largest and most respected, with top-tier performance. The operations now combined under her charge represent more than $150 billion in assets, 120 investment professionals, and products that span the entire yield curve (as of October 31, 2007). In other news, your Board took a more active role in preparing for "proxy season," the period when fund managers must vote the shares held by their funds "for" or "against" various proposals on the ballots of the issuing companies. Beginning in the 2007 proxy season, AIM implemented new proxy voting policies, developed by management in conjunction with an ad hoc Board committee, which provided a solid framework for properly evaluating and executing the many decisions the AIM Funds are required to make to vote shares. In general, the AIM Funds voted for proposals that would allow shareholders a greater role in election of directors, proxy access and "say for pay." The AIM Funds voted against directors whom AIM believed failed to govern well in cases of corporate mismanagement, such as the backdating of options grants, and against "poison pill" and "take under" proposals that would favor the financial interests of managers at the expense of investors in the case of a merger or acquisition. You can view the proxy votes cast for your fund by going to AIMinvestments.com. Click the "About Us" tab, then go to "Required Notices" and "Proxy Voting Activity." Additionally, your Board raised the amount its members are recommended to invest in the AIM Funds within three years of joining the Board, with the goal of aligning our interests even more closely with yours. Furthermore, at our June meeting we renewed the investment advisory contracts between the AIM Funds and AIM for another year, applying the same rigorous evaluation process that was enhanced and formalized in 2005. For more information on this process, please visit AIMinvestments.com. Click on the "Products and Performance" tab and go to "Investment Advisory Agreement Renewals." Your Board's ability to best represent your interests depends on our knowledge of your opinions and concerns. Please send me an email (bruce@brucecrockett.com) with your thoughts on the following: 1) How important is it to you to hear about your Board's decisions and activities in these letters? 2) What other information (on overall performance, specific funds, managers, etc.) would make the letters more meaningful to you? 3) Would you prefer that communications from your Board continue to be delivered in paper form by regular mail or be sent electronically by email? If you would prefer to communicate through a quick online survey, please go to AIMinvestments.com and provide your responses there. We need to hear from you to do our best job, and I look forward to your responses. Sincerely, /S/ BRUCE L. CROCKETT Bruce L. Crockett Independent Chair AIM Funds Board of Directors December 17, 2007 AIM Investments is a registered service mark of A I M Management Group Inc. A I M Advisors, Inc. and A I M Capital Management, Inc. are the investment advisors. A I M Distributors, Inc. is the distributor for the retail mutual funds represented by AIM Investments and the PowerShares Exchange-Traded Fund Trust.
3 AIM Charter Fund Management's discussion of Fund performance o Business analysis to determine competitive positioning ================================================================================ o Valuation analysis to identify PERFORMANCE SUMMARY attractively valued companies For the fiscal year ended October 31, 2007, AIM Charter Fund, excluding Financial analysis provides vital insight applicable sales charges, delivered positive returns for shareholders, into historical and potential returns on outperforming the broad market S&P 500 Index as well as the Fund's invested capital, a key indicator of style-specific benchmark, the Russell 1000 Index.* Overall results were driven business quality and the caliber of in part by strength in our information technology (IT), energy and non-U.S management. Business analysis allows us to holdings. Additionally, our index-relative results were helped by an avoidance identify key drivers of the company, of turbulence in the financials sector and weakness in consumer discretionary. understand industry challenges and evaluate the sustainability of competitive Your Fund's long-term performance appears later in this report. advantages. Both the financial and business analyses serve as a basis to FUND VS. INDEXES construct valuation models that help us estimate a company's value. We use three Total returns, 10/31/06-10/31/07, excluding applicable sales charges. If sales primary valuation techniques, including charges were included, returns would be lower. discounted cash flow, traditional valuation multiples and net asset value. Class A Shares 16.44% Class B Shares 15.56 We consider selling a stock when: Class C Shares 15.58 Class R Shares 16.12 o It exceeds our target price. S&P 500 Index* (Broad Market Index) 14.55 Russell 1000 Index* (Style-Specific Index) 15.03 o We have not seen a demonstrable Lipper Large-Cap Core Funds Indexo (Peer Group Index) 15.02 improvement in fundamentals. SOURCE: *LIPPER INC. o More compelling investments opportunity ================================================================================ exists. How we invest We conduct fundamental research of Market conditions and your Fund companies to gain a thorough We manage your Fund as a core fund, understanding of their business For the fiscal year ending October 31, seeking to provide upside potential as prospects, appreciation potential and 2007, we delivered a double-digit return well as a measure of protection in return on invested capital (ROIC). The for shareholders and outperformed our difficult markets. As part of an process we use to identify potential style-specific and broad market indexes overall well-diversified asset investments for the Fund includes the Russell 1000 Index and S&P 500 Index.1 allocation strategy, the Fund can serve three phases: We worked diligently to provide as a cornerstone within an overall shareholders with a wealth creation portfolio to complement more aggressive o Financial analysis to evaluate strategy that takes a full market cycle value and growth investments. returns on invested capital and perspective (over bull and bear markets) capital allocation and can serve as a source of stability within your overall asset allocation. This ======================================= ====================================== objective has become increasingly important as we mark the five-year PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* anniversary of the bull market and witness increased volatility in the financial By sector 1. Amgen Inc. 3.2% markets. Information Technology 24.0% 2. Pfizer Inc. 2.8 Energy 13.9 3. 3M Co. 2.6 Preliminary data showed gross domestic Health Care 13.4 4. Microsoft Corp. 2.4 product grew at an annualized rate of 4.9% Industrials 13.1 5. Progressive Corp. (The) 2.4 in the third quarter of 2007.(2) This Consumer Staples 10.0 6. Berkshire Hathaway Inc. represented strong growth and an increase Financials 7.8 -Class A 2.4 over the growth rates earlier in 2007 Consumer Discretionary 5.1 7. Cadbury Schweppes PLC 2.4 despite expectations by many that we were Telecommunication Services 0.6 8. General Electric Co. 2.1 in the later stages of the current Money Market Funds Plus 9. Symantec Corp. 2.0 economic cycle and would be impacted by Other Assets Less Liabilities 12.1 10. Wal-Mart Stores, Inc. 2.0 the housing slump. Inflation, as measured by the consumer price index, The Fund's holdings are subject to Total Net Assets $6.49 billion change, and there is no assurance that the Fund will continue to hold any Total Number of Holdings* 68 particular security. *Excluding money market fund holdings. ======================================= ====================================== (continued)
4 AIM Charter Fund increased to an annualized rate of 3.6% for the firm had attractive growth prospects The views and opinions expressed in the first 9 months of 2007 versus 2.5% for due to a supportive commodity pricing management's discussion of Fund all of 2006.(3) This increase was largely cycle, expanding exposure to more performance are those of A I M Advisors, due to food and energy costs which attractive opportunities in the eastern Inc. These views and opinions are subject increased 5.7% and 11.7%, respectively.(3) hemisphere and as a beneficiary of the to change at any time based on factors The increase in energy costs represented an capital spending cycle--and so far in such as market and economic conditions. opportunity and a head-wind for the equity 2007, other investors have begun to These views and opinions may not be market. Oil prices surging past $90 per agree. relied upon as investment advice or barrel was a catalyst for energy stocks but recommendations, or as an offer for a hurt consumers at the gas pump, adding Conversely, the Fund's largest particular security. The information is unneeded pressure to the consumer's balance detractors from performance came from its not a complete analysis of every aspect sheet which was already facing pressure health care holdings such as Amgen. The of any market, country, industry, from a weakening housing market.(4) stock has been under pressure as a result security or the Fund. Statements of fact of an ongoing patent dispute with rival are from sources considered reliable, but In the past we have spoken about our Roche Holding (not a Fund holding). A I M Advisors, Inc. makes no rationale for decreasing the Fund's representation or warranty as to their exposure to the financials sector. Our Although the Fund delivered better completeness or accuracy. Although fundamental research raised concerns that results than the Russell 1000 Index, some historical performance is no guarantee of the increasingly lenient lending standards aspects of the portfolio's positioning future results, these insights may help of some regional banks and consumer detracted from relative performance. you understand our investment financials would lead to higher default Notably, the Fund held 12.03% of its management philosophy. rates. This concern was brought to light in assets in cash at the end of the period. 2007 by the controversy surrounding the While this was as a drag on performance See important Fund and index subprime mortgage industry and weighed when the market was up, it helped dampen disclosures later in this report. heavily on the returns of financials volatility during some of the more stocks. Our limited exposure to these turbulent market swings over the past Ronald S. Sloan stocks helped our results versus the year. Overall, the Fund's cash position [SLOAN Chartered Financial Analyst, style-specific index as financials was the was a function of our fundamental PHOTO] senior portfolio manager, is worst performing sector of the market over research, as we only invest it when we lead manager of AIM Charter the fiscal year. have a compelling investment opportunity. Fund. Mr. Sloan has been in the It is also worth noting that the Fund's investment industry since 1971. He joined Fund returns were also driven by our returns benefited from proceeds received AIM in 1998. Mr. Sloan attended the overweight to the energy and IT sectors. as part of litigation settlements. University of Missouri, where he earned Strength in the global economy and emerging both a B.S. in business administration markets has taken oil process from $51.76 The Fund's current positioning is and an M.B.A. per barrel to $94.53 over the three year somewhat more defensive than its period ending October 2007.(4) The Fund's style-specific index, the Russell 1000 Tyler Dann II exposure to this sector has been a Index, as fundamental data suggest growth [DANN Chartered Financial Analyst, consistent theme in the portfolio; however catalysts and sustainable profits tied to PHOTO] portfolio manager, is manager the nature of our exposure has changed as the credit cycle have shown signs of of AIM Charter Fund. Mr. Dann the capital spending cycle has matured. diminishing. Our largest overweight joined AIM in 2004. He serves on the Early in the cycle, the primary sectors included IT and energy, while our Board of Directors of the National beneficiaries were oil producers such as underweight sectors included financials Association of Petroleum Investment Exxon Mobil, which we highlighted as a key and consumer discretionary. We also Analysts and is a member of the CFA contributor to performance last year. maintained a sizeable exposure to Society of San Francisco. Mr. Dann earned non-U.S. companies (18.41% of total net an A.B. degree from Princeton University. Our research indicated that as the assets at the end of the reporting capital spending cycle matured, energy period) due to their attractive relative Brian Nelson service providers would do well as oil valuations and growth rates. [NELSON Chartered Financial Analyst, producers invested to maintain and update PHOTO] portfolio manager, is manager their infrastructure. This benefited We believe our competitive advantage of AIM Charter Fund. Mr. Nelson companies such as Weatherford is a strict focus on identifying began his investment career in 1988 and International, an oil services and growth-value anomalies--companies with joined AIM in 2004. He earned a B.A. from equipment firm. We made our investment in strong prospects to grow shareholder the University of California-Santa Weatherford International in the fall of value, managed by good stewards of Barbara and is a member of the Securities 2006 on price weakness resulting from the capital and trading at attractive Analyst Society of San Francisco. market's overreaction to the firm's valuations. Thank you for your continued exposure to a softening in natural gas investment in AIM Charter Fund. Assisted by the Mid/Large Cap Core Team prices. We believed Sources: (1)Lipper Inc.; (2)Bureau of Economic Analysis; (3)Bureau of Labor Statistics; (4)Bloomberg L.P.
5 AIM Charter Fund Your Fund's long-term performance Past performance cannot guarantee of taxes a shareholder would pay on Fund value of an investment, is constructed comparable future results. distributions or sale of Fund shares. with each segment representing a percent Performance of the indexes does not change in the value of the investment. In The data shown in the chart include reflect the effects of taxes. this chart, each segment represents a reinvested distributions, applicable sales doubling, or 100% change, in the value of charges, Fund expenses and management fees. This chart, which is a logarithmic the investment. Index results include reinvested dividends, chart, presents the fluctuations in the but they do not reflect sales charges. value of the Fund and its indexes. We In other words, the space between $5,000 Performance of an index of funds reflects believe that a logarithmic chart is more and $10,000 is the same size as the space fund expenses and management fees; effective than other types of charts in between $10,000 and $20,000, and so on. performance of a market index does not. illustrating changes in value during the Performance shown in the chart and table(s) early years shown in the chart. The does not reflect deduction vertical axis, the one that indicates the dollar
6 ==================================================================================================================================== [MOUNTAIN CHART] RESULTS OF A $10,000 INVESTMENT FUND DATA FROM 11/26/68, INDEX DATA FROM 11/30/68 AIM CHARTER FUND DATE -CLASS A SHARES S&P 500 INDEX(1) 11/26/68 $ 9450 4/75 11630 10086 11/68 9450 $ 10000 5/75 12153 10567 12/68 9365 9609 6/75 12957 11071 1/69 9337 9554 7/75 12258 10358 2/69 9140 9126 8/75 12188 10176 3/69 9292 9464 9/75 11700 9860 4/69 9434 9691 10/75 11909 10503 5/69 9548 9694 11/75 12120 10798 6/69 9007 9179 12/75 11837 10712 7/69 8465 8650 1/76 13357 12016 8/69 9064 9022 2/76 13852 11915 9/69 9064 8820 3/76 14346 12316 10/69 9577 9238 4/76 13922 12220 11/69 9264 8938 5/76 13745 12085 12/69 9086 8798 6/76 14062 12620 1/70 8168 8150 7/76 13850 12559 2/70 8730 8605 8/76 13638 12536 3/70 8375 8643 9/76 14486 12860 4/70 7250 7887 10/76 14380 12620 5/70 6629 7432 11/76 15701 12568 6/70 6185 7085 12/76 16808 13274 7/70 6629 7630 1/77 17236 12646 8/70 6836 7995 2/77 16309 12416 9/70 7250 8284 3/77 16237 12286 10/70 7043 8216 4/77 16559 12338 11/70 7116 8631 5/77 16274 12096 12/70 7574 9148 6/77 17201 12693 1/71 8154 9543 7/77 16524 12498 2/71 8215 9654 8/77 16167 12320 3/71 8673 10035 9/77 16560 12339 4/71 9162 10425 10/77 16096 11859 5/71 9070 10017 11/77 17020 12235 6/71 9193 10051 12/77 17682 12325 7/71 9040 9661 1/78 16630 11618 8/71 9437 10035 2/78 17213 11382 9/71 9559 9991 3/78 18148 11717 10/71 9192 9600 4/78 19551 12773 11/71 9302 9602 5/78 20720 12891 12/71 10325 10455 6/78 21188 12714 1/72 11472 10670 7/78 23642 13456 2/72 11906 10967 8/78 25746 13861 3/72 12371 11057 9/78 24616 13816 4/72 12898 11132 10/78 21539 12611 5/72 14014 11352 11/78 22170 12883 6/72 14137 11131 12/78 23356 13135 7/72 13238 11185 1/79 24181 13717 8/72 12557 11597 2/79 23612 13275 9/72 13021 11568 3/79 25055 14068 10/72 12774 11706 4/79 25363 14156 11/72 13517 12269 5/79 25363 13849 12/72 14167 12442 6/79 26292 14450 1/73 14167 12257 7/79 26497 14644 2/73 12525 11824 8/79 28351 15489 3/73 12491 11835 9/79 28867 15557 4/73 11191 11381 10/79 27424 14560 5/73 10609 11196 11/79 30537 15251 6/73 10233 11152 12/79 33642 15578 7/73 11635 11605 1/80 36337 16547 8/73 11806 11209 2/80 37274 16545 9/73 13517 11688 3/80 32410 14937 10/73 14167 11707 4/80 33933 15627 11/73 11494 10408 5/80 34697 16432 12/73 12249 10616 6/80 35929 16951 1/74 12009 10539 7/80 38508 18131 2/74 11941 10530 8/80 39741 18314 3/74 11323 10316 9/80 41676 18852 4/74 10706 9947 10/80 42322 19233 5/74 10328 9644 11/80 46004 21282 6/74 10396 9535 12/80 45024 20641 7/74 9676 8829 1/81 43061 19776 8/74 9573 8065 2/81 44043 20118 9/74 8270 7137 3/81 46567 20923 10/74 9745 8337 4/81 46357 20517 11/74 9499 7929 5/81 48601 20568 12/74 8941 7805 6/81 46569 20441 1/75 9465 8798 7/81 46150 20484 2/75 9954 9359 8/81 43833 19300 3/75 10443 9597 9/81 42851 18350 ==================================================================================================================================== SOURCE: (1)LIPPER INC.
==================================================================================================================================== [MOUNTAIN CHART] 10/81 45448 19341 5/89 123024 69830 11/81 46130 20138 6/89 120908 69439 12/81 45646 19622 7/89 133422 75702 1/82 44514 19367 8/89 134383 77178 2/82 42813 18285 9/89 136116 76862 3/82 43220 18190 10/89 134197 75079 4/82 44758 19014 11/89 137283 76603 5/82 44029 18365 12/89 138519 78441 6/82 43866 18090 1/90 130014 73178 7/82 43625 17770 2/90 131925 74122 8/82 45727 19927 3/90 134907 76086 9/82 46294 20174 4/90 134057 74191 10/82 49290 22496 5/90 146819 81410 11/82 51754 23405 6/90 149799 80865 12/82 52691 23856 7/90 151926 80606 1/83 52949 24744 8/90 144269 73327 2/83 54824 25311 9/90 138527 69764 3/83 58919 26245 10/90 139372 69471 4/83 62843 28313 11/90 147038 73951 5/83 63270 28066 12/90 149920 76007 6/83 66510 29158 1/91 156067 79306 7/83 64548 28298 2/91 168365 84968 8/83 62844 28722 3/91 174965 87025 9/83 64892 29119 4/91 173600 87233 10/83 63951 28781 5/91 179520 90985 11/83 64891 29388 6/91 173362 86817 12/83 62932 29235 7/91 183382 90863 1/84 59382 29072 8/91 189764 93008 2/84 56407 28048 9/91 188853 91454 3/84 57846 28534 10/91 191818 92680 4/84 56695 28805 11/91 185891 88954 5/84 53718 27209 12/91 206506 99113 6/84 55351 27799 1/92 200765 97269 7/84 54294 27455 2/92 201488 98524 8/84 59474 30486 3/92 198144 96613 9/84 58421 30492 4/92 200303 99443 10/84 58999 30611 5/92 200784 99931 11/84 58232 30268 6/92 195042 98442 12/84 59286 31064 7/92 200542 102458 1/85 64634 33484 8/92 196009 100368 2/85 66017 33896 9/92 196009 101552 3/85 64928 33916 10/92 199832 101897 4/85 64136 33885 11/92 206286 105362 5/85 67394 35844 12/92 208844 106658 6/85 68088 36407 1/93 210055 107554 7/85 67890 36356 2/93 211757 109017 8/85 67001 36003 3/93 217369 111317 9/85 64234 34916 4/93 213217 108623 10/85 67497 36529 5/93 217140 111523 11/85 72046 39035 6/93 220354 111847 12/85 74618 40924 7/93 222315 111399 1/86 75357 41153 8/93 230185 115621 2/86 81544 44227 9/93 232418 114731 3/86 85776 46695 10/93 233649 117106 4/86 85013 46172 11/93 225004 115993 5/86 90113 48629 12/93 228469 117397 6/86 92177 49450 1/94 235529 121388 7/86 86969 46686 2/94 229476 118099 8/86 91204 50146 3/94 221605 112961 9/86 84583 45999 4/94 221849 114407 10/86 88821 48653 5/94 222869 116272 11/86 89362 49835 6/94 218523 113424 12/86 87370 48564 7/94 223353 117144 1/87 99095 55106 8/94 230232 121935 2/87 105407 57282 9/94 225627 118960 3/87 107125 58938 10/94 227680 121625 4/87 107264 58413 11/94 217958 117197 5/87 108273 58916 12/94 218721 118932 6/87 111283 61891 1/95 221149 122012 7/87 116591 65029 2/95 229221 126759 8/87 119750 67454 3/95 238917 130498 9/87 119175 65977 4/95 245941 134335 10/87 94792 51772 5/95 254574 139694 11/87 88621 47506 6/95 265393 142935 12/87 96473 51121 7/95 278398 147667 1/88 94061 53269 8/95 281376 148036 2/88 98520 55740 9/95 294404 154283 3/88 96293 54023 10/95 289223 153727 4/88 96110 54623 11/95 297928 160461 5/88 95735 55087 12/95 296766 163558 6/88 99268 57616 1/96 302731 169119 7/88 97412 57397 2/96 308695 170691 8/88 93876 55451 3/96 310486 172330 9/88 98898 57813 4/96 317968 174863 10/88 100381 59421 5/96 325154 179357 11/88 99448 58571 6/96 323951 180039 12/88 100293 59590 7/96 306231 172081 1/89 107996 63952 8/96 316153 175712 2/89 106268 62360 9/96 335091 185587 3/89 110699 63813 10/96 337503 190709 4/89 116865 67125 11/96 358935 205108 ====================================================================================================================================
==================================================================================================================================== [MOUNTAIN CHART] 12/96 354843 201047 7/04 516204 335089 1/97 375353 213592 8/04 514501 336429 2/97 374077 215279 9/04 518823 340063 3/97 351557 206453 10/04 524426 345266 4/97 368924 218757 11/04 539529 359215 5/97 397220 232123 12/04 557280 371428 6/97 413308 242453 1/05 545076 362365 7/97 450092 261728 2/05 563336 369975 8/97 428488 247071 3/05 553308 363426 9/97 454026 260586 4/05 541578 356521 10/97 433958 251882 5/05 548077 367858 11/97 441379 263545 6/05 550708 368373 12/97 442570 268078 7/05 569872 382077 1/98 445447 271026 8/05 567707 378600 2/98 473109 290567 9/05 572078 381667 3/98 495061 305444 10/05 559035 375293 4/98 494715 308560 11/05 581229 389479 5/98 481358 303253 12/05 584774 389635 6/98 505233 315565 1/06 606294 399960 7/98 505940 312220 2/06 608052 401040 8/98 423168 267104 3/06 618146 406013 9/98 445173 284225 4/06 623400 411453 10/98 482479 307305 5/06 608501 399645 11/98 513985 325927 6/06 606736 400164 12/98 561271 344701 7/06 610680 402645 1/99 591019 359109 8/06 625153 412228 2/99 568796 347941 9/06 641407 422864 3/99 607361 361858 10/06 656801 436649 4/99 616046 375862 11/06 672170 444945 5/99 599474 366992 12/06 679900 451175 6/99 642996 387287 1/07 692274 457987 7/99 618884 375242 2/07 679882 449056 8/99 618512 373366 3/07 693616 454086 9/99 610595 363136 4/07 728089 474202 10/99 646804 386122 5/07 743087 490752 11/99 673970 393960 6/07 741304 482605 12/99 751476 417125 7/07 726700 467644 1/00 723822 396186 8/07 725392 474659 2/00 748214 388698 9/07 750998 492411 3/00 813683 426712 10/07 765363 500046 4/00 760387 413868 5/00 718490 405384 6/00 759947 415356 7/00 761542 408877 8/00 821323 434268 9/00 766459 411339 10/00 734728 409611 11/00 629809 377334 12/00 641019 379183 1/01 668583 392644 2/01 571371 356874 3/01 509434 334284 4/01 568783 360224 5/01 569637 362638 6/01 550725 353826 7/01 530954 350358 8/01 487946 328461 9/01 431149 301954 10/01 450077 307721 11/01 491799 331323 12/01 493078 334239 1/02 483611 329359 2/02 478436 323003 3/02 498243 335147 4/02 481452 314838 5/02 481019 312539 6/02 455188 290286 7/02 418637 267673 8/02 422949 269413 9/02 389832 240155 10/02 411779 261264 11/02 431586 276627 12/02 413503 260389 1/03 399733 253593 2/03 390699 249789 3/03 392418 252212 4/03 420397 272969 5/03 448816 287327 6/03 452272 291005 7/03 458740 296126 8/03 470346 301901 9/03 463008 298701 10/03 478519 315577 11/03 488425 318354 12/03 512748 335036 1/04 517927 341201 2/04 527405 345943 3/04 514483 340720 4/04 519680 335370 5/04 523110 339965 6/04 533049 346560 ====================================================================================================================================
AIM Charter Fund =========================================== ========================================= AVERAGE ANNUAL TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS As of 10/31/07, including applicable As of 9/30/07, the most recent calendar sales charges quarter-end, including applicable sales charges CLASS A SHARES Inception (11/26/68) 11.79% CLASS A SHARES 10 Years 5.23 Inception (11/26/68) 11.76% 5 Years 11.90 10 Years 4.56 1 Year 10.04 5 Years 12.72 1 Year 10.66 CLASS B SHARES Inception (6/26/95) 8.41% CLASS B SHARES 10 Years 5.21 Inception (6/26/95) 8.31% 5 Years 12.11 10 Years 4.54 1 Year 10.56 5 Years 12.96 1 Year 11.20 CLASS C SHARES Inception (8/4/97) 4.61% CLASS C SHARES 10 Years 5.07 Inception (8/4/97) 4.46% 5 Years 12.36 10 Years 4.40 1 Year 14.58 5 Years 13.18 1 Year 15.15 CLASS R SHARES 10 Years 5.58% CLASS R SHARES 5 Years 12.88 10 Years 4.92% 1 Year 16.12 5 Years 13.72 1 Year 16.77 =========================================== ========================================= CLASS R SHARES' INCEPTION DATE IS JUNE 3, WHEN YOU SELL SHARES. FROM 5% BEGINNING AT THE TIME OF PURCHASE 2002. RETURNS SINCE THAT DATE ARE TO 0% AT THE BEGINNING OF THE SEVENTH HISTORICAL RETURNS. ALL OTHER RETURNS ARE THE NET ANNUAL FUND OPERATING EXPENSE YEAR. THE CDSC ON CLASS C SHARES IS 1% BLENDED RETURNS OF HISTORICAL CLASS R SHARE RATIO SET FORTH IN THE MOST RECENT FUND FOR THE FIRST YEAR AFTER PURCHASE. CLASS PERFORMANCE AND RESTATED CLASS A SHARE PROSPECTUS AS OF THE DATE OF THIS REPORT R SHARES DO NOT HAVE A FRONT-END SALES PERFORMANCE (FOR PERIODS PRIOR TO THE FOR CLASS A, CLASS B, CLASS C AND CLASS R CHARGE; RETURNS SHOWN ARE AT NET ASSET INCEPTION DATE OF CLASS R SHARES) AT NET SHARES WAS 1.28%, 2.03%, 2.03%, AND VALUE AND DO NOT REFLECT A 0.75% CDSC ASSET VALUE, ADJUSTED TO REFLECT THE HIGHER 1.53%, RESPECTIVELY.(1) THE TOTAL ANNUAL THAT MAY BE IMPOSED ON A TOTAL REDEMPTION RULE 12B-1 FEES APPLICABLE TO CLASS R FUND OPERATING EXPENSE RATIO SET FORTH IN OF RETIREMENT PLAN ASSETS WITHIN THE SHARES. CLASS A SHARES' INCEPTION DATE IS THE MOST RECENT FUND PROSPECTUS AS OF THE FIRST YEAR. NOVEMBER 26, 1968. DATE OF THIS REPORT FOR CLASS A, CLASS B, CLASS C AND CLASS R SHARES WAS 1.29%, THE PERFORMANCE OF THE FUND'S SHARE THE PERFORMANCE DATA QUOTED REPRESENT 2.04%, 2.04% AND 1.54%, RESPECTIVELY. THE CLASSES WILL DIFFER PRIMARILY DUE TO PAST PERFORMANCE AND CANNOT GUARANTEE EXPENSE RATIOS PRESENTED ABOVE MAY VARY DIFFERENT SALES CHARGE STRUCTURES AND COMPARABLE FUTURE RESULTS; CURRENT FROM THE EXPENSE RATIOS PRESENTED IN CLASS EXPENSES. PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE OTHER SECTIONS OF THIS REPORT THAT ARE VISIT AIMINVESTMENTS.COM FOR THE MOST BASED ON EXPENSES INCURRED DURING THE (1) Total annual operating expenses less RECENT MONTH-END PERFORMANCE. PERFORMANCE PERIOD COVERED BY THIS REPORT. contractual advisory fee waivers by FIGURES REFLECT REINVESTED DISTRIBUTIONS, the advisor in effect through at least CHANGES IN NET ASSET VALUE AND THE EFFECT CLASS A SHARE PERFORMANCE REFLECTS THE December 31, 2012. See current OF THE MAXIMUM SALES CHARGE UNLESS MAXIMUM 5.50% SALES CHARGE, AND CLASS B prospectus for more information. OTHERWISE STATED. INVESTMENT RETURN AND AND CLASS C SHARE PERFORMANCE REFLECTS PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU THE APPLICABLE CONTINGENT DEFERRED SALES ========================================== MAY HAVE A GAIN OR LOSS CHARGE (CDSC) FOR THE PERIOD INVOLVED. THE CDSC ON CLASS B SHARES DECLINES FOR A DISCUSSION OF THE RISKS OF INVESTING IN YOUR FUND AND INDEXES USED IN THIS REPORT, PLEASE TURN THE PAGE. ==========================================
7 AIM Charter Fund AIM CHARTER FUND'S INVESTMENT OBJECTIVE IS GROWTH OF CAPITAL. o Unless otherwise stated, information presented in this report is as of October 31, 2007, and is based on total net assets. o Unless otherwise noted, all data in this report are from A I M Management Group Inc. About share classes About indexes used in this report Other information o Class B shares are not available as an o The S&P 500 --REGISTERED TRADEMARK-- o The Chartered Financial Analyst investment for retirement plans maintained Index is a market capitalization-weighted --REGISTERED TRADEMARK-- (CFA pursuant to Section 401 of the Internal index covering all major areas of the --REGISTERED TRADEMARK--) designation is Revenue Code, including 401(k) plans, money U.S. economy. It is not the 500 largest a globally recognized standard for purchase pension plans and profit sharing companies, but rather the most widely measuring the competence and integrity of plans. Plans that had existing accounts held 500 companies chosen with respect to investment professionals. invested in Class B shares prior to market size, liquidity, and their September 30, 2003, will continue to be industry. o The returns shown in the management's allowed to make additional purchases. discussion of Fund performance are based o Russell 1000 --REGISTERED TRADEMARK-- on net asset values calculated for o Class R shares are available only to Index is comprised of 1000 of the largest shareholder transactions. Generally certain retirement plans. Please see the capitalized U.S. domiciled companies accepted accounting principles require prospectus for more information. whose common stock is traded in the adjustments to be made to the net assets United States. The Russell 1000 Index is of the Fund at period end for financial Principal risks of investing in the Fund a trademark/service mark of the Frank reporting purposes, and as such, the net Russell Company. Russell(R) is a asset values for shareholder transactions o To the extent the Fund holds cash or cash trademark of the Frank Russell Company. and the returns based on those net asset equivalents rather than equity securities values may differ from the net asset for risk management purposes, the Fund may o The Lipper Large-Cap Core Funds Index values and returns reported in the not achieve its investment objective. is an equally weighted representation of Financial Highlights. the largest funds in the Lipper Large-Cap o Prices of equity securities change in Core Funds category. These funds o Industry classifications used in this response to many factors including the typically have an average report are generally according to the historical and prospective earnings of the price-to-earnings ratio, price-to-book Global Industry Classification Standard, issuer, the value of its assets, general ratio, and three-year sales-per-share which was developed by and is the economic conditions, interest rates, growth value, compared to the S&P 500 exclusive property and a service mark of investor perceptions and market liquidity. Index. Morgan Stanley Capital International Inc. and Standard & Poor's. o Foreign securities have additional risks, o The Fund is not managed to track the including exchange rate changes, political performance of any particular index, and economic upheaval, the relative lack of including the indexes defined here, and information, relatively low market consequently, the performance of the Fund liquidity, and the potential lack of strict may deviate significantly from the financial and accounting controls and performance of the indexes. standards. o A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of an index of funds reflects fund expenses; performance of a market index does not. ======================================================================================= THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND PROSPECTUS, ========================================= WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING. FUND NASDAQ SYMBOLS ======================================================================================= Class A Shares CHTRX Class B Shares BCHTX NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE Class C Shares CHTCX Class R Shares CHRRX AIMINVESTMENTS.COM =========================================
8 AIM Charter Fund SCHEDULE OF INVESTMENTS(A) October 31, 2007
SHARES VALUE - --------------------------------------------------------------------------- DOMESTIC COMMON STOCKS-69.54% AEROSPACE & DEFENSE-2.22% Northrop Grumman Corp. 689,375 $ 57,645,538 - --------------------------------------------------------------------------- United Technologies Corp. 1,125,000 86,163,750 =========================================================================== 143,809,288 =========================================================================== AIR FREIGHT & LOGISTICS-1.55% United Parcel Service, Inc.-Class B 1,339,492 100,595,849 =========================================================================== BIOTECHNOLOGY-3.24% Amgen Inc.(b) 3,613,090 209,956,660 =========================================================================== BROADCASTING & CABLE TV-0.86% Comcast Corp.-Class A(b) 2,661,143 56,017,060 =========================================================================== COMMUNICATIONS EQUIPMENT-4.79% Cisco Systems, Inc.(b) 3,607,125 119,251,553 - --------------------------------------------------------------------------- Corning Inc. 2,902,505 70,443,796 - --------------------------------------------------------------------------- Motorola, Inc. 6,434,017 120,895,179 =========================================================================== 310,590,528 =========================================================================== COMPUTER HARDWARE-0.89% International Business Machines Corp. 496,679 57,674,365 =========================================================================== COMPUTER STORAGE & PERIPHERALS-2.72% EMC Corp.(b) 3,344,239 84,910,228 - --------------------------------------------------------------------------- Seagate Technology 3,280,921 91,340,841 =========================================================================== 176,251,069 =========================================================================== CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS-1.69% Caterpillar Inc. 1,473,586 109,944,251 =========================================================================== DATA PROCESSING & OUTSOURCED SERVICES-1.77% Automatic Data Processing, Inc. 2,311,268 114,546,442 =========================================================================== ELECTRONIC EQUIPMENT MANUFACTURERS-1.79% Agilent Technologies, Inc.(b) 3,160,546 116,466,120 =========================================================================== ELECTRONIC MANUFACTURING SERVICES-0.95% Tyco Electronics Ltd. 1,729,249 61,682,312 =========================================================================== ENVIRONMENTAL & FACILITIES SERVICES-1.46% Waste Management, Inc. 2,600,922 94,647,552 ===========================================================================
SHARES VALUE - ---------------------------------------------------------------------------
HEALTH CARE EQUIPMENT-2.44% Covidien Ltd. 1,585,595 $ 65,960,752 - --------------------------------------------------------------------------- Medtronic, Inc. 1,943,362 92,193,093 =========================================================================== 158,153,845 =========================================================================== HYPERMARKETS & SUPER CENTERS-2.03% Wal-Mart Stores, Inc. 2,909,557 131,541,072 =========================================================================== INDUSTRIAL CONGLOMERATES-5.07% 3M Co. 1,962,325 169,466,387 - --------------------------------------------------------------------------- General Electric Co. 3,284,809 135,202,738 - --------------------------------------------------------------------------- Tyco International Ltd. 591,656 24,358,478 =========================================================================== 329,027,603 =========================================================================== INSURANCE BROKERS-0.82% Marsh & McLennan Cos., Inc. 2,043,844 52,915,121 =========================================================================== INTEGRATED OIL & GAS-1.36% ExxonMobil Corp. 959,288 88,244,903 =========================================================================== MOVIES & ENTERTAINMENT-0.95% News Corp.-Class A 2,842,511 61,597,213 =========================================================================== MULTI-LINE INSURANCE-0.48% Genworth Financial Inc.-Class A 1,150,000 31,395,000 =========================================================================== OFFICE ELECTRONICS-1.37% Xerox Corp.(b) 5,095,273 88,861,561 =========================================================================== OIL & GAS DRILLING-1.08% Transocean Inc.(b) 588,927 70,300,216 =========================================================================== OIL & GAS EQUIPMENT & SERVICES-5.28% BJ Services Co. 4,299,129 108,295,059 - --------------------------------------------------------------------------- Schlumberger Ltd. 1,031,401 99,602,395 - --------------------------------------------------------------------------- Smith International, Inc. 726,052 47,955,735 - --------------------------------------------------------------------------- Weatherford International Ltd.(b) 1,340,096 86,985,631 =========================================================================== 342,838,820 =========================================================================== OIL & GAS EXPLORATION & PRODUCTION-4.21% Apache Corp. 875,268 90,861,571 - --------------------------------------------------------------------------- Chesapeake Energy Corp. 2,256,246 89,076,592 - --------------------------------------------------------------------------- XTO Energy, Inc. 1,403,138 93,140,301 =========================================================================== 273,078,464 ===========================================================================
9 AIM Charter Fund
SHARES VALUE - --------------------------------------------------------------------------- PERSONAL PRODUCTS-2.28% Avon Products, Inc. 1,913,274 $ 78,405,969 - --------------------------------------------------------------------------- Estee Lauder Cos. Inc. (The)-Class A 1,591,758 69,878,176 =========================================================================== 148,284,145 =========================================================================== PHARMACEUTICALS-4.11% Merck & Co. Inc. 1,480,333 86,244,200 - --------------------------------------------------------------------------- Pfizer Inc. 7,327,865 180,338,758 =========================================================================== 266,582,958 =========================================================================== PROPERTY & CASUALTY INSURANCE-4.98% Berkshire Hathaway Inc.-Class A(b) 1,158 153,435,000 - --------------------------------------------------------------------------- Progressive Corp. (The) 8,424,756 155,857,986 - --------------------------------------------------------------------------- XL Capital Ltd.-Class A 191,707 13,793,319 =========================================================================== 323,086,305 =========================================================================== PUBLISHING-1.23% McGraw-Hill Cos., Inc. (The) 208,504 10,433,540 - --------------------------------------------------------------------------- Washington Post Co. (The)-Class B 81,880 69,516,120 =========================================================================== 79,949,660 =========================================================================== RAILROADS-1.10% Union Pacific Corp. 555,422 71,116,233 =========================================================================== SEMICONDUCTORS-0.85% Analog Devices, Inc. 1,643,110 54,978,461 =========================================================================== SOFT DRINKS-1.39% Coca-Cola Co. (The) 1,459,059 90,111,484 =========================================================================== SPECIALIZED FINANCE-0.14% Moody's Corp. 215,000 9,399,800 =========================================================================== SYSTEMS SOFTWARE-4.44% Microsoft Corp. 4,238,940 156,035,382 - --------------------------------------------------------------------------- Symantec Corp.(b) 7,018,713 131,811,430 =========================================================================== 287,846,812 =========================================================================== Total Domestic Common Stocks (Cost $3,665,712,330) 4,511,491,172 =========================================================================== FOREIGN COMMON STOCKS & OTHER EQUITY INTERESTS-17.83% ARGENTINA-0.68% Tenaris S.A.-ADR (Oil & Gas Equipment & Services)(c) 821,272 44,184,434 =========================================================================== FINLAND-1.82% Nokia Oyj-ADR (Communications Equipment) 2,964,916 117,766,464 ===========================================================================
SHARES VALUE - ---------------------------------------------------------------------------
FRANCE-2.49% Renault S.A. (Automobile Manufacturers)(d) 293,478 $ 49,508,430 - --------------------------------------------------------------------------- Sanofi-Aventis-ADR (Pharmaceuticals) 599,838 26,398,870 =========================================================================== Total S.A. (Integrated Oil & Gas)(d) 1,064,961 85,958,391 =========================================================================== 161,865,691 =========================================================================== GERMANY-0.08% Henkel KGaA (Household Products)(d) 107,061 4,976,727 =========================================================================== ISRAEL-1.80% Teva Pharmaceutical Industries Ltd.-ADR (Pharmaceuticals) 2,650,250 116,637,502 =========================================================================== JAPAN-2.91% Fujitsu Ltd. (Computer Hardware)(c)(d) 12,171,000 95,956,513 - --------------------------------------------------------------------------- Hitachi, Ltd. (Electronic Equipment Manufacturers)(c)(d) 10,888,000 73,884,135 - --------------------------------------------------------------------------- Sega Sammy Holdings Inc. (Leisure Products)(c) 1,372,500 18,858,088 =========================================================================== 188,698,736 =========================================================================== NETHERLANDS-2.25% Koninklijke (Royal) Phillips Electronics N.V. (Consumer Electronics)(d) 1,551,716 64,434,702 - --------------------------------------------------------------------------- Unilever N.V. (Packaged Foods & Meats)(c)(d) 2,502,506 81,518,083 =========================================================================== 145,952,785 =========================================================================== SOUTH KOREA-0.65% SK Telecom Co., Ltd.-ADR (Wireless Telecommunication Services)(c) 1,370,000 42,209,700 =========================================================================== SWITZERLAND-0.35% UBS A.G. (Diversified Capital Markets)(d) 425,000 22,813,847 =========================================================================== UNITED KINGDOM-4.80% Barclays PLC (Diversified Banks)(d) 5,375,187 68,202,698 - --------------------------------------------------------------------------- Cadbury Schweppes PLC (Packaged Foods & Meats)(d) 11,544,423 153,140,775 - --------------------------------------------------------------------------- GlaxoSmithKline PLC-ADR (Pharmaceuticals) 1,757,201 90,056,551 =========================================================================== 311,400,024 =========================================================================== Total Foreign Common Stocks & Other Equity Interests (Cost $827,662,556) 1,156,505,910 =========================================================================== FOREIGN PREFERRED STOCKS-0.58% GERMANY-0.58% Henkel KGaA-Pfd. (Household Products)(d) 735,000 37,640,300 =========================================================================== Total Foreign Preferred Stocks (Cost $39,614,821) 37,640,300 ===========================================================================
10 AIM Charter Fund
SHARES VALUE - --------------------------------------------------------------------------- MONEY MARKET FUNDS-12.03% Liquid Assets Portfolio-Institutional Class(e) 390,322,273 $ 390,322,273 - --------------------------------------------------------------------------- Premier Portfolio-Institutional Class(e) 390,322,273 390,322,273 =========================================================================== Total Money Market Funds (Cost $780,644,546) 780,644,546 =========================================================================== TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities loaned)-99.98% (Cost $5,313,634,253) 6,486,281,928 =========================================================================== INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES ON LOAN MONEY MARKET FUNDS-2.19% Liquid Assets Portfolio-Institutional Class(e)(f) (Cost $142,221,378) 142,221,378 142,221,378 =========================================================================== TOTAL INVESTMENTS-102.17% (Cost $5,455,855,631) 6,628,503,306 - ---------------------------------------------------------------------------
SHARES VALUE - ---------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-(2.17)% $ (140,675,472) - --------------------------------------------------------------------------- NET ASSETS-100.00% $6,487,827,834 ___________________________________________________________________________ ===========================================================================
Investment Abbreviations: ADR - American Depositary Receipt Pfd. - Preferred
Notes to Schedule of Investments: (a) Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of Morgan Stanley Capital International Inc. and Standard & Poor's. (b) Non-income producing security. (c) All or a portion of this security was out on loan at October 31, 2007. (d) In accordance with the procedures established by the Board of Trustees, the foreign security is fair valued using adjusted closing market prices. The aggregate value of these securities at October 31, 2007 was $738,034,601, which represented 11.38% of the Fund's Net Assets. See Note 1A. (e) The money market fund and the Fund are affiliated by having the same investment advisor. See Note 3. (f) The security has been segregated to satisfy the commitment to return the cash collateral received in securities lending transactions upon the borrower's return of the securities loaned. See Note 8. See accompanying Notes to Financial Statements which are an integral part of the financial statements. 11 AIM Charter Fund STATEMENT OF ASSETS AND LIABILITIES October 31, 2007 ASSETS: Investments, at value (Cost $4,532,989,707)* $ 5,705,637,382 - ------------------------------------------------------------ Investments in affiliated money market funds (Cost $922,865,924) 922,865,924 ============================================================ Total investments (Cost $5,455,855,631) 6,628,503,306 ============================================================ Foreign currencies, at value (Cost $1,362) 1,444 - ------------------------------------------------------------ Receivables for: Investments sold 53,016,693 - ------------------------------------------------------------ Fund shares sold 1,162,816 - ------------------------------------------------------------ Dividends 8,056,758 - ------------------------------------------------------------ Investment for trustee deferred compensation and retirement plans 615,664 - ------------------------------------------------------------ Other assets 75,489 ============================================================ Total assets 6,691,432,170 ____________________________________________________________ ============================================================ LIABILITIES: Payables for: Investments purchased 43,836,084 - ------------------------------------------------------------ Fund shares reacquired 10,080,816 - ------------------------------------------------------------ Trustee deferred compensation and retirement plans 1,752,332 - ------------------------------------------------------------ Collateral upon return of securities loaned 142,221,378 - ------------------------------------------------------------ Accrued distribution fees 2,223,149 - ------------------------------------------------------------ Accrued trustees' and officer's fees and benefits 9,364 - ------------------------------------------------------------ Accrued transfer agent fees 2,658,161 - ------------------------------------------------------------ Accrued operating expenses 823,052 ============================================================ Total liabilities 203,604,336 ============================================================ Net assets applicable to shares outstanding $ 6,487,827,834 ____________________________________________________________ ============================================================ NET ASSETS CONSIST OF: Shares of beneficial interest $ 7,852,734,476 - ------------------------------------------------------------ Undistributed net investment income 69,690,401 - ------------------------------------------------------------ Undistributed net realized gain (loss) (2,607,408,576) - ------------------------------------------------------------ Unrealized appreciation 1,172,811,533 ============================================================ $ 6,487,827,834 ____________________________________________________________ ============================================================ NET ASSETS: Class A $ 5,005,715,942 ____________________________________________________________ ============================================================ Class B $ 1,067,897,306 ____________________________________________________________ ============================================================ Class C $ 272,904,452 ____________________________________________________________ ============================================================ Class R $ 6,564,978 ____________________________________________________________ ============================================================ Institutional Class $ 134,745,156 ____________________________________________________________ ============================================================ SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Class A 289,402,276 ____________________________________________________________ ============================================================ Class B 64,714,570 ____________________________________________________________ ============================================================ Class C 16,494,183 ____________________________________________________________ ============================================================ Class R 382,032 ____________________________________________________________ ============================================================ Institutional Class 7,566,266 ____________________________________________________________ ============================================================ Class A: Net asset value per share $ 17.30 - ------------------------------------------------------------ Offering price per share (Net asset value of $17.30 divided by 94.50%) $ 18.31 ____________________________________________________________ ============================================================ Class B: Net asset value and offering price per share $ 16.50 ____________________________________________________________ ============================================================ Class C: Net asset value and offering price per share $ 16.55 ____________________________________________________________ ============================================================ Class R: Net asset value and offering price per share $ 17.18 ____________________________________________________________ ============================================================ Institutional Class: Net asset value and offering price per share $ 17.81 ____________________________________________________________ ============================================================
* At October 31, 2007, securities with an aggregate value of $163,893,842 were on loan to brokers. See accompanying Notes to Financial Statements which are an integral part of the financial statements. 12 AIM Charter Fund STATEMENT OF OPERATIONS For the year ended October 31, 2007 INVESTMENT INCOME: Dividends (net of foreign withholding taxes of $3,165,948) $ 119,772,082 - ---------------------------------------------------------------------------- Dividends from affiliated money market funds (includes securities lending income of $934,853) 41,235,118 - ---------------------------------------------------------------------------- Interest 52,732 ============================================================================ Total investment income 161,059,932 ============================================================================ EXPENSES: Advisory fees 41,995,965 - ---------------------------------------------------------------------------- Administrative services fees 690,321 - ---------------------------------------------------------------------------- Custodian fees 340,907 - ---------------------------------------------------------------------------- Distribution fees: Class A 12,238,435 - ---------------------------------------------------------------------------- Class B 13,376,733 - ---------------------------------------------------------------------------- Class C 2,814,915 - ---------------------------------------------------------------------------- Class R 29,994 - ---------------------------------------------------------------------------- Transfer agent fees -- A, B, C and R 18,089,903 - ---------------------------------------------------------------------------- Transfer agent fees -- Institutional 156,474 - ---------------------------------------------------------------------------- Trustees' and officer's fees and benefits 245,230 - ---------------------------------------------------------------------------- Other 895,723 ============================================================================ Total expenses 90,874,600 ============================================================================ Less: Fees waived, expenses reimbursed and expense offset arrangement(s) (2,623,586) ============================================================================ Net expenses 88,251,014 ============================================================================ Net investment income 72,808,918 ============================================================================ REALIZED AND UNREALIZED GAIN FROM: Net realized gain from: Investment securities (includes net gains from securities sold to affiliates of $781,433) 829,322,859 - ---------------------------------------------------------------------------- Foreign currencies 1,117,910 - ---------------------------------------------------------------------------- Option contracts written 6,620 ============================================================================ 830,447,389 ============================================================================ Change in net unrealized appreciation of: Investment securities 101,900,897 - ---------------------------------------------------------------------------- Foreign currencies 145,903 ============================================================================ 102,046,800 ============================================================================ Net realized and unrealized gain 932,494,189 ============================================================================ Net increase in net assets resulting from operations $1,005,303,107 ____________________________________________________________________________ ============================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. 13 AIM Charter Fund STATEMENT OF CHANGES IN NET ASSETS For the years ended October 31, 2007 and 2006
2007 2006 - ----------------------------------------------------------------------------------------------- OPERATIONS: Net investment income $ 72,808,918 $ 35,145,963 - ----------------------------------------------------------------------------------------------- Net realized gain 830,447,389 351,163,893 - ----------------------------------------------------------------------------------------------- Change in net unrealized appreciation 102,046,800 268,989,458 =============================================================================================== Net increase in net assets resulting from operations 1,005,303,107 655,299,314 =============================================================================================== Distributions to shareholders from net investment income: Class A (33,924,619) (15,150,648) - ----------------------------------------------------------------------------------------------- Class B (2,299,763) (455,351) - ----------------------------------------------------------------------------------------------- Class C (432,209) (80,530) - ----------------------------------------------------------------------------------------------- Class R (28,684) (18,305) - ----------------------------------------------------------------------------------------------- Institutional Class (1,316,876) (1,111,807) =============================================================================================== Decrease in net assets resulting from distributions (38,002,151) (16,816,641) =============================================================================================== Share transactions-net: Class A (517,998,249) 2,725,225,819 - ----------------------------------------------------------------------------------------------- Class B (672,272,123) 782,194,196 - ----------------------------------------------------------------------------------------------- Class C (54,864,868) 152,734,056 - ----------------------------------------------------------------------------------------------- Class R 535,316 1,933,967 - ----------------------------------------------------------------------------------------------- Institutional Class (10,903,120) 54,782,183 =============================================================================================== Net increase (decrease) in net assets resulting from share transactions (1,255,503,044) 3,716,870,221 =============================================================================================== Net increase (decrease) in net assets (288,202,088) 4,355,352,894 =============================================================================================== NET ASSETS: Beginning of year 6,776,029,922 2,420,677,028 =============================================================================================== End of year (including undistributed net investment income of $69,690,401 and $31,258,855, respectively) $ 6,487,827,834 $6,776,029,922 _______________________________________________________________________________________________ ===============================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. 14 AIM Charter Fund NOTES TO FINANCIAL STATEMENTS October 31, 2007 NOTE 1--SIGNIFICANT ACCOUNTING POLICIES AIM Charter Fund (the "Fund") is a series portfolio of AIM Equity Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of six 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 growth of capital. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements. A. SECURITY VALUATIONS -- Securities, including restricted securities, are valued according to the following policy. A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and the ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange ("NYSE"). Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and may make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, ADRs and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust's officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security's fair value. Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer's assets, general economic conditions, interest rates, investor perceptions and market liquidity. B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. 15 AIM Charter Fund The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds as received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund's net asset value and, accordingly, they reduce the Fund's total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the advisor. The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. C. COUNTRY DETERMINATION -- For the purposes of making investment selection decisions and presentation in the Schedule of Investments, AIM may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer's securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America unless otherwise noted. D. DISTRIBUTIONS -- Distributions from income and net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to treat a portion of the proceeds from redemptions as distributions for federal income tax purposes. E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund's taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular class of the Fund are charged to the operations of such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses attributable to the Institutional Class are charged to such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses relating to all other classes are allocated among those classes based on relative net assets. All other expenses are allocated among the classes based on relative net assets. G. ACCOUNTING ESTIMATES -- The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates. H. INDEMNIFICATIONS -- Under the Trust's organizational documents, each Trustee, officer, employee or other agent of the Trust (including the Trust's investment manager) is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts that contain a variety of indemnification clauses. The Fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. I. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (i) sales of foreign currencies, (ii) currency gains or losses realized between the trade and settlement dates on securities transactions, and (iii) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. Taxes are accrued based on the Fund's current interpretation of tax regulations and rates that exist in the foreign markets in which the Fund invests. J. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a foreign currency contract to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. The Fund may also enter into a foreign currency contract for the purchase or sale of a security denominated in a foreign currency in order to "lock in" the U.S. dollar price of that security. Fluctuations in the value of these contracts are recorded as unrealized 16 AIM Charter Fund appreciation (depreciation) until the contracts are closed. When these contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains and losses on these contracts are included in the Statement of Operations. The Fund could be exposed to risk, which may be in excess of the amount reflected in the Statement of Assets and Liabilities, if counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. K. COVERED CALL OPTIONS WRITTEN -- The Fund may write call options. A call option gives the purchaser of such option the right to buy, and the writer (the Fund) the obligation to sell, the underlying security at the stated exercise price during the option period. Written call options are recorded as a liability in the Statement of Assets and Liabilities. The amount of the liability is subsequently "marked-to-market" to reflect the current market value of the option written. If a written call option expires on the stipulated expiration date, or if the Fund enters into a closing purchase transaction, the Fund realizes a gain (or a loss if the closing purchase transaction exceeds the premium received when the option was written) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a written option is exercised, the Fund realizes a gain or a loss from the sale of the underlying security and the proceeds of the sale are increased by the premium originally received. Realized gains and losses on these contracts are included in the Statement of Operations. A risk in writing a call option is that the Fund gives up the opportunity for profit if the market price of the security increases and the option is exercised. L. PUT OPTIONS PURCHASED -- The Fund may purchase put options including options on securities indexes and/or futures contracts. By purchasing a put option, the Fund obtains the right (but not the obligation) to sell the option's underlying instrument at a fixed strike price. In return for this right, the Fund pays an option premium. The option's underlying instrument may be a security, securities index, or a futures contract. Put options may be used by the Fund to hedge securities it owns by locking in a minimum price at which the Fund can sell. If security prices fall, the put option could be exercised to offset all or a portion of the Fund's resulting losses. At the same time, because the maximum the Fund has at risk is the cost of the option, purchasing put options does not eliminate the potential for the Fund to profit from an increase in the value of the securities hedged. Realized and unrealized gains and losses on these contracts are included in the Statement of Operations. A risk in buying an option is that the Fund pays a premium whether or not the option is exercised. In addition, there can be no assurance that a liquid secondary market will exist for any option purchased. M. COLLATERAL -- To the extent the Fund has pledged or segregated a security as collateral and that security is subsequently sold, it is the Fund's practice to replace such collateral no later than the next business day. This practice does not apply to securities pledged as collateral for securities lending transactions. NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES The Trust has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to AIM based on the annual rate of the Fund's average daily net assets as follows:
AVERAGE NET ASSETS RATE - -------------------------------------------------------------------- First $150 million 0.80% - -------------------------------------------------------------------- Over $150 million 0.625% ___________________________________________________________________ ====================================================================
Through December 31, 2012, AIM has contractually agreed to waive advisory fees to the extent necessary so that the advisory fees payable by the Fund (based on the Fund's average daily net assets) do not exceed the annual rate of:
AVERAGE NET ASSETS RATE - -------------------------------------------------------------------- First $150 million 0.75% - -------------------------------------------------------------------- Next $4.85 billion 0.615% - -------------------------------------------------------------------- Next $2.5 billion 0.57% - -------------------------------------------------------------------- Next $2.5 billion 0.545% - -------------------------------------------------------------------- Over $10 billion 0.52% ___________________________________________________________________ ====================================================================
Further, effective July 1, 2007, AIM has contractually agreed, through at least June 30, 2008, to waive 100% of the advisory fee AIM receives from the affiliated money market funds on investments by the Fund in such affiliated money market funds (excluding investments made in affiliated money market funds with cash collateral from securities loaned by the fund). Prior to July 1, 2007, AIM had voluntarily agreed to waive 25% of the advisory fee AIM receives from the affiliated money market funds on investments by the Fund in such affiliated money market funds. For the year ended October 31, 2007, AIM waived advisory fees of $1,991,070. At the request of the Trustees of the Trust, Invesco agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. These expenses along with the related expense reimbursement are included in the Statement of Operations. For the year ended October 31, 2007, Invesco reimbursed expenses of the Fund in the amount of $2,681. The Trust has entered into a master administrative services agreement with AIM pursuant to which the Fund has agreed to pay AIM for certain administrative costs incurred in providing accounting services, to the Fund. For the year ended October 31, 2007, expenses incurred under the agreement are shown in the Statement of Operations as administrative services fees. 17 AIM Charter Fund The Trust has entered into a transfer agency and service agreement with AIM Investment Services, Inc. ("AIS") pursuant to which the Fund has agreed to pay AIS a fee for providing transfer agency and shareholder services to the Fund and reimburse AIS for certain expenses incurred by AIS in the course of providing such services. AIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. All fees payable by AIS to intermediaries that provide omnibus account services or sub-accounting are charged back to the Fund, subject to certain limitations approved by the Trust's Board of Trustees. For the year ended October 31, 2007, expenses incurred under the agreement are shown in the Statement of Operations as transfer agent fees. The Trust has entered into master distribution agreements with A I M Distributors, Inc. ("ADI") to serve as the distributor for the Class A, Class B, Class C, Class R and Institutional Class shares of the Fund. The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A, Class B, Class C and Class R shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays ADI compensation at the annual rate of 0.25% of the Fund's average daily net assets of Class A shares, 1.00% of the average daily net assets of Class B and Class C shares and 0.50% of the average daily net assets of Class R shares. Of the Plan payments, up to 0.25% of the average daily net assets of each class of shares may be paid to furnish continuing personal shareholder services to customers who purchase and own shares of such classes. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. Financial Industry Regulatory Authority ("FINRA"), formerly known as National Association of Securities Dealers, rules impose a cap on the total sales charges, including asset-based sales charges that may be paid by any class of shares of the Fund. For the year ended October 31, 2007, expenses incurred under the Plans are shown in the Statement of Operations as distribution fees. Front-end sales commissions and contingent deferred sales charges ("CDSC") (collectively the "sales charges") are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. During the year ended October 31, 2007, ADI advised the Fund that it retained $308,784 in front-end sales commissions from the sale of Class A shares and $4,395, $604,115, and $13,085 from Class A, Class B and Class C shares, respectively, for CDSC imposed on redemptions by shareholders. Certain officers and trustees of the Trust are officers and directors of AIM, AIS and/or ADI. NOTE 3--INVESTMENTS IN AFFILIATES The Fund is permitted, pursuant to procedures approved by the Board of Trustees, to invest daily available cash balances and cash collateral from securities lending transactions in affiliated money market funds. The Fund and the money market funds below have the same investment advisor and therefore, are considered to be affiliated. The tables below show the transactions in and earnings from investments in affiliated money market funds for the year ended October 31, 2007. During the period each investment maintained a $1.00 net asset value, as such there is no realized gain/(loss) and no change in unrealized appreciation/(depreciation). INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
VALUE PURCHASES PROCEEDS VALUE DIVIDEND FUND 10/31/06 AT COST FROM SALES 10/31/07 INCOME - ----------------------------------------------------------------------------------------------------------- Liquid Assets Portfolio- Institutional Class $432,291,298 $ 948,134,572 $ (990,103,597) $390,322,273 $20,192,479 - ----------------------------------------------------------------------------------------------------------- Premier Portfolio-Institutional Class 432,291,298 948,134,572 (990,103,597) 390,322,273 20,107,786 =========================================================================================================== Subtotal $864,582,596 $1,896,269,144 $(1,980,207,194) $780,644,546 $40,300,265 ===========================================================================================================
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
VALUE PURCHASES PROCEEDS VALUE DIVIDEND FUND 10/31/06 AT COST FROM SALES 10/31/07 INCOME* - ---------------------------------------------------------------------------------------------------------- Liquid Assets Portfolio- Institutional Class $ 20,602,720 $1,314,995,569 $(1,193,376,911) $142,221,378 $ 934,853 ========================================================================================================== Total Investments in Affiliates $885,185,316 $3,211,264,713 $(3,173,584,105) $922,865,924 $41,235,118 __________________________________________________________________________________________________________ ==========================================================================================================
* Net of compensation to counterparties. NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS The Fund is permitted to purchase or sell securities from or to certain other AIM Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment advisor (or affiliated investment advisors), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the year ended October 31, 2007, the Fund engaged in securities sales of $3,086,006, which resulted in net realized gains (losses) of $781,433, and securities purchases of $32,191,649. 18 AIM Charter Fund NOTE 5--EXPENSE OFFSET ARRANGEMENTS The expense offset arrangements are comprised of (i) transfer agency credits which result from balances in Demand Deposit Accounts (DDA) used by the transfer agent for clearing shareholder transactions, (ii) custodian credits which result from periodic overnight cash balances at the custodian and (iii) a one time custodian fee credit used to offset custodian fees. For the year ended October 31, 2007, the Fund received credits from these arrangements, which resulted in the reduction of the Fund's total expenses of $629,835. NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various AIM Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. During the year ended October 31, 2007, the Fund paid legal fees of $34,857 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust. NOTE 7--BORROWINGS Pursuant to an exemptive order from the Securities and Exchange Commission, the Fund may participate in an interfund lending facility that AIM has established for temporary borrowings by the AIM Funds. An interfund loan will be made under this facility only if the loan rate (an average of the rate available on bank loans and the rate available on investments in overnight repurchase agreements) is favorable to both the lending fund and the borrowing fund. A loan will be secured by collateral if the Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total assets. To the extent that the loan is required to be secured by collateral, the collateral is marked to market daily to ensure that the market value is at least 102% of the outstanding principal value of the loan. The Fund is a party to an uncommitted unsecured revolving credit facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM, which are parties to the credit facility, can borrow on a first come, first served basis. Principal on each loan outstanding shall bear interest at the bid rate quoted by SSB at the time of the request for the loan. During the year ended October 31, 2007, the Fund did not borrow or lend under the interfund lending facility or borrow under the uncommitted unsecured revolving credit facility. Additionally, the Fund is permitted to temporarily carry a negative or overdrawn balance in its account with SSB, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (ii) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and AIM, not to exceed the contractually agreed upon rate. NOTE 8--PORTFOLIO SECURITIES LOANED The Fund may lend portfolio securities having a market value up to one-third of the Fund's total assets. Such loans are secured by collateral equal to no less than the market value of the loaned securities determined daily. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds. It is the Fund's policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. Lending securities entails a risk of loss to the Fund if and to the extent that the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower fails to return the securities. The Fund could also experience delays and costs in gaining access to the collateral. The Fund bears the risk of any deficiency in the amount of the collateral available for return to the borrower due to any loss on the collateral invested. At October 31, 2007, securities with an aggregate value of $163,893,842 were on loan to brokers. The loans were secured by cash collateral of $142,221,378 received by the Fund and subsequently invested in affiliated money market funds. For the year ended October 31, 2007, the Fund received dividends on cash collateral investments of $934,853 for securities lending transactions, which are net of compensation to counterparties. 19 AIM Charter Fund NOTE 9--OPTION CONTRACTS WRITTEN
TRANSACTIONS DURING THE PERIOD - ------------------------------------------------------------------------------------ CALL OPTION CONTRACTS ---------------------- NUMBER OF PREMIUMS CONTRACTS RECEIVED - ------------------------------------------------------------------------------------ Beginning of period -- $ -- - ------------------------------------------------------------------------------------ Written 11,760 188,160 - ------------------------------------------------------------------------------------ Closed (6,260) (100,160) - ------------------------------------------------------------------------------------ Expired (5,500) (88,000) ==================================================================================== End of period -- $ -- ____________________________________________________________________________________ ====================================================================================
NOTE 10--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS DISTRIBUTIONS TO SHAREHOLDERS: The tax character of distributions paid during the years ended October 31, 2007 and 2006 was as follows:
2007 2006 - ---------------------------------------------------------------------------------------- Distributions paid from ordinary income $38,002,151 $16,816,641 ________________________________________________________________________________________ ========================================================================================
TAX COMPONENTS OF NET ASSETS: As of October 31, 2007, the components of net assets on a tax basis were as follows:
2007 - ------------------------------------------------------------------------------- Undistributed ordinary income $ 71,259,101 - ------------------------------------------------------------------------------- Net unrealized appreciation -- investments 1,157,036,876 - ------------------------------------------------------------------------------- Capital loss carryover (2,591,633,919) - ------------------------------------------------------------------------------- Temporary book/tax differences (1,568,700) - ------------------------------------------------------------------------------- Shares of beneficial interest 7,852,734,476 =============================================================================== Total net assets $ 6,487,827,834 _______________________________________________________________________________ ===============================================================================
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund's net unrealized appreciation difference is attributable primarily to losses on wash sales. The tax-basis net unrealized appreciation on investments amount includes appreciation on foreign currencies of $163,858. The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund's temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits. Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions. Under these limitation rules, the Fund is limited as of October 31, 2007 to utilizing $2,589,261,697 of capital loss carryforward in the fiscal year ended October 31, 2008. The Fund utilized $781,476,292 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, 2007 which expires as follows:
CAPITAL LOSS EXPIRATION CARRYFORWARD* - ------------------------------------------------------------------------------ October 31, 2008 $ 3,221,998 - ------------------------------------------------------------------------------ October 31, 2009 1,855,355,421 - ------------------------------------------------------------------------------ October 31, 2010 733,056,500 ============================================================================== Total capital loss carryforward $2,591,633,919 ______________________________________________________________________________ ==============================================================================
* 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 April 10, 2006, the date of the reorganization of AIM Premier Equity Fund, into the fund are realized on securities held in each Fund at such date, the capital loss carryforward may be further limited for up to five years from the date of the reorganization. 20 AIM Charter Fund NOTE 11--INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended October 31, 2007 was $2,276,730,932 and $3,392,777,029, respectively.
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS - ------------------------------------------------------------------------------ Aggregate unrealized appreciation of investment securities $1,311,187,230 - ------------------------------------------------------------------------------ Aggregate unrealized (depreciation) of investment securities (154,314,212) ============================================================================== Net unrealized appreciation of investment securities $1,156,873,018 ______________________________________________________________________________ ============================================================================== Cost of investments for tax purposes is $5,471,630,288.
NOTE 12--RECLASSIFICATION OF PERMANENT DIFFERENCES Primarily as a result of differing book/tax treatment of foreign currency transactions and defaulted bonds, on October 31, 2007, undistributed net investment income was increased by $3,624,779, undistributed net realized gain (loss) was decreased by $3,619,222 and shares of beneficial interest decreased by $5,557. This reclassification had no effect on the net assets of the Fund. 21 AIM Charter Fund NOTE 13--SHARE INFORMATION The Fund currently offers five different classes of shares: Class A, Class B, Class C, Class R and Institutional Class. Class A shares are sold with a front-end sales charge unless certain waiver criteria are met and under certain circumstances load waiver shares may be subject to a CDSC. Class B shares and Class C shares are sold with a CDSC. Class R shares and Institutional Class shares are sold at net asset value. Under certain circumstances, Class R shares are subject to a CDSC. Generally, Class B shares will automatically convert to Class A shares on or about the month-end which is at least eight years after the date of purchase.
CHANGES IN SHARES OUTSTANDING - ----------------------------------------------------------------------------------------------------------------------------- YEAR ENDED OCTOBER 31, --------------------------------------------------------------- 2007 (A) 2006 ------------------------------ ----------------------------- SHARES AMOUNT SHARES AMOUNT - ----------------------------------------------------------------------------------------------------------------------------- Sold: Class A 6,638,643 $ 108,366,370 7,299,019 $ 101,382,420 - ----------------------------------------------------------------------------------------------------------------------------- Class B 2,775,431 42,569,785 2,784,612 38,548,988 - ----------------------------------------------------------------------------------------------------------------------------- Class C 1,030,061 15,808,452 842,618 11,507,094 - ----------------------------------------------------------------------------------------------------------------------------- Class R 137,237 2,183,517 112,149 1,565,266 - ----------------------------------------------------------------------------------------------------------------------------- Institutional Class 4,329,643 72,366,806 3,929,863 55,527,482 ============================================================================================================================= Issued as reinvestment of dividends: Class A 2,074,397 32,111,669 1,048,246 14,130,351 - ----------------------------------------------------------------------------------------------------------------------------- Class B 147,276 2,188,523 33,301 431,909 - ----------------------------------------------------------------------------------------------------------------------------- Class C 27,284 406,812 5,845 75,990 - ----------------------------------------------------------------------------------------------------------------------------- Class R 1,861 28,679 1,363 18,305 - ----------------------------------------------------------------------------------------------------------------------------- Institutional Class 81,535 1,294,779 22,002 303,845 ============================================================================================================================= Issued in connection with acquisitions:(b) Class A -- -- 235,088,752 3,296,672,564 - ----------------------------------------------------------------------------------------------------------------------------- Class B -- -- 99,258,686 1,336,175,673 - ----------------------------------------------------------------------------------------------------------------------------- Class C -- -- 15,423,711 208,206,795 - ----------------------------------------------------------------------------------------------------------------------------- Class R -- -- 116,222 1,622,302 - ----------------------------------------------------------------------------------------------------------------------------- Institutional Class -- -- 2,026,753 29,143,324 ============================================================================================================================= Automatic conversion of Class B shares to Class A shares: Class A 24,199,603 390,922,132 16,750,976 235,169,663 - ----------------------------------------------------------------------------------------------------------------------------- Class B (25,290,251) (390,922,132) (17,480,784) (235,169,663) ============================================================================================================================= Reacquired: Class A (65,231,388) (1,049,398,420) (65,980,940) (922,129,179) - ----------------------------------------------------------------------------------------------------------------------------- Class B (21,131,814) (326,108,299) (26,722,825) (357,792,711) - ----------------------------------------------------------------------------------------------------------------------------- Class C (4,603,510) (71,080,132) (4,993,400) (67,055,823) - ----------------------------------------------------------------------------------------------------------------------------- Class R (103,560) (1,676,880) (89,641) (1,271,906) - ----------------------------------------------------------------------------------------------------------------------------- Institutional Class (4,870,980) (84,564,705) (2,091,677) (30,192,468) ============================================================================================================================= (79,788,532) $(1,255,503,044) 267,384,851 $3,716,870,221 _____________________________________________________________________________________________________________________________ =============================================================================================================================
(a) There are three entities that are each record owners of more than 5% of the outstanding shares of the Fund and in the aggregate they own 20% of the outstanding shares of the Fund. ADI has an agreement with these entities to sell Fund shares. The Fund, AIM and/or AIM affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, AIM and/or AIM affiliates including but not limited to services such as securities brokerage, distribution, third party record keeping and account servicing. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. (b) As of the opening of business on April 10, 2006, the Fund acquired all the net assets of AIM Premier Equity Fund pursuant to a plan of reorganization approved by the Trustees of the Fund on November 14, 2005 and by the shareholders of AIM Premier Equity Fund on March 16, 2006. The acquisition was accomplished by a tax free exchange of 351,914,124 shares of the Fund for 462,894,462 shares of AIM Premier Equity Fund shares outstanding as of the close of business on April 7, 2006. Each class of shares of AIM Premier Equity Fund was exchanged for the like class of shares of the Fund based on the relative net asset value of AIM Premier Equity Fund to the net asset value of the Fund on the close of business on April 7, 2006. AIM Premier Equity Fund's net assets at that date of $4,871,820,658 including $605,309,092 of unrealized appreciation, were combined with those of the Fund. The aggregate net assets of the Fund immediately before the acquisition were $2,376,117,328. The combined aggregate net assets of the Fund subsequent to the reorganization were $7,247,937,986. 22 AIM Charter Fund NOTE 14--NEW ACCOUNTING STANDARD In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48"). FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement for a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The provisions for FIN 48 are effective for fiscal years beginning after December 15, 2006. Management has assessed the application of FIN 48 to the Fund and has determined that the adopting of FIN 48 is not expected to have a material impact on the Fund. Management intends for the Fund to adopt FIN 48 provisions during the fiscal year ending October 31, 2008 as required. NOTE 15--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
CLASS A -------------------------------------------------------------------- YEAR ENDED OCTOBER 31, -------------------------------------------------------------------- 2007 2006 2005 2004 2003 - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 14.96 $ 12.85 $ 12.16 $ 11.12 $ 9.57 - --------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income(a) 0.20 0.13 0.15(b) 0.06 0.04 - --------------------------------------------------------------------------------------------------------------------------------- Net gains on securities (both realized and unrealized) 2.25(c) 2.10 0.65 1.00 1.51 ================================================================================================================================= Total from investment operations 2.45 2.23 0.80 1.06 1.55 ================================================================================================================================= Less dividends from net investment income (0.11) (0.12) (0.11) (0.02) -- ================================================================================================================================= Net asset value, end of period $ 17.30 $ 14.96 $ 12.85 $ 12.16 $ 11.12 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Total return(d) 16.44%(c) 17.49% 6.59% 9.58% 16.20% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $5,005,716 $4,812,619 $1,638,002 $1,843,623 $2,008,702 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.16%(e) 1.26% 1.23% 1.26% 1.30% - --------------------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.19%(e) 1.27% 1.25% 1.27% 1.30% ================================================================================================================================= Ratio of net investment income to average net assets 1.25%(e) 0.93% 1.16% 0.54% 0.39% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Portfolio turnover rate 39% 51% 54% 36% 28% _________________________________________________________________________________________________________________________________ =================================================================================================================================
(a) Calculated using average shares outstanding. (b) Net investment income per share and the ratio of net investment income to average net assets include a special cash dividend received of $3.00 per share owned of Microsoft Corp. on December 2, 2004. Net investment income per share and the ratio of net investment income to average net assets excluding the special dividend are $0.10 and 0.80%, respectively. (c) Includes litigation proceeds received during the period. Had these litigation proceeds not been received Net gains on securities (both realized and unrealized) per share would have been $2.12 and total return would have been lower. (d) 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. (e) Ratios are based on average daily net assets of $4,895,374,057. 23 AIM Charter Fund NOTE 15--FINANCIAL HIGHLIGHTS--(CONTINUED)
CLASS B ----------------------------------------------------------------- YEAR ENDED OCTOBER 31, ----------------------------------------------------------------- 2007 2006 2005 2004 2003 - ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 14.30 $ 12.27 $ 11.61 $ 10.67 $ 9.24 - ------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss)(a) 0.08 0.02 0.05(b) (0.02) (0.03) - ------------------------------------------------------------------------------------------------------------------------------- Net gains on securities (both realized and unrealized) 2.14(c) 2.02 0.62 0.96 1.46 =============================================================================================================================== Total from investment operations 2.22 2.04 0.67 0.94 1.43 =============================================================================================================================== Less dividends from net investment income (0.02) (0.01) (0.01) -- -- =============================================================================================================================== Net asset value, end of period $ 16.50 $ 14.30 $ 12.27 $ 11.61 $ 10.67 _______________________________________________________________________________________________________________________________ =============================================================================================================================== Total return(d) 15.56%(c) 16.63% 5.76% 8.81% 15.48% _______________________________________________________________________________________________________________________________ =============================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $1,067,897 $1,547,422 $617,534 $885,500 $1,149,943 _______________________________________________________________________________________________________________________________ =============================================================================================================================== Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.91%(e) 2.01% 1.95% 1.96% 2.00% - ------------------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.94%(e) 2.02% 1.97% 1.97% 2.00% =============================================================================================================================== Ratio of net investment income (loss) to average net assets 0.50%(e) 0.18% 0.44% (0.16)% (0.31)% _______________________________________________________________________________________________________________________________ =============================================================================================================================== Portfolio turnover rate 39% 51% 54% 36% 28% _______________________________________________________________________________________________________________________________ ===============================================================================================================================
(a) Calculated using average shares outstanding. (b) Net investment income per share and the ratio of net investment income to average net assets include a special cash dividend received of $3.00 per share owned of Microsoft Corp. on December 2, 2004. Net investment income per share and the ratio of net investment income to average net assets excluding the special dividend are $0.00 and 0.08%, respectively. (c) Includes litigation proceeds received during the period. Had these litigation proceeds not been received Net gains on securities (both realized and unrealized) per share would have been $2.01 and total return would have been lower. (d) 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. (e) Ratios are based on average daily net assets of $1,337,673,327.
CLASS C ----------------------------------------------------------- YEAR ENDED OCTOBER 31, ----------------------------------------------------------- 2007 2006 2005 2004 2003 - ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 14.34 $ 12.30 $ 11.64 $ 10.70 $ 9.27 - ------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss)(a) 0.08 0.02 0.05(b) (0.02) (0.03) - ------------------------------------------------------------------------------------------------------------------------- Net gains on securities (both realized and unrealized) 2.15(c) 2.03 0.62 0.96 1.46 ========================================================================================================================= Total from investment operations 2.23 2.05 0.67 0.94 1.43 ========================================================================================================================= Less dividends from net investment income (0.02) (0.01) (0.01) -- -- ========================================================================================================================= Net asset value, end of period $ 16.55 $ 14.34 $ 12.30 $ 11.64 $ 10.70 _________________________________________________________________________________________________________________________ ========================================================================================================================= Total return(d) 15.58%(c) 16.67% 5.75% 8.79% 15.43% _________________________________________________________________________________________________________________________ ========================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $272,904 $287,359 $107,776 $138,305 $163,859 _________________________________________________________________________________________________________________________ ========================================================================================================================= Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.91%(e) 2.01% 1.95% 1.96% 2.00% - ------------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.94%(e) 2.02% 1.97% 1.97% 2.00% ========================================================================================================================= Ratio of net investment income (loss) to average net assets 0.50%(e) 0.18% 0.44% (0.16)% (0.31)% _________________________________________________________________________________________________________________________ ========================================================================================================================= Portfolio turnover rate 39% 51% 54% 36% 28% _________________________________________________________________________________________________________________________ =========================================================================================================================
(a) Calculated using average shares outstanding. (b) Net investment income per share and the ratio of net investment income to average net assets include a special cash dividend received of $3.00 per share owned of Microsoft Corp. on December 2, 2004. Net investment income per share and the ratio of net investment income to average net assets excluding the special dividend are $0.00 and 0.08%, respectively. (c) Includes litigation proceeds received during the period. Had these litigation proceeds not been received Net gains on securities (both realized and unrealized) per share would have been $2.02 and total return would have been lower. (d) 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. (e) Ratios are based on average daily net assets of $281,491,500. 24 AIM Charter Fund NOTE 15--FINANCIAL HIGHLIGHTS--(CONTINUED)
INSTITUTIONAL CLASS ------------------------------------------------------ YEAR ENDED OCTOBER 31, ------------------------------------------------------ 2007 2006 2005 2004 2003 - -------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 15.38 $ 13.22 $ 12.53 $11.45 $ 9.80 - -------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income(a) 0.28 0.20 0.22(b) 0.13 0.09 - -------------------------------------------------------------------------------------------------------------------- Net gains on securities (both realized and unrealized) 2.31(c) 2.16 0.65 1.03 1.56 ==================================================================================================================== Total from investment operations 2.59 2.36 0.87 1.16 1.65 ==================================================================================================================== Less dividends from net investment income (0.16) (0.20) (0.18) (0.08) -- ==================================================================================================================== Net asset value, end of period $ 17.81 $ 15.38 $ 13.22 $12.53 $11.45 ____________________________________________________________________________________________________________________ ==================================================================================================================== Total return(d) 16.96%(c) 18.03% 6.98% 10.21% 16.84% ____________________________________________________________________________________________________________________ ==================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $134,745 $123,476 $54,728 $3,285 $2,061 ____________________________________________________________________________________________________________________ ==================================================================================================================== Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 0.73%(e) 0.79% 0.71% 0.74% 0.79% - -------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 0.76%(e) 0.80% 0.73% 0.75% 0.79% ==================================================================================================================== Ratio of net investment income to average net assets 1.68%(e) 1.40% 1.68% 1.06% 0.90% ____________________________________________________________________________________________________________________ ==================================================================================================================== Portfolio turnover rate 39% 51% 54% 36% 28% ____________________________________________________________________________________________________________________ ====================================================================================================================
(a) Calculated using average shares outstanding. (b) Net investment income per share and the ratio of net investment income to average net assets include a special cash dividend received of $3.00 per share owned of Microsoft Corp. on December 2, 2004. Net investment income per share and the ratio of net investment income to average net assets excluding the special dividend are $0.17 and 1.32%, respectively. (c) Includes litigation proceeds received during the period. Had these litigation proceeds not been received Net gains on securities (both realized and unrealized) per share would have been $2.18 and total return would have been lower. (d) 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. (e) Ratios are based on average daily net assets of $156,816,846.
CLASS R -------------------------------------------------- YEAR ENDED OCTOBER 31, -------------------------------------------------- 2007 2006 2005 2004 2003 - ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 14.87 $12.77 $12.10 $11.08 $ 9.56 - ---------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income(a) 0.16 0.09 0.12(b) 0.04 0.02 - ---------------------------------------------------------------------------------------------------------------- Net gains on securities (both realized and unrealized) 2.23(c) 2.10 0.63 1.00 1.50 ================================================================================================================ Total from investment operations 2.39 2.19 0.75 1.04 1.52 ================================================================================================================ Less dividends from net investment income (0.08) (0.09) (0.08) (0.02) -- ================================================================================================================ Net asset value, end of period $ 17.18 $14.87 $12.77 $12.10 $11.08 ________________________________________________________________________________________________________________ ================================================================================================================ Total return(d) 16.12%(c) 17.21% 6.22% 9.35% 15.90% ________________________________________________________________________________________________________________ ================================================================================================================ Ratios/supplemental data: Net assets, end of period (000s omitted) $ 6,565 $5,153 $2,637 $2,534 $1,714 ________________________________________________________________________________________________________________ ================================================================================================================ Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.41%(e) 1.51% 1.45% 1.46% 1.50% - ---------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.44%(e) 1.52% 1.47% 1.47% 1.50% ================================================================================================================ Ratio of net investment income to average net assets 1.00%(e) 0.68% 0.94% 0.34% 0.19% ________________________________________________________________________________________________________________ ================================================================================================================ Portfolio turnover rate 39% 51% 54% 36% 28% ________________________________________________________________________________________________________________ ================================================================================================================
(a) Calculated using average shares outstanding. (b) Net investment income per share and the ratio of net investment income to average net assets include a special cash dividend received of $3.00 per share owned of Microsoft Corp. on December 2, 2004. Net investment income per share and the ratio of net investment income to average net assets excluding the special dividend are $0.07 and 0.58%, respectively. (c) Includes litigation proceeds received during the period. Had these litigation proceeds not been received Net gains on securities (both realized and unrealized) per share would have been $2.10 and total return would have been lower. (d) 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. (e) Ratios are based on average daily net assets of $5,998,703. 25 AIM Charter Fund NOTE 16--LEGAL PROCEEDINGS Terms used in the Legal Proceedings Note are defined terms solely for the purpose of this note. SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING On July 6, 2007, the Securities and Exchange Commission ("SEC") published notice of two proposed distribution plans ("Distribution Plans") for the distribution of monies placed into two separate Fair Funds created pursuant to a settlement reached on October 8, 2004 between Invesco Funds Group, Inc. ("IFG"), A I M Advisors, Inc. ("AIM") and A I M Distributors, Inc. and the SEC (the "Order"). One of the Fair Funds consists of $325 million, plus interest and any contributions by other settling parties, for distribution to shareholders of certain mutual funds formerly advised by IFG who may have been harmed by market timing and related activity. The second Fair Fund consists of $50 million, plus interest and any contributions by other settling parties, for distribution to shareholders of mutual funds advised by AIM who may have been harmed by market timing and related activity. Comments on the Distribution Plans were due no later than August 6, 2007 and the Distribution Plans are awaiting final approval by the SEC. Distributions from the Fair Funds will begin after the SEC finally approves the Distribution Plans. The proposed Distribution Plans provide for distribution to all eligible investors, for the periods spanning January 1, 2000 through July 31, 2003 (for the IFG Fair Fund) and January 1, 2001 through September 30, 2003 (for the AIM Fair Fund), their proportionate share of the applicable Fair Fund to compensate such investors for injury they may have suffered as a result of market timing in the affected funds. The Distribution Plans include a provision for any residual amounts in the Fair Funds to be distributed in the future to the affected funds. Because the Distribution Plans have not received final approval from the SEC and distribution of the Fair Funds has not yet commenced, management of AIM and the Fund are unable to estimate the amount of distribution to be made to the Fund, if any. At the request of the trustees of the AIM Funds, Invesco Ltd. ("Invesco"), the parent company of IFG and AIM, has agreed to reimburse expenses incurred by the AIM Funds related to market timing matters. PENDING LITIGATION AND REGULATORY INQUIRIES On August 30, 2005, the West Virginia Office of the State Auditor -- Securities Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of Right to Hearing to AIM and ADI (Order No. 05-1318). The WVASC makes findings of fact that AIM and ADI entered into certain arrangements permitting market timing of the AIM Funds and failed to disclose these arrangements in the prospectuses for such Funds, and conclusions of law to the effect that AIM and ADI violated the West Virginia securities laws. The WVASC orders AIM and ADI to cease any further violations and seeks to impose monetary sanctions, including restitution to affected investors, disgorgement of fees, reimbursement of investigatory, administrative and legal costs and an "administrative assessment," to be determined by the Commissioner. Initial research indicates that these damages could be limited or capped by statute. By agreement with the Commissioner of Securities, AIM's time to respond to that Order has been indefinitely suspended. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or related entities and individuals, depending on the lawsuit, alleging: - that the defendants permitted improper market timing and related activity in the AIM Funds; and - that certain AIM Funds inadequately employed fair value pricing. These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws and ERISA, negligence, breach of fiduciary duty and/or breach of contract. These lawsuits seek remedies that include, depending on the lawsuit, damages, restitution, injunctive relief, imposition of a constructive trust, removal of certain directors and/or employees, various corrective measures under ERISA, rescission of certain AIM Funds' advisory agreements and/or distribution plans and recovery of all fees paid. All lawsuits based on allegations of market timing, late trading and related issues have been transferred to the United States District Court for the District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court, plaintiffs in these lawsuits consolidated their claims for pre-trial purposes into three amended complaints against various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint for Violations of the Employee Retirement Income Securities Act ("ERISA") purportedly brought on behalf of participants in Invesco's 401(k) plan. Based on orders issued by the MDL Court, all claims asserted against the AIM Funds that have been transferred to the MDL Court have been dismissed, although certain Funds remain nominal defendants in the Consolidated Amended Fund Derivative Complaint. On September 15, 2006, the MDL Court granted the Invesco defendants' motion to dismiss the Amended Class Action Complaint for Violations of ERISA and dismissed such Complaint. The plaintiff has commenced an appeal from that decision. IFG, AIM, ADI and/or related entities and individuals have received inquiries from numerous regulators in the form of subpoenas or other oral or written requests for information and/or documents related to one or more of the following issues, among others, some of which concern one or more AIM Funds: market timing activity, late trading, fair value pricing, excessive or improper advisory and/or distribution fees, mutual fund sales practices, including revenue sharing and directed-brokerage arrangements, investments in securities of other registered investment companies, contractual plans, issues related to Section 529 college savings plans and procedures for locating lost security holders. IFG, AIM and ADI have advised the Fund that they are providing full cooperation with respect to these inquiries. Regulatory actions and/or additional civil lawsuits related to these or other issues may be filed against the AIM Funds, IFG, AIM and/or related entities and individuals in the future. At the present time, management of AIM and the Fund are unable to estimate the impact, if any, that the outcome of the Pending Litigation and Regulatory Inquiries described above may have on AIM, ADI or the Fund. 26 AIM Charter Fund REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Trustees of AIM Equity Funds and Shareholders of AIM Charter Fund: In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of AIM Charter Fund (one of the funds constituting AIM Equity Funds, hereafter referred to as the "Fund") at October 31, 2007, 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 three years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at October 31, 2007 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights for each of the periods ended on or before October 31, 2004 were audited by another independent registered public accounting firm whose report, dated December 15, 2004, expressed an unqualified opinion on those financial highlights. PRICEWATERHOUSECOOPERS LLP December 19, 2007 Houston, Texas 27 AIM Charter Fund CALCULATING YOUR ONGOING FUND EXPENSES EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments or contingent deferred sales charges on redemptions, and redemption fees, if any; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period May 1, 2007, through October 31, 2007. ACTUAL EXPENSES The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions, and redemption fees, if any. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
HYPOTHETICAL (5% ANNUAL RETURN BEFORE BEGINNING ACTUAL EXPENSES) ACCOUNT ENDING EXPENSES ENDING EXPENSES ANNUALIZED SHARE VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE CLASS (5/1/07) (10/31/07)(1) PERIOD (2) (10/31/07) PERIOD (2) RATIO A $1,000.00 $1,050.40 $ 6.00 $1,019.36 $5.90 1.16% B 1,000.00 1,046.30 9.85 1,015.58 9.70 1.91 C 1,000.00 1,046.80 9.85 1,015.58 9.70 1.91 R 1,000.00 1,048.80 7.28 1,018.10 7.17 1.41
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2007, through October 31, 2007, 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. (2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. 28 Supplement to Annual Report dated 10/31/07 AIM Charter Fund ========================================== Institutional Class Shares AVERAGE ANNUAL TOTAL RETURNS PLEASE NOTE THAT PAST PERFORMANCE IS For periods ended 10/31/07 NOT INDICATIVE OF FUTURE RESULTS. MORE The following information has been RECENT RETURNS MAY BE MORE OR LESS THAN prepared to provide Institutional Class Inception (7/30/91) 9.68% THOSE SHOWN. ALL RETURNS ASSUME shareholders with a performance overview 10 Years 6.30 REINVESTMENT OF DISTRIBUTIONS AT NAV. specific to their holdings. Institutional 5 Years 13.72 INVESTMENT RETURN AND PRINCIPAL VALUE WILL Class shares are offered exclusively to 1 Year 16.96 FLUCTUATE SO YOUR SHARES, WHEN REDEEMED, institutional investors, including defined MAY BE WORTH MORE OR LESS THAN THEIR contribution plans that meet certain AVERAGE ANNUAL TOTAL RETURNS ORIGINAL COST. SEE FULL REPORT FOR criteria. For periods ended 9/30/07, most recent INFORMATION ON COMPARATIVE BENCHMARKS. calendar quarter-end PLEASE CONSULT YOUR FUND PROSPECTUS FOR MORE INFORMATION. FOR THE MOST CURRENT Inception (7/30/91) 9.61% MONTH-END PERFORMANCE, PLEASE CALL 10 Years 5.63 800-451-4246 OR VISIT AIMINVESTMENTS.COM. 5 Years 14.57 1 Year 17.61 ========================================== INSTITUTIONAL CLASS SHARES HAVE NO SALES CHARGE; THEREFORE, PERFORMANCE IS AT NET ASSET VALUE (NAV). PERFORMANCE OF INSTITUTIONAL CLASS SHARES WILL DIFFER FROM PERFORMANCE OF OTHER SHARE CLASSES PRIMARILY DUE TO DIFFERING SALES CHARGES AND CLASS EXPENSES. ========================================== NASDAQ SYMBOL CHTVX ========================================== Over for information on your Fund's expenses. ======================================================================================= THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING. ======================================================================================= FOR INSTITUTIONAL INVESTOR USE ONLY This material is for institutional investor use only and may not be quoted, reproduced or shown to the public, nor used in written form as sales literature for public use.
AIMinvestments.com CHT-INS-1 A I M Distributors, Inc. [AIM INVESTMENTS LOGO] -- REGISTERED TRADEMARK -- AIM Charter Fund CALCULATING YOUR ONGOING FUND EXPENSES EXAMPLE As a shareholder of the Fund, you incur ongoing costs, including management fees and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period May 1, 2007, through October 31, 2007. ACTUAL EXPENSES The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL (5% ANNUAL RETURN BEFORE ACTUAL EXPENSES) BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE SHARE CLASS (05/01/07) (10/31/07)(1) PERIOD(2) (10/31/07) PERIOD(2) RATIO Institutional $1,000.00 $1,052.60 $3.83 $1,021.48 $3.77 0.74%
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2007, through October 31, 2007, 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. (2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. AIMinvestments.com CHT-INS-1 A I M Distributors, Inc. AIM Charter Fund Approval of Investment Advisory Agreement The Board of Trustees (the Board) of AIM own recommendations regarding the A. Nature, Extent and Quality of Services Equity Funds is required under the performance, fees and expenses of the AIM Provided by AIM Investment Company Act of 1940 to approve Funds to the full Board. Moreover, the annually the renewal of the AIM Charter Investments Committee considers each The Board reviewed the advisory services Fund (the Fund) investment advisory Sub-Committee's recommendations in making provided to the Fund by AIM under the agreement with A I M Advisors, Inc. (AIM). its annual recommendation to the Board Fund's advisory agreement, the During contract renewal meetings held on whether to approve the continuance of performance of AIM in providing these June 25-27, 2007, the Board as a whole and each AIM Fund's investment advisory services, and the credentials and the disinterested or "independent" agreement and sub-advisory agreement, if experience of the officers and employees Trustees, voting separately, approved the applicable (advisory agreements), for of AIM who provide these services. The continuance of the Fund's investment another year. Board's review of the qualifications of advisory agreement for another year, AIM to provide these services included effective July 1, 2007. In doing so, the The independent Trustees, as mentioned the Board's consideration of AIM's Board determined that the Fund's advisory above, are assisted in their annual portfolio and product review process, agreement is in the best interests of the evaluation of the advisory agreements by various back office support functions Fund and its shareholders and that the the independent Senior Officer. One provided by AIM, and AIM's equity and compensation to AIM under the Fund's responsibility of the Senior Officer is fixed income trading operations. The advisory agreement is fair and reasonable. to manage the process by which the AIM Board concluded that the nature, extent Funds' proposed management fees are and quality of the advisory services The independent Trustees met separately negotiated during the annual contract provided to the Fund by AIM were during their evaluation of the Fund's renewal process to ensure that they are appropriate and that AIM currently is investment advisory agreement with negotiated in a manner which is at arms' providing satisfactory advisory services independent legal counsel from whom they length and reasonable. Accordingly, the in accordance with the terms of the received independent legal advice, and the Senior Officer must either supervise a Fund's advisory agreement. In addition, independent Trustees also received competitive bidding process or prepare an based on their ongoing meetings assistance during their deliberations from independent written evaluation. The throughout the year with the Fund's the independent Senior Officer, a full-time Senior Officer has recommended that an portfolio managers, the Board concluded officer of the AIM Funds who reports independent written evaluation be that these individuals are competent and directly to the independent Trustees. The provided and, upon the direction of the able to continue to carry out their following discussion more fully describes Board, has prepared an independent responsibilities under the Fund's the process employed by the Board to written evaluation. advisory agreement. evaluate the performance of the AIM Funds (including the Fund) throughout the year During the annual contract renewal In determining whether to continue the and, more specifically, during the annual process, the Board considered the factors Fund's advisory agreement, the Board contract renewal meetings. discussed below under the heading considered the prior relationship between "Factors and Conclusions and Summary of AIM and the Fund, as well as the Board's THE BOARD'S FUND EVALUATION PROCESS Independent Written Fee Evaluation" in knowledge of AIM's operations, and evaluating the fairness and concluded that it was beneficial to The Board's Investments Committee has reasonableness of the Fund's advisory maintain the current relationship, in established three Sub-Committees which are agreement at the contract renewal part, because of such knowledge. The responsible for overseeing the management meetings and at their meetings throughout Board also considered the steps that AIM of a number of the series portfolios of the the year as part of their ongoing and its affiliates have taken over the AIM Funds. This Sub-Committee structure oversight of the Fund. The Fund's last several years to improve the quality permits the Trustees to focus on the advisory agreement was considered and efficiency of the services they performance of the AIM Funds that have been separately, although the Board also provide to the Funds in the areas of assigned to them. The Sub-Committees meet considered the common interests of all of investment performance, product line throughout the year to review the the AIM Funds in their deliberations. The diversification, distribution, fund performance of their assigned funds, and Board comprehensively considered all of operations, shareholder services and the Sub-Committees review monthly and the information provided to them and did compliance. The Board concluded that the quarterly comparative performance not identify any particular factor that quality and efficiency of the services information and periodic asset flow data was controlling. Furthermore, each AIM and its affiliates provide to the AIM for their assigned funds. These materials Trustee may have evaluated the Funds in each of these areas have are prepared under the direction and information provided differently from one generally improved, and support the supervision of the independent Senior another and attributed different weight Board's approval of the continuance of Officer. Over the course of each year, the to the various factors. The Trustees the Fund's advisory agreement. Sub-Committees meet with portfolio managers recognized that the advisory arrangements for their assigned funds and other members and resulting advisory fees for the Fund B. FUND PERFORMANCE of management and review with these and the other AIM Funds are the result of individuals the performance, investment years of review and negotiation between The Board compared the Fund's performance objective(s), policies, strategies and the Trustees and AIM, that the Trustees during the past one, three and five limitations of these funds. may focus to a greater extent on certain calendar years to the performance of aspects of these arrangements in some funds in the Fund's Lipper peer group In addition to their meetings throughout years than others, and that the Trustees' that are not managed by AIM, and against the year, the Sub-Committees meet at deliberations and conclusions in a the performance of all funds in the designated contract renewal meetings each particular year may be based in part on Lipper Large-Cap Core Funds Index. The year to conduct an in-depth review of the their deliberations and conclusions of Board also reviewed the methodology used performance, fees and expenses of their these same arrangements throughout the by Lipper to identify the Fund's peers. assigned funds. During the contract renewal year and in prior years. The Board noted that the Fund's process, the Trustees receive comparative performance was above the median performance and fee data regarding all the FACTORS AND CONCLUSIONS AND SUMMARY OF performance of its peers for the one and AIM Funds prepared by an independent INDEPENDENT WRITTEN FEE EVALUATION five year periods, and comparable to such company, Lipper, Inc., under the direction performance for the three year period. and supervision of the independent Senior The discussion below serves as a summary The Board noted that the Fund's Officer who also prepares a separate of the Senior Officer's independent performance was above the performance of analysis of this information for the written evaluation, as well as a the Index for the one and five year Trustees. Each Sub-Committee then makes discussion of the material factors and periods, and comparable to such Index for recommendations to the Investments related conclusions that formed the basis the three year period. The Board also Committee regarding the performance, fees for the Board's approval of the Fund's considered the steps AIM has taken over and expenses of their assigned funds. The advisory agreement. Unless otherwise the last several years to improve the Investments Committee considers each stated, information set forth below is as quality and efficiency of the services Sub-Committee's recommendations and makes of June 27, 2007 and does not reflect any that AIM provides to the AIM Funds. The its changes that may have occurred since that Board concluded that AIM continues to be date, including but not limited to responsive to the Board's focus on fund changes to the Fund's performance, performance. Although the independent advisory fees, expense limitations and/or written evaluation of the Fund's Senior fee waivers. Officer (discussed below) only considered Fund performance through the most (continued)
29 AIM Charter Fund recent calendar year, the Board also D. ECONOMIES OF SCALE AND BREAKPOINTS G. COLLATERAL BENEFITS TO AIM AND ITS reviewed more recent Fund performance and AFFILIATES this review did not change their The Board considered the extent to which conclusions. there are economies of scale in AIM's The Board considered various other provision of advisory services to the benefits received by AIM and its C. ADVISORY FEES AND FEE WAIVERS Fund. The Board also considered whether affiliates resulting from AIM's the Fund benefits from such economies of relationship with the Fund, including the The Board compared the Fund's contractual scale through contractual breakpoints in fees received by AIM and its affiliates advisory fee rate to the contractual the Fund's advisory fee schedule or for their provision of administrative, advisory fee rates of funds in the Fund's through advisory fee waivers or expense transfer agency and distribution services Lipper peer group that are not managed by limitations. The Board noted that the to the Fund. The Board considered the AIM, at a common asset level and as of the Fund's contractual advisory fee schedule performance of AIM and its affiliates in end of the past calendar year. The Board includes one breakpoint and that the providing these services and the noted that the Fund's advisory fee rate was level of the Fund's advisory fees, as a organizational structure employed by AIM above the median advisory fee rate of its percentage of the Fund's net assets, has and its affiliates to provide these peers. The Board also reviewed the decreased as net assets increased because services. The Board also considered that methodology used by Lipper and noted that of the breakpoint. The Board also noted these services are provided to the Fund the contractual fee rates shown by Lipper that AIM's contractual advisory fee pursuant to written contracts which are include any applicable long-term waiver discussed above includes reviewed and approved on an annual basis contractual fee waivers. The Board also breakpoints based on net asset levels. by the Board. The Board concluded that compared the Fund's contractual advisory Based on this information, the Board AIM and its affiliates were providing fee rate to the contractual advisory fee concluded that the Fund's advisory fees these services in a satisfactory manner rates of other clients of AIM and its appropriately reflect economies of scale and in accordance with the terms of their affiliates with investment strategies at current asset levels. The Board also contracts, and were qualified to continue comparable to those of the Fund, including noted that the Fund shares directly in to provide these services to the Fund. three mutual funds advised by AIM and one economies of scale through lower fees mutual fund sub-advised by an AIM charged by third party service providers The Board considered the benefits affiliate. The Board noted that the Fund's based on the combined size of all of the realized by AIM as a result of portfolio rate was: (i) above the rate for one of the AIM Funds and affiliates. brokerage transactions executed through mutual funds and comparable to the rates "soft dollar" arrangements. Under these for the other two mutual funds; and (ii) E. PROFITABILITY AND FINANCIAL RESOURCES arrangements, portfolio brokerage above the sub-advisory fee rate for the OF AIM commissions paid by the Fund and/or other sub-advised mutual fund, although the funds advised by AIM are used to pay for advisory fee rate for such sub-advised fund The Board reviewed information from AIM research and execution services. The is above the Fund's. concerning the costs of the advisory and Board noted that soft dollar arrangements other services that AIM and its shift the payment obligation for the Additionally, the Board compared the affiliates provide to the Fund and the research and executions services from AIM Fund's contractual advisory fee rate to the profitability of AIM and its affiliates to the funds and therefore may reduce total advisory fees paid by numerous in providing these services. The Board AIM's expenses. The Board also noted that separately managed accounts/wrap accounts also reviewed information concerning the research obtained through soft dollar advised by an AIM affiliate. The Board financial condition of AIM and its arrangements may be used by AIM in making noted that the Fund's rate was generally affiliates. The Board also reviewed with investment decisions for the Fund and may above the rates for the separately managed AIM the methodology used to prepare the therefore benefit Fund shareholders. The accounts/wrap accounts. The Board profitability information. The Board Board concluded that AIM's soft dollar considered that management of the considered the overall profitability of arrangements were appropriate. The Board separately managed accounts/wrap accounts AIM, as well as the profitability of AIM also concluded that, based on their by the AIM affiliate involves different in connection with managing the Fund. The review and representations made by AIM, levels of services and different Board noted that AIM continues to operate these arrangements were consistent with operational and regulatory requirements at a net profit, although increased regulatory requirements. than AIM's management of the Fund. The expenses in recent years have reduced the Board concluded that these differences are profitability of AIM and its affiliates. The Board considered the fact that the appropriately reflected in the fee The Board concluded that the Fund's Fund's uninvested cash and cash structure for the Fund and the separately advisory fees were fair and reasonable, collateral from any securities lending managed accounts/wrap accounts. and that the level of profits realized by arrangements may be invested in money AIM and its affiliates from providing market funds advised by AIM pursuant to The Board noted that AIM has services to the Fund was not excessive in procedures approved by the Board. The contractually agreed to waive advisory fees light of the nature, quality and extent Board noted that AIM will receive of the Fund through December 31, 2012 and of the services provided. The Board advisory fees from these affiliated money that this fee waiver includes breakpoints considered whether AIM is financially market funds attributable to such based on net asset levels. The Board sound and has the resources necessary to investments, although AIM has considered the contractual nature of this perform its obligations under the Fund's contractually agreed to waive the fee waiver and noted that it remains in advisory agreement, and concluded that advisory fees payable by the Fund with effect until December 31, 2012. The Board AIM has the financial resources necessary respect to its investment of uninvested noted that, according to information to fulfill these obligations. cash in these affiliated money market provided by AIM, this fee waiver reduces funds through at least June 30, 2008. The the Fund's effective advisory fees to a F. INDEPENDENT WRITTEN EVALUATION OF THE Board considered the contractual nature level generally in line with the median FUND'S SENIOR OFFICER of this fee waiver and noted that it effective advisory fees for the Fund's remains in effect until at least June 30, peers, as determined by AIM. The Board The Board noted that, upon their 2008. The Board concluded that the Fund's reviewed the Fund's effective advisory fee direction, the Senior Officer of the investment of uninvested cash and cash rate, after taking account of this fee Fund, who is independent of AIM and AIM's collateral from any securities lending waiver, and considered the effect this fee affiliates, had prepared an independent arrangements in the affiliated money waiver would have on the Fund's estimated written evaluation to assist the Board in market funds is in the best interests of total expenses. The Board concluded that determining the reasonableness of the the Fund and its shareholders. the levels of fee waivers/expense proposed management fees of the AIM limitations for the Fund were fair and Funds, including the Fund. The Board reasonable. noted that they had relied upon the Senior Officer's written evaluation After taking account of the Fund's instead of a competitive bidding process. contractual advisory fee rate, as well as In determining whether to continue the the comparative advisory fee information Fund's advisory agreement, the Board and the fee waiver discussed above, the considered the Senior Officer's written Board concluded that the Fund's advisory evaluation. fees were fair and reasonable.
30 AIM Charter Fund TAX INFORMATION Form 1099-DIV, Form 1042-S and other year -- end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors. The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state's requirement. The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended October 31, 2007: FEDERAL AND STATE INCOME TAX Qualified Dividend Income* 100% Corporate Dividends Received Deduction* 100%
* The above percentages are based on ordinary income dividends paid to shareholders during the fund's fiscal year. NON-RESIDENT ALIEN SHAREHOLDERS Qualified Interest Income** 24.50%
** The above percentage is based on income dividends paid to shareholders during the fund's fiscal year. ADDITIONAL NON-RESIDENT ALIEN SHAREHOLDER INFORMATION The percentages of qualifying assets not subject to the U.S. estate tax for the fiscal quarters ended January 31, 2007, April 30, 2007, July 31, 2007 and October 31, 2007 were 30.52%, 29.86%, 28.12%, and 30.81%, respectively. 31 AIM Charter Fund TRUSTEES AND OFFICERS The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. Each trustee oversees 104 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. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
OTHER TRUSTEE TRUSTEESHIP(S)/ NAME, YEAR OF BIRTH AND AND/OR DIRECTORSHIP(S) POSITION(S) HELD WITH THE OFFICER PRINCIPAL OCCUPATION(S) HELD BY TRUST SINCE DURING PAST 5 YEARS TRUSTEE/ DIRECTOR - ------------------------------------------------------------------------------------------------------------------------- Interested Persons - ------------------------------------------------------------------------------------------------------------------------- Martin L. Flanagan(1) -- 1960 2007 Director, Chief Executive Officer and None Trustee President, Invesco Ltd. (ultimate parent of AIM and a global investment management firm) and, INVESCO PLC (parent of AIM and a global investment management firm); Chairman, A I M Advisors, Inc. (registered investment advisor); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company); and INVESCO North American Holdings, Inc. (holding company); Chairman and President, INVESCO Group Services, Inc. (service provider); Trustee, The AIM Family of Funds(R); Vice Chairman, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business Formerly: Chairman, Investment Company Institute; President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) - ------------------------------------------------------------------------------------------------------------------------- Philip A. Taylor(2) -- 1954 2006 Director, Chief Executive Officer and None Trustee, President and President, AIM Mutual Fund Dealer Inc. Principal (registered broker dealer), A I M Executive Officer Advisors, Inc., AIM Funds Management Inc. d/b/a INVESCO Enterprise Services (registered investment advisor and registered transfer agent) and 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, A I M Management Group Inc. (financial services holding company) and A I M Capital Management, Inc. (registered investment advisor); Director and President, INVESCO Funds Group, Inc. (registered investment advisor and register transfer agent) and AIM GP Canada Inc. (general partner for a limited partnership); Director, A I M Distributors, Inc. (registered broker dealer); Director and Chairman, AIM Investment Services, Inc. (registered transfer agent) and INVESCO Distributors, Inc. (registered broker dealer); Director, President and Chairman, IVZ Callco Inc. (holding company), INVESCO Inc. (holding company) and AIM Canada Holdings Inc. (holding company); Director and Chief Executive Officer, AIM Trimark Corporate Class Inc. (formerly AIM Trimark Global Fund Inc.) (corporate mutual fund company) and AIM Trimark Canada Fund Inc. (corporate mutual fund company); Trustee, President and Principal Executive Officer of The AIM Family of Funds--Registered Trademark-- (other than AIM Treasurer's Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust); Trustee and Executive Vice President, The AIM Family of Funds--Registered Trademark-- (AIM Treasurer's Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only); and Manager, PowerShares Capital Management LLC Formerly: Director and Chairman, Fund Management Company (registered broker dealer); President and Principal Executive Officer, The AIM Family of Funds--Registered Trademark-- (AIM Treasurer's Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only); Chairman, AIM Canada Holdings, Inc.; President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc.; and Director, Trimark Trust (federally regulated Canadian Trust Company) - ------------------------------------------------------------------------------------------------------------------------- Independent Trustees - ------------------------------------------------------------------------------------------------------------------------- Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company); Trustee and Chair (technology consulting company) and Captaris, Inc. (unified messaging provider) - ------------------------------------------------------------------------------------------------------------------------- Bob R. Baker -- 1936 2003 Retired None Trustee - ------------------------------------------------------------------------------------------------------------------------- Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered Trustee investment company) (2 portfolios) Formerly: Partner, law firm of Baker & McKenzie - ------------------------------------------------------------------------------------------------------------------------- James T. Bunch -- 1942 2003 Founder, Green, Manning & Bunch Ltd., None Trustee (investment banking firm); and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation - ------------------------------------------------------------------------------------------------------------------------- Albert R. Dowden -- 1941 2000 Director of a number of public and None Trustee private business corporations, including the Boss Group Ltd. (private investment and management); Reich & Tang Funds (Chairman) (registered investment company) (7 portfolios), Daily Income Fund (4 portfolios), California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc. and New Jersey Daily Municipal Fund, Inc., Annuity and Life Re (Holdings), Ltd. (insurance company), and Homeowners of America Holding Corporation (property casualty company) Formerly: Director, CompuDyne Corporation (provider of product and services to the public security market); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various affiliated Volvo companies; and Director, Magellan Insurance Company - ------------------------------------------------------------------------------------------------------------------------- Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff Trustee Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), and Discovery Global Education Fund (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) - ------------------------------------------------------------------------------------------------------------------------- Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Director, Reich & Tang Funds) (7 Trustee Naftalis and Frankel LLP portfolios) - ------------------------------------------------------------------------------------------------------------------------- Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None Trustee of the USA - ------------------------------------------------------------------------------------------------------------------------- Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper None Trustee - ------------------------------------------------------------------------------------------------------------------------- Ruth H. Quigley -- 1935 2001 Retired None Trustee - ------------------------------------------------------------------------------------------------------------------------- Larry Soll -- 1942 2003 Retired None Trustee - ------------------------------------------------------------------------------------------------------------------------- Raymond Stickel, Jr. -- 1944 2005 Retired None Trustee Formerly: Partner, Deloitte & Touche; and Director, Mainstay VP Series Funds, Inc. (25 portfolios) - -------------------------------------------------------------------------------------------------------------------------
(1) Mr. Flanagan was appointed as Trustee of the Trust on February 24, 2007. Mr. Flanagan is considered an interested person of the Trust because he is an officer of the advisor to the Trust, and an officer and a director of INVESCO PLC, parent of the advisor to the Trust. (2) Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the advisor to, and a director of the principal underwriter of, the Trust. 32 TRUSTEES AND OFFICERS--(CONTINUED) AIM Charter Fund
OTHER TRUSTEE TRUSTEESHIP(S)/ NAME, YEAR OF BIRTH AND AND/OR DIRECTORSHIP(S) POSITION(S) HELD WITH THE OFFICER PRINCIPAL OCCUPATION(S) HELD BY TRUSTEE/ TRUST SINCE DURING PAST 5 YEARS DIRECTOR - ------------------------------------------------------------------------------------------------------------------------- Other Officers - ------------------------------------------------------------------------------------------------------------------------- Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer N/A Senior Vice President and of The AIM Family of Funds--Registered Senior Officer Trademark-- Formerly: Director of Compliance and Assistant General Counsel, ICON Advisers, Inc.; Financial Consultant, Merrill Lynch; General Counsel and Director of Compliance, ALPS Mutual Funds, Inc. - ------------------------------------------------------------------------------------------------------------------------- John M. Zerr -- 1962 2006 Director, Senior Vice President, N/A Senior Vice President, Chief Secretary and General Counsel, A I M Legal Officer and Secretary Management Group Inc., A I M Advisors, Inc. and A I M Capital Management, Inc.; Director, Vice President and Secretary, AIM Investment Services, Inc. and INVESCO Distributors, Inc.; Director, Senior Vice President and Secretary, A I M Distributors, Inc.; Director and Vice President, INVESCO Funds Group Inc.; Senior Vice President, Chief Legal Officer and Secretary of The AIM Family of Funds--Registered Trademark--; and Manager, PowerShares Capital Management LLC Formerly: Director, Vice President and Secretary, Fund Management Company; Vice President, A I M Capital Management, Inc.; Chief Operating Officer, Senior Vice President, General Counsel and Secretary, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company); Vice President and Secretary, PBHG Insurance Series Fund (an investment company); General Counsel and Secretary, Pilgrim Baxter Value Investors (an investment adviser); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator); General Counsel and Secretary, Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) - ------------------------------------------------------------------------------------------------------------------------- Lisa O. Brinkley -- 1959 2004 Global Compliance Director, INVESCO PLC; N/A Vice President and Vice President of The AIM Family of Funds--Registered Trademark-- Formerly: Senior Vice President, A I M Management Group Inc. (financial services holding company); Senior Vice President and Chief Compliance Officer, A I M Advisors, Inc. and The AIM Family of Funds--Registered Trademark--; Vice President and Chief Compliance Officer, A I M Capital Management, Inc. and A I M Distributors, Inc.; Vice President, AIM Investment Services, Inc. and Fund Management Company; Senior Vice President and Chief Compliance Officer of The AIM Family of Funds--Registered Trademark--; and Senior Vice President and Compliance Director, Delaware Investments Family of Funds - ------------------------------------------------------------------------------------------------------------------------- Kevin M. Carome -- 1956 2003 Senior Vice President and General Vice President Counsel, INVESCO PLC; Director, INVESCO Funds Group, Inc.; Director and Secretary, IVZ, Inc. and INVESCO Group Services, Inc.; Secretary, INVESCO North American Holdings, Inc.; and Vice President of The AIM Family of Funds--Registered Trademark-- Formerly: Director, Senior Vice N/A President, Secretary and General Counsel, A I M Management Group Inc. and A I M Advisors, Inc.; Senior Vice President, A I M Distributors, Inc.; Director, General Counsel and Vice President, Fund Management Company; Vice President, A I M Capital Management, Inc. and AIM Investment Services, Inc.; Senior Vice President, Chief Legal Officer and Secretary of The AIM Family of Funds--Registered Trademark--; Director and Vice President, INVESCO Distributors, Inc.; Chief Executive Officer and President, INVESCO Funds Group, Inc.; and Senior Vice President and General Counsel, Liberty Financial Companies, Inc. - ------------------------------------------------------------------------------------------------------------------------- Sidney M. Dilgren -- 1961 2004 Vice President, A I M Advisors, Inc. and N/A Vice President, Principal A I M Capital Management, Inc.; and Vice Financial Officer and President, Treasurer and Principal Treasurer Financial Officer of The AIM Family of Funds--Registered Trademark-- Formerly: Fund Treasurer, A I M Advisors, Inc.; Senior Vice President, AIM Investment Services, Inc.; and Vice President, A I M Distributors, Inc. - ------------------------------------------------------------------------------------------------------------------------- Karen Dunn Kelley -- 1960 2004 Head of INVESCO's World Wide Fixed N/A Vice President Income and Cash Management Group; Director of Cash Management and Senior Vice President, A I M Advisors, Inc. and A I M Capital Management, Inc; Executive Vice President, A I M Distributors, Inc.; Senior Vice President, A I M Management Group Inc.; Vice President, The AIM Family of Funds--Registered Trademark-- (other than AIM Treasurer's Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust); and President and Principal Executive Officer, The AIM Family of Funds--Registered Trademark-- (AIM Treasurer's Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only) Formerly: Director and President, Fund Management Company; Chief Cash Management Officer and Managing Director, A I M Capital Management, Inc.; Vice President, A I M Advisors, Inc. and The AIM Family of Funds--Registered Trademark-- (AIM Treasurer's Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only) - ------------------------------------------------------------------------------------------------------------------------- Lance A. Rejsek -- 1967 2005 Anti-Money Laundering Compliance N/A Anti-Money Laundering Officer, A I M Advisors, Inc., A I M Compliance Officer Capital Management, Inc., A I M Distributors, Inc., AIM Investment Services, Inc., AIM Private Asset Management, Inc. and The AIM Family of Funds--Registered Trademark-- Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company; and Manager of the Fraud Prevention Department, AIM Investment Services, Inc. - ------------------------------------------------------------------------------------------------------------------------- Todd L. Spillane -- 1958 2006 Senior Vice President, A I M Management N/A Chief Compliance Officer Group Inc.; Senior Vice President and Chief Compliance Officer, A I M Advisors, Inc. and A I M Capital Management, Inc.; Chief Compliance Officer of The AIM Family of Funds--Registered Trademark--, INVESCO Global Asset Management (N.A.), Inc., (registered investment advisor), INVESCO Institutional (N.A.), Inc., (registered investment advisor), INVESCO Private Capital Investments, Inc. (holding company), INVESCO Private Capital, Inc. (registered investment advisor) and INVESCO Senior Secured Management, Inc. (registered investment advisor); and Vice President, A I M Distributors, Inc. and AIM Investment Services, Inc. Formerly: Vice President, A I M Capital Management, Inc. and Fund Management Company; Global Head of Product Development, AIG-Global Investment Group, Inc.; and Chief Compliance Officer and Deputy General Counsel, AIG-SunAmerica Asset Management - -------------------------------------------------------------------------------------------------------------------------
The Statement of Additional Information of the Trust includes additional information about the Fund's Trustees and is available upon request, without charge, by calling 1.800.959.4246. OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS 11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers Suite 100 11 Greenway Plaza Inc. LLP Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street Houston, TX 77046-1173 Suite 100 Suite 2900 Houston, TX 77046-1173 Houston, TX 77002-5678 COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN Ballard Spahr INDEPENDENT TRUSTEES AIM Investment State Street Bank and Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust 1735 Market Street, 51st & Frankel LLP P.O. Box 4739 Company Floor 1177 Avenue of the Houston, TX 77210-4739 225 Franklin Street Philadelphia, PA 19103-7599 Americas Boston, MA 02110-2801 New York, NY 10036-2714
33 [EDELIVERY Fund holdings and proxy voting information GO PAPERLESS AIMINVESTMENTS.COM/EDELIVERY The Fund provides a complete list of its holdings four times in GRAPHIC] each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund's semiannual and REGISTER FOR EDELIVERY annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and eDelivery is the process of receiving your fund and account Exchange Commission (SEC) on Form N-Q. The most recent list of information via e-mail. Once your quarterly statements, tax portfolio holdings is available at AIMinvestments.com. From our forms, fund reports, and prospectuses are available, we will send home page, click on Products & Performance, then Mutual Funds, you an e-mail notification containing links to these documents. then Fund Overview. Select your Fund from the drop-down menu For security purposes, you will need to log in to your account to and click on Complete Quarterly Holdings. Shareholders can also view your statements and tax forms. look up the Fund's Forms N-Q on the SEC Web site at sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied at WHY SIGN UP? the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Register for eDelivery to: Room, including information about duplicating fee charges, by calling 202-942-8090 or 800-732-0330, or by electronic o save your Fund the cost of printing and postage. request at the following e-mail address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-01424 and 002-25469. o reduce the amount of paper you receive. A description of the policies and procedures that the Fund uses o gain access to your documents faster by not waiting for the to determine how to vote proxies relating to portfolio mail. securities is available without charge, upon request, from our Client Services department at 800-959-4246 or on the AIM Web o view your documents online anytime at your convenience. site, AIMinvestments.com. On the home page, scroll down and click on Proxy Policy. The information is also available on o save the documents to your personal computer or print them out the SEC Web site, sec.gov. for your records. Information regarding how the Fund voted proxies related to its HOW DO I SIGN UP? portfolio securities during the 12 months ended June 30, 2007, is available at our Web site. Go to AIMinvestments.com, access It's easy. Just follow these simple steps: the About Us tab, click on Required Notices and then click on Proxy Voting Activity. Next, select the Fund from the drop-down 1. Log in to your account. menu. The information is also available on the SEC Web site, sec.gov. 2. Click on the "Service Center" tab. If used after January 20, 2008, this report must be accompanied 3. Select "Register for eDelivery" and complete the consent by a Fund fact sheet or by an AIM Quarterly Performance Review process. for the most recent quarter-end. Mutual funds and exchange-traded funds distributed by A I M Distributors, Inc. This AIM service is provided by AIM Investment Services, Inc. CHT-AR-1 A I M Distributors, Inc. [AIM INVESTMENTS LOGO] -- REGISTERED TRADEMARK --
DOMESTIC EQUITY AIM Constellation Fund Annual Report to Shareholders - October 31, 2007 Large-Cap Growth Table of Contents Letters to Shareholders ......... 2 Performance Summary ............. 4 Management Discussion ........... 4 Long-term Fund Performance ...... 6 Supplemental Information ........ 8 Schedule of Investments ......... 9 Financial Statements ............ 12 Notes to Financial Statements ... 14 Financial Highlights ............ 21 Auditor's Report ................ 25 Fund Expenses ................... 26 Approval of Advisory Agreement .. 27 [COVER GLOBE IMAGE] Tax Information ................. 29 Trustees and Officers ........... 30
[AIM INVESTMENT SOLUTIONS] [GRAPHIC] [GRAPHIC] [DOMESTIC [FIXED EQUITY] INCOME] [GRAPHIC] [GRAPHIC] [GRAPHIC] [TARGET [TARGET [DIVERSIFIED RISK] MATURITY] PORTFOLIOS] [GRAPHIC] [GRAPHIC] [SECTOR [INTERNATIONAL/ EQUITY] GLOBAL EQUITY] [AIM INVESTMENTS LOGO] - -- REGISTERED TRADEMARK -- AIM Constellation Fund Dear Shareholders of the AIM Family of Funds: I'm pleased to provide you with this report, which includes a discussion of how your Fund was managed during the period under review and factors that affected its performance. The following pages contain important information that answers questions you may have about your investment. [TAYLOR PHOTO] Despite notable volatility at points throughout the fiscal year ended October 31, 2007, major stock market indexes in the U.S. and abroad generally performed well. Reasons for their favorable performance included positive economic growth, particularly overseas; strong corporate profits; and action by the U.S. Federal Reserve Board (the Fed) to reassure skittish markets, among other factors. Philip Taylor At its September 18, 2007, meeting, the Fed cut the federal funds target rate for the first time since June 2003.(1) The cut followed 17 rate increases from June 2004 to June 20061 and was intended to address investor concerns about a weak housing market generally and problems in the subprime mortgage market specifically. The Fed's action triggered an immediate and broad stock market rally. The Fed cut this key interest rate again on October 31, 2007.(1) At AIM Investments --REGISTERED TRADEMARK--, we know that market conditions change--often suddenly and sometimes dramatically. We can help you deal with market volatility by offering a broad range of mutual funds, including: o Domestic, global and international equity funds o Taxable and tax-exempt fixed-income funds o Allocation portfolios, with risk/return characteristics to match your needs o AIM Independence Funds--target-maturity funds that combine retail mutual funds and PowerShares --REGISTERED TRADEMARK-- exchange-traded funds--with risk/return characteristics that change as your target retirement date nears I encourage you to talk with your financial advisor if you have concerns about your portfolio. We believe in the value of working with a trusted financial advisor who can recommend AIM funds that are appropriate for your portfolio and that address your long-term investment goals and risk tolerance regardless of prevailing short-term market conditions. IN CONCLUSION My colleague, Bob Graham, recently announced his decision to step down as vice chair of the AIM Funds board of directors. In 1976, Bob was one of three men who co-founded AIM. In the three decades since, he has been instrumental in transforming AIM from a small investment management firm into one of America's most respected mutual fund companies--and, in 1997, into a global independent retail and institutional investment manager. In May, with shareholder approval, AIM Investments' parent company changed its name from AMVESCAP PLC to Invesco Ltd., uniting our worldwide operations and global expertise under one new name. While the name of our parent company may be new to you, I can assure you that our commitment to excellent customer service remains unchanged. Our highly trained, courteous client service representatives are eager to answer your questions, provide you with product information or assist you with account transactions. I encourage you to give us an opportunity to serve you by calling us at 800-959-4246. We at AIM are committed to helping you achieve your financial goals. We work every day to earn your trust, and we're grateful for the confidence you've placed in us. Sincerely, /S/ PHILIP TAYLOR Philip Taylor President - AIM Funds CEO, AIM Investments December 17, 2007 Source: (1)U.S. Federal Reserve Board AIM Investments is a registered service mark of A I M Management Group Inc. A I M Advisors, Inc. and A I M Capital Management, Inc. are the investment advisors. A I M Distributors, Inc. is the distributor for the retail mutual funds represented by AIM Investments and the PowerShares Exchange-Traded Fund Trust.
2 AIM Constellation Fund Dear Fellow Shareholders: In overseeing the management of the AIM family of funds on your behalf, your Board of Trustees of the AIM Funds continues to focus on improved investment performance, reduced shareholder costs, and high ethical standards. [CROCKETT PHOTO] Your Board welcomes two new members: Marty Flanagan, President and CEO of INVESCO, AIM's parent company, and Phil Taylor, who was named CEO of AIM Investments --REGISTERED TRADEMARK-- in April 2006. Robert Graham, who has given more than 30 years of leadership to the company and the mutual fund industry since founding AIM in 1976, has retired, stepping down in the process from his most recent role as vice chairman Bruce L. Crockett of the Board. We thank Bob for his many contributions and wish him a long and happy future. Our review of fund performance has shown healthy progress, but the process is necessarily one of continuous improvement. In general, as of October 31, 2007, we have seen persistent investment discipline and more consistently good results. While this statement may not apply to every AIM Fund all the time, as I write this letter, the overall trend in fund management and performance has been positive. The investment management talent at AIM has recently been enhanced by the promotion of Karen Dunn Kelley to Head of INVESCO's Worldwide Fixed Income as well as Director of AIM Global and Cash Management, with responsibility for all fixed income and money market funds that serve both institutional and individual investors. Under Karen's direction, AIM's cash management organization grew to one of the world's largest and most respected, with top-tier performance. The operations now combined under her charge represent more than $150 billion in assets, 120 investment professionals, and products that span the entire yield curve (as of October 31, 2007). In other news, your Board took a more active role in preparing for "proxy season," the period when fund managers must vote the shares held by their funds "for" or "against" various proposals on the ballots of the issuing companies. Beginning in the 2007 proxy season, AIM implemented new proxy voting policies, developed by management in conjunction with an ad hoc Board committee, which provided a solid framework for properly evaluating and executing the many decisions the AIM Funds are required to make to vote shares. In general, the AIM Funds voted for proposals that would allow shareholders a greater role in election of directors, proxy access and "say for pay." The AIM Funds voted against directors whom AIM believed failed to govern well in cases of corporate mismanagement, such as the backdating of options grants, and against "poison pill" and "take under" proposals that would favor the financial interests of managers at the expense of investors in the case of a merger or acquisition. You can view the proxy votes cast for your fund by going to AIMinvestments.com. Click the "About Us" tab, then go to "Required Notices" and "Proxy Voting Activity." Additionally, your Board raised the amount its members are recommended to invest in the AIM Funds within three years of joining the Board, with the goal of aligning our interests even more closely with yours. Furthermore, at our June meeting we renewed the investment advisory contracts between the AIM Funds and AIM for another year, applying the same rigorous evaluation process that was enhanced and formalized in 2005. For more information on this process, please visit AIMinvestments.com. Click on the "Products and Performance" tab and go to "Investment Advisory Agreement Renewals." Your Board's ability to best represent your interests depends on our knowledge of your opinions and concerns. Please send me an email (bruce@brucecrockett.com) with your thoughts on the following: 1) How important is it to you to hear about your Board's decisions and activities in these letters? 2) What other information (on overall performance, specific funds, managers, etc.) would make the letters more meaningful to you? 3) Would you prefer that communications from your Board continue to be delivered in paper form by regular mail or be sent electronically by email? If you would prefer to communicate through a quick online survey, please go to AIMinvestments.com and provide your responses there. We need to hear from you to do our best job, and I look forward to your responses. Sincerely, /S/ BRUCE L. CROCKETT Bruce L. Crockett Independent Chair AIM Funds Board of Directors December 17, 2007 AIM Investments is a registered service mark of A I M Management Group Inc. A I M Advisors, Inc. and A I M Capital Management, Inc. are the investment advisors. A I M Distributors, Inc. is the distributor for the retail mutual funds represented by AIM Investments and the PowerShares Exchange-Traded Fund Trust.
3 AIM Constellation Fund Management's discussion of Fund performance nies with management teams that profitably reinvest shareholder cash flow ================================================================================ PERFORMANCE SUMMARY o Valuation--focus on profitable companies that are attractively valued given their growth For the fiscal year ended October 31, 2007, all share classes of AIM potential over our time horizon Constellation Fund, excluding applicable sales charges, produced double-digit returns and outperformed the S&P 500 Index and the Russell 1000 Growth Index. Stocks that are ranked highest by our quantitative model are the focus of our The Fund outperformed the broad market as represented by the S&P 500 Index fundamental research. Our fundamental analysis and the Russell 1000 Growth Index largely due to strong stock selection across seeks to develop a comprehensive understanding several sectors. The Fund also benefited from exposure to mid- and small-cap of the specific growth drivers, as well as the holdings, which had strong returns during the period. Both the S&P 500 Index and sustainability of that growth and the valuation the Russell 1000 Growth Index consist primarily of large-cap stocks. reflected in the current share price. To determine the presence of these strong Your Fund's long-term performance appears later in this report. fundamentals, we analyze factors including consensus earnings estimates, the competitive FUND VS. INDEXES landscape, industry themes, product and service innovation and valuation metrics. Total returns, 10/31/06-10/31/07, excluding applicable sales charges. If sales charges were included, returns would be lower. We construct the portfolio using a bottom-up strategy, focusing on stocks rather than Class A Shares 21.75% industries or sectors. While there are no Class B Shares 20.83 formal sector guidelines or constraints, Class C Shares 20.80 internal controls and proprietary software help Class R Shares 21.42 us monitor risk levels and sector S&P 500 Index* (Broad Market Index) 14.55 concentration. Russell 1000 Growth Index* (Style-Specific Index) 19.23 Lipper Multi-Cap Growth Funds Index* (Peer Group Index) 22.31 We believe disciplined sell decisions are SOURCE: *LIPPER INC. integral to successful investing. Some of the ================================================================================ major factors we consider in our sell decision may include: How we invest Our quantitative model ranks companies based on factors we have o deteriorating business fundamentals We believe a growth investment strategy found to be highly correlated with is an essential component of a outperformance in the growth universe, o disappointing earnings diversified portfolio. including: o excessive valuations Our investment process combines o Earnings--focus on companies quantitative and fundamental analysis exhibiting strong growth in earnings, o a more attractive opportunity in another to uncover companies exhibiting revenue and cash flows security. long-term, sustainable earnings and cash flow growth that is not yet o Quality--focus on companies with Market conditions and your Fund reflected in investor expectations or sustainable earnings growth; focus on equity valuations. compa- Domestic equities posted solid returns during the fiscal year, leaving several major market indexes near multi-year highs. Strong eco- (continued) ======================================= ====================================== =============================================== PORTFOLIO COMPOSITION TOP FIVE INDUSTRIES TOP 10 EQUITY HOLDINGS* By sector 1. Aerospace & Defense 8.7% 1. Apple Inc. 3.5% Information Technology 30.4% 2. Computer Hardware 7.6 2. Cisco Systems, Inc. 3.2 Industrials 20.6 3. Communications Equipment 5.0 3. Goldman Sachs Group, Inc. (The) 3.1 Health Care 15.2 4. Internet Software & Services 4.6 4. Dell Inc. 2.7 Consumer Discretionary 12.5 5. Pharmaceuticals 4.5 5. Google Inc.-Class A 2.6 Financials 7.2 6. Merck & Co. Inc. 2.5 Energy 6.4 Total Net Assets $7.38 billion 7. Precision Castparts Corp. 2.4 Telecommunication Services 2.8 8. McDermott International, Inc. 2.3 Materials 2.0 Total Number of Holdings* 77 9. Amazon.com, Inc. 2.1 Consumer Staples 1.9 10. JPMorgan Chase & Co. 2.0 Money Market Funds Plus Other Assets Less Liabilities 1.0 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. ======================================= ====================================== ===============================================
4 AIM Constellation Fund nomic growth, favorable corporate earnings which benefited from the introduction of The views and opinions expressed in and increased merger and acquisition the iPhone(TM) as well as stronger than management's discussion of Fund activity drove equity markets, offsetting expected sales of personal computers. performance are those of A I M Advisors, high energy prices, a slowing housing Other key contributors to performance Inc. These views and opinions are subject market and sub-prime mortgage concerns that included communications equipment to change at any time based on factors contributed to high market volatility late holdings Cisco Systems and Research in such as market and economic conditions. in the year. Motion and Internet software and search These views and opinions may not be relied engine Google. upon as investment advice or In this environment, indexes measuring recommendations, or as an offer for a the performance of large- and mid-cap Underperformance versus the Russell particular security. The information is stocks had double-digit returns, while 1000 Growth Index was largely limited to not a complete analysis of every aspect of small-cap stocks had high-single-digit the consumer discretionary, financials any market, country, industry, security or returns.(1) Additionally, growth stocks and materials sectors. Underperformance the Fund. Statements of fact are from generally outperformed value stocks.(1) in the consumer discretionary sector was sources considered reliable, but A I M driven by both stock selection and an Advisors, Inc. makes no representation or The Fund benefited from positive overweight position, as many warranty as to their completeness or absolute performance in seven of 10 market consumer-related stocks struggled in the accuracy. Although historical performance sectors. The Fund outperformed the Russell second half of the fiscal year. One is no guarantee of future results, these 1000 Growth Index by the widest margin in example is department store operator J.C. insights may help you understand our four sectors: industrials, Penney. After posting strong performance investment management philosophy. telecommunication services, energy and during much of the fiscal year, the information technology (IT). company lowered its earnings guidance in See important Fund and index early October, citing disappointing sales disclosures later in this report. The industrials sector benefited from a during the month of September. Despite broad-based rally during much of the fiscal the pullback, we continued to own the Lanny H. Sachnowitz year. The Fund outperformed the Russell stock as of the close of the fiscal year. [SACHNOWITZ Senior portfolio manager, 1000 Growth Index in this sector due to PHOTO] is lead manager of AIM strong stock selection and an overweight Many financials stocks faced selling Constellation Fund. He joined AIM in 1987. position. Two of the Fund's top five pressure late in the fiscal year due to Mr. Sachnowitz earned a B.S. in finance contributors to performance during the concerns about sub-prime mortgages. from the University of Southern California fiscal year came from the industrials Underperformance in this sector was and an M.B.A. from the University of sector--engineering and construction firm driven by both stock selection and an Houston. McDermott International and aerospace and overweight position. Key detractors defense holding Precision Castparts. Both included The Blackstone Group and Merrill Kirk L. Anderson holdings were up over 100% during the Lynch. We sold our position in both [ANDERSON Portfolio manager, is fiscal year due to strong global demand for stocks before the close of the fiscal PHOTO] manager of AIM their products and services. year. Constellation Fund. He joined AIM in 1994. Mr. Anderson earned a B.A. in political Outperformance in the telecommunication Underperformance in the materials science from Texas A&M University and an services sector was also driven by stock sector was driven by the Fund's M.S. in finance from the University of selection. In this sector, two of the underweight position, as the materials Houston. Fund's foreign wireless holdings made key sector was the top performing sector in contributions to performance--China Mobile the Russell 1000 Growth Index during the James G. Birdsall and America Movil. These two companies have fiscal year. [BIRDSALL Portfolio manager, is been successful in rolling out wireless PHOTO] manager of AIM service in China and Latin America, Our investment process led us to Constellation Fund. He has been associated respectively. reduce our exposure to the financials, with AIM Investments since 1995. Mr. health care and consumer discretionary Birdsall earned his B.B.A. with a Many companies in the energy sector sectors due to less upside to earnings concentration in finance from Stephen F. continued to benefit from higher oil prices estimates. Proceeds from these sales were Austin State University before earning his and the ongoing modernization and expansion invested primarily in a number of M.B.A. with a concentration in finance and of the global energy infrastructure. Within attractive opportunities in the IT and international business from the University this sector, the Fund benefited from solid industrials sectors. All changes to the of St. Thomas. stock selection. Fund holding National Fund were based on our bottom-up stock Oilwell Varco was among the top five selection process of identifying high Robert J. Lloyd contributors to overall Fund performance. quality growth companies trading at what [LLOYD Chartered Financial This company benefited from strong revenue we believed were attractive valuations. PHOTO] Analyst, portfolio manager, and earnings growth driven by solid demand is manager of AIM Constellation Fund. He for the capital equipment it manufactures. We are pleased to have provided joined AIM in 2000. Mr. Lloyd earned a positive returns for our investors for B.B.A. from the University of Notre Dame The IT sector was another area of the fiscal year by focusing on and an M.B.A. from the University of strength for the Fund. Within this sector, attractively priced stocks of large-, Chicago. the leading contributor to overall mid- and small-cap companies we believed performance during the fiscal year was had the potential for sustainable Assisted by the Large/Multi-Cap Growth long-time holding Apple, earnings, revenue and cash flow growth. Team We thank you for your commitment to AIM Constellation Fund. Source: (1)Lipper Inc.
5 AIM Constellation Fund Your Fund's long-term performance Past performance cannot guarantee This chart, which is a logarithmic comparable future results. chart, presents the fluctuations in the value of the Fund and its indexes. We The data shown in the chart include believe that a logarithmic chart is more reinvested distributions, applicable sales effective than other types of charts in charges, Fund expenses and management fees. illustrating changes in value during the Index results include reinvested dividends, early years shown in the chart. The but they do not reflect sales charges. vertical axis, the one that indicates the Performance of an index of funds reflects dollar value of an investment, is fund expenses and management fees; constructed with each segment performance of a market index does not. representing a percent change in the Performance shown in the chart and table(s) value of the investment. In this chart, does not reflect deduction of taxes a each segment represents a doubling, or shareholder would pay on Fund distributions 100% change, in the value of the or sale of Fund shares. Performance of the investment. In other words, the space indexes does not reflect the effects of between $5,000 and $10,000 is the same taxes. size as the space between $10,000 and $20,000, and so on.
6 ==================================================================================================================================== [MOUNTAIN CHART] RESULTS OF A $10,000 INVESTMENT FUND AND INDEX DATA FROM 04/30/76 AIM CONSTELLATION FUND LIPPER MULTI-CAP DATE -CLASS A SHARES S&P 500 INDEX(1) GROWTH FUNDS INDEX(1) 04/30/76 $ 9450 $ 10000 $ 10000 10/82 29017 18409 27289 5/76 9171 9889 9865 11/82 33828 19152 29242 6/76 9512 10327 10369 12/82 33751 19522 29494 7/76 9327 10278 10147 1/83 36488 20248 30334 8/76 9265 10258 9966 2/83 38874 20712 32200 9/76 9514 10524 10117 3/83 40320 21476 32789 10/76 9111 10327 9768 4/83 45013 23169 34826 11/76 9173 10285 9956 5/83 48335 22967 35856 12/76 9886 10863 10498 6/83 52560 23860 37577 1/77 9080 10349 10151 7/83 47945 23157 35917 2/77 8668 10160 9836 8/83 45519 23504 35223 3/77 8637 10054 9809 9/83 47121 23828 36093 4/77 8826 10096 9915 10/83 40590 23552 34365 5/77 8731 9898 9841 11/83 44382 24049 35492 6/77 9456 10387 10475 12/83 42034 23924 35115 7/77 9204 10227 10312 1/84 38360 23790 33356 8/77 9046 10082 10189 2/84 34896 22952 31538 9/77 9046 10097 10325 3/84 34896 23349 31939 10/77 8573 9704 9921 4/84 34687 23571 31865 11/77 9299 10012 10605 5/84 32123 22265 30307 12/77 9551 10086 10808 6/84 34224 22749 31247 1/78 8605 9507 10154 7/84 32712 22466 30453 2/78 6966 9314 10132 8/84 38344 24947 33982 3/78 9550 9588 10578 9/84 36328 24952 33204 4/78 10968 10453 11508 10/84 35906 25049 33151 5/78 12134 10549 12022 11/84 33676 24768 32359 6/78 11724 10404 12079 12/84 35653 25420 33275 7/78 13426 11011 13045 1/85 40951 27400 36552 8/78 14404 11342 13722 2/85 42127 27737 37068 9/78 13648 11306 13403 3/85 39814 27754 36541 10/78 10338 10320 11365 4/85 38257 27729 36033 11/78 11095 10542 11986 5/85 41199 29332 38033 12/78 11567 10749 12427 6/85 42208 29792 38931 1/79 12293 11225 12942 7/85 42124 29750 38915 2/79 11505 10863 12407 8/85 40949 29462 38351 3/79 12891 11512 13356 9/85 37923 28572 36621 4/79 13269 11584 13565 10/85 39690 29892 38101 5/79 13143 11333 13303 11/85 43139 31943 40726 6/79 14277 11825 14122 12/85 45831 33489 42392 7/79 14812 11983 14561 1/86 48351 33676 43337 8/79 16987 12675 15751 2/86 53017 36192 47086 9/79 17333 12730 15817 3/86 55790 38211 49666 10/79 15631 11914 14727 4/86 57302 37783 49338 11/79 18184 12480 16101 5/86 62471 39793 52135 12/79 20420 12747 16916 6/86 63145 40466 52949 1/80 22846 13540 18161 7/86 56837 38204 49025 2/80 23982 13539 17989 8/86 59781 41035 51530 3/80 18876 12223 15702 9/86 53349 37641 47052 4/80 20294 12788 16376 10/86 58182 39813 49692 5/80 21398 13446 17311 11/86 59497 40781 50343 6/80 22846 13871 18026 12/86 58884 39741 49281 7/80 25997 14837 20018 1/87 70738 45094 55387 8/80 27918 14987 20715 2/87 78724 46875 59402 9/80 29587 15427 21649 3/87 80165 48230 59955 10/80 31383 15739 22272 4/87 79355 47800 58935 11/80 36740 17415 24865 5/87 79411 48211 59478 12/80 35638 16891 24104 6/87 80618 50646 61631 1/81 32613 16183 22701 7/87 83673 53214 64700 2/81 32808 16463 23030 8/87 88225 55199 66822 3/81 35193 17121 24306 9/87 82870 53990 65633 4/81 35024 16789 24384 10/87 56766 42366 50176 5/81 37784 16831 25386 11/87 51521 38875 46659 6/81 33934 16727 24231 12/87 60557 41833 51553 7/81 33968 16762 23960 1/88 59413 43590 52182 8/81 29573 15793 22486 2/88 65039 45613 55548 9/81 26021 15016 21391 3/88 65423 44208 54926 10/81 30655 15827 23308 4/88 67713 44699 55321 11/81 30551 16479 23907 5/88 66284 45079 54619 12/81 29427 16057 23285 6/88 74390 47148 57994 1/82 27811 15849 22754 7/88 71623 46969 56713 2/82 25183 14963 21901 8/88 67426 45376 54620 3/82 23189 14885 21662 9/88 70480 47309 57029 4/82 25262 15559 22823 10/88 70001 48625 57051 5/82 23501 15029 22022 11/88 67901 47929 55785 6/82 21898 14803 21908 12/88 70447 48763 57810 7/82 21116 14541 21743 1/89 75773 52333 61862 8/82 23150 16306 23674 2/89 74970 51030 60953 9/82 24011 16509 24233 3/89 76979 52219 62739 ==================================================================================================================================== SOURCE: (1)LIPPER INC.
==================================================================================================================================== [MOUNTAIN CHART] 4/89 82807 54929 66685 11/96 349585 167842 199925 5/89 87328 57142 70573 12/96 342034 164519 196307 6/89 83512 56822 69331 1/97 357050 174785 205729 7/89 92322 61948 74725 2/97 341340 176166 200051 8/89 98683 63156 77348 3/97 319664 168943 189729 9/89 100301 62897 78222 4/97 324939 179012 195743 10/89 94855 61438 75093 5/97 357693 189949 212342 11/89 96970 62685 76174 6/97 369461 198402 220305 12/89 97242 64189 76707 7/97 408993 214175 240595 1/90 88792 59882 69934 8/97 403022 202181 234003 2/90 93737 60655 71270 9/97 422770 213241 248815 3/90 100130 62262 73971 10/97 395670 206118 237817 4/90 98318 60712 72063 11/97 391081 215662 239316 5/90 112072 66619 79752 12/97 386114 219371 241350 6/90 111714 66173 80047 1/98 378816 221784 242412 7/90 105435 65961 78206 2/98 415410 237775 262580 8/90 90843 60005 70440 3/98 429617 249949 275394 9/90 82395 57088 66242 4/98 439885 252498 278589 10/90 79503 56849 64784 5/98 418814 248155 268002 11/90 90244 60515 69675 6/98 435944 258230 281778 12/90 93258 62198 72170 7/98 419858 255493 274902 1/91 103516 64897 78052 8/98 338909 218574 224018 2/91 111114 69531 83648 9/98 367886 232585 240170 3/91 119081 71213 86643 10/98 386648 251471 253667 4/91 117628 71384 86088 11/98 410117 266710 271322 5/91 126192 74454 90238 12/98 459126 282073 301222 6/91 117989 71044 84886 1/99 466794 293863 319747 7/91 128124 74354 90396 2/99 433418 284724 303089 8/91 135120 76109 93641 3/99 453139 296113 320334 9/91 136931 74838 93304 4/99 468500 307573 328118 10/91 141394 75841 95524 5/99 466392 300314 321786 11/91 137054 72792 92085 6/99 499179 316921 344279 12/91 158927 81105 103918 7/99 484154 307065 336532 1/92 162233 79596 103898 8/99 481588 305530 333167 2/92 164813 80623 105487 9/99 485344 297158 331268 3/92 158929 79059 101194 10/99 521308 315968 354622 4/92 150601 81376 99605 11/99 567183 322382 383063 5/92 151700 81774 100452 12/99 662924 341338 440905 6/92 144100 80556 97127 1/00 651124 324203 436452 7/92 152804 83843 100701 2/00 737528 318076 506241 8/92 147410 82132 98375 3/00 757810 349184 504267 9/92 152923 83101 100303 4/00 697109 338673 462009 10/92 162358 83384 103342 5/00 657026 331730 430870 11/92 175720 86219 109429 6/00 721348 339891 473612 12/92 182819 87279 112099 7/00 714640 334589 458741 1/93 188085 88013 113848 8/00 809044 355367 508422 2/93 176687 89210 110820 9/00 762928 336603 477510 3/93 184408 91092 114565 10/00 711888 335190 449767 4/93 177788 88887 110659 11/00 576060 308777 376095 5/93 191140 91261 116678 12/00 594206 310290 387792 6/93 194198 91525 117799 1/01 621718 321305 395664 7/93 192605 91159 117834 2/01 525600 292034 337739 8/93 201542 94614 123761 3/01 467469 273548 301533 9/93 208516 93886 126385 4/01 514730 294776 338350 10/93 208766 95829 127863 5/01 509171 296751 336523 11/93 204966 94919 124002 6/01 499955 289540 330533 12/93 214395 96067 128181 7/01 480457 286702 312684 1/94 225672 99334 132436 8/01 438945 268783 285700 2/94 226281 96642 130304 9/01 383287 247092 243245 3/94 211098 92438 123307 10/01 405058 251812 260661 4/94 212449 93621 123418 11/01 446333 271126 285763 5/94 209262 95147 123035 12/01 453921 273512 290220 6/94 197125 92816 117929 1/02 445705 269518 282007 7/94 201895 95860 121314 2/02 426406 264317 264495 8/94 216714 99781 128035 3/02 452288 274255 280258 9/94 217213 97346 126063 4/02 426011 257635 263247 10/94 224316 99527 128534 5/02 417789 255754 255613 11/94 213773 95904 123521 6/02 388418 237545 231789 12/94 217172 97323 124571 7/02 352878 219040 210024 1/95 213002 99844 124533 8/02 351643 220464 208428 2/95 224760 103728 129565 9/02 324320 196521 192254 3/95 235121 106788 133788 10/02 353087 213796 206942 4/95 240553 109928 136518 11/02 367458 226367 219897 5/95 247889 114314 140081 12/02 341589 213079 203669 6/95 268365 116966 148612 1/03 332332 207518 200308 7/95 294638 120837 158108 2/03 330903 204405 198946 8/95 296671 121139 159420 3/03 335204 206388 202109 9/95 307292 126251 163804 4/03 357596 223373 216883 10/95 299333 125797 161724 5/03 375476 235123 232824 11/95 302985 131307 167109 6/03 380207 238132 235525 12/95 294198 133841 166591 7/03 393970 242324 242826 1/96 296552 138392 169124 8/03 409178 247049 252539 2/96 311320 139679 174096 9/03 395429 244430 247665 3/96 310947 141020 175123 10/03 423347 258240 265200 4/96 329883 143093 182898 11/03 432576 260513 270053 5/96 340341 146770 187928 12/03 441833 274164 275751 6/96 327272 147328 183888 1/04 450051 279208 282618 7/96 297981 140816 170556 2/04 453561 283089 286348 8/96 316009 143787 178026 3/04 445760 278815 285489 9/96 339140 151868 189580 4/04 431585 274437 275925 10/96 333002 156060 189144 5/04 440001 278197 282437 ====================================================================================================================================
==================================================================================================================================== [MOUNTAIN CHART] 6/04 450253 283594 288481 7/04 422112 274207 268115 8/04 414725 275304 264334 9/04 426420 278277 274537 10/04 436910 282535 280440 11/04 456833 293949 295528 12/04 469168 303944 306787 1/05 455796 296527 295712 2/05 464639 302755 299054 3/05 453162 297396 292744 4/05 436305 291745 282000 5/05 456636 301023 299343 6/05 457458 301444 300959 7/05 481292 312658 318746 8/05 480859 309813 317216 9/05 494227 312322 322323 10/05 485380 307106 316457 11/05 505281 318715 333388 12/05 508767 318843 334788 1/06 534002 327292 352063 2/06 526846 328176 346219 3/06 539174 332245 354078 4/06 540415 336697 356875 5/06 508800 327034 335998 6/06 505493 327459 335259 7/06 488256 329489 325067 8/06 498753 337331 333128 9/06 514165 346034 340790 10/06 525065 357315 354797 11/06 537404 364104 365689 12/06 538640 369201 365616 1/07 546881 374776 374135 2/07 536381 367468 367962 3/07 546251 371584 371089 4/07 570286 388045 386452 5/07 598857 401588 403224 6/07 590653 394921 399676 7/07 576477 382679 391363 8/07 587142 388419 395237 9/07 615912 402946 416382 10/07 639094 409321 433822 ====================================================================================================================================
AIM Constellation Fund =========================================== ========================================= AVERAGE ANNUAL TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS As of 10/31/07, including applicable sales As of 9/30/07, the most recent calendar charges quarter-end, including applicable sales charges CLASS A SHARES Inception (4/30/76) 14.11% CLASS A SHARES 10 Years 4.32 Inception (4/30/76) 14.01% 5 Years 11.34 10 Years 3.24 1 Year 15.05 5 Years 12.40 1 Year 13.17 CLASS B SHARES Inception (11/3/97) 3.98% CLASS B SHARES 5 Years 11.53 Inception (11/3/97) 3.62% 1 Year 15.83 5 Years 12.62 1 Year 13.83 CLASS C SHARES Inception (8/4/97) 3.63% CLASS C SHARES 10 Years 4.12 Inception (8/4/97) 3.29% 5 Years 11.77 10 Years 3.05 1 Year 19.80 5 Years 12.86 1 Year 17.84 CLASS R SHARES 10 Years 4.72% CLASS R SHARES 5 Years 12.32 10 Years 3.64% 1 Year 21.42 5 Years 13.41 1 Year 19.41 =========================================== ========================================= CLASS R SHARES' INCEPTION DATE IS JUNE 3, THE NET ANNUAL FUND OPERATING EXPENSE PURCHASE TO 0% AT THE BEGINNING OF THE 2002. RETURNS SINCE THAT DATE ARE RATIO SET FORTH IN THE MOST RECENT FUND SEVENTH YEAR. THE CDSC ON CLASS C SHARES HISTORICAL RETURNS. ALL OTHER RETURNS ARE PROSPECTUS AS OF THE DATE OF THIS REPORT IS 1% FOR THE FIRST YEAR AFTER PURCHASE. BLENDED RETURNS OF HISTORICAL CLASS R SHARE FOR CLASS A, CLASS B, CLASS C AND CLASS R CLASS R SHARES DO NOT HAVE A FRONT-END PERFORMANCE AND RESTATED CLASS A SHARE SHARES WAS 1.21%, 1.96%, 1.96%, AND SALES CHARGE; RETURNS SHOWN ARE AT NET PERFORMANCE (FOR PERIODS PRIOR TO THE 1.46%, RESPECTIVELY.1 THE TOTAL ANNUAL ASSET VALUE AND DO NOT REFLECT A 0.75% INCEPTION DATE OF CLASS R SHARES) AT NET FUND OPERATING EXPENSE RATIO SET FORTH IN CDSC THAT MAY BE IMPOSED ON A TOTAL ASSET VALUE, ADJUSTED TO REFLECT THE HIGHER THE MOST RECENT FUND PROSPECTUS AS OF THE REDEMPTION OF RETIREMENT PLAN ASSETS RULE 12B-1 FEES APPLICABLE TO CLASS R DATE OF THIS REPORT FOR CLASS A, CLASS B, WITHIN THE FIRST YEAR. SHARES. CLASS A SHARES' INCEPTION DATE IS CLASS C AND CLASS R SHARES WAS 1.24%, APRIL 30, 1976. 1.99%, 1.99% AND 1.49%, RESPECTIVELY. THE THE PERFORMANCE OF THE FUND'S SHARE EXPENSE RATIOS PRESENTED ABOVE MAY VARY CLASSES WILL DIFFER PRIMARILY DUE TO THE PERFORMANCE DATA QUOTED REPRESENT FROM THE EXPENSE RATIOS PRESENTED IN DIFFERENT SALES CHARGE STRUCTURES AND PAST PERFORMANCE AND CANNOT GUARANTEE OTHER SECTIONS OF THIS REPORT THAT ARE CLASS EXPENSES. COMPARABLE FUTURE RESULTS; CURRENT BASED ON EXPENSES INCURRED DURING THE PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE PERIOD COVERED BY THIS REPORT. (1) Total annual operating expenses less VISIT AIMINVESTMENTS.COM FOR THE MOST contractual advisory fee waivers by the RECENT MONTH-END PERFORMANCE. PERFORMANCE CLASS A SHARE PERFORMANCE REFLECTS THE advisor in effect through December 31, FIGURES REFLECT REINVESTED DISTRIBUTIONS, MAXIMUM 5.50% SALES CHARGE, AND CLASS B 2012. See current prospectus for more CHANGES IN NET ASSET VALUE AND THE EFFECT AND CLASS C SHARE PERFORMANCE REFLECTS information. OF THE MAXIMUM SALES CHARGE UNLESS THE APPLICABLE CONTINGENT DEFERRED SALES OTHERWISE STATED. INVESTMENT RETURN AND CHARGE (CDSC) FOR THE PERIOD INVOLVED. ========================================== PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU THE CDSC ON CLASS B SHARES DECLINES FROM MAY HAVE A GAIN OR LOSS WHEN YOU SELL 5% BEGINNING AT THE TIME OF FOR A DISCUSSION OF THE RISKS OF SHARES. INVESTING IN YOUR FUND AND INDEXES USED IN THIS REPORT, PLEASE TURN THE PAGE. ==========================================
7 AIM Constellation Fund AIM CONSTELLATION FUND'S INVESTMENT OBJECTIVE IS GROWTH OF CAPITAL. o Unless otherwise stated, information presented in this report is as of October 31, 2007, and is based on total net assets. o Unless otherwise noted, all data in this report are from A I M Management Group Inc. About share classes About indexes used in this report Other information o Class B shares are not available as an o The S&P 500 --REGISTERED TRADEMARK-- o The returns shown in the management's investment for retirement plans maintained Index is a market capitalization-weighted discussion of Fund performance are based pursuant to Section 401 of the Internal index covering all major areas of the on net asset values calculated for Revenue Code, including 401(k) plans, money U.S. economy. It is not the 500 largest shareholder transactions. Generally purchase pension plans and profit sharing companies, but rather the most widely accepted accounting principles require plans. Plans that had existing accounts held 500 companies chosen with respect to adjustments to be made to the net assets invested in Class B shares prior to market size, liquidity, and their of the Fund at period end for financial September 30, 2003, will continue to be industry. reporting purposes, and as such, the net allowed to make additional purchases. asset values for shareholder transactions o The Russell 1000 --REGISTERED and the returns based on those net asset o Class R shares are available only to TRADEMARK-- Growth Index measures the values may differ from the net asset certain retirement plans. Please see the performance of those Russell 1000 values and returns reported in the prospectus for more information. companies with higher price-to-book Financial Highlights. ratios and higher forecasted growth Principal risks of investing in the Fund values. The Russell 1000 Growth Index is o Industry classifications used in this a trademark/service mark of the Frank report are generally according to the o Prices of equity securities change in Russell Company. Russell --registered Global Industry Classification Standard, response to many factors including the trademark-- is a trademark of the Frank which was developed by and is the historical and prospective earnings of the Russell Company. exclusive property and a service mark of issuer, the value of its assets, general Morgan Stanley Capital International Inc. economic conditions, interest rates, o THE LIPPER MULTI-CAP GROWTH FUNDS INDEX and Standard & Poor's. investor perceptions and market liquidity. is an equally weighted representation of the largest funds in the Lipper Multi-Cap o The Chartered Financial Analyst o Foreign securities have additional risks, Growth Funds category. These funds --REGISTERED TRADEMARK-- (CFA --REGISTERED including exchange rate changes, political typically have an above-average TRADEMARK--) designation is a globally and economic upheaval, the relative lack of price-to-earnings ratio, price-to-book recognized standard for measuring the information, relatively low market ratio and three-year sales-per-share competence and integrity of investment liquidity, and the potential lack of strict growth value, compared to the S&P professionals. financial and accounting controls and SuperComposite 1500 Index. standards. o The Fund is not managed to track the o Investing in a fund that invests in performance of any particular index, smaller companies involves risks not including the indexes defined here, and associated with investing in more consequently, the performance of the Fund established companies, such as business may deviate significantly from the risk, stock price fluctuations and performance of the indexes. illiquidity. o A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of an index of funds reflects fund expenses; performance of a market index does not. ======================================================================================= THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND PROSPECTUS, ========================================= WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING. FUND NASDAQ SYMBOLS ======================================================================================= Class A Shares CSTGX Class B Shares CSTBX NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE Class C Shares CSTCX Class R Shares CSTRX AIMINVESTMENTS.COM =========================================
8 AIM Constellation Fund SCHEDULE OF INVESTMENTS(A) October 31, 2007
SHARES VALUE - --------------------------------------------------------------------------- DOMESTIC COMMON STOCKS & OTHER EQUITY INTERESTS-88.29% AEROSPACE & DEFENSE-8.69% Boeing Co. (The) 382,131 $ 37,674,295 - --------------------------------------------------------------------------- General Dynamics Corp. 1,300,000 118,248,000 - --------------------------------------------------------------------------- Honeywell International Inc. 909,808 54,961,501 - --------------------------------------------------------------------------- Precision Castparts Corp. 1,200,000 179,772,000 - --------------------------------------------------------------------------- Spirit AeroSystems Holdings Inc.-Class A(b)(d) 4,132,899 143,494,253 - --------------------------------------------------------------------------- United Technologies Corp. 1,396,316 106,943,843 =========================================================================== 641,093,892 =========================================================================== APPAREL RETAIL-1.33% Aeropostale, Inc.(b) 2,835,244 64,927,088 - --------------------------------------------------------------------------- DSW Inc.-Class A(b)(c)(d) 1,472,780 33,137,550 =========================================================================== 98,064,638 =========================================================================== APPAREL, ACCESSORIES & LUXURY GOODS-1.91% Coach, Inc.(b) 2,535,288 92,690,129 - --------------------------------------------------------------------------- Phillips-Van Heusen Corp. 1,007,306 48,149,227 =========================================================================== 140,839,356 =========================================================================== APPLICATION SOFTWARE-4.10% Adobe Systems Inc.(b) 2,323,501 111,295,698 - --------------------------------------------------------------------------- Amdocs Ltd.(b) 3,492,728 120,149,843 - --------------------------------------------------------------------------- Autodesk, Inc.(b) 1,458,163 71,304,171 =========================================================================== 302,749,712 =========================================================================== ASSET MANAGEMENT & CUSTODY BANKS-1.34% Ameriprise Financial, Inc. 1,569,482 98,845,976 =========================================================================== BIOTECHNOLOGY-4.01% Biogen Idec Inc.(b) 669,816 49,861,103 - --------------------------------------------------------------------------- Celgene Corp.(b) 675,368 44,574,288 - --------------------------------------------------------------------------- Genzyme Corp.(b) 990,541 75,251,400 - --------------------------------------------------------------------------- Gilead Sciences, Inc.(b) 2,727,816 125,997,821 =========================================================================== 295,684,612 =========================================================================== COMMUNICATIONS EQUIPMENT-3.19% Cisco Systems, Inc.(b) 7,128,420 235,665,565 =========================================================================== COMPUTER HARDWARE-7.57% Apple Inc.(b) 1,354,053 257,202,367 - --------------------------------------------------------------------------- Dell Inc.(b) 6,467,934 197,918,781 - --------------------------------------------------------------------------- Hewlett-Packard Co. 2,000,000 103,360,000 =========================================================================== 558,481,148 ===========================================================================
SHARES VALUE - ---------------------------------------------------------------------------
COMPUTER STORAGE & PERIPHERALS-0.57% EMC Corp.(b) 1,647,206 $ 41,822,560 =========================================================================== CONSTRUCTION & ENGINEERING-2.66% Chicago Bridge & Iron Co. N.V.-New York Shares 1,418,964 70,948,200 - --------------------------------------------------------------------------- Foster Wheeler Ltd.(b) 842,448 124,892,916 =========================================================================== 195,841,116 =========================================================================== CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS-0.60% Terex Corp.(b) 600,000 44,532,000 =========================================================================== DATA PROCESSING & OUTSOURCED SERVICES-1.21% VeriFone Holdings, Inc.(b)(c) 1,800,000 88,974,000 =========================================================================== DEPARTMENT STORES-1.58% JCPenney Co., Inc. 1,162,508 65,379,450 - --------------------------------------------------------------------------- Nordstrom, Inc. 1,300,158 51,278,231 =========================================================================== 116,657,681 =========================================================================== DIVERSIFIED METALS & MINING-0.26% Titanium Metals Corp.(b)(c) 552,670 19,453,984 =========================================================================== DRUG RETAIL-0.63% Longs Drug Stores Corp. 891,672 46,821,697 =========================================================================== EDUCATION SERVICES-1.97% Apollo Group, Inc.-Class A(b) 1,831,215 145,142,101 =========================================================================== ELECTRICAL COMPONENTS & EQUIPMENT-1.97% Acuity Brands, Inc. 792,934 37,902,245 - --------------------------------------------------------------------------- Emerson Electric Co. 2,048,273 107,063,230 =========================================================================== 144,965,475 =========================================================================== ELECTRONIC EQUIPMENT MANUFACTURERS-1.33% Amphenol Corp.-Class A 2,214,616 98,041,050 =========================================================================== ELECTRONIC MANUFACTURING SERVICES-0.84% Trimble Navigation Ltd.(b) 1,484,446 61,901,398 =========================================================================== FERTILIZERS & AGRICULTURAL CHEMICALS-0.26% Monsanto Co. 197,576 19,289,345 =========================================================================== GENERAL MERCHANDISE STORES-0.95% Family Dollar Stores, Inc. 2,764,089 70,069,656 ===========================================================================
9 AIM Constellation Fund
SHARES VALUE - --------------------------------------------------------------------------- HEALTH CARE DISTRIBUTORS-1.25% McKesson Corp. 1,389,697 $ 91,858,972 =========================================================================== HEALTH CARE FACILITIES-0.96% VCA Antech, Inc.(b) 1,542,242 71,020,244 =========================================================================== HEALTH CARE SERVICES-1.09% Express Scripts, Inc.(b) 1,278,285 80,659,783 =========================================================================== HOME ENTERTAINMENT SOFTWARE-1.24% Electronic Arts Inc.(b)(c) 1,502,348 91,823,510 =========================================================================== HOUSEHOLD PRODUCTS-1.22% Clorox Co. (The) 458,047 28,660,001 - --------------------------------------------------------------------------- Colgate-Palmolive Co. 800,000 61,016,000 =========================================================================== 89,676,001 =========================================================================== INDUSTRIAL CONGLOMERATES-2.26% McDermott International, Inc.(b) 2,730,000 166,693,800 =========================================================================== INTEGRATED OIL & GAS-1.20% Occidental Petroleum Corp. 1,283,182 88,603,717 =========================================================================== INTERNET RETAIL-2.07% Amazon.com, Inc.(b)(c) 1,713,726 152,778,673 =========================================================================== INTERNET SOFTWARE & SERVICES-4.60% eBay Inc.(b) 4,022,029 145,195,247 - --------------------------------------------------------------------------- Google Inc.-Class A(b) 274,335 193,954,845 =========================================================================== 339,150,092 =========================================================================== INVESTMENT BANKING & BROKERAGE-3.10% Goldman Sachs Group, Inc. (The) 922,322 228,662,070 =========================================================================== IT CONSULTING & OTHER SERVICES-1.52% Accenture Ltd.-Class A 2,878,111 112,390,235 =========================================================================== LIFE SCIENCES TOOLS & SERVICES-0.73% Thermo Fisher Scientific, Inc.(b) 914,513 53,782,510 =========================================================================== MANAGED HEALTH CARE-2.69% Health Net Inc.(b) 2,696,489 144,558,775 - --------------------------------------------------------------------------- UnitedHealth Group Inc. 1,098,166 53,974,859 =========================================================================== 198,533,634 =========================================================================== OIL & GAS EQUIPMENT & SERVICES-3.86% Cameron International Corp.(b) 700,000 68,152,000 - --------------------------------------------------------------------------- Grant Prideco, Inc.(b) 2,275,158 111,846,767 - --------------------------------------------------------------------------- National-Oilwell Varco Inc.(b) 1,429,432 104,691,600 =========================================================================== 284,690,367 ===========================================================================
SHARES VALUE - ---------------------------------------------------------------------------
OIL & GAS REFINING & MARKETING-1.32% Valero Energy Corp. 1,380,374 $ 97,219,741 =========================================================================== OTHER DIVERSIFIED FINANCIAL SERVICES-2.03% JPMorgan Chase & Co. 3,179,670 149,444,490 =========================================================================== PHARMACEUTICALS-3.52% Merck & Co. Inc. 3,168,313 184,585,915 - --------------------------------------------------------------------------- Schering-Plough Corp. 2,461,682 75,130,535 =========================================================================== 259,716,450 =========================================================================== REAL ESTATE MANAGEMENT & DEVELOPMENT-0.76% CB Richard Ellis Group, Inc.-Class A(b) 2,301,009 56,098,599 =========================================================================== RESTAURANTS-0.74% Darden Restaurants, Inc.(c) 1,264,137 54,357,891 =========================================================================== SEMICONDUCTORS-2.03% Microchip Technology Inc. 1,171,699 38,865,256 - --------------------------------------------------------------------------- Texas Instruments Inc. 3,394,113 110,648,084 =========================================================================== 149,513,340 =========================================================================== SPECIALTY STORES-0.99% PetSmart, Inc. 2,440,188 73,083,631 =========================================================================== SYSTEMS SOFTWARE-2.14% MICROS Systems, Inc.(b) 881,615 63,317,589 - --------------------------------------------------------------------------- Microsoft Corp. 2,572,495 94,693,541 =========================================================================== 158,011,130 =========================================================================== Total Domestic Common Stocks & Other Equity Interests (Cost $4,879,067,325) 6,512,705,842 =========================================================================== FOREIGN COMMON STOCKS & OTHER EQUITY INTERESTS-10.68% CANADA-1.86% Research In Motion Ltd. (Communications Equipment)(b) 1,100,000 136,961,000 =========================================================================== CHINA-0.01% Alibaba.com Ltd. (Internet Retail) (Acquired 10/29/07; Cost $401,130)(b)(e)(f) 228,000 397,138 =========================================================================== HONG KONG-1.80% China Mobile Ltd. (Wireless Telecommunication Services)(g) 6,350,000 132,542,274 =========================================================================== JAPAN-1.16% Komatsu Ltd. (Construction & Farm Machinery & Heavy Trucks)(g) 2,560,300 85,776,068 ===========================================================================
10 AIM Constellation Fund
SHARES VALUE - --------------------------------------------------------------------------- MEXICO-1.95% America Movil S.A.B de C.V.-Series L-ADR (Wireless Telecommunication Services) 1,076,978 $ 70,423,591 - --------------------------------------------------------------------------- Grupo Televisa S.A.-ADR (Broadcasting & Cable TV) 2,964,374 73,664,694 =========================================================================== 144,088,285 =========================================================================== SWITZERLAND-2.92% ABB Ltd. (Heavy Electrical Equipment)(g) 3,415,823 103,299,758 - --------------------------------------------------------------------------- Syngenta A.G. (Fertilizers & Agricultural Chemicals)(g) 463,967 112,047,972 =========================================================================== 215,347,730 =========================================================================== UNITED KINGDOM-0.98% Shire PLC (Pharmaceuticals) (Acquired 02/20/07; Cost $3,360,514)(f)(g) 160,282 4,009,819 - --------------------------------------------------------------------------- Shire PLC (Pharmaceuticals)(g) 2,728,740 68,265,651 =========================================================================== 72,275,470 =========================================================================== Total Foreign Common Stocks & Other Equity Interests (Cost $427,837,944) 787,387,965 ===========================================================================
SHARES VALUE - ---------------------------------------------------------------------------
MONEY MARKET FUNDS-0.76% Liquid Assets Portfolio-Institutional Class(h) 28,094,959 $ 28,094,959 - --------------------------------------------------------------------------- Premier Portfolio-Institutional Class(h) 28,094,959 28,094,959 =========================================================================== Total Money Market Funds (Cost $56,189,918) 56,189,918 =========================================================================== TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)-99.73% (Cost $5,363,095,187) 7,356,283,725 =========================================================================== INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES ON LOAN MONEY MARKET FUNDS-1.69% Liquid Assets Portfolio-Institutional Class (Cost $124,552,355)(h)(i) 124,552,355 124,552,355 =========================================================================== TOTAL INVESTMENTS-101.42% (Cost $5,487,647,542) 7,480,836,080 =========================================================================== OTHER ASSETS LESS LIABILITIES-(1.42)% (104,662,899) =========================================================================== NET ASSETS-100.00% $7,376,173,181 ___________________________________________________________________________ ===========================================================================
Investment Abbreviations: ADR - American Depositary Receipt
Notes to Schedule of Investments: (a) Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of Morgan Stanley Capital International Inc. and Standard & Poor's. (b) Non-income producing security. (c) All or a portion of this security was out on loan at October 31, 2007. (d) Affiliated company. The Investment Company Act of 1940 defines affiliates as those issuances in which a fund holds 5% or more of the outstanding voting securities. The Fund has not owned enough of the outstanding voting securities of the issuer to have control (as defined in the Investment Company Act of 1940) of that issuer. The aggregate value of these securities as of October 31, 2007 was $176,631,803 represented 2.39% of the Fund's Net Assets. See Note 3. (e) Security fair valued in good faith in accordance with the procedures established by the Board of Trustees. The value of this security at October 31, 2007 represented 0.01% of the Fund's Net Assets. See Note 1A. (f) Security not registered under the Securities Act of 1933, as amended (e.g., the security was purchased in a Rule 144A transaction or a Regulation D transaction). The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The Fund has no rights to demand registration of these securities. The aggregate value of these securities at October 31, 2007 was $4,406,957, which represented 0.06% of the Fund's Net Assets. Unless otherwise indicated, these securities are not considered to be illiquid. (g) In accordance with the procedures established by the Board of Trustees, the foreign security is fair valued using adjusted closing market prices. The aggregate value of these securities at October 31, 2007 was $505,941,542, which represented 6.86% of the Fund's Net Assets. See Note 1A. (h) The money market fund and the Fund are affiliated by having the same investment advisor. See Note 3. (i) The security has been segregated to satisfy the commitment to return the cash collateral received in securities lending transactions upon the borrower's return of the securities loaned. See Note 8. See accompanying Notes to Financial Statements which are an integral part of the financial statements. 11 AIM Constellation Fund STATEMENT OF ASSETS AND LIABILITIES October 31, 2007 ASSETS: Investments, at value (Cost $5,144,353,764)* $7,123,462,004 - ------------------------------------------------------------ Investments in affiliates, at value (Cost $343,293,778) 357,374,076 ============================================================ Total investments (Cost $5,487,647,542) 7,480,836,080 ============================================================ Foreign currencies, at value (Cost $479) 476 - ------------------------------------------------------------ Receivables for: Investments sold 51,371,309 - ------------------------------------------------------------ Fund shares sold 1,385,958 - ------------------------------------------------------------ Dividends 4,724,592 - ------------------------------------------------------------ Investment for trustee deferred compensation and retirement plans 760,656 - ------------------------------------------------------------ Other assets 127,194 ============================================================ Total assets 7,539,206,265 ____________________________________________________________ ============================================================ LIABILITIES: Payables for: Investments purchased 19,250,297 - ------------------------------------------------------------ Fund shares reacquired 10,808,407 - ------------------------------------------------------------ Trustee deferred compensation and retirement plans 2,053,907 - ------------------------------------------------------------ Collateral upon return of securities loaned 124,552,355 - ------------------------------------------------------------ Accrued distribution fees 2,222,310 - ------------------------------------------------------------ Accrued trustees' and officer's fees and benefits 8,730 - ------------------------------------------------------------ Accrued transfer agent fees 3,361,788 - ------------------------------------------------------------ Accrued operating expenses 775,290 ============================================================ Total liabilities 163,033,084 ============================================================ Net assets applicable to shares outstanding $7,376,173,181 ____________________________________________________________ ============================================================ NET ASSETS CONSIST OF: Shares of beneficial interest $6,015,115,913 - ------------------------------------------------------------ Undistributed net investment income (loss) (1,827,029) - ------------------------------------------------------------ Undistributed net realized gain (loss) (630,302,143) - ------------------------------------------------------------ Unrealized appreciation 1,993,186,440 ============================================================ $7,376,173,181 ____________________________________________________________ ============================================================ NET ASSETS: Class A $6,145,755,343 ____________________________________________________________ ============================================================ Class B $ 844,018,450 ____________________________________________________________ ============================================================ Class C $ 256,376,634 ____________________________________________________________ ============================================================ Class R $ 14,580,089 ____________________________________________________________ ============================================================ Institutional Class $ 115,442,665 ____________________________________________________________ ============================================================ SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Class A 197,514,874 ____________________________________________________________ ============================================================ Class B 29,577,640 ____________________________________________________________ ============================================================ Class C 8,987,863 ____________________________________________________________ ============================================================ Class R 472,752 ____________________________________________________________ ============================================================ Institutional Class 3,381,779 ____________________________________________________________ ============================================================ Class A: Net asset value per share $ 31.12 - ------------------------------------------------------------ Offering price per share (Net asset value of $31.12 divided by 94.50%) $ 32.93 ____________________________________________________________ ============================================================ Class B: Net asset value and offering price per share $ 28.54 ____________________________________________________________ ============================================================ Class C: Net asset value and offering price per share $ 28.52 ____________________________________________________________ ============================================================ Class R: Net asset value and offering price per share $ 30.84 ____________________________________________________________ ============================================================ Institutional Class: Net asset value and offering price per share $ 34.14 ____________________________________________________________ ============================================================
* At October 31, 2007, securities with an aggregate value of $121,736,760 were on loan to brokers. See accompanying Notes to Financial Statements which are an integral part of the financial statements. 12 AIM Constellation Fund STATEMENT OF OPERATIONS For the year ended October 31, 2007 INVESTMENT INCOME: Dividends (net of foreign withholding taxes of $1,110,025) $ 65,667,740 - ---------------------------------------------------------------------------- Dividends from affiliates (includes securities lending income of $180,939) 2,720,707 - ---------------------------------------------------------------------------- Interest 47,866 ============================================================================ Total investment income 68,436,313 ============================================================================ EXPENSES: Advisory fees 46,280,103 - ---------------------------------------------------------------------------- Administrative services fees 710,885 - ---------------------------------------------------------------------------- Custodian fees 558,186 - ---------------------------------------------------------------------------- Distribution fees: Class A 15,202,316 - ---------------------------------------------------------------------------- Class B 9,105,351 - ---------------------------------------------------------------------------- Class C 2,570,961 - ---------------------------------------------------------------------------- Class R 67,865 - ---------------------------------------------------------------------------- Transfer agent fees -- A, B, C and R 20,740,417 - ---------------------------------------------------------------------------- Transfer agent fees -- Institutional 77,085 - ---------------------------------------------------------------------------- Trustees' and officer's fees and benefits 271,597 - ---------------------------------------------------------------------------- Other 1,268,140 ============================================================================ Total expenses 96,852,906 ============================================================================ Less: Fees waived, expenses reimbursed and expense offset arrangement(s) (2,741,604) ============================================================================ Net expenses 94,111,302 ============================================================================ Net investment income (loss) (25,674,989) ============================================================================ REALIZED AND UNREALIZED GAIN FROM: Net realized gain from: Investment securities (includes net gains (losses) from securities sold to affiliates of $(3,263,449)) 365,647,281 - ---------------------------------------------------------------------------- Foreign currencies 905,286 ============================================================================ 366,552,567 ============================================================================ Change in net unrealized appreciation of: Investment securities 1,093,638,550 - ---------------------------------------------------------------------------- Foreign currencies 23,727 ============================================================================ 1,093,662,277 ============================================================================ Net realized and unrealized gain 1,460,214,844 ============================================================================ Net increase in net assets resulting from operations $1,434,539,855 ____________________________________________________________________________ ============================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. 13 AIM Constellation Fund STATEMENT OF CHANGES IN NET ASSETS For the years ended October 31, 2007 and 2006
OCTOBER 31, OCTOBER 31, 2007 2006 - ----------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ (25,674,989) $ (24,423,565) - ----------------------------------------------------------------------------------------------- Net realized gain 366,552,567 1,426,010,095 - ----------------------------------------------------------------------------------------------- Change in net unrealized appreciation (depreciation) 1,093,662,277 (1,083,862,343) =============================================================================================== Net increase in net assets resulting from operations 1,434,539,855 317,724,187 =============================================================================================== Share transactions-net: Class A (1,422,577,412) 1,634,677,819 - ----------------------------------------------------------------------------------------------- Class B (333,477,974) 462,923,549 - ----------------------------------------------------------------------------------------------- Class C (66,221,579) 138,003,037 - ----------------------------------------------------------------------------------------------- Class R (1,044,154) 5,023,286 - ----------------------------------------------------------------------------------------------- Institutional Class (10,070,408) (107,912,538) =============================================================================================== Net increase (decrease) in net assets resulting from share transactions (1,833,391,527) 2,132,715,153 =============================================================================================== Net increase (decrease) in net assets (398,851,672) 2,450,439,340 =============================================================================================== NET ASSETS: Beginning of year 7,775,024,853 5,324,585,513 =============================================================================================== End of year (including undistributed net investment income (loss) of $(1,827,029) and $(1,890,316) respectively) $ 7,376,173,181 $ 7,775,024,853 _______________________________________________________________________________________________ ===============================================================================================
NOTES TO FINANCIAL STATEMENTS October 31, 2007 NOTE 1--SIGNIFICANT ACCOUNTING POLICIES AIM Constellation Fund (the "Fund") is a series portfolio of AIM Equity Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of six 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 growth of capital. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements. A. SECURITY VALUATIONS -- Securities, including restricted securities, are valued according to the following policy. A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and the ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange ("NYSE"). Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and may make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing 14 AIM Constellation Fund price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, ADRs and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust's officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security's fair value. Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer's assets, general economic conditions, interest rates, investor perceptions and market liquidity. B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. The fund may periodically participate in litigation settlements related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds as received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund's net asset value and, accordingly, they reduce the Fund's total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the advisor. The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. C. COUNTRY DETERMINATION -- For the purposes of making investment selection decisions and presentation in the Schedule of Investments, AIM may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer's securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America unless otherwise noted. D. DISTRIBUTIONS -- Distributions from income and net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to treat a portion of the proceeds from redemptions as distributions for federal income tax purposes. E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund's taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular class of the Fund are charged to the operations of such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses attributable to the Institutional Class are charged to such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses relating to all other classes are allocated among those classes based on relative net assets. All other expenses are allocated among the classes based on relative net assets. G. ACCOUNTING ESTIMATES -- The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates. H. INDEMNIFICATIONS -- Under the Trust's organizational documents, each Trustee, officer, employee or other agent of the Trust (including the Trust's investment manager) is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts that contain a variety of indemnification clauses. The Fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. 15 AIM Constellation Fund I. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (i) sales of foreign currencies, (ii) currency gains or losses realized between the trade and settlement dates on securities transactions, and (iii) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. Taxes are accrued based on the Fund's current interpretation of tax regulations and rates that exist in the foreign markets in which the Fund invests. J. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a foreign currency contract to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. The Fund may also enter into a foreign currency contract for the purchase or sale of a security denominated in a foreign currency in order to "lock in" the U.S. dollar price of that security. Fluctuations in the value of these contracts are recorded as unrealized appreciation (depreciation) until the contracts are closed. When these contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains and losses on these contracts are included in the Statement of Operations. The Fund could be exposed to risk, which may be in excess of the amount reflected in the Statement of Assets and Liabilities, if counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES The Trust has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to AIM based on the annual rate of the Fund's average daily net assets as follows:
AVERAGE NET ASSETS RATE - -------------------------------------------------------------------- First $150 million 0.80% - -------------------------------------------------------------------- Over $150 million 0.625% ___________________________________________________________________ ====================================================================
Through December 31, 2012, AIM has contractually agreed to waive advisory fees to the extent necessary so that the advisory fees payable by the Fund (based on the Fund's average daily net assets) do not exceed the annual rate of:
AVERAGE NET ASSETS RATE - -------------------------------------------------------------------- First $250 million 0.695% - -------------------------------------------------------------------- Next $4 billion 0.615% - -------------------------------------------------------------------- Next $750 million 0.595% - -------------------------------------------------------------------- Next $2.5 billion 0.57% - -------------------------------------------------------------------- Next $2.5 billion 0.545% - -------------------------------------------------------------------- Over $10 billion 0.52% ___________________________________________________________________ ====================================================================
Further, effective July 1, 2007, AIM has contractually agreed, through at least June 30, 2008, to waive 100% of the advisory fee AIM receives from the affiliated money market funds on investments by the Fund in such affiliated money market funds (excluding investments made in affiliated money market funds with cash collateral from securities loaned by the fund). Prior to July 1, 2007, AIM had voluntarily agreed to waive 25% of the advisory fee AIM receives from the affiliated money market funds on investments by the Fund in such affiliated money market funds. For the year ended October 31, 2007, AIM waived advisory fees of $2,043,781. At the request of the Trustees of the Trust, Invesco Ltd. ("Invesco") agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. These expenses along with the related expense reimbursement are included in the Statement of Operations. For the year ended October 31, 2007, Invesco reimbursed expenses of the Fund in the amount of $5,359. The Trust has entered into a master administrative services agreement with AIM pursuant to which the Fund has agreed to pay AIM for certain administrative costs incurred in providing accounting services, to the Fund. For the year ended October 31, 2007, expenses incurred under the agreement are shown in the Statement of Operations as administrative services fees. The Trust has entered into a transfer agency and service agreement with AIM Investment Services, Inc. ("AIS") pursuant to which the Fund has agreed to pay AIS a fee for providing transfer agency and shareholder services to the Fund and reimburse AIS for certain expenses incurred by AIS in the course 16 AIM Constellation Fund of providing such services. AIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. All fees payable by AIS to intermediaries that provide omnibus account services or sub-accounting are charged back to the Fund, subject to certain limitations approved by the Trust's Board of Trustees. For the year ended October 31, 2007, expenses incurred under the agreement are shown in the Statement of Operations as transfer agent fees. The Trust has entered into master distribution agreements with A I M Distributors, Inc. ("ADI") to serve as the distributor for the Class A, Class B, Class C, Class R and Institutional Class shares of the Fund. The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A, Class B, Class C and Class R shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays ADI compensation at the annual rate of 0.25% of the Fund's average daily net assets of Class A shares, 1.00% of the average daily net assets of Class B and Class C shares and 0.50% of the average daily net assets of Class R shares. Of the Plan payments, up to 0.25% of the average daily net assets of each class of shares may be paid to furnish continuing personal shareholder services to customers who purchase and own shares of such classes. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. Financial Industry Regulatory Authority ("FINRA"), formerly known as National Association of Securities Dealers, rules impose a cap on the total sales charges, including asset-based sales charges that may be paid by any class of shares of the Fund. For the year ended October 31, 2007, expenses incurred under the Plans are shown in the Statement of Operations as distribution fees. Front-end sales commissions and contingent deferred sales charges ("CDSC") (collectively the "sales charges") are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. During the year ended October 31, 2007, ADI advised the Fund that it retained $521,041 in front-end sales commissions from the sale of Class A shares and $4,253, $690,651, $16,653 and $0 from Class A, Class B, Class C and Class R shares, respectively, for CDSC imposed on redemptions by shareholders. Certain officers and trustees of the Trust are officers and directors of AIM, AIS and/or ADI. NOTE 3--INVESTMENTS IN AFFILIATES The Fund is permitted, pursuant to procedures approved by the Board of Trustees, to invest daily available cash balances and cash collateral from securities lending transactions in affiliated money market funds. The Fund and the money market funds below have the same investment advisor and therefore, are considered to be affiliated. The tables below show the transactions in and earnings from investments in affiliated money market funds for the year ended October 31, 2007. During the period each investment maintained a $1.00 net asset value, as such there is no realized gain/(loss) and no change in unrealized appreciation/(depreciation). INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
CHANGE IN UNREALIZED VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND FUND 10/31/06 AT COST FROM SALES (DEPRECIATION) 10/31/07 INCOME - ------------------------------------------------------------------------------------------------------------------------------ Liquid Assets Portfolio- Institutional Class $12,100,535 $1,157,396,953 $(1,141,402,529) $ -- $ 28,094,959 $1,272,395 - ------------------------------------------------------------------------------------------------------------------------------ Premier Portfolio- Institutional Class 12,100,535 1,157,396,953 (1,141,402,529) -- 28,094,959 1,267,373 ============================================================================================================================== Subtotal $24,201,070 $2,314,793,906 $(2,282,805,058) $ -- $ 56,189,918 $2,539,768 ============================================================================================================================== REALIZED FUND GAIN (LOSS) - --------------------------- Liquid Assets Portfolio- Institutional Class $ -- - --------------------------- Premier Portfolio- Institutional Class -- =========================== Subtotal $ -- ===========================
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
CHANGE IN UNREALIZED VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND FUND 10/31/06 AT COST FROM SALES (DEPRECIATION) 10/31/07 INCOME (A) - ------------------------------------------------------------------------------------------------------------------------------ Liquid Assets Portfolio- Institutional Class $ -- $ 410,172,390 $ (285,620,035) $ -- $124,552,355 $ 84,029 - ------------------------------------------------------------------------------------------------------------------------------ STIC Prime Portfolio- Institutional Class 35,906,051 199,356,768 (235,262,819) -- -- 96,910 ============================================================================================================================== Subtotal $35,906,051 $ 609,529,158 $ (520,882,854) $ -- $124,552,355 $ 180,939 ============================================================================================================================== REALIZED FUND GAIN (LOSS) - --------------------------- Liquid Assets Portfolio- Institutional Class $ -- - --------------------------- STIC Prime Portfolio- Institutional Class -- =========================== Subtotal $ -- ===========================
(a) Net of compensation to counterparties. 17 AIM Constellation Fund INVESTMENTS IN OTHER AFFILIATES: The Investment Company Act of 1940 defines affiliates as those issuances in which a fund holds 5% or more of the outstanding voting securities. The Fund has not owned enough of the outstanding voting securities of the issuer to have control (as defined in the Investment Company Act of 1940) of that issuer. The following is a summary of the transactions with affiliates for the year ended October 31, 2007.
CHANGE IN UNREALIZED VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND 10/31/06 AT COST FROM SALES (DEPRECIATION) 10/31/07 INCOME - ----------------------------------------------------------------------------------------------------------------------- DSW Inc.-Class A $37,502,940 $ 13,240,236 $ (3,227,021) $(14,378,605) $ 33,137,550 $ -- - ----------------------------------------------------------------------------------------------------------------------- Spirit AeroSystems Holdings Inc.-Class A(b) -- 127,187,855 (5,619,289) 21,925,687 143,494,253 -- ======================================================================================================================= Subtotal $37,502,940 $ 140,428,091 $ (8,846,310) $ 7,547,082 $176,631,803 $ -- ======================================================================================================================= Total Investments in Affiliates $97,610,061 $3,064,751,155 $(2,812,534,222) $ 7,547,082 $357,374,076 $2,720,707 _______________________________________________________________________________________________________________________ ======================================================================================================================= REALIZED GAIN (LOSS) - --------------- DSW Inc.-Class A $ 621,529 - --------------- Spirit AeroSystems Holdings Inc.-Class A(b) 889,274 =============== Subtotal $1,510,803 =============== Total Investments in Affiliates $1,510,803 _______________ ===============
(b) As of May 24, 2007, security is no longer considered an affiliate of the Fund. NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS The Fund is permitted to purchase or sell securities from or to certain other AIM Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment advisor (or affiliated investment advisors), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the year ended October 31, 2007, the Fund engaged in securities sales of $39,231,111, which resulted in net realized gains (losses) of $(3,263,449), and securities purchases of $29,162,580. NOTE 5--EXPENSE OFFSET ARRANGEMENTS The expense offset arrangements are comprised of (i) transfer agency credits which result from balances in Demand Deposit Accounts (DDA) used by the transfer agent for clearing shareholder transactions, (ii) custodian credits which result from periodic overnight cash balances at the custodian and (iii) a one time custodian fee credit used to offset custodian fees. For the year ended October 31, 2007, the Fund received credits from these arrangements, which resulted in the reduction of the Fund's total expenses of $692,464. NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various AIM Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. During the year ended October 31, 2007, the Fund paid legal fees of $38,974 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust. NOTE 7--BORROWINGS Pursuant to an exemptive order from the Securities and Exchange Commission, the Fund may participate in an interfund lending facility that AIM has established for temporary borrowings by the AIM Funds. An interfund loan will be made under this facility only if the loan rate (an average of the rate available on bank loans and the rate available on investments in overnight repurchase agreements) is favorable to both the lending fund and the borrowing fund. A loan will be secured by collateral if the Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total assets. To the extent that the loan is required to be secured by collateral, the collateral is marked to market daily to ensure that the market value is at least 102% of the outstanding principal value of the loan. The Fund is a party to an uncommitted unsecured revolving credit facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM, which are parties to the credit facility, can borrow on a first come, first served basis. Principal on each loan outstanding shall bear interest at the bid rate quoted by SSB at the time of the request for the loan. During the year ended October 31, 2007, the Fund did not borrow or lend under the interfund lending facility or borrow under the uncommitted unsecured revolving credit facility. 18 AIM Constellation Fund Additionally, the Fund is permitted to temporarily carry a negative or overdrawn balance in its account with SSB, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (ii) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and AIM, not to exceed the contractually agreed upon rate. NOTE 8--PORTFOLIO SECURITIES LOANED The Fund may lend portfolio securities having a market value up to one-third of the Fund's total assets. Such loans are secured by collateral equal to no less than the market value of the loaned securities determined daily. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds. It is the Fund's policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. Lending securities entails a risk of loss to the Fund if and to the extent that the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower fails to return the securities. The Fund could also experience delays and costs in gaining access to the collateral. The Fund bears the risk of any deficiency in the amount of the collateral available for return to the borrower due to any loss on the collateral invested. At October 31, 2007, securities with an aggregate value of $121,736,760 were on loan to brokers. The loans were secured by cash collateral of $124,552,355 received by the Fund and subsequently invested in an affiliated money market fund. For the year ended October 31, 2007, the Fund received dividends on cash collateral investments of $180,939 for securities lending transactions, which are net of compensation to counterparties. NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS DISTRIBUTIONS TO SHAREHOLDERS: There were no ordinary income or long-term gain distributions paid during the years ended October 31, 2007 and 2006. TAX COMPONENTS OF NET ASSETS: As of October 31, 2007, the components of net assets on a tax basis were as follows:
2007 - ------------------------------------------------------------------------------ Net unrealized appreciation -- investments $1,987,453,125 - ------------------------------------------------------------------------------ Temporary book/tax differences (1,827,029) - ------------------------------------------------------------------------------ Capital loss carryforward (624,568,828) - ------------------------------------------------------------------------------ Shares of beneficial interest 6,015,115,913 ============================================================================== Total net assets $7,376,173,181 ______________________________________________________________________________ ==============================================================================
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund's net unrealized appreciation difference is attributable primarily to losses on wash sales and certain straddle transactions. The tax-basis net unrealized appreciation on investments amount includes appreciation (depreciation) on foreign currencies of $(2,099). The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund's temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits. Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions. Under these limitation rules, the Fund is limited as of October 31, 2007 to utilizing $329,652,208 of capital loss carryforward in the fiscal year ended October 31, 2008. The Fund utilized $362,112,781 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, 2007 which expires as follows:
CAPITAL LOSS EXPIRATION CARRYFORWARD* - ----------------------------------------------------------------------------- October 31, 2008 $ 5,059,558 - ----------------------------------------------------------------------------- October 31, 2009 200,331,448 - ----------------------------------------------------------------------------- October 31, 2010 196,611,268 - ----------------------------------------------------------------------------- October 31, 2011 222,566,554 ============================================================================= Total capital loss carryforward $624,568,828 _____________________________________________________________________________ =============================================================================
* 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 March 27, 2006, the date of reorganization of AIM Aggressive Growth Fund and AIM Weingarten Fund into the Fund, are realized as securities held in each fund as such date, the capital loss carryover may be further limited for up to five years from the date of the reorganization. 19 AIM Constellation Fund NOTE 10--INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended October 31, 2007 was $4,962,819,368 and $6,858,525,461 respectively.
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS - ------------------------------------------------------------------------------ Aggregate unrealized appreciation of investment securities $2,077,232,414 - ------------------------------------------------------------------------------ Aggregate unrealized (depreciation) of investment securities (89,777,190) ============================================================================== Net unrealized appreciation of investment securities $1,987,455,224 ______________________________________________________________________________ ============================================================================== Cost of investments for tax purposes is $5,493,380,856.
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES Primarily as a result of differing book/tax treatment of net operating losses, reorganizational costs, capital loss carryover and foreign currency transactions on October 31, 2007, undistributed net investment income (loss) was increased by $25,738,276, undistributed net realized gain (loss) was increased by $11,099,771 and shares of beneficial interest decreased by $36,838,047. This reclassification had no effect on the net assets of the Fund. NOTE 12--SHARE INFORMATION The Fund currently offers five different classes of shares: Class A, Class B, Class C, Class R and Institutional Class. Class A shares are sold with a front-end sales charge unless certain waiver criteria are met and under certain circumstances load waiver shares may be subject to a CDSC. Class B shares and Class C shares are sold with a CDSC. Class R shares and Institutional Class shares are sold at net asset value. Under certain circumstances, Class R shares are subject to a CDSC. Generally, Class B shares will automatically convert to Class A shares on or about the month-end which is at least eight years after the date of purchase.
CHANGES IN SHARES OUTSTANDING - ------------------------------------------------------------------------------------------------------------------------------ YEAR ENDED YEAR ENDED OCTOBER 31, 2007(A) OCTOBER 31, 2006 ------------------------------ ------------------------------ SHARES AMOUNT SHARES AMOUNT - ------------------------------------------------------------------------------------------------------------------------------ Sold: Class A 7,384,784 $ 205,855,486 10,303,138 $ 260,075,016 - ------------------------------------------------------------------------------------------------------------------------------ Class B 1,559,817 39,632,759 1,994,611 46,595,386 - ------------------------------------------------------------------------------------------------------------------------------ Class C 706,186 17,859,433 926,613 21,559,725 - ------------------------------------------------------------------------------------------------------------------------------ Class R 151,608 4,126,048 166,736 4,168,585 - ------------------------------------------------------------------------------------------------------------------------------ Institutional Class 1,557,578 47,646,681 2,402,958 63,841,915 ============================================================================================================================== Issued in connection with acquisitions:(b) Class A -- -- 112,122,045 2,925,122,484 - ------------------------------------------------------------------------------------------------------------------------------ Class B -- -- 31,668,322 766,819,518 - ------------------------------------------------------------------------------------------------------------------------------ Class C -- -- 7,898,763 191,179,574 - ------------------------------------------------------------------------------------------------------------------------------ Class R -- -- 196,854 5,111,819 - ------------------------------------------------------------------------------------------------------------------------------ Institutional Class -- -- 51,553 1,464,061 ============================================================================================================================== Automatic conversion of Class B shares to Class A shares: Class A 4,174,400 116,032,357 4,231,695 106,243,160 - ------------------------------------------------------------------------------------------------------------------------------ Class B (4,534,920) (116,032,357) (4,564,120) (106,243,160) ============================================================================================================================== Reacquired: Class A (63,408,560) (1,744,465,255) (66,125,745) (1,656,762,841) - ------------------------------------------------------------------------------------------------------------------------------ Class B (10,156,390) (257,078,376) (10,546,392) (244,248,195) - ------------------------------------------------------------------------------------------------------------------------------ Class C (3,330,877) (84,081,012) (3,218,419) (74,736,262) - ------------------------------------------------------------------------------------------------------------------------------ Class R (189,822) (5,170,202) (169,808) (4,257,118) - ------------------------------------------------------------------------------------------------------------------------------ Institutional Class (1,915,581) (57,717,089) (6,208,854) (173,218,514) ============================================================================================================================== (68,001,777) $(1,833,391,527) 81,129,950 $ 2,132,715,153 ______________________________________________________________________________________________________________________________ ==============================================================================================================================
(a) There are two entities that are each record owners of more than 5% of the outstanding shares of the Fund and in the aggregate they own 13% of the outstanding shares of the Fund. ADI has an agreement with these entities to sell Fund shares. The Fund, AIM and/or AIM affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, AIM and/or AIM affiliates including but not limited to services such as, securities brokerage, distribution, third party record keeping and account servicing. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. (b) As of the opening of business on March 27, 2006, the Fund acquired all the net assets of AIM Aggressive Growth Fund and AIM Weingarten Fund pursuant to plans of reorganization approved by the Trustees of the Fund on November 14, 2005 and by the shareholders of AIM Aggressive Growth Fund and AIM Weingarten Fund, respectively on February 28, 2006. The acquisition was accomplished by a tax-free exchange of 151,937,537 shares of the Fund for 131,671,019 shares of AIM Aggressive Growth Fund and 162,206,916 shares of AIM Weingarten Fund shares outstanding as of the close of business on March 24, 2006. Each class of shares of AIM Aggressive Growth Fund and AIM Weingarten Fund was exchanged for the like class of shares of the Fund based on the relative net asset value of AIM Aggressive Growth Fund and AIM Weingarten Fund to the net asset value of the Fund on the close of business, March 24, 2006. AIM Aggressive Growth Fund's net assets as of the close of business on March 24, 2006 of $1,549,649,387 including $245,207,078 of unrealized appreciation and AIM Weingarten Fund's net assets as of the close of business on March 24, 2006 of $2,340,048,069 including $447,822,497 of unrealized appreciation, were combined with the net assets of the Fund immediately before the acquisition of $5,418,246,908. The combined aggregate net assets of the Fund subsequent to the reorganization were $9,307,944,364. 20 AIM Constellation Fund NOTE 13--NEW ACCOUNTING STANDARD In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48"). FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement for a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The provisions for FIN 48 are effective for fiscal years beginning after December 15, 2006. Management has assessed the application of FIN 48 to the Fund and has determined that the adopting of FIN 48 is not expected to have a material impact on the Fund. Management intends for the Fund to adopt FIN 48 provisions during the fiscal year ending October 31, 2008 as required. NOTE 14--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
CLASS A --------------------------------------------------------------------- YEAR ENDED OCTOBER 31, --------------------------------------------------------------------- 2007 2006 2005 2004 2003 - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 25.56 $ 23.63 $ 21.27 $ 20.61 $ 17.20 - --------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (0.07)(a) (0.06)(a) (0.02)(b) (0.13)(a) (0.12)(a) - --------------------------------------------------------------------------------------------------------------------------------- Net gains on securities (both realized and unrealized) 5.63 1.99 2.38 0.79 3.53 ================================================================================================================================= Total from investment operations 5.56 1.93 2.36 0.66 3.41 ================================================================================================================================= Net asset value, end of period $ 31.12 $ 25.56 $ 23.63 $ 21.27 $ 20.61 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Total return(c) 21.75% 8.17% 11.10% 3.20% 19.83% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $6,145,755 $6,374,641 $4,461,224 $5,616,072 $6,825,023 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.17%(d) 1.21% 1.29% 1.27% 1.29% - --------------------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.20%(d) 1.24% 1.31% 1.29% 1.30% ================================================================================================================================= Ratio of net investment income (loss) to average net assets (0.25)%(d) (0.24)% (0.06)%(b) (0.59)% (0.67)% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Portfolio turnover rate 68% 123% 59% 50% 47% _________________________________________________________________________________________________________________________________ =================================================================================================================================
(a) Calculated using average shares outstanding. (b) Net investment income (loss) per share and the ratio of net investment income (loss) to average net assets include a special cash dividend received of $3.00 per share owned of Microsoft Corp. on December 2, 2004. Net investment income (loss) per share and the ratio of net investment income (loss) to average net assets excluding the special dividend are $(0.09) and (0.36)%, respectively for the year ended October 31, 2005. (c) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges. (d) Ratios are based on average daily net assets of $6,080,926,511. 21 AIM Constellation Fund NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
CLASS B ------------------------------------------------------------- YEAR ENDED OCTOBER 31, ------------------------------------------------------------- 2007 2006 2005 2004 2003 - --------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 23.62 $ 22.00 $ 19.95 $ 19.46 $ 16.36 - --------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (0.25)(a) (0.23)(a) (0.19)(b) (0.26)(a) (0.23)(a) - --------------------------------------------------------------------------------------------------------------------------- Net gains on securities (both realized and unrealized) 5.17 1.85 2.24 0.75 3.33 =========================================================================================================================== Total from investment operations 4.92 1.62 2.05 0.49 3.10 =========================================================================================================================== Net asset value, end of period $ 28.54 $ 23.62 $ 22.00 $ 19.95 $ 19.46 ___________________________________________________________________________________________________________________________ =========================================================================================================================== Total return(c) 20.83% 7.36% 10.28% 2.52% 18.95% ___________________________________________________________________________________________________________________________ =========================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $844,018 $1,008,799 $531,341 $617,005 $688,587 ___________________________________________________________________________________________________________________________ =========================================================================================================================== Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.92%(d) 1.96% 2.01% 1.97% 1.99% - --------------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.95%(d) 1.99% 2.03% 1.99% 2.00% =========================================================================================================================== Ratio of net investment income (loss) to average net assets (1.00)%(d) (0.99)% (0.78)%(b) (1.29)% (1.37)% ___________________________________________________________________________________________________________________________ =========================================================================================================================== Portfolio turnover rate 68% 123% 59% 50% 47% ___________________________________________________________________________________________________________________________ ===========================================================================================================================
(a) Calculated using average shares outstanding. (b) Net investment income (loss) per share and the ratio of net investment income (loss) to average net assets include a special cash dividend received of $3.00 per share owned of Microsoft Corp. on December 2, 2004. Net investment income (loss) per share and the ratio of net investment income (loss) to average net assets excluding the special dividend are $(0.26) and (1.08)%, respectively for the year ended October 31, 2005. (c) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges. (d) Ratios are based on average daily net assets of $910,535,140.
CLASS C ----------------------------------------------------------- YEAR ENDED OCTOBER 31, ----------------------------------------------------------- 2007 2006 2005 2004 2003 - ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 23.61 $ 21.99 $ 19.94 $ 19.46 $ 16.36 - ------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (0.25)(a) (0.23)(a) (0.19)(b) (0.26)(a) (0.23)(a) - ------------------------------------------------------------------------------------------------------------------------- Net gains on securities (both realized and unrealized) 5.16 1.85 2.24 0.74 3.33 ========================================================================================================================= Total from investment operations 4.91 1.62 2.05 0.48 3.10 ========================================================================================================================= Net asset value, end of period $ 28.52 $ 23.61 $ 21.99 $ 19.94 $ 19.46 _________________________________________________________________________________________________________________________ ========================================================================================================================= Total return(c) 20.80% 7.37% 10.28% 2.47% 18.95% _________________________________________________________________________________________________________________________ ========================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $256,377 $274,187 $132,056 $162,707 $193,585 _________________________________________________________________________________________________________________________ ========================================================================================================================= Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.92%(d) 1.96% 2.01% 1.97% 1.99% - ------------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.95%(d) 1.99% 2.03% 1.99% 2.00% ========================================================================================================================= Ratio of net investment income (loss) to average net assets (1.00)%(d) (0.99)% (0.78)%(b) (1.29)% (1.37)% _________________________________________________________________________________________________________________________ ========================================================================================================================= Portfolio turnover rate 68% 123% 59% 50% 47% _________________________________________________________________________________________________________________________ =========================================================================================================================
(a) Calculated using average shares outstanding. (b) Net investment income (loss) per share and the ratio of net investment income (loss) to average net assets include a special cash dividend received of $3.00 per share owned of Microsoft Corp. on December 2, 2004. Net investment income (loss) per share and the ratio of net investment income (loss) to average net assets excluding the special dividend are $(0.26) and (1.08)%, respectively for the year ended October 31, 2005. (c) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges. (d) Ratios are based on average daily net assets of $257,096,137. 22 AIM Constellation Fund NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
CLASS R ------------------------------------------------------ YEAR ENDED OCTOBER 31, ------------------------------------------------------ 2007 2006 2005 2004 2003 - -------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 25.41 $ 23.54 $ 21.24 $ 20.63 $ 17.26 - -------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (0.14)(a) (0.12)(a) (0.06)(b) (0.17)(a) (0.16)(a) - -------------------------------------------------------------------------------------------------------------------- Net gains on securities (both realized and unrealized) 5.57 1.99 2.36 0.78 3.53 ==================================================================================================================== Total from investment operations 5.43 1.87 2.30 0.61 3.37 ==================================================================================================================== Net asset value, end of period $ 30.84 $ 25.41 $ 23.54 $ 21.24 $ 20.63 ____________________________________________________________________________________________________________________ ==================================================================================================================== Total return(c) 21.37% 7.94% 10.83% 2.96% 19.52% ____________________________________________________________________________________________________________________ ==================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $14,580 $12,982 $ 7,467 $ 6,202 $ 2,857 ____________________________________________________________________________________________________________________ ==================================================================================================================== Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.42%(d) 1.46% 1.51% 1.47% 1.49% - -------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.45%(d) 1.49% 1.53% 1.49% 1.50% ==================================================================================================================== Ratio of net investment income (loss) to average net assets (0.50)%(d) (0.49)% (0.28)%(b) (0.79)% (0.87)% ____________________________________________________________________________________________________________________ ==================================================================================================================== Portfolio turnover rate 68% 123% 59% 50% 47% ____________________________________________________________________________________________________________________ ====================================================================================================================
(a) Calculated using average shares outstanding. (b) Net investment income (loss) per share and the ratio of net investment income (loss) to average net assets include a special cash dividend received of $3.00 per share owned of Microsoft Corp. on December 2, 2004. Net investment income (loss) per share and the ratio of net investment income (loss) to average net assets excluding the special dividend are $(0.13) and (0.58)%, respectively for the year ended October 31, 2005. (c) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. (d) Ratios are based on average daily net assets of $13,573,015.
INSTITUTIONAL CLASS ----------------------------------------------------------- YEAR ENDED OCTOBER 31, ----------------------------------------------------------- 2007 2006 2005 2004 2003 - ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 27.92 $ 25.69 $ 23.01 $ 22.17 $ 18.40 - ------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) 0.06(a) 0.06(a) 0.10(b) (0.01)(a) (0.03)(a) - ------------------------------------------------------------------------------------------------------------------------- Net gains on securities (both realized and unrealized) 6.16 2.17 2.58 0.85 3.80 ========================================================================================================================= Total from investment operations 6.22 2.23 2.68 0.84 3.77 ========================================================================================================================= Net asset value, end of period $ 34.14 $ 27.92 $ 25.69 $ 23.01 $ 22.17 _________________________________________________________________________________________________________________________ ========================================================================================================================= Total return(c) 22.28% 8.68% 11.65% 3.79% 20.49% _________________________________________________________________________________________________________________________ ========================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $115,443 $104,416 $192,498 $164,664 $154,150 _________________________________________________________________________________________________________________________ ========================================================================================================================= Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 0.71%(d) 0.75% 0.76% 0.72% 0.75% - ------------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 0.74%(d) 0.78% 0.78% 0.74% 0.76% ========================================================================================================================= Ratio of net investment income (loss) to average net assets 0.21%(d) 0.22% 0.47%(b) (0.04)% (0.13)% _________________________________________________________________________________________________________________________ ========================================================================================================================= Portfolio turnover rate 68% 123% 59% 50% 47% _________________________________________________________________________________________________________________________ =========================================================================================================================
(a) Calculated using average shares outstanding. (b) Net investment income (loss) per share and the ratio of net investment income (loss) to average net assets include a special cash dividend received of $3.00 per share owned of Microsoft Corp. on December 2, 2004. Net investment income (loss) per share and the ratio of net investment income (loss) to average net assets excluding the special dividend are $0.03 and 0.17%, respectively for the year ended October 31, 2005. (c) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. (d) Ratios are based on average daily net assets of $100,685,626. 23 AIM Constellation Fund NOTE 15--LEGAL PROCEEDINGS Terms used in the Legal Proceedings Note are defined terms solely for the purpose of this note. SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING On July 6, 2007, the Securities and Exchange Commission ("SEC") published notice of two proposed distribution plans ("Distribution Plans") for the distribution of monies placed into two separate Fair Funds created pursuant to a settlement reached on October 8, 2004 between Invesco Funds Group, Inc. ("IFG"), A I M Advisors, Inc. ("AIM") and A I M Distributors, Inc. and the SEC (the "Order"). One of the Fair Funds consists of $325 million, plus interest and any contributions by other settling parties, for distribution to shareholders of certain mutual funds formerly advised by IFG who may have been harmed by market timing and related activity. The second Fair Fund consists of $50 million, plus interest and any contributions by other settling parties, for distribution to shareholders of mutual funds advised by AIM who may have been harmed by market timing and related activity. Comments on the Distribution Plans were due no later than August 6, 2007 and the Distribution Plans are awaiting final approval by the SEC. Distributions from the Fair Funds will begin after the SEC finally approves the Distribution Plans. The proposed Distribution Plans provide for distribution to all eligible investors, for the periods spanning January 1, 2000 through July 31, 2003 (for the IFG Fair Fund) and January 1, 2001 through September 30, 2003 (for the AIM Fair Fund), their proportionate share of the applicable Fair Fund to compensate such investors for injury they may have suffered as a result of market timing in the affected funds. The Distribution Plans include a provision for any residual amounts in the Fair Funds to be distributed in the future to the affected funds. Because the Distribution Plans have not received final approval from the SEC and distribution of the Fair Funds has not yet commenced, management of AIM and the Fund are unable to estimate the amount of distribution to be made to the Fund, if any. At the request of the trustees of the AIM Funds, Invesco Ltd. ("Invesco"), the parent company of IFG and AIM, has agreed to reimburse expenses incurred by the AIM Funds related to market timing matters. PENDING LITIGATION AND REGULATORY INQUIRIES On August 30, 2005, the West Virginia Office of the State Auditor -- Securities Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of Right to Hearing to AIM and ADI (Order No. 05-1318). The WVASC makes findings of fact that AIM and ADI entered into certain arrangements permitting market timing of the AIM Funds and failed to disclose these arrangements in the prospectuses for such Funds, and conclusions of law to the effect that AIM and ADI violated the West Virginia securities laws. The WVASC orders AIM and ADI to cease any further violations and seeks to impose monetary sanctions, including restitution to affected investors, disgorgement of fees, reimbursement of investigatory, administrative and legal costs and an "administrative assessment," to be determined by the Commissioner. Initial research indicates that these damages could be limited or capped by statute. By agreement with the Commissioner of Securities, AIM's time to respond to that Order has been indefinitely suspended. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or related entities and individuals, depending on the lawsuit, alleging: - that the defendants permitted improper market timing and related activity in the AIM Funds; and - that certain AIM Funds inadequately employed fair value pricing. These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws and ERISA, negligence, breach of fiduciary duty and/or breach of contract. These lawsuits seek remedies that include, depending on the lawsuit, damages, restitution, injunctive relief, imposition of a constructive trust, removal of certain directors and/or employees, various corrective measures under ERISA, rescission of certain AIM Funds' advisory agreements and/or distribution plans and recovery of all fees paid. All lawsuits based on allegations of market timing, late trading and related issues have been transferred to the United States District Court for the District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court, plaintiffs in these lawsuits consolidated their claims for pre-trial purposes into three amended complaints against various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint for Violations of the Employee Retirement Income Securities Act ("ERISA") purportedly brought on behalf of participants in Invesco's 401(k) plan. Based on orders issued by the MDL Court, all claims asserted against the AIM Funds that have been transferred to the MDL Court have been dismissed, although certain Funds remain nominal defendants in the Consolidated Amended Fund Derivative Complaint. On September 15, 2006, the MDL Court granted the Invesco defendants' motion to dismiss the Amended Class Action Complaint for Violations of ERISA and dismissed such Complaint. The plaintiff has commenced an appeal from that decision. IFG, AIM, ADI and/or related entities and individuals have received inquiries from numerous regulators in the form of subpoenas or other oral or written requests for information and/or documents related to one or more of the following issues, among others, some of which concern one or more AIM Funds: market timing activity, late trading, fair value pricing, excessive or improper advisory and/or distribution fees, mutual fund sales practices, including revenue sharing and directed-brokerage arrangements, investments in securities of other registered investment companies, contractual plans, issues related to Section 529 college savings plans and procedures for locating lost security holders. IFG, AIM and ADI have advised the Fund that they are providing full cooperation with respect to these inquiries. Regulatory actions and/or additional civil lawsuits related to these or other issues may be filed against the AIM Funds, IFG, AIM and/or related entities and individuals in the future. At the present time, management of AIM and the Fund are unable to estimate the impact, if any, that the outcome of the Pending Litigation and Regulatory Inquiries described above may have on AIM, ADI or the Fund. 24 AIM Constellation Fund REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Trustees of AIM Equity Funds and Shareholders of AIM Constellation Fund: In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of AIM Constellation Fund (one of the funds constituting AIM Equity Funds, hereafter referred to as the "Fund") at October 31, 2007, 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 three years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at October 31, 2007 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights for each of the periods ended on or before October 31, 2004 were audited by another independent registered public accounting firm whose report, dated December 15, 2004, expressed an unqualified opinion on those financial highlights. PRICEWATERHOUSECOOPERS LLP December 19, 2007 Houston, Texas 25 AIM Constellation Fund CALCULATING YOUR ONGOING FUND EXPENSES EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments or contingent deferred sales charges on redemptions, and redemption fees, if any; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period May 1, 2007, through October 31, 2007. ACTUAL EXPENSES The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions, and redemption fees, if any. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
HYPOTHETICAL (5% ANNUAL RETURN BEFORE ACTUAL EXPENSES) BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE CLASS (5/1/07) (10/31/07)(1) PERIOD(2) (10/31/07) PERIOD(2) RATIO A $1,000.00 $1,121.00 $ 6.15 $1,019.41 $5.85 1.15% B 1,000.00 1,117.00 10.14 1,015.63 9.65 1.90 C 1,000.00 1,116.70 10.14 1,015.63 9.65 1.90 R 1,000.00 1,119.40 7.48 1,018.15 7.12 1.40
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2007, through October 31, 2007, 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. (2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. 26 Supplement to Annual Report dated 10/31/07 AIM Constellation Fund ========================================== Institutional Class Shares AVERAGE ANNUAL TOTAL RETURNS PLEASE NOTE THAT PAST PERFORMANCE IS For periods ended 10/31/07 NOT INDICATIVE OF FUTURE RESULTS. MORE The following information has been RECENT RETURNS MAY BE MORE OR LESS THAN prepared to provide Institutional Class Inception (4/8/92) 10.25% THOSE SHOWN. ALL RETURNS ASSUME shareholders with a performance overview 10 Years 5.42 REINVESTMENT OF DISTRIBUTIONS AT NAV. specific to their holdings. Institutional 5 Years 13.17 INVESTMENT RETURN AND PRINCIPAL VALUE WILL Class shares are offered exclusively to 1 Year 22.28 FLUCTUATE SO YOUR SHARES, WHEN REDEEMED, institutional investors, including defined MAY BE WORTH MORE OR LESS THAN THEIR contribution plans that meet certain AVERAGE ANNUAL TOTAL RETURNS ORIGINAL COST. SEE FULL REPORT FOR criteria. For periods ended 9/30/07, most recent INFORMATION ON COMPARATIVE BENCHMARKS. calendar quarter-end PLEASE CONSULT YOUR FUND PROSPECTUS FOR MORE INFORMATION. FOR THE MOST CURRENT Inception (4/8/92) 10.04% MONTH-END PERFORMANCE, PLEASE CALL 10 Years 4.33 800-451-4246 OR VISIT AIMINVESTMENTS.COM. 5 Years 14.26 1 Year 20.26 ========================================== INSTITUTIONAL CLASS SHARES HAVE NO SALES CHARGE; THEREFORE, PERFORMANCE IS AT NET ASSET VALUE (NAV). PERFORMANCE OF INSTITUTIONAL CLASS SHARES WILL DIFFER FROM PERFORMANCE OF OTHER SHARE CLASSES PRIMARILY DUE TO DIFFERING SALES CHARGES AND CLASS EXPENSES. ========================================== NASDAQ Symbol CSITX ========================================== Over for information on your Fund's expenses. ======================================================================================= THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING. ======================================================================================= FOR INSTITUTIONAL INVESTOR USE ONLY This material is for institutional investor use only and may not be quoted, reproduced or shown to the public, nor used in written form as sales literature for public use.
AIMinvestments.com CST-INS-1 A I M Distributors, Inc. [AIM INVESTMENTS LOGO] -- REGISTERED TRADEMARK -- AIM Constellation Fund CALCULATING YOUR ONGOING FUND EXPENSES EXAMPLE As a shareholder of the Fund, you incur ongoing costs, including management fees and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period May 1, 2007, through October 31, 2007. ACTUAL EXPENSES The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL (5% ANNUAL RETURN BEFORE ACTUAL EXPENSES) BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE SHARE CLASS (05/01/07) (10/31/07)(1) PERIOD(2) (10/31/07) PERIOD(2) RATIO Institutional $1,000.00 $1,123.80 $3.69 $1,021.73 $3.52 0.69%
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2007, through October 31, 2007, 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. (2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. AIMinvestments.com CST-INS-1 A I M Distributors, Inc. AIM Constellation Fund Approval of Investment Advisory Agreement The Board of Trustees (the Board) of AIM own recommendations regarding the A. Nature, Extent and Quality of Services Equity Funds is required under the performance, fees and expenses of the AIM Provided by AIM Investment Company Act of 1940 to approve Funds to the full Board. Moreover, the annually the renewal of the AIM Investments Committee considers each The Board reviewed the advisory services Constellation Fund (the Fund) investment Sub-Committee's recommendations in making provided to the Fund by AIM under the advisory agreement with A I M Advisors, its annual recommendation to the Board Fund's advisory agreement, the performance Inc. (AIM). During contract renewal whether to approve the continuance of of AIM in providing these services, and meetings held on June 25-27, 2007, the each AIM Fund's investment advisory the credentials and experience of the Board as a whole and the disinterested or agreement and sub-advisory agreement, if officers and employees of AIM who provide "independent" Trustees, voting separately, applicable (advisory agreements), for these services. The Board's review of the approved the continuance of the Fund's another year. qualifications of AIM to provide these investment advisory agreement for another services included the Board's year, effective July 1, 2007. In doing so, The independent Trustees, as mentioned consideration of AIM's portfolio and the Board determined that the Fund's above, are assisted in their annual product review process, various back advisory agreement is in the best interests evaluation of the advisory agreements by office support functions provided by AIM, of the Fund and its shareholders and that the independent Senior Officer. One and AIM's equity and fixed income trading the compensation to AIM under the Fund's responsibility of the Senior Officer is operations. The Board concluded that the advisory agreement is fair and reasonable. to manage the process by which the AIM nature, extent and quality of the advisory Funds' proposed management fees are services provided to the Fund by AIM were The independent Trustees met separately negotiated during the annual contract appropriate and that AIM currently is during their evaluation of the Fund's renewal process to ensure that they are providing satisfactory advisory services investment advisory agreement with negotiated in a manner which is at arms' in accordance with the terms of the Fund's independent legal counsel from whom they length and reasonable. Accordingly, the advisory agreement. In addition, based on received independent legal advice, and the Senior Officer must either supervise a their ongoing meetings throughout the year independent Trustees also received competitive bidding process or prepare an with the Fund's portfolio managers, the assistance during their deliberations from independent written evaluation. The Board concluded that these individuals are the independent Senior Officer, a full-time Senior Officer has recommended that an competent and able to continue to carry officer of the AIM Funds who reports independent written evaluation be out their responsibilities under the directly to the independent Trustees. The provided and, upon the direction of the Fund's advisory agreement. following discussion more fully describes Board, has prepared an independent the process employed by the Board to written evaluation. In determining whether to continue the evaluate the performance of the AIM Funds Fund's advisory agreement, the Board (including the Fund) throughout the year During the annual contract renewal considered the prior relationship between and, more specifically, during the annual process, the Board considered the factors AIM and the Fund, as well as the Board's contract renewal meetings. discussed below under the heading knowledge of AIM's operations, and "Factors and Conclusions and Summary of concluded that it was beneficial to THE BOARD'S FUND EVALUATION PROCESS Independent Written Fee Evaluation" in maintain the current relationship, in evaluating the fairness and part, because of such knowledge. The Board The Board's Investments Committee has reasonableness of the Fund's advisory also considered the steps that AIM and its established three Sub-Committees which are agreement at the contract renewal affiliates have taken over the last responsible for overseeing the management meetings and at their meetings throughout several years to improve the quality and of a number of the series portfolios of the the year as part of their ongoing efficiency of the services they provide to AIM Funds. This SubCommittee structure oversight of the Fund. The Fund's the Funds in the areas of investment permits the Trustees to focus on the advisory agreement was considered performance, product line diversification, performance of the AIM Funds that have been separately, although the Board also distribution, fund operations, shareholder assigned to them. The Sub-Committees meet considered the common interests of all of services and compliance. The Board throughout the year to review the the AIM Funds in their deliberations. The concluded that the quality and efficiency performance of their assigned funds, and Board comprehensively considered all of of the services AIM and its affiliates the Sub-Committees review monthly and the information provided to them and did provide to the AIM Funds in each of these quarterly comparative performance not identify any particular factor that areas have generally improved, and support information and periodic asset flow data was controlling. Furthermore, each the Board's approval of the continuance of for their assigned funds. These materials Trustee may have evaluated the the Fund's advisory agreement. are prepared under the direction and information provided differently from one supervision of the independent Senior another and attributed different weight B. FUND PERFORMANCE Officer. Over the course of each year, the to the various factors. The Trustees SubCommittees meet with portfolio managers recognized that the advisory arrangements The Board compared the Fund's performance for their assigned funds and other members and resulting advisory fees for the Fund during the past one, three and five of management and review with these and the other AIM Funds are the result of calendar years to the performance of funds individuals the performance, investment years of review and negotiation between in the Fund's Lipper peer group that are objective(s), policies, strategies and the Trustees and AIM, that the Trustees not managed by AIM, and against the limitations of these funds. may focus to a greater extent on certain performance of all funds in the Lipper aspects of these arrangements in some Multi-Cap Growth Funds Index and the In addition to their meetings throughout years than others, and that the Trustees' Lipper Large-Cap Growth Funds Index. The the year, the Sub-Committees meet at deliberations and conclusions in a Board also reviewed the methodology used designated contract renewal meetings each particular year may be based in part on by Lipper to identify the Fund's peers. year to conduct an in-depth review of the their deliberations and conclusions of The Board noted that the Fund's performance, fees and expenses of their these same arrangements throughout the performance was below the median assigned funds. During the contract renewal year and in prior years. performance of its peers for the one and process, the Trustees receive comparative three year periods, and comparable to such performance and fee data regarding all the FACTORS AND CONCLUSIONS AND SUMMARY OF performance for the five year period. The AIM Funds prepared by an independent INDEPENDENT WRITTEN FEE EVALUATION Board noted that the Fund's performance company, Lipper, Inc., under the direction was below the performance of the Lipper and supervision of the independent Senior The discussion below serves as a summary Multi-Cap Growth Funds Index for the one, Officer who also prepares a separate of the Senior Officer's independent three and five year periods. The Board analysis of this information for the written evaluation, as well as a also noted that the Fund's performance was Trustees. Each Sub-Committee then makes discussion of the material factors and above the performance of the Lipper recommendations to the Investments related conclusions that formed the basis Large-Cap Growth Funds Index for the one Committee regarding the performance, fees for the Board's approval of the Fund's and five year periods, and comparable to and expenses of their assigned funds. The advisory agreement. Unless otherwise such Index for the three year period. The Investments Committee considers each stated, information set forth below is as Board noted that AIM made changes to the Sub-Committee's recommendations and makes of June 27, 2007 and does not reflect any Fund's portfolio management team in 2005, its changes that may have occurred since that date, including but not limited to changes to the Fund's performance, advisory fees, expense limitations and/or fee waivers. (continued)
27 AIM Constellation Fund which need more time to be evaluated before D. ECONOMIES OF SCALE AND BREAKPOINTS G. COLLATERAL BENEFITS TO AIM AND ITS a conclusion can be reached that the AFFILIATES changes have adequately addressed the The Board considered the extent to which Fund's underperformance. The Board also there are economies of scale in AIM's The Board considered various other considered the steps AIM has taken over the provision of advisory services to the benefits received by AIM and its last several years to improve the quality Fund. The Board also considered whether affiliates resulting from AIM's and efficiency of the services that AIM the Fund benefits from such economies of relationship with the Fund, including the provides to the AIM Funds. The Board scale through contractual breakpoints in fees received by AIM and its affiliates concluded that AIM continues to be the Fund's advisory fee schedule or for their provision of administrative, responsive to the Board's focus on fund through advisory fee waivers or expense transfer agency and distribution services performance. Although the independent limitations. The Board noted that the to the Fund. The Board considered the written evaluation of the Fund's Senior Fund's contractual advisory fee schedule performance of AIM and its affiliates in Officer (discussed below) only considered includes one breakpoint and that the providing these services and the Fund performance through the most recent level of the Fund's advisory fees, as a organizational structure employed by AIM calendar year, the Board also reviewed more percentage of the Fund's net assets, has and its affiliates to provide these recent Fund performance and this review did decreased as net assets increased because services. The Board also considered that not change their conclusions. of the breakpoint. The Board also noted these services are provided to the Fund that AIM's contractual advisory fee pursuant to written contracts which are C. ADVISORY FEES AND FEE WAIVERS waiver discussed above includes reviewed and approved on an annual basis breakpoints based on net asset levels. by the Board. The Board concluded that AIM The Board compared the Fund's contractual Based on this information, the Board and its affiliates were providing these advisory fee rate to the contractual concluded that the Fund's advisory fees services in a satisfactory manner and in advisory fee rates of funds in the Fund's appropriately reflect economies of scale accordance with the terms of their Lipper peer group that are not managed by at current asset levels. The Board also contracts, and were qualified to continue AIM, at a common asset level and as of the noted that the Fund shares directly in to provide these services to the Fund. end of the past calendar year. The Board economies of scale through lower fees noted that the Fund's advisory fee rate was charged by third party service providers The Board considered the benefits comparable to the median advisory fee rate based on the combined size of all of the realized by AIM as a result of portfolio of its peers. The Board also reviewed the AIM Funds and affiliates. brokerage transactions executed through methodology used by Lipper and noted that "soft dollar" arrangements. Under these the contractual fee rates shown by Lipper E. PROFITABILITY AND FINANCIAL RESOURCES arrangements, portfolio brokerage include any applicable long-term OF AIM commissions paid by the Fund and/or other contractual fee waivers. The Board also funds advised by AIM are used to pay for compared the Fund's contractual advisory The Board reviewed information from AIM research and execution services. The Board fee rate to the contractual advisory fee concerning the costs of the advisory and noted that soft dollar arrangements shift rates of other clients of AIM and its other services that AIM and its the payment obligation for the research affiliates with investment strategies affiliates provide to the Fund and the and executions services from AIM to the comparable to those of the Fund, including profitability of AIM and its affiliates funds and therefore may reduce AIM's two mutual funds advised by AIM, four in providing these services. The Board expenses. The Board also noted that mutual funds sub-advised by an AIM also reviewed information concerning the research obtained through soft dollar affiliate, and one offshore fund advised financial condition of AIM and its arrangements may be used by AIM in making and sub-advised by AIM affiliates. The affiliates. The Board also reviewed with investment decisions for the Fund and may Board noted that the Fund's rate was: (i) AIM the methodology used to prepare the therefore benefit Fund shareholders. The the same as the rate for one of the mutual profitability information. The Board Board concluded that AIM's soft dollar funds and comparable to the rate for the considered the overall profitability of arrangements were appropriate. The Board second mutual fund; (ii) above the AIM, as well as the profitability of AIM also concluded that, based on their review sub-advisory fee rates for the four in connection with managing the Fund. The and representations made by AIM, these sub-advised mutual funds, although the Board noted that AIM continues to operate arrangements were consistent with advisory fee rates for such sub-advised at a net profit, although increased regulatory requirements. mutual funds were above the Fund's; and expenses in recent years have reduced the (iii) below the advisory fee rate for the profitability of AIM and its affiliates. The Board considered the fact that the offshore fund. The Board concluded that the Fund's Fund's uninvested cash and cash collateral advisory fees were fair and reasonable, from any securities lending arrangements The Board noted that AIM has and that the level of profits realized by may be invested in money market funds contractually agreed to waive advisory fees AIM and its affiliates from providing advised by AIM pursuant to procedures of the Fund through December 31, 2012 and services to the Fund was not excessive in approved by the Board. The Board noted that this fee waiver includes breakpoints light of the nature, quality and extent that AIM will receive advisory fees from based on net asset levels. The Board of the services provided. The Board these affiliated money market funds considered the contractual nature of this considered whether AIM is financially attributable to such investments, although fee waiver and noted that it remains in sound and has the resources necessary to AIM has contractually agreed to waive the effect until December 31, 2012. The Board perform its obligations under the Fund's advisory fees payable by the Fund with noted that, according to information advisory agreement, and concluded that respect to its investment of uninvested provided by AIM, this fee waiver reduces AIM has the financial resources necessary cash in these affiliated money market the Fund's effective advisory fees to a to fulfill these obligations. funds through at least June 30, 2008. The level generally in line with the median Board considered the contractual nature of effective advisory fees for the Fund's F. INDEPENDENT WRITTEN EVALUATION OF THE this fee waiver and noted that it remains peers, as determined by AIM. The Board FUND'S SENIOR OFFICER in effect until at least June 30, 2008. reviewed the Fund's effective advisory fee The Board concluded that the Fund's rate, after taking account of this fee The Board noted that, upon their investment of uninvested cash and cash waiver, and considered the effect this fee direction, the Senior Officer of the collateral from any securities lending waiver would have on the Fund's estimated Fund, who is independent of AIM and AIM's arrangements in the affiliated money total expenses. The Board concluded that affiliates, had prepared an independent market funds is in the best interests of the levels of fee waivers/expense written evaluation to assist the Board in the Fund and its shareholders. limitations for the Fund were fair and determining the reasonableness of the reasonable. proposed management fees of the AIM Funds, including the Fund. The Board After taking account of the Fund's noted that they had relied upon the contractual advisory fee rate, as well as Senior Officer's written evaluation the comparative advisory fee information instead of a competitive bidding process. and the fee waiver discussed above, the In determining whether to continue the Board concluded that the Fund's advisory Fund's advisory agreement, the Board fees were fair and reasonable. considered the Senior Officer's written evaluation.
28 AIM Constellation Fund TAX INFORMATION ADDITIONAL NON-RESIDENT ALIEN SHAREHOLDER INFORMATION The percentages of qualifying assets not subject to the U.S. estate tax for the fiscal quarters ended January 31, 2007, April 30, 2007, July 31, 2007 and October 31, 2007 were 13.06%, 12.50%, 11.87%, and 11.38%, respectively. 29 AIM Constellation Fund TRUSTEES AND OFFICERS The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. Each trustee oversees 104 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. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
OTHER TRUSTEE TRUSTEESHIP(S)/ NAME, YEAR OF BIRTH AND AND/OR DIRECTORSHIP(S) POSITION(S) HELD WITH THE OFFICER PRINCIPAL OCCUPATION(S) HELD BY TRUST SINCE DURING PAST 5 YEARS TRUSTEE/ DIRECTOR - ------------------------------------------------------------------------------------------------------------------------- Interested Persons - ------------------------------------------------------------------------------------------------------------------------- Martin L. Flanagan(1) -- 1960 2007 Director, Chief Executive Officer and None Trustee President, Invesco Ltd. (ultimate parent of AIM and a global investment management firm) and, INVESCO PLC (parent of AIM and a global investment management firm); Chairman, A I M Advisors, Inc. (registered investment advisor); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company); and INVESCO North American Holdings, Inc. (holding company); Chairman and President, INVESCO Group Services, Inc. (service provider); Trustee, The AIM Family of Funds(R); Vice Chairman, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business Formerly: Chairman, Investment Company Institute; President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) - ------------------------------------------------------------------------------------------------------------------------- Philip A. Taylor(2) -- 1954 2006 Director, Chief Executive Officer and None Trustee, President and President, AIM Mutual Fund Dealer Inc. Principal (registered broker dealer), A I M Executive Officer Advisors, Inc., AIM Funds Management Inc. d/b/a INVESCO Enterprise Services (registered investment advisor and registered transfer agent) and 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, A I M Management Group Inc. (financial services holding company) and A I M Capital Management, Inc. (registered investment advisor); Director and President, INVESCO Funds Group, Inc. (registered investment advisor and register transfer agent) and AIM GP Canada Inc. (general partner for a limited partnership); Director, A I M Distributors, Inc. (registered broker dealer); Director and Chairman, AIM Investment Services, Inc. (registered transfer agent) and INVESCO Distributors, Inc. (registered broker dealer); Director, President and Chairman, IVZ Callco Inc. (holding company), INVESCO Inc. (holding company) and AIM Canada Holdings Inc. (holding company); Director and Chief Executive Officer, AIM Trimark Corporate Class Inc. (formerly AIM Trimark Global Fund Inc.) (corporate mutual fund company) and AIM Trimark Canada Fund Inc. (corporate mutual fund company); Trustee, President and Principal Executive Officer of The AIM Family of Funds--Registered Trademark-- (other than AIM Treasurer's Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust); Trustee and Executive Vice President, The AIM Family of Funds--Registered Trademark-- (AIM Treasurer's Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only); and Manager, PowerShares Capital Management LLC Formerly: Director and Chairman, Fund Management Company (registered broker dealer); President and Principal Executive Officer, The AIM Family of Funds--Registered Trademark-- (AIM Treasurer's Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only); Chairman, AIM Canada Holdings, Inc.; President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc.; and Director, Trimark Trust (federally regulated Canadian Trust Company) - ------------------------------------------------------------------------------------------------------------------------- Independent Trustees - ------------------------------------------------------------------------------------------------------------------------- Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company); Trustee and Chair (technology consulting company) and Captaris, Inc. (unified messaging provider) - ------------------------------------------------------------------------------------------------------------------------- Bob R. Baker -- 1936 2003 Retired None Trustee - ------------------------------------------------------------------------------------------------------------------------- Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered Trustee investment company) (2 portfolios) Formerly: Partner, law firm of Baker & McKenzie - ------------------------------------------------------------------------------------------------------------------------- James T. Bunch -- 1942 2003 Founder, Green, Manning & Bunch Ltd., None Trustee (investment banking firm); and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation - ------------------------------------------------------------------------------------------------------------------------- Albert R. Dowden -- 1941 2000 Director of a number of public and None Trustee private business corporations, including the Boss Group Ltd. (private investment and management); Reich & Tang Funds (Chairman) (registered investment company) (7 portfolios), Daily Income Fund (4 portfolios), California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc. and New Jersey Daily Municipal Fund, Inc., Annuity and Life Re (Holdings), Ltd. (insurance company), and Homeowners of America Holding Corporation (property casualty company) Formerly: Director, CompuDyne Corporation (provider of product and services to the public security market); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various affiliated Volvo companies; and Director, Magellan Insurance Company - ------------------------------------------------------------------------------------------------------------------------- Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff Trustee Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), and Discovery Global Education Fund (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) - ------------------------------------------------------------------------------------------------------------------------- Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Director, Reich & Tang Funds) (7 Trustee Naftalis and Frankel LLP portfolios) - ------------------------------------------------------------------------------------------------------------------------- Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None Trustee of the USA - ------------------------------------------------------------------------------------------------------------------------- Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper None Trustee - ------------------------------------------------------------------------------------------------------------------------- Ruth H. Quigley -- 1935 2001 Retired None Trustee - ------------------------------------------------------------------------------------------------------------------------- Larry Soll -- 1942 2003 Retired None Trustee - ------------------------------------------------------------------------------------------------------------------------- Raymond Stickel, Jr. -- 1944 2005 Retired None Trustee Formerly: Partner, Deloitte & Touche; and Director, Mainstay VP Series Funds, Inc. (25 portfolios) - -------------------------------------------------------------------------------------------------------------------------
(1) Mr. Flanagan was appointed as Trustee of the Trust on February 24, 2007. Mr. Flanagan is considered an interested person of the Trust because he is an officer of the advisor to the Trust, and an officer and a director of INVESCO PLC, parent of the advisor to the Trust. (2) Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the advisor to, and a director of the principal underwriter of, the Trust. 30 TRUSTEES AND OFFICERS--(CONTINUED) AIM Constellation Fund
OTHER TRUSTEE TRUSTEESHIP(S)/ NAME, YEAR OF BIRTH AND AND/OR DIRECTORSHIP(S) POSITION(S) HELD WITH THE OFFICER PRINCIPAL OCCUPATION(S) HELD BY TRUSTEE/ TRUST SINCE DURING PAST 5 YEARS DIRECTOR - ------------------------------------------------------------------------------------------------------------------------- Other Officers - ------------------------------------------------------------------------------------------------------------------------- Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer N/A Senior Vice President and of The AIM Family of Funds--Registered Senior Officer Trademark-- Formerly: Director of Compliance and Assistant General Counsel, ICON Advisers, Inc.; Financial Consultant, Merrill Lynch; General Counsel and Director of Compliance, ALPS Mutual Funds, Inc. - ------------------------------------------------------------------------------------------------------------------------- John M. Zerr -- 1962 2006 Director, Senior Vice President, N/A Senior Vice President, Chief Secretary and General Counsel, A I M Legal Officer and Secretary Management Group Inc., A I M Advisors, Inc. and A I M Capital Management, Inc.; Director, Vice President and Secretary, AIM Investment Services, Inc. and INVESCO Distributors, Inc.; Director, Senior Vice President and Secretary, A I M Distributors, Inc.; Director and Vice President, INVESCO Funds Group Inc.; Senior Vice President, Chief Legal Officer and Secretary of The AIM Family of Funds--Registered Trademark--; and Manager, PowerShares Capital Management LLC Formerly: Director, Vice President and Secretary, Fund Management Company; Vice President, A I M Capital Management, Inc.; Chief Operating Officer, Senior Vice President, General Counsel and Secretary, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company); Vice President and Secretary, PBHG Insurance Series Fund (an investment company); General Counsel and Secretary, Pilgrim Baxter Value Investors (an investment adviser); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator); General Counsel and Secretary, Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) - ------------------------------------------------------------------------------------------------------------------------- Lisa O. Brinkley -- 1959 2004 Global Compliance Director, INVESCO PLC; N/A Vice President and Vice President of The AIM Family of Funds--Registered Trademark-- Formerly: Senior Vice President, A I M Management Group Inc. (financial services holding company); Senior Vice President and Chief Compliance Officer, A I M Advisors, Inc. and The AIM Family of Funds--Registered Trademark--; Vice President and Chief Compliance Officer, A I M Capital Management, Inc. and A I M Distributors, Inc.; Vice President, AIM Investment Services, Inc. and Fund Management Company; Senior Vice President and Chief Compliance Officer of The AIM Family of Funds--Registered Trademark--; and Senior Vice President and Compliance Director, Delaware Investments Family of Funds - ------------------------------------------------------------------------------------------------------------------------- Kevin M. Carome -- 1956 2003 Senior Vice President and General Vice President Counsel, INVESCO PLC; Director, INVESCO Funds Group, Inc.; Director and Secretary, IVZ, Inc. and INVESCO Group Services, Inc.; Secretary, INVESCO North American Holdings, Inc.; and Vice President of The AIM Family of Funds--Registered Trademark-- Formerly: Director, Senior Vice N/A President, Secretary and General Counsel, A I M Management Group Inc. and A I M Advisors, Inc.; Senior Vice President, A I M Distributors, Inc.; Director, General Counsel and Vice President, Fund Management Company; Vice President, A I M Capital Management, Inc. and AIM Investment Services, Inc.; Senior Vice President, Chief Legal Officer and Secretary of The AIM Family of Funds--Registered Trademark--; Director and Vice President, INVESCO Distributors, Inc.; Chief Executive Officer and President, INVESCO Funds Group, Inc.; and Senior Vice President and General Counsel, Liberty Financial Companies, Inc. - ------------------------------------------------------------------------------------------------------------------------- Sidney M. Dilgren -- 1961 2004 Vice President, A I M Advisors, Inc. and N/A Vice President, Principal A I M Capital Management, Inc.; and Vice Financial Officer and President, Treasurer and Principal Treasurer Financial Officer of The AIM Family of Funds--Registered Trademark-- Formerly: Fund Treasurer, A I M Advisors, Inc.; Senior Vice President, AIM Investment Services, Inc.; and Vice President, A I M Distributors, Inc. - ------------------------------------------------------------------------------------------------------------------------- Karen Dunn Kelley -- 1960 2004 Head of INVESCO's World Wide Fixed N/A Vice President Income and Cash Management Group; Director of Cash Management and Senior Vice President, A I M Advisors, Inc. and A I M Capital Management, Inc; Executive Vice President, A I M Distributors, Inc.; Senior Vice President, A I M Management Group Inc.; Vice President, The AIM Family of Funds--Registered Trademark-- (other than AIM Treasurer's Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust); and President and Principal Executive Officer, The AIM Family of Funds--Registered Trademark-- (AIM Treasurer's Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only) Formerly: Director and President, Fund Management Company; Chief Cash Management Officer and Managing Director, A I M Capital Management, Inc.; Vice President, A I M Advisors, Inc. and The AIM Family of Funds--Registered Trademark-- (AIM Treasurer's Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only) - ------------------------------------------------------------------------------------------------------------------------- Lance A. Rejsek -- 1967 2005 Anti-Money Laundering Compliance N/A Anti-Money Laundering Officer, A I M Advisors, Inc., A I M Compliance Officer Capital Management, Inc., A I M Distributors, Inc., AIM Investment Services, Inc., AIM Private Asset Management, Inc. and The AIM Family of Funds--Registered Trademark-- Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company; and Manager of the Fraud Prevention Department, AIM Investment Services, Inc. - ------------------------------------------------------------------------------------------------------------------------- Todd L. Spillane -- 1958 2006 Senior Vice President, A I M Management N/A Chief Compliance Officer Group Inc.; Senior Vice President and Chief Compliance Officer, A I M Advisors, Inc. and A I M Capital Management, Inc.; Chief Compliance Officer of The AIM Family of Funds--Registered Trademark--, INVESCO Global Asset Management (N.A.), Inc., (registered investment advisor), INVESCO Institutional (N.A.), Inc., (registered investment advisor), INVESCO Private Capital Investments, Inc. (holding company), INVESCO Private Capital, Inc. (registered investment advisor) and INVESCO Senior Secured Management, Inc. (registered investment advisor); and Vice President, A I M Distributors, Inc. and AIM Investment Services, Inc. Formerly: Vice President, A I M Capital Management, Inc. and Fund Management Company; Global Head of Product Development, AIG-Global Investment Group, Inc.; and Chief Compliance Officer and Deputy General Counsel, AIG-SunAmerica Asset Management - -------------------------------------------------------------------------------------------------------------------------
The Statement of Additional Information of the Trust includes additional information about the Fund's Trustees and is available upon request, without charge, by calling 1.800.959.4246. OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS 11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers Suite 100 11 Greenway Plaza Inc. LLP Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street Houston, TX 77046-1173 Suite 100 Suite 2900 Houston, TX 77046-1173 Houston, TX 77002-5678 COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN Ballard Spahr INDEPENDENT TRUSTEES AIM Investment State Street Bank and Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust 1735 Market Street, 51st & Frankel LLP P.O. Box 4739 Company Floor 1177 Avenue of the Houston, TX 77210-4739 225 Franklin Street Philadelphia, PA 19103-7599 Americas Boston, MA 02110-2801 New York, NY 10036-2714
31 [EDELIVERY Fund holdings and proxy voting information GO PAPERLESS AIMINVESTMENTS.COM/EDELIVERY The Fund provides a complete list of its holdings four times in GRAPHIC] each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund's semiannual and annual REGISTER FOR EDELIVERY reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission eDelivery is the process of receiving your fund and account (SEC) on Form N-Q. The most recent list of portfolio holdings is information via e-mail. Once your quarterly statements, tax available at AIMinvestments.com. From our home page, click on forms, fund reports, and prospectuses are available, we will send Products & Performance, then Mutual Funds, then Fund Overview. you an e-mail notification containing links to these documents. Select your Fund from the drop-down menu and click on Complete For security purposes, you will need to log in to your account to Quarterly Holdings. Shareholders can also look up the Fund's view your statements and tax forms. Forms N-Q on the SEC Web site at sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied at the SEC Public Reference WHY SIGN UP? Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information Register for eDelivery to: about duplicating fee charges, by calling 202-942-8090 or 800-732-0330, or by electronic request at the following e-mail o save your Fund the cost of printing and postage. address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-01424 and 022-25469. o reduce the amount of paper you receive. A description of the policies and procedures that the Fund uses o gain access to your documents faster by not waiting for the to determine how to vote proxies relating to portfolio mail. securities is available without charge, upon request, from our Client Services department at 800-959-4246 or on the AIM Web o view your documents online anytime at your convenience. site, AIMinvestments.com. On the home page, scroll down and click on Proxy Policy. The information is also available on the o save the documents to your personal computer or print them out SEC Web site, sec.gov. for your records. Information regarding how the Fund voted proxies related to its HOW DO I SIGN UP? portfolio securities during the 12 months ended June 30, 2007, is available at our Web site. Go to AIMinvestments.com, access It's easy. Just follow these simple steps: the About Us tab, click on Required Notices and then click on Proxy Voting Activity. Next, select the Fund from the drop-down 1. Log in to your account. menu. The information is also available on the SEC Web site, sec.gov. 2. Click on the "Service Center" tab. If used after January 20, 2008, this report must be accompanied 3. Select "Register for eDelivery" and complete the consent by a Fund fact sheet or by an AIM Quarterly Performance Review process. for the most recent quarter-end. Mutual funds and exchange-traded funds distributed by A I M Distributors, Inc. This AIM service is provided by AIM Investment Services, Inc. CST-AR-1 A I M Distributors, Inc. [AIM INVESTMENTS LOGO] -- REGISTERED TRADEMARK --
DOMESTIC EQUITY AIM Diversified Dividend Fund Annual Report to Shareholders - October 31, 2007 Large-Cap Blend Table of Contents Letters to Shareholders 2 Performance Summary 4 Management Discussion 4 Long-term Fund Performance 6 Supplemental Information 8 Schedule of Investments 9 Financial Statements 12 Notes to Financial Statements 15 Financial Highlights 22 Auditor's Report 28 Fund Expenses 29 [COVER GLOBE IMAGE] Approval of Advisory Agreement 30 Tax Information 32 Trustees and Officers 33
[AIM INVESTMENT SOLUTIONS] [GRAPHIC] [GRAPHIC] [DOMESTIC [FIXED EQUITY] INCOME] [GRAPHIC] [GRAPHIC] [GRAPHIC] [TARGET [TARGET [DIVERSIFIED RISK] MATURITY] PORTFOLIOS] [GRAPHIC] [GRAPHIC] [SECTOR [INTERNATIONAL/ EQUITY] GLOBAL EQUITY] [AIM INVESTMENTS LOGO] - -- REGISTERED TRADEMARK -- AIM Diversified Dividend Fund Dear Shareholders of the AIM Family of Funds: I'm pleased to provide you with this report, which includes a discussion of how your Fund was managed during the period under review and factors that affected its performance. The following pages contain important information that answers questions you may have about your investment. [TAYLOR PHOTO] Despite notable volatility at points throughout the fiscal year ended October 31, 2007, major stock market indexes in the U.S. and abroad generally performed well. Reasons for their favorable performance included positive economic growth, particularly overseas; strong corporate profits; and action by the U.S. Federal Reserve Board (the Fed) to reassure skittish markets, among other factors. Philip Taylor At its September 18, 2007, meeting, the Fed cut the federal funds target rate for the first time since June 2003.(1) The cut followed 17 rate increases from June 2004 to June 2006(1) and was intended to address investor concerns about a weak housing market generally and problems in the subprime mortgage market specifically. The Fed's action triggered an immediate and broad stock market rally. The Fed cut this key interest rate again on October 31, 2007.(1) At AIM Investments --REGISTERED TRADEMARK--, we know that market conditions change--often suddenly and sometimes dramatically. We can help you deal with market volatility by offering a broad range of mutual funds, including: o Domestic, global and international equity funds o Taxable and tax-exempt fixed-income funds o Allocation portfolios, with risk/return characteristics to match your needs o AIM Independence Funds--target-maturity funds that combine retail mutual funds and PowerShares --REGISTERED TRADEMARK--exchange-traded funds--with risk/return characteristics that change as your target retirement date nears I encourage you to talk with your financial advisor if you have concerns about your portfolio. We believe in the value of working with a trusted financial advisor who can recommend AIM funds that are appropriate for your portfolio and that address your long-term investment goals and risk tolerance regardless of prevailing short-term market conditions. In conclusion My colleague, Bob Graham, recently announced his decision to step down as vice chair of the AIM Funds board of directors. In 1976, Bob was one of three men who co-founded AIM. In the three decades since, he has been instrumental in transforming AIM from a small investment management firm into one of America's most respected mutual fund companies--and, in 1997, into a global independent retail and institutional investment manager. In May, with shareholder approval, AIM Investments' parent company changed its name from AMVESCAP PLC to Invesco Ltd., uniting our worldwide operations and global expertise under one new name. While the name of our parent company may be new to you, I can assure you that our commitment to excellent customer service remains unchanged. Our highly trained, courteous client service representatives are eager to answer your questions, provide you with product information or assist you with account transactions. I encourage you to give us an opportunity to serve you by calling us at 800-959-4246. We at AIM are committed to helping you achieve your financial goals. We work every day to earn your trust, and we're grateful for the confidence you've placed in us. Sincerely, /S/ PHILIP TAYLOR Philip Taylor President - AIM Funds CEO, AIM Investments December 17, 2007 Source: (1)U.S. Federal Reserve Board AIM Investments is a registered service mark of A I M Management Group Inc. A I M Advisors, Inc. and A I M Capital Management, Inc. are the investment advisors. A I M Distributors, Inc. is the distributor for the retail mutual funds represented by AIM Investments and the PowerShares Exchange-Traded Fund Trust.
2 AIM Diversified Dividend Fund Dear Fellow Shareholders: In overseeing the management of the AIM family of funds on your behalf, your Board of Trustees of the AIM Funds continues to focus on improved investment performance, reduced shareholder costs, and high ethical [CROCKETT standards. PHOTO] Your Board welcomes two new members: Marty Flanagan, President and CEO of INVESCO, AIM's parent company, and Phil Taylor, who was named CEO of AIM Investments --REGISTERED TRADEMARK-- in April 2006. Robert Graham, who has given more than 30 years of leadership to the company and the mutual fund industry since founding AIM in 1976, has retired, stepping down in the process from his most recent role as vice chairman of the Board. We thank Bob for his many contributions and wish him a long and happy future. Bruce L. Crockett Our review of fund performance has shown healthy progress, but the process is necessarily one of continuous improvement. In general, as of October 31, 2007, we have seen persistent investment discipline and more consistently good results. While this statement may not apply to every AIM Fund all the time, as I write this letter, the overall trend in fund management and performance has been positive. The investment management talent at AIM has recently been enhanced by the promotion of Karen Dunn Kelley to Head of INVESCO's Worldwide Fixed Income as well as Director of AIM Global and Cash Management, with responsibility for all fixed income and money market funds that serve both institutional and individual investors. Under Karen's direction, AIM's cash management organization grew to one of the world's largest and most respected, with top-tier performance. The operations now combined under her charge represent more than $150 billion in assets, 120 investment professionals, and products that span the entire yield curve (as of October 31, 2007). In other news, your Board took a more active role in preparing for "proxy season," the period when fund managers must vote the shares held by their funds "for" or "against" various proposals on the ballots of the issuing companies. Beginning in the 2007 proxy season, AIM implemented new proxy voting policies, developed by management in conjunction with an ad hoc Board committee, which provided a solid framework for properly evaluating and executing the many decisions the AIM Funds are required to make to vote shares. In general, the AIM Funds voted for proposals that would allow shareholders a greater role in election of directors, proxy access and "say for pay." The AIM Funds voted against directors whom AIM believed failed to govern well in cases of corporate mismanagement, such as the backdating of options grants, and against "poison pill" and "take under" proposals that would favor the financial interests of managers at the expense of investors in the case of a merger or acquisition. You can view the proxy votes cast for your fund by going to AIMinvestments.com. Click the "About Us" tab, then go to "Required Notices" and "Proxy Voting Activity." Additionally, your Board raised the amount its members are recommended to invest in the AIM Funds within three years of joining the Board, with the goal of aligning our interests even more closely with yours. Furthermore, at our June meeting we renewed the investment advisory contracts between the AIM Funds and AIM for another year, applying the same rigorous evaluation process that was enhanced and formalized in 2005. For more information on this process, please visit AIMinvestments.com. Click on the "Products and Performance" tab and go to "Investment Advisory Agreement Renewals." Your Board's ability to best represent your interests depends on our knowledge of your opinions and concerns. Please send me an email (bruce@brucecrockett.com) with your thoughts on the following: 1) How important is it to you to hear about your Board's decisions and activities in these letters? 2) What other information (on overall performance, specific funds, managers, etc.) would make the letters more meaningful to you? 3) Would you prefer that communications from your Board continue to be delivered in paper form by regular mail or be sent electronically by email? If you would prefer to communicate through a quick online survey, please go to AIMinvestments.com and provide your responses there. We need to hear from you to do our best job, and I look forward to your responses. Sincerely, /S/ BRUCE L. CROCKETT Bruce L. Crockett Independent Chair AIM Funds Board of Directors December 17, 2007 AIM Investments is a registered service mark of A I M Management Group Inc. A I M Advisors, Inc. and A I M Capital Management, Inc. are the investment advisors. A I M Distributors, Inc. is the distributor for the retail mutual funds represented by AIM Investments and the PowerShares Exchange-Traded Fund Trust.
3 AIM Diversified Dividend Fund MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE ================================================================================ We look for dividend-paying companies with strong profitability, solid balance sheets and PERFORMANCE SUMMARY capital allocation policies that support sustained or increasing dividends and share For the fiscal year ended October 31, 2007, AIM Diversified Dividend repurchases. We perform fundamental research, Fund, excluding applicable sales charges, delivered positive returns for including financial statement analysis, modeling shareholders but lagged the broad market S&P 500 Index as well as the Fund's and meetings with companies' management, to style-specific index, the Russell 1000 Index.* Returns lagged the Fund's determine a fair valuation with an estimated style-specific index largely due to our underexposure to the energy sector. two-year price target for each stock. Using our Overall positive results for the Fund were led by our information technology findings, we select companies we believe will (IT) and industrials exposure, while negative returns were seen in the consumer provide the best combination of dividend income, discretionary and financials sectors. price appreciation and the potential for lower risk. Your Fund's long-term performance appears later in this report. We consider selling or trimming a stock when FUND VS. INDEXES it no longer meets our investment criteria, including when: Total returns,10/31/06-10/31/07,excluding applicable sales charges. If sales charges were included,returns would be lower. o A stock reaches its target price. Class A Shares 8.86% o The company's fundamental business prospects Class B Shares 8.15 deteriorate. Class C Shares 8.16 Class R Shares 8.67 o A more attractive opportunity presents itself. Investor Class Shares 8.91 S&P 500 Index* (Broad Market Index) 14.55 Russell 1000 Index* (Style-Specific Index) 15.03 Market conditions and your Fund Lipper Large-Cap Core Funds Index* (Peer Group Index) 15.02 SOURCE: *LIPPER INC. Shortly after our last annual report, AIM ================================================================================ Diversified Dividend Fund celebrated its five- year anniversary. October of 2007 commemorated How we invest We seek undervalued companies that the fifth year of the bull market during which we are returning capital to shareholders saw tremendous synchronized growth around the We focus on balancing long-term capital via dividends and share repurchases. world.(1) At this point in the market cycle, it appreciation, dividend income and Most stocks in the portfolio pay a is prudent to remind investors that short-term capital preservation. As part of an dividend, and the Fund pays a market volatility should be expected. We manage overall well-diversified asset quarterly dividend to shareholders. We the Fund with a long-term, full market cycle allocation strategy, the Fund can serve manage risk through a thorough perspective that seeks to provide current as a cornerstone of large cap core valuation framework, careful stock investments to complement more selection and a rigorous buy-and-sell aggressive value and growth discipline. investments. ======================================= ====================================== ================================================= PORTFOLIO COMPOSITION TOP FIVE INDUSTRIES* TOP 10 EQUITY HOLDINGS* By sector 1.Pharmaceuticals 8.8% 1. Johnson & Johnson 3.1% Financials 17.9% 2.Integrated Oil & Gas 4.6 2. International Business Machines Consumer Staples 13.5 3.Industrial Machinery 4.2 Corp. 2.6 Consumer Discretionary 13.2 4.Computer Hardware 4.0 3. Illinois Tool Works Inc. 2.3 Information Technology 12.9 5.Packaged Foods & Meats 3.9 4. Anheuser-Busch Cos., Inc. 2.2 Health Care 11.7 5. Raytheon Co. 2.0 Industrials 9.9 Total Net Assets $1.90 billion 6. American Electric Power Co., Inc. 2.0 Utilities 6.0 7. Lilly (Eli) and Co. 2.0 Materials 4.7 Total Number of Holdings* 76 8. Microsoft Corp. 2.0 Energy 4.6 9. Capital One Financial Corp. 1.9 Telecommunication Services 1.0 10. Automatic Data Processing, Inc. 1.9 U.S. Treasury Securities 0.2 Money Market Funds Plus The Fund's holdings are subject to change, and there is no assurance that the Fund will Other Assets Less Liabilities 4.4 continue to hold any particular security. * Excluding money market fund holdings. ======================================= ====================================== ================================================= (continued)
4 AIM Diversified Dividend Fund income, capital appreciation during up valuations to what we feel are similar, and therefore, the Fund does not have markets and principal protection during speculative levels and well above any large absolute concentrations. more difficult periods. historical norms for the sector. Unfortunately, the Fund's underweight AIM Diversified Dividend Fund strives to Economic growth, as measured by the was a key detractor from relative produce superior long-term risk-adjusted returns change in gross domestic product, results over the past 12 months. Our over a full market cycle by focusing on three key increased 2.8% over the past 12 strict focus on valuations and factors: capital appreciation, current income and months.(2) This represented strong corporate balance sheets led us to capital preservation. We believe this total growth despite expectations by many conclude that there are more return approach serves as a cornerstone within an that we were in the later stages of the attractive valuations elsewhere. overall asset allocation, and we thank you for current economic cycle and would be investing in AIM Diversified Dividend Fund. impacted by the housing slump. The Despite the Fund's headwinds in weakness in housing has affected energy, we delivered positive returns Sources: (1) Lipper Inc.; (2) Eurostat; consumer spending but at this point it with holdings such as Johnson Controls (3) Bloomberg L.P.; (4) Bureau of Labor has not influenced job growth in a topping the list of contributors. The Statistics.; (5) Reuters meaningful way. Over the past year company focuses on building we have observed an increase in yield efficiency, automotive parts and power THE VIEWS AND OPINIONS EXPRESSED IN MANAGEMENT'S spreads between the BBB corporate bond solutions. We first bought Johnson DISCUSSION OF FUND PERFORMANCE ARE THOSE OF A I M yields and the 10-year U.S. Controls in March 2003 and saw it as ADVISORS, INC. THESE VIEWS AND OPINIONS ARE Treasury.(3) This indicates a shift in an opportunity to own a high quality SUBJECT TO CHANGE AT ANY TIME BASED ON FACTORS the risk appetite of investors and is company at an attractive valuation. SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE a sign that it is becoming more Johnson Controls has a long history of VIEWS AND OPINIONS MAY NOT BE RELIED UPON AS difficult to obtain financing. The profitable growth with 61 consecutive INVESTMENT ADVICE OR RECOMMENDATIONS, OR AS AN period of easy credit is over, so to years of increased sales and 17 OFFER FOR A PARTICULAR SECURITY. THE INFORMATION speak. consecutive years of increased IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY earnings.(5) Additionally, the MARKET, COUNTRY, INDUSTRY, SECURITY OR THE FUND. The shift has also been observed in company's shareholder- friendly STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED the tightening of credit standards in management has enabled it to pay a RELIABLE, BUT A I M ADVISORS, INC. MAKES NO the United States. This has had an dividend every year since 1889 and to REPRESENTATION OR WARRANTY AS TO THEIR important impact on the markets over increase the dividend amount in each COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL the past year, evident by the sharp of the past 33 years.(5) PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, increase in the CBOE Volatility Index THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR (VIX), a measure of market At the time of our investment, auto INVESTMENT MANAGEMENT PHILOSOPHY. volatility.(3) The VIX Index is a key parts comprised the majority of the MEASURE of market expectations of firm's revenues, which were under both See important Fund and index disclosures later in near-term volatility conveyed by S&P cyclical and secular pressures. this report. 500 stock index option prices. This However, the company was defensively index averaged around a level of 16 positioned with a customer base Meggan M. Walsh over the past five years but surged well-diversified across geographies, [WALSH Chartered Financial Analyst, senior to almost double that level this end markets and business lines. Over PHOTO] portfolio manager, is manager of summer, albeit still below historical our investment holding period, the AIM Diversified Dividend Fund. Ms. levels.(3) company accelerated its organic Walsh has been in the investment industry since Market leadership has narrowed growth, made acquisitions to expand 1987,and joined AIM in 1991. She earned a B.S. in dramatically to just a few sectors such its global growth opportunities and finance from the University of Maryland and an as energy and materials. These signs of diversified away from the auto parts M.B.A. from Loyola College. volatility are to be expected as industry. momentum rotates, and investors seek to Assisted by the Diversified Dividend Team identify new areas of strength. During the fiscal year, the Fund The strength within the energy remained more defensively positioned sector represented both an opportunity than we were in the earlier stages of and a headwind for the equity markets. the economic expansion. We have Energy costs increased at an annualized incorporated a more non-cyclical rate of 11.7% in 2007 versus an overall exposure--exposure to what we believe inflation rate of 3.6%.(4) While this to be less economically sensitive was a catalyst for energy stocks, it companies--as fundamental data hurt consumers at the gas pump and in suggests growth catalysts and higher prices paid for finished good as sustainable profits tied to the credit companies increased prices to offset cycle are diminishing. Specifically, rising input costs. Over the years, the we have gone from an overweight to an Fund has moved from an energy underweight in the industrials sector overweight in 2003, when valuations and are primarily overweight in were more attractive, to an underweight consumer staples, which may offer today as more momentum investing has attractive stable growth profiles. taken hold. This has pushed Overall, valuations across sectors remain
5 AIM Diversified Dividend Fund YOUR FUND'S LONG-TERM PERFORMANCE Past performance cannot guarantee charges. Performance of an index of types of charts in illustrating changes in value comparable future results. funds reflects fund expenses and during the early years shown in the chart. The management fees; performance of a vertical axis, the one that indicates the dollar The data shown in the chart include market index does not. Performance value of an investment, is constructed with each reinvested distributions, applicable shown in the chart and table(s) does segment representing a percent change in the sales charges, Fund expenses and not reflect deduction of taxes a value of the investment. In this chart, each management fees. Results for Class B shareholder would pay on Fund segment represents a doubling, or 100% change, in shares are calculated as if a distributions or sale of Fund shares. the value of the investment. In other words, the hypothetical shareholder had liquidated Performance of the indexes does not space between $5,000 and $10,000 is the same size his entire investment in the Fund at reflect the effects of taxes. as the space between $10,000 and $20,000. the close of the reporting period and paid the applicable contingent deferred This chart, which is a logarithmic sales charges. Index results include chart, presents the fluctuations in reinvested dividends, but they do not the value of the Fund and its indexes. reflect sales We believe that a logarithmic chart is more effective than other
6 ==================================================================================================================================== [MOUNTAIN CHART] RESULTS OF A $10,000 INVESTMENT FUND AND INDEX DATA FROM 12/31/01 LIPPER LARGE AIM DIVERSIFIED AIM DIVERSIFIED AIM DIVERSIFIED CAP-CORE DIVIDEND FUND DIVIDEND FUND DIVIDEND FUND S&P 500 RUSSELL 1000 FUNDS INDEX DATE -CLASS A SHARES -CLASS B SHARES -CLASS C SHARES INDEX(1) INDEX(1) (1) 12/31/01 $ 9450 $10000 $10000 $10000 $10000 $10000 1/02 9545 10100 10100 9854 9873 9842 2/02 9479 10020 10020 9664 9676 9677 3/02 9857 10420 10410 10028 10074 10007 4/02 9583 10120 10120 9420 9497 9483 5/02 9573 10110 10109 9351 9413 9414 6/02 9082 9580 9580 8685 8718 8764 7/02 8355 8820 8809 8008 8073 8113 8/02 8440 8890 8890 8061 8115 8180 9/02 7798 8220 8210 7185 7244 7385 10/02 8223 8650 8650 7817 7846 7959 11/02 8601 9049 9040 8277 8305 8314 12/02 8232 8659 8650 7791 7835 7877 1/03 7920 8319 8321 7587 7645 7670 2/03 7769 8159 8151 7473 7527 7568 3/03 7854 8239 8240 7545 7604 7632 4/03 8393 8809 8801 8167 8218 8194 5/03 8903 9340 9331 8597 8687 8591 6/03 8968 9403 9395 8706 8801 8676 7/03 9082 9513 9505 8860 8977 8813 8/03 9272 9703 9695 9032 9159 8983 9/03 9233 9658 9649 8937 9065 8867 10/03 9736 10178 10169 9442 9597 9301 11/03 9878 10319 10309 9525 9712 9379 12/03 10447 10910 10901 10024 10177 9830 1/04 10552 11010 11001 10208 10370 9969 2/04 10781 11242 11232 10350 10514 10087 3/04 10691 11148 11139 10194 10370 9929 4/04 10768 11219 11209 10034 10183 9775 5/04 10806 11249 11239 10171 10330 9874 6/04 11012 11467 11457 10369 10516 10051 7/04 10763 11195 11186 10026 10147 9695 8/04 10926 11367 11347 10066 10197 9701 9/04 11018 11445 11435 10175 10325 9812 10/04 11036 11466 11456 10331 10492 9945 11/04 11402 11838 11828 10749 10941 10322 12/04 11893 12343 12333 11114 11337 10645 1/05 11716 12157 12138 10843 11052 10404 2/05 12001 12435 12426 11071 11300 10599 3/05 11834 12259 12251 10876 11121 10404 4/05 11695 12115 12096 10669 10916 10173 5/05 11882 12300 12292 11009 11303 10502 6/05 11970 12382 12364 11024 11349 10538 7/05 12337 12764 12746 11434 11791 10913 8/05 12189 12599 12580 11330 11689 10813 9/05 12129 12537 12518 11422 11797 10938 10/05 12020 12413 12394 11231 11590 10807 11/05 12456 12848 12828 11655 12031 11221 12/05 12513 12908 12899 11660 12048 11254 1/06 12816 13213 13193 11968 12385 11569 2/06 12866 13266 13246 12001 12413 11517 3/06 13027 13422 13402 12150 12589 11725 4/06 13220 13601 13591 12313 12740 11847 5/06 12987 13359 13340 11959 12364 11488 6/06 12948 13306 13298 11975 12380 11498 7/06 13110 13474 13456 12049 12407 11458 8/06 13435 13789 13782 12335 12704 11743 9/06 13672 14034 14026 12653 13006 11991 10/06 14141 14508 14490 13065 13448 12390 11/06 14283 14644 14628 13313 13734 12632 12/06 14568 14924 14919 13500 13910 12760 1/07 14760 15112 15107 13704 14178 12967 2/07 14578 14925 14909 13436 13934 12743 3/07 14605 14938 14933 13586 14079 12871 4/07 15195 15524 15520 14188 14671 13407 5/07 15644 15977 15973 14683 15199 13864 6/07 15405 15726 15722 14439 14909 13696 7/07 14749 15050 15046 13992 14448 13310 8/07 14952 15261 15246 14201 14645 13463 9/07 15319 15612 15609 14732 15204 13950 10/07 15396 15589 15669 14966 15469 14251 ==================================================================================================================================== SOURCE: (1)LIPPER INC.
AIM Diversified Dividend Fund ================================================================================ INVESTOR CLASS SHARES WAS 1.04%, 1.79%, 1.79%, 1.29% AND 0.91%, RESPECTIVELY. THE AVERAGE ANNUAL TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS EXPENSE RATIOS PRESENTED ABOVE MAY VARY FROM THE EXPENSE RATIOS PRESENTED IN OTHER SECTIONS OF As of 10/31/07, including applicable As of 9/30/07, the most recent calendar THIS REPORT THAT ARE BASED ON EXPENSES INCURRED sales charges quarter-end, including applicable sales DURING THE PERIOD COVERED BY THIS REPORT. charges CLASS A SHARES CLASS A SHARE PERFORMANCE REFLECTS THE MAXIMUM Inception (12/31/01) 7.68% CLASS A SHARES 5.50% SALES CHARGE, AND CLASS B AND CLASS C SHARE 5 Years 12.08 Inception (12/31/01) 7.70% PERFORMANCE REFLECTS THE APPLICABLE CONTINGENT 1 Year 2.86 5 Years 13.17 DEFERRED SALES CHARGE (CDSC) FOR THE PERIOD 1 Year 5.89 INVOLVED. THE CDSC ON CLASS B SHARES DECLINES CLASS B SHARES FROM 5% BEGINNING AT THE TIME OF PURCHASE TO 0% Inception (12/31/01) 7.91% CLASS B SHARES AT THE BEGINNING OF THE SEVENTH YEAR. THE CDSC ON 5 Years 12.40 Inception (12/31/01) 7.94% CLASS C SHARES IS 1% FOR THE FIRST YEAR AFTER 1 Year 3.15 5 Years 13.45 PURCHASE. CLASS R SHARES DO NOT HAVE A FRONT-END 1 Year 6.25 SALES CHARGE; RETURNS SHOWN ARE AT NET ASSET CLASS C SHARES VALUE AND DO NOT REFLECT A 0.75% CDSC THAT MAY BE Inception (12/31/01) 8.00% CLASS C SHARES IMPOSED ON A TOTAL REDEMPTION OF RETIREMENT PLAN 5 Years 12.62 Inception (12/31/01) 8.05% ASSETS WITHIN THE FIRST YEAR. INVESTOR CLASS 1 Year 7.16 5 Years 13.70 SHARES DO NOT HAVE A FRONT-END SALES CHARGE OR A 1 Year 10.26 CDSC; THEREFORE, PERFORMANCE IS AT NET ASSET CLASS R SHARES VALUE. Inception 8.54% CLASS R SHARES 5 Years 13.17 Inception 8.58% THE PERFORMANCE OF THE FUND'S SHARE CLASSES 1 Year 8.67 5 Years 14.26 WILL DIFFER PRIMARILY DUE TO DIFFERENT SALES 1 Year 11.76 CHARGE STRUCTURES AND CLASS EXPENSES. INVESTOR CLASS SHARES Inception 8.76% INVESTOR CLASS SHARES HAD THE ADVISOR NOT WAIVED FEES AND/OR 5 Years 13.40 Inception 8.80% REIMBURSED EXPENSES IN THE PAST, PERFORMANCE 1 Year 8.91 5 Years 14.50 WOULD HAVE BEEN LOWER. 1 Year 12.09 (1) Total annual operating expenses less any ======================================= ====================================== contractual fee waivers and/or expense reimbursements by the advisor in effect CLASS R SHARES' INCEPTION DATE IS THE PERFORMANCE DATA QUOTED through at least June 30, 2008. See current OCTOBER 25, 2005. RETURNS SINCE THAT REPRESENT PAST PERFORMANCE AND CANNOT prospectus for more information. DATE ARE HISTORICAL RETURNS. ALL OTHER GUARANTEE COMPARABLE FUTURE RESULTS; RETURNS ARE BLENDED RETURNS OF CURRENT PERFORMANCE MAY BE LOWER OR HISTORICAL CLASS R SHARE PERFORMANCE HIGHER. PLEASE VISIT AND RESTATED CLASS A SHARE PERFORMANCE AIMINVESTMENTS.COM FOR THE MOST RECENT (FOR PERIODS PRIOR TO THE INCEPTION MONTH-END PERFORMANCE. PERFORMANCE DATE OF CLASS R SHARES) AT NET ASSET FIGURES REFLECT REINVESTED VALUE, ADJUSTED TO REFLECT THE HIGHER DISTRIBUTIONS, CHANGES IN NET ASSET RULE 12B-1 FEES APPLICABLE TO CLASS R VALUE AND THE EFFECT OF THE MAXIMUM SHARES. CLASS A SHARES' INCEPTION DATE SALES CHARGE UNLESS OTHERWISE STATED. IS DECEMBER 31, 2001. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU MAY HAVE A INVESTOR CLASS SHARES' INCEPTION GAIN OR LOSS WHEN YOU SELL SHARES. DATE IS JULY 15, 2005. RETURNS SINCE THAT DATE ARE HISTORICAL RETURNS. ALL THE NET ANNUAL FUND OPERATING OTHER RETURNS ARE BLENDED RETURNS OF EXPENSE RATIO SET FORTH IN THE MOST HISTORICAL INVESTOR CLASS SHARE RECENT FUND PROSPECTUS AS OF THE DATE PERFORMANCE AND RESTATED CLASS A SHARE OF THIS REPORT FOR CLASS A, CLASS B, PERFORMANCE (FOR PERIODS PRIOR TO THE CLASS C, CLASS R AND INVESTOR CLASS INCEPTION DATE OF INVESTOR CLASS SHARES WAS 1.01%, 1.66%, 1.66%, 1.26% SHARES) AT NET ASSET VALUE, WHICH AND 0.88%, RESPECTIVELY.(1) THE TOTAL RESTATED PERFORMANCE WILL REFLECT THE ANNUAL FUND OPERATING EXPENSE RATIO ================================================= RULE 12B-1 FEES APPLICABLE TO CLASS A SET FORTH IN THE MOST RECENT FUND FOR A DISCUSSION OF THE RISKS OF INVESTING IN SHARES FOR THE PERIOD USING BLENDED PROSPECTUS AS OF THE DATE OF THIS YOUR FUND AND INDEXES USED IN THIS REPORT, PLEASE RETURNS. CLASS A SHARES' INCEPTION DATE REPORT FOR CLASS A, CLASS B, CLASS TURN THE PAGE. IS DECEMBER 31, 2001. C, CLASS R AND =================================================
7 AIM Diversified Dividend Fund AIM DIVERSIFIED DIVIDEND FUND'S INVESTMENT OBJECTIVE IS GROWTH OF CAPITAL AND,SECONDARILY, CURRENT INCOME. o Unless otherwise stated, information presented in this report is as of October 31, 2007, and is based on total net assets. o Unless otherwise noted, all data in this report are from A I M Management Group Inc. About share classes o Foreign securities have additional o A direct investment cannot be made in an index. risks, including exchange rate Unless otherwise indicated, index results include o Class B shares are not available as changes, political and economic reinvested dividends, and they do not reflect an investment for retirement plans upheaval, the relative lack of sales charges. Performance of an index of funds maintained pursuant to Section 401 of information, relatively low market reflects fund expenses; performance of a market the Internal Revenue Code, including liquidity, and the potential lack of index does not. 401(k) plans, money purchase pension strict financial and accounting plans and profit sharing plans. Plans controls and standards. Other information that had existing accounts invested in Class B shares prior to September 30, About indexes used in this report o The Chartered Financial Analyst --REGISTERED 2003, will continue to be allowed to TRADEMARK-- (CFA --REGISTERED TRADEMARK-- ) make additional purchases. o The S&P 500 --REGISTERED TRADEMARK-- designation is a globally recognized standard for Index is a market measuring the competence and integrity of o Class R shares are available only to capitalization-weighted index covering investment professionals. certain retirement plans. Please see all major areas of the U.S. economy. the prospectus for more information. It is not the 500 largest companies, o The returns shown in the management's but rather the most widely held 500 discussion of Fund performance are based on net o Investor Class shares are closed to companies chosen with respect to asset values calculated for shareholder most investors. For more information on market size, liquidity, and their transactions. Generally accepted accounting who may continue to invest in Investor industry. principles require adjustments to be made to the Class shares, please see the net assets of the Fund at period end for prospectus. o The Russell 1000 --REGISTERED financial reporting purposes, and as such, the TRADEMARK-- Index is comprised of 1000 net asset values for shareholder transactions and Principal risks of investing in the of the largest capitalized U.S. the returns based on those net asset values may Fund domiciled companies whose common stock differ from the net asset values and returns is traded in the United States. The reported in the Financial Highlights. o The value of convertible securities Russell 1000 Index is a in which the Fund invests may be trademark/service mark of the Frank o Industry classifications used in this report affected by market interest rates--the Russell Company. Russell --REGISTERED are generally according to the Global Industry risk that the issuer may default on TRADEMARK-- is a trademark of the Classification Standard, which was developed by interest or principal payments and the Frank Russell Company. and is the exclusive property and a service mark value of the underlying common stock of Morgan Stanley Capital International Inc. and into which these securities may be o The Lipper Large-Cap Core Funds Standard & Poor's. converted may decline as a result. Index is an equally weighted representation of the largest funds in o Prices of equity securities change in the Lipper Large-Cap Core Funds response to many factors including the category. These funds typically have historical and prospective earnings of an average price-to-earnings ratio, the issuer, the value of its assets, price-to-book ratio, and three-year general economic conditions, interest sales-per-share growth value, compared rates, investor perceptions and market to the S&P 500 Index. liquidity. o The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes. ================================================================================ ================================================= THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND FUND NASDAQ SYMBOLS PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING. Class A Shares LCEAX Class B Shares LCEDX ================================================================================ Class C Shares LCEVX Class R Shares DDFRX NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE Investor Class Shares LCEIX AIMINVESTMENTS.COM =================================================
8 AIM Diversified Dividend Fund SCHEDULE OF INVESTMENTS(a) October 31, 2007
SHARES VALUE - -------------------------------------------------------------------------- COMMON STOCKS & OTHER EQUITY INTERESTS-95.48% AEROSPACE & DEFENSE-2.39% Raytheon Co. 600,400 $ 38,191,444 - -------------------------------------------------------------------------- United Technologies Corp. 94,919 7,269,846 ========================================================================== 45,461,290 ========================================================================== APPAREL RETAIL-2.54% Limited Brands, Inc. 1,250,000 27,512,500 - -------------------------------------------------------------------------- TJX Cos., Inc. (The) 721,123 20,862,088 ========================================================================== 48,374,588 ========================================================================== APPAREL, ACCESSORIES & LUXURY GOODS-0.52% VF Corp. 114,112 9,942,579 ========================================================================== ASSET MANAGEMENT & CUSTODY BANKS-3.91% Bank of New York Mellon Corp. (The) 236,631 11,559,424 - -------------------------------------------------------------------------- Blackstone Group L.P. (The)(b)(c) 544,573 13,848,492 - -------------------------------------------------------------------------- Federated Investors, Inc.-Class B 471,360 20,268,480 - -------------------------------------------------------------------------- State Street Corp. 358,300 28,581,591 ========================================================================== 74,257,987 ========================================================================== AUTO PARTS & EQUIPMENT-1.81% Johnson Controls, Inc. 789,300 34,508,196 ========================================================================== BREWERS-2.24% Anheuser-Busch Cos., Inc. 829,361 42,529,632 ========================================================================== CASINOS & GAMING-0.86% International Game Technology 376,408 16,415,153 ========================================================================== COMMUNICATIONS EQUIPMENT-1.29% Motorola, Inc. 1,301,421 24,453,701 ========================================================================== COMPUTER HARDWARE-3.99% Hewlett-Packard Co. 507,825 26,244,396 - -------------------------------------------------------------------------- International Business Machines Corp. 428,100 49,710,972 ========================================================================== 75,955,368 ========================================================================== CONSUMER FINANCE-1.95% Capital One Financial Corp. 565,095 37,064,581 ==========================================================================
SHARES VALUE - --------------------------------------------------------------------------
DATA PROCESSING & OUTSOURCED SERVICES-2.92% Automatic Data Processing, Inc. 730,127 $ 36,185,094 - -------------------------------------------------------------------------- Western Union Co. 875,682 19,300,031 ========================================================================== 55,485,125 ========================================================================== DISTRIBUTORS-0.55% Genuine Parts Co. 211,427 10,374,723 ========================================================================== DIVERSIFIED BANKS-1.23% U.S. Bancorp 508,203 16,852,012 - -------------------------------------------------------------------------- Wachovia Corp. 144,143 6,591,659 ========================================================================== 23,443,671 ========================================================================== DIVERSIFIED CHEMICALS-2.09% E. I. du Pont de Nemours and Co. 464,500 22,997,395 - -------------------------------------------------------------------------- PPG Industries, Inc. 225,000 16,816,500 ========================================================================== 39,813,895 ========================================================================== ELECTRIC UTILITIES-3.68% American Electric Power Co., Inc. 785,315 37,860,036 - -------------------------------------------------------------------------- Exelon Corp. 388,800 32,184,864 ========================================================================== 70,044,900 ========================================================================== ELECTRICAL COMPONENTS & EQUIPMENT-1.72% Emerson Electric Co. 627,045 32,775,642 ========================================================================== FOOD DISTRIBUTORS-1.56% Sysco Corp. 863,834 29,620,868 ========================================================================== FOREST PRODUCTS-1.02% Weyerhaeuser Co. 256,239 19,451,102 ========================================================================== GENERAL MERCHANDISE STORES-1.45% Target Corp. 449,900 27,605,864 ========================================================================== HEALTH CARE EQUIPMENT-2.96% Baxter International Inc. 178,601 10,717,846 - -------------------------------------------------------------------------- Medtronic, Inc. 648,536 30,766,548 - -------------------------------------------------------------------------- Stryker Corp. 207,100 14,704,100 ========================================================================== 56,188,494 ========================================================================== HOME IMPROVEMENT RETAIL-1.71% Home Depot, Inc. (The) 1,029,458 32,438,222 ========================================================================== HOUSEHOLD APPLIANCES-0.92% Snap-on Inc. 351,900 17,563,329 ==========================================================================
9 AIM Diversified Dividend Fund
SHARES VALUE - -------------------------------------------------------------------------- HOUSEHOLD PRODUCTS-2.27% Colgate-Palmolive Co. 157,200 $ 11,989,644 - -------------------------------------------------------------------------- Kimberly-Clark Corp. 438,900 31,113,621 ========================================================================== 43,103,265 ========================================================================== HYPERMARKETS & SUPER CENTERS-1.17% Wal-Mart Stores, Inc. 491,895 22,238,573 ========================================================================== INDUSTRIAL CONGLOMERATES-1.60% General Electric Co. 739,941 30,455,972 ========================================================================== INDUSTRIAL GASES-0.62% Praxair, Inc. 138,500 11,838,980 ========================================================================== INDUSTRIAL MACHINERY-4.16% Illinois Tool Works Inc. 752,956 43,114,261 - -------------------------------------------------------------------------- Pentair, Inc. 1,015,800 35,949,162 ========================================================================== 79,063,423 ========================================================================== INSURANCE BROKERS-1.37% Marsh & McLennan Cos., Inc. 1,005,269 26,026,414 ========================================================================== INTEGRATED OIL & GAS-4.58% Eni S.p.A. (Italy)(d) 412,800 15,087,281 - -------------------------------------------------------------------------- ExxonMobil Corp. 181,935 16,736,201 - -------------------------------------------------------------------------- Occidental Petroleum Corp. 515,805 35,616,335 - -------------------------------------------------------------------------- Total S.A. (France)(d) 243,404 19,646,368 ========================================================================== 87,086,185 ========================================================================== INTEGRATED TELECOMMUNICATION SERVICES-1.05% AT&T Inc. 478,497 19,996,390 ========================================================================== LEISURE PRODUCTS-1.28% Brunswick Corp.(b) 1,089,450 24,305,629 ========================================================================== LIFE & HEALTH INSURANCE-1.19% StanCorp Financial Group, Inc. 410,299 22,619,784 ========================================================================== MULTI-UTILITIES-2.32% Dominion Resources, Inc. 329,663 30,207,021 - -------------------------------------------------------------------------- Wisconsin Energy Corp. 291,209 13,943,087 ========================================================================== 44,150,108 ========================================================================== OTHER DIVERSIFIED FINANCIAL SERVICES-2.17% Bank of America Corp. 197,199 9,520,768 - -------------------------------------------------------------------------- Citigroup Inc. 757,953 31,758,230 ========================================================================== 41,278,998 ==========================================================================
SHARES VALUE - --------------------------------------------------------------------------
PACKAGED FOODS & MEATS-3.91% General Mills, Inc. 567,200 $ 32,744,456 - -------------------------------------------------------------------------- Kraft Foods Inc.-Class A 810,517 27,079,373 - -------------------------------------------------------------------------- Sara Lee Corp. 875,618 14,482,722 ========================================================================== 74,306,551 ========================================================================== PHARMACEUTICALS-8.78% Abbott Laboratories 205,185 11,207,205 - -------------------------------------------------------------------------- Bristol-Myers Squibb Co. 483,600 14,503,164 - -------------------------------------------------------------------------- Johnson & Johnson 912,009 59,435,627 - -------------------------------------------------------------------------- Lilly (Eli) and Co. 693,004 37,526,167 - -------------------------------------------------------------------------- Pfizer Inc. 1,359,832 33,465,465 - -------------------------------------------------------------------------- Wyeth 223,929 10,889,667 ========================================================================== 167,027,295 ========================================================================== PROPERTY & CASUALTY INSURANCE-0.78% MBIA Inc. 344,000 14,805,760 ========================================================================== PUBLISHING-0.75% Gannett Co., Inc. 336,300 14,262,483 ========================================================================== REGIONAL BANKS-2.88% Fifth Third Bancorp 1,051,464 32,889,794 - -------------------------------------------------------------------------- SunTrust Banks, Inc. 301,061 21,857,028 ========================================================================== 54,746,822 ========================================================================== SEMICONDUCTORS-2.74% Linear Technology Corp.(b) 551,630 18,214,823 - -------------------------------------------------------------------------- Texas Instruments Inc. 1,038,721 33,862,304 ========================================================================== 52,077,127 ========================================================================== SOFT DRINKS-0.85% Coca-Cola Co. (The) 262,274 16,198,042 ========================================================================== SPECIALIZED CONSUMER SERVICES-0.80% H&R Block, Inc.(b) 694,212 15,133,822 ========================================================================== SPECIALTY CHEMICALS-1.00% Ecolab Inc. 403,000 19,009,510 ========================================================================== SYSTEMS SOFTWARE-1.96% Microsoft Corp. 1,012,425 37,267,364 ========================================================================== THRIFTS & MORTGAGE FINANCE-2.44% Fannie Mae 452,600 25,816,304 - -------------------------------------------------------------------------- Hudson City Bancorp, Inc. 1,319,783 20,667,802 ========================================================================== 46,484,106 ==========================================================================
10 AIM Diversified Dividend Fund
SHARES VALUE - -------------------------------------------------------------------------- TOBACCO-1.50% Altria Group, Inc. 391,600 $ 28,559,388 ========================================================================== Total Common Stocks & Other Equity Interests (Cost $1,511,558,866) 1,815,810,901 ========================================================================== PRINCIPAL AMOUNT U.S. TREASURY NOTES-0.16% 3.38%, 02/15/08(e) (Cost $2,995,855) $3,000,000 2,994,150 ========================================================================== SHARES MONEY MARKET FUNDS-4.00% Liquid Assets Portfolio-Institutional Class(f) 38,019,100 38,019,100 - -------------------------------------------------------------------------- Premier Portfolio-Institutional Class(f) 38,019,100 38,019,100 ========================================================================== Total Money Market Funds (Cost $76,038,200) 76,038,200 ========================================================================== Total Investments (excluding investments purchased with cash collateral from securities loaned)-99.64% (Cost $1,590,592,921) 1,894,843,251 ==========================================================================
- --------------------------------------------------------------------------
SHARES VALUE INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES ON LOAN MONEY MARKET FUNDS-2.19% Liquid Assets Portfolio-Institutional Class (Cost $41,692,750)(f)(g) 41,692,750 $ 41,692,750 ========================================================================== TOTAL INVESTMENTS-101.83% (Cost $1,632,285,671) 1,936,536,001 ========================================================================== OTHER ASSETS LESS LIABILITIES-(1.83)% (34,857,945) ========================================================================== NET ASSETS-100.00% $1,901,678,056 __________________________________________________________________________ ==========================================================================
Notes to Schedule of Investments: (a) Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of Morgan Stanley Capital International Inc. and Standard & Poor's. (b) All or a portion of this security was out on loan at October 31, 2007. (c) Non-income producing security. (d) In accordance with the procedures established by the Board of Trustees, the foreign security is fair valued using adjusted closing market prices. The aggregate value of these securities at October 31, 2007 was $34,733,649, which represented 1.83% of the Fund's Net Assets. See Note 1A. (e) In accordance with the procedures established by the Board of Trustees, security fair valued based on an evaluated quote provided by an independent pricing service. The value of this security at October 31, 2007 represented 0.16% of the Fund's Net Assets. See Note 1A. (f) The money market fund and the Fund are affiliated by having the same investment advisor. See Note 3. (g) The security has been segregated to satisfy the commitment to return the cash collateral received in securities lending transactions upon the borrower's return of the securities loaned. See Note 7. See accompanying Notes to Financial Statements which are an integral part of the financial statements. 11 AIM Diversified Dividend Fund STATEMENT OF ASSETS AND LIABILITIES October 31, 2007 ASSETS: Investments, at value (Cost $1,514,554,721)* $1,818,805,051 - ------------------------------------------------------------ Investments in affiliated money market funds (Cost $117,730,950) 117,730,950 ============================================================ Total investments (Cost $1,632,285,671) 1,936,536,001 ============================================================ Foreign currencies, at value (Cost $75,969) 76,250 - ------------------------------------------------------------ Receivables for: Investments sold 18,714,423 - ------------------------------------------------------------ Fund shares sold 384,560 - ------------------------------------------------------------ Dividends and Interest 2,157,399 - ------------------------------------------------------------ Fund expenses absorbed 5,831 - ------------------------------------------------------------ Investment for trustee deferred compensation and retirement plans 612,168 - ------------------------------------------------------------ Other assets 23,756 ============================================================ Total assets 1,958,510,388 ____________________________________________________________ ============================================================ LIABILITIES: Payables for: Investments purchased 10,882,879 - ------------------------------------------------------------ Fund shares reacquired 2,453,098 - ------------------------------------------------------------ Trustee deferred compensation and retirement plans 766,482 - ------------------------------------------------------------ Collateral upon return of securities loaned 41,692,750 - ------------------------------------------------------------ Accrued distribution fees 341,553 - ------------------------------------------------------------ Accrued trustees' and officer's fees and benefits 3,364 - ------------------------------------------------------------ Accrued transfer agent fees 469,484 - ------------------------------------------------------------ Accrued operating expenses 222,722 - ------------------------------------------------------------ Total liabilities 56,832,332 ____________________________________________________________ ============================================================ Net assets applicable to shares outstanding $1,901,678,056 ____________________________________________________________ ============================================================ NET ASSETS CONSIST OF: Shares of beneficial interest $1,473,637,956 - ------------------------------------------------------------ Undistributed net investment income 1,264,333 - ------------------------------------------------------------ Undistributed net realized gain 122,522,159 - ------------------------------------------------------------ Unrealized appreciation 304,253,608 ============================================================ $1,901,678,056 ____________________________________________________________ ============================================================ NET ASSETS: Class A $ 237,467,319 ____________________________________________________________ ============================================================ Class B $ 85,171,829 ____________________________________________________________ ============================================================ Class C $ 52,524,337 ____________________________________________________________ ============================================================ Class R $ 739,720 ____________________________________________________________ ============================================================ Investor Class $1,472,311,043 ____________________________________________________________ ============================================================ Institutional Class $ 53,463,808 ____________________________________________________________ ============================================================ SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Class A 16,641,182 ____________________________________________________________ ============================================================ Class B 6,024,909 ____________________________________________________________ ============================================================ Class C 3,719,534 ____________________________________________________________ ============================================================ Class R 51,804 ____________________________________________________________ ============================================================ Investor Class 103,215,570 ____________________________________________________________ ============================================================ Institutional Class 3,748,078 ____________________________________________________________ ============================================================ Class A: Net asset value per share $ 14.27 - ------------------------------------------------------------ Offering price per share (Net asset value of $14.27 divided by 94.50%) $ 15.10 ____________________________________________________________ ============================================================ Class B: Net asset value and offering price per share $ 14.14 ____________________________________________________________ ============================================================ Class C: Net asset value and offering price per share $ 14.12 ____________________________________________________________ ============================================================ Class R: Net asset value and offering price per share $ 14.28 ____________________________________________________________ ============================================================ Investor Class: Net asset value and offering price per share $ 14.26 ____________________________________________________________ ============================================================ Institutional Class: Net asset value and offering price per share $ 14.26 ____________________________________________________________ ============================================================
* At October 31, 2007, securities with an aggregate value of $40,886,152 were on loan to brokers. See accompanying Notes to Financial Statements which are an integral part of the financial statements. 12 AIM Diversified Dividend Fund STATEMENT OF OPERATIONS For the year ended October 31, 2007 INVESTMENT INCOME: Dividends (net of foreign withholding taxes of $196,881) $ 42,294,649 - -------------------------------------------------------------------------- Dividends from affiliated money market funds (includes securities lending income of $10,709) 5,840,365 ========================================================================== Interest 152,745 ========================================================================== Total investment income 48,287,759 ========================================================================== EXPENSES: Advisory fees 10,365,425 - -------------------------------------------------------------------------- Administrative services fees 455,851 - -------------------------------------------------------------------------- Custodian fees 85,450 - -------------------------------------------------------------------------- Distribution fees: Class A 645,155 - -------------------------------------------------------------------------- Class B 973,222 - -------------------------------------------------------------------------- Class C 561,045 - -------------------------------------------------------------------------- Class R 2,999 - -------------------------------------------------------------------------- Investor Class 2,440,557 - -------------------------------------------------------------------------- Transfer agent fees -- A, B, C, R and Investor 3,217,098 - -------------------------------------------------------------------------- Transfer agent fees -- Institutional 34,383 - -------------------------------------------------------------------------- Trustees' and officer's fees and benefits 87,449 - -------------------------------------------------------------------------- Other 500,257 ========================================================================== Total expenses 19,368,891 ========================================================================== Less: Fees waived, expenses reimbursed and expense offset arrangement(s) (332,657) ========================================================================== Net expenses 19,036,234 ========================================================================== Net investment income 29,251,525 ========================================================================== REALIZED AND UNREALIZED GAIN FROM: Net realized gain from: Investment securities 123,725,208 - -------------------------------------------------------------------------- Foreign currencies 5,557 ========================================================================== 123,730,765 ========================================================================== Change in net unrealized appreciation of: Investment securities 15,098,665 - -------------------------------------------------------------------------- Foreign currencies 887 ========================================================================== 15,099,552 ========================================================================== Net realized and unrealized gain 138,830,317 ========================================================================== Net increase in net assets resulting from operations $168,081,842 __________________________________________________________________________ ==========================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. 13 AIM Diversified Dividend Fund STATEMENT OF CHANGES IN NET ASSETS For the years ended October 31, 2007 and 2006
2007 2006 - ---------------------------------------------------------------------------------------------- OPERATIONS: Net investment income $ 29,251,525 $ 28,428,909 - ---------------------------------------------------------------------------------------------- Net realized gain 123,730,765 83,603,439 - ---------------------------------------------------------------------------------------------- Change in net unrealized appreciation 15,099,552 199,431,858 ============================================================================================== Net increase in net assets resulting from operations 168,081,842 311,464,206 ============================================================================================== Distributions to shareholders from net investment income: Class A (3,848,307) (3,086,793) - ---------------------------------------------------------------------------------------------- Class B (799,853) (668,366) - ---------------------------------------------------------------------------------------------- Class C (461,202) (331,431) - ---------------------------------------------------------------------------------------------- Class R (7,267) (2,051) - ---------------------------------------------------------------------------------------------- Investor Class (23,901,863) (21,911,514) - ---------------------------------------------------------------------------------------------- Institutional Class (780,352) (253,928) ============================================================================================== Total distributions from net investment income (29,798,844) (26,254,083) ============================================================================================== Distributions to shareholders from net realized gains: Class A (11,265,634) (2,831,926) - ---------------------------------------------------------------------------------------------- Class B (4,262,466) (1,224,877) - ---------------------------------------------------------------------------------------------- Class C (2,471,587) (591,537) - ---------------------------------------------------------------------------------------------- Class R (19,904) (136) - ---------------------------------------------------------------------------------------------- Investor Class (64,330,633) (20,043,897) - ---------------------------------------------------------------------------------------------- Institutional Class (1,315,313) (3,759) ============================================================================================== Total distributions from net realized gains (83,665,537) (24,696,132) ============================================================================================== Decrease in net assets resulting from distributions (113,464,381) (50,950,215) ============================================================================================== Share transactions-net: Class A (31,418,682) 18,263,287 - ---------------------------------------------------------------------------------------------- Class B (16,379,057) (6,409,806) - ---------------------------------------------------------------------------------------------- Class C (5,241,605) 4,279,812 - ---------------------------------------------------------------------------------------------- Class R 289,956 392,930 - ---------------------------------------------------------------------------------------------- Investor Class (92,692,635) (231,151,076) - ---------------------------------------------------------------------------------------------- Institutional Class 22,701,031 27,697,517 ============================================================================================== Net increase (decrease) in net assets resulting from share transactions (122,740,992) (186,927,336) ============================================================================================== Net increase (decrease) in net assets (68,123,531) 73,586,655 ============================================================================================== NET ASSETS: Beginning of year 1,969,801,587 1,896,214,932 ============================================================================================== End of year (including undistributed net investment income of $1,264,333 and $1,806,095, respectively) $1,901,678,056 $1,969,801,587 ______________________________________________________________________________________________ ==============================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. 14 AIM Diversified Dividend Fund NOTES TO FINANCIAL STATEMENTS October 31, 2007 NOTE 1--SIGNIFICANT ACCOUNTING POLICIES AIM Diversified Dividend Fund (the "Fund") is a series portfolio of AIM Equity Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of six separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The Fund currently consists of multiple classes of shares. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. The Fund's primary investment objective is growth of capital and, secondarily, current income. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements. A. SECURITY VALUATIONS -- Securities, including restricted securities, are valued according to the following policy. A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and the ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange ("NYSE"). Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and may make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, ADRs and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust's officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security's fair value. Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer's assets, general economic conditions, interest rates, investor perceptions and market liquidity. B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. 15 AIM Diversified Dividend Fund The Fund may periodically participate in litigation related to Fund investments. As such, the Funds may receive proceeds from litigation settlements. Any proceeds as received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund's net asset value and, accordingly, they reduce the Fund's total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the advisor. The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. C. COUNTRY DETERMINATION -- For the purposes of making investment selection decisions and presentation in the Schedule of Investments, AIM may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer's securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America unless otherwise noted. D. DISTRIBUTIONS -- Distributions from income, if any, are generally declared and paid quarterly and are recorded on ex-dividend date. Distributions from net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to treat a portion of the proceeds from redemptions as distributions for federal income tax purposes. E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund's taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular class of the Fund are charged to the operations of such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses attributable to the Institutional Class are charged to such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses relating to all other classes are allocated among those classes based on relative net assets. All other expenses are allocated among the classes based on relative net assets. G. ACCOUNTING ESTIMATES -- The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates. H. INDEMNIFICATIONS -- Under the Trust's organizational documents, each Trustee, officer, employee or other agent of the Trust (including the Trust's investment manager) is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts that contain a variety of indemnification clauses. The Fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. I. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (i) sales of foreign currencies, (ii) currency gains or losses realized between the trade and settlement dates on securities transactions, and (iii) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. Taxes are accrued based on the Fund's current interpretation of tax regulations and rates that exist in the foreign markets in which the Fund invests. J. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a foreign currency contract to attempt to minimize the risk to the Fund from adverse changes in the 16 AIM Diversified Dividend Fund relationship between currencies. The Fund may also enter into a foreign currency contract for the purchase or sale of a security denominated in a foreign currency in order to "lock in" the U.S. dollar price of that security. Fluctuations in the value of these contracts are recorded as unrealized appreciation (depreciation) until the contracts are closed. When these contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains and losses on these contracts are included in the Statement of Operations. The Fund could be exposed to risk, which may be in excess of the amount reflected in the Statement of Assets and Liabilities, if counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES The Trust has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to AIM based on the annual rate of the Fund's average daily net assets as follows:
AVERAGE NET ASSETS RATE - -------------------------------------------------------------------- First $350 million 0.60% - -------------------------------------------------------------------- Next $350 million 0.55% - -------------------------------------------------------------------- Next $1.3 billion 0.50% - -------------------------------------------------------------------- Next $2 billion 0.45% - -------------------------------------------------------------------- Next $2 billion 0.40% - -------------------------------------------------------------------- Next $2 billion 0.375% - -------------------------------------------------------------------- Over $8 billion 0.35% ___________________________________________________________________ ====================================================================
Effective July 1, 2007, AIM has contractually agreed to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual expenses (excluding certain items discussed below) of Class A, Class B, Class C, Class R, Investor Class and Institutional Class shares to 1.00%, 1.65%, 1.65%, 1.25%, 1.00% and 0.75% of daily net assets, respectively, through at least June 30, 2008. Prior to July 1, 2007, AIM had voluntarily agreed to waive advisory fees and/or reimburse expenses to the same expense limitation above. In determining the advisor's obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the net annual operating expenses to exceed the number reflected above: (i) interest; (ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary items; (v) expenses related to a merger or reorganization, as approved by the Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Currently, in addition to the expense reimbursement arrangement with Invesco Ltd. ("Invesco") described more fully below, the expense offset arrangements from which the Fund may benefit are in the form of credits that the Fund receives from banks where the Fund or its transfer agent has deposit accounts in which it holds uninvested cash. In addition, the Fund may also benefit from a one time credit to be used to offset custodian expenses. These credits are used to pay certain expenses incurred by the Fund. Further, effective July 1, 2007, AIM has contractually agreed, through at least June 30, 2008, to waive 100% of the advisory fee AIM receives from the affiliated money market funds on investments by the Fund in such affiliated money market funds. Prior to July 1, 2007, AIM had voluntarily agreed to waive 25% of the advisory fee AIM receives from the affiliated money market funds on investments by the Fund in such affiliated money market funds. For the year ended October 31, 2007, AIM waived advisory fees of $69,042 and reimbursed $93,141 and $53,481 of class level expenses of Class B and Class C shares, respectively. At the request of the Trustees of the Trust, Invesco agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. These expenses along with the related expense reimbursement are included in the Statement of Operations. For the year ended October 31, 2007, Invesco reimbursed expenses of the Fund in the amount of $602. The Trust has entered into a master administrative services agreement with AIM pursuant to which the Fund has agreed to pay AIM for certain administrative costs incurred in providing accounting services, to the Fund. For the year ended October 31, 2007, expenses incurred under the agreement are shown in the Statement of Operations as administrative services fees. The Trust has entered into a transfer agency and service agreement with AIM Investment Services, Inc. ("AIS") pursuant to which the Fund has agreed to pay AIS a fee for providing transfer agency and shareholder services to the Fund and reimburse AIS for certain expenses incurred by AIS in the course of providing such services. AIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. All fees payable by AIS to intermediaries that provide omnibus account services or sub-accounting are charged back to the Fund, subject to certain limitations approved by the Trust's Board of Trustees. For the year ended October 31, 2007, expenses incurred under the agreement are shown in the Statement of Operations as transfer agent fees. The Trust has entered into master distribution agreements with A I M Distributors, Inc. ("ADI") to serve as the distributor for the Class A, Class B, Class C, Class R, Investor Class and Institutional Class shares of the Fund. The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A, Class B, Class C, Class R and Investor Class shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays ADI compensation at the annual rate of 0.25% of the Fund's average daily net assets of Class A shares, 1.00% of the average daily net assets of Class B and Class C shares and 0.50% of the average daily net assets of Class R shares. The Fund, pursuant to the Investor Class Plan, reimburses ADI for its allocated share of expenses incurred pursuant to the Investor Class Plan for the period, up to a maximum annual rate of 0.25% of the average daily net assets of 17 AIM Diversified Dividend Fund Investor Class shares. Of the Plan payments, up to 0.25% of the average daily net assets of each class of shares may be paid to furnish continuing personal shareholder services to customers who purchase and own shares of such classes. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. Financial Industry Regulatory Authority ("FINRA"), formerly known as National Association of Securities Dealers, 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. For the year ended October 31, 2007, expenses incurred under the Plans are shown in the Statement of Operations as distribution fees. Front-end sales commissions and contingent deferred sales charges ("CDSC") (collectively the "sales charges") are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. During the year ended October 31, 2007, ADI advised the Fund that it retained $90,547 in front-end sales commissions from the sale of Class A shares and $3,221, $68,064, $6,788 and $0 from Class A, Class B, Class C and Class R shares, respectively, for CDSC imposed on redemptions by shareholders. Certain officers and trustees of the Trust are officers and directors of AIM, AIS and/or ADI. NOTE 3--INVESTMENTS IN AFFILIATES The Fund is permitted, pursuant to procedures approved by the Board of Trustees, to invest daily available cash balances and cash collateral from securities lending transactions in affiliated money market funds. The Fund and the money market funds below have the same investment advisor and therefore, are considered to be affiliated. The tables below show the transactions in and earnings from investments in affiliated money market funds for the year ended October 31, 2007. During the period each investment maintained a $1.00 net asset value, as such there is no realized gain/(loss) and no change in unrealized appreciation/(depreciation). INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
VALUE PURCHASES PROCEEDS VALUE DIVIDEND FUND 10/31/06 AT COST FROM SALES 10/31/07 INCOME - -------------------------------------------------------------------------------------------------- Liquid Assets Portfolio-Institutional Class $ 54,198,593 $149,234,994 $(165,414,487) $38,019,100 $2,921,203 - -------------------------------------------------------------------------------------------------- Premier Portfolio-Institutional Class 54,198,593 149,234,994 (165,414,487) 38,019,100 2,908,453 ================================================================================================== Subtotal $108,397,186 $298,469,988 $(330,828,974) $76,038,200 $5,829,656 ==================================================================================================
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
VALUE PURCHASES PROCEEDS VALUE DIVIDEND FUND 10/31/06 AT COST FROM SALES 10/31/07 INCOME* - -------------------------------------------------------------------------------------------------- Liquid Assets Portfolio-Institutional Class $ -- $193,594,935 $(151,902,185) $ 41,692,750 $ 10,709 ================================================================================================== Total Investments in Affiliates $108,397,186 $492,064,923 $(482,731,159) $117,730,950 $5,840,365 __________________________________________________________________________________________________ ==================================================================================================
* Net of compensation to counterparties. NOTE 4--EXPENSE OFFSET ARRANGEMENTS The expense offset arrangements are comprised of (i) transfer agency credits which result from balances in Demand Deposit Accounts (DDA) used by the transfer agent for clearing shareholder transactions, (ii) custodian credits which result from periodic overnight cash balances at the custodian and (iii) a one time custodian fee credit used to offset custodian fees. For the year ended October 31, 2007, the Fund received credits from these arrangements, which resulted in the reduction of the Fund's total expenses of $116,391. NOTE 5--TRUSTEES' AND OFFICER'S FEES AND BENEFITS "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various AIM Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. During the year ended October 31, 2007, the Fund paid legal fees of $13,561 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. 18 AIM Diversified Dividend Fund NOTE 6--BORROWINGS Pursuant to an exemptive order from the Securities and Exchange Commission, the Fund may participate in an interfund lending facility that AIM has established for temporary borrowings by the AIM Funds. An interfund loan will be made under this facility only if the loan rate (an average of the rate available on bank loans and the rate available on investments in overnight repurchase agreements) is favorable to both the lending fund and the borrowing fund. A loan will be secured by collateral if the Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total assets. To the extent that the loan is required to be secured by collateral, the collateral is marked to market daily to ensure that the market value is at least 102% of the outstanding principal value of the loan. The Fund is a party to an uncommitted unsecured revolving credit facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM, which are parties to the credit facility, can borrow on a first come, first served basis. Principal on each loan outstanding shall bear interest at the bid rate quoted by SSB at the time of the request for the loan. During the year ended October 31, 2007, the Fund did not borrow or lend under the interfund lending facility or borrow under the uncommitted unsecured revolving credit facility. Additionally, the Fund is permitted to temporarily carry a negative or overdrawn balance in its account with SSB, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (ii) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and AIM, not to exceed the contractually agreed upon rate. NOTE 7--PORTFOLIO SECURITIES LOANED The Fund may lend portfolio securities having a market value up to one-third of the Fund's total assets. Such loans are secured by collateral equal to no less than the market value of the loaned securities determined daily. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds. It is the Fund's policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. Lending securities entails a risk of loss to the Fund if and to the extent that the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower fails to return the securities. The Fund could also experience delays and costs in gaining access to the collateral. The Fund bears the risk of any deficiency in the amount of the collateral available for return to the borrower due to any loss on the collateral invested. At October 31, 2007, securities with an aggregate value of $40,886,152 were on loan to brokers. The loans were secured by cash collateral of $41,692,750 received by the Fund and subsequently invested in affiliated money market funds. For the year ended October 31, 2007, the Fund received dividends on cash collateral investments of $10,709 for securities lending transactions, which are net of compensation to counterparties. NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS Distributions to Shareholders: The tax character of distributions paid during the years October 31, 2007 and 2006 was as follows:
2007 2006 - ----------------------------------------------------------------------------------------- Distributions paid from: Ordinary income $ 40,756,773 $39,895,528 - ----------------------------------------------------------------------------------------- Long-term capital gain 72,707,608 11,054,687 ========================================================================================= Total distributions $113,464,381 $50,950,215 _________________________________________________________________________________________ =========================================================================================
TAX COMPONENTS OF NET ASSETS: As of October 31, 2007, the components of net assets on a tax basis were as follows:
2007 - ------------------------------------------------------------------------------ Undistributed ordinary income $ 3,784,423 - ------------------------------------------------------------------------------ Undistributed long-term gain 121,519,634 - ------------------------------------------------------------------------------ Net unrealized appreciation -- investments 303,147,784 - ------------------------------------------------------------------------------ Temporary book/tax differences (411,741) - ------------------------------------------------------------------------------ Shares of beneficial interest 1,473,637,956 ============================================================================== Total net assets $1,901,678,056 ______________________________________________________________________________ ==============================================================================
19 AIM Diversified Dividend Fund The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund's net unrealized appreciation difference is attributable primarily to losses on wash sales. The tax-basis net unrealized appreciation on investments amount includes appreciation on foreign currencies of $3,278. The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund's temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits. The Fund does not have a capital loss carryforward as of October 31, 2007. NOTE 9--INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended October 31, 2007 was $319,773,577 and $493,220,431, respectively. During the same period, purchases and sales of U.S. Treasury obligations were $0 and $3,000,000.
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS - ------------------------------------------------------------------------------ Aggregate unrealized appreciation of investment securities $375,453,022 - ------------------------------------------------------------------------------ Aggregate unrealized (depreciation) of investment securities (72,308,516) ============================================================================== Net unrealized appreciation of investment securities $303,144,506 ______________________________________________________________________________ ============================================================================== Cost of investments for tax purposes is $1,633,391,495.
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES Primarily as a result of differing book/tax treatment of foreign currency transactions, on October 31, 2007, undistributed net investment income was increased by $5,557 and undistributed net realized gain was decreased by $5,557. This reclassification had no effect on the net assets of the Fund. 20 AIM Diversified Dividend Fund NOTE 11--SHARE INFORMATION The Fund currently consists of six different classes of shares: Class A, Class B, Class C, Class R, Investor Class and Institutional Class. Investor Class shares of the Fund are offered only to certain grandfathered investors. Class A shares are sold with a front-end sales charge unless certain waiver criteria are met and under certain circumstances load waiver shares may be subject to a CDSC. Class B shares and Class C shares are sold with a CDSC. Class R shares, Investor Class and Institutional Class shares are sold at net asset value. Under certain circumstances, Class R shares are subject to a CDSC. Generally, Class B shares will automatically convert to Class A shares on or about the month-end which is at least eight years after the date of purchase.
CHANGES IN SHARES OUTSTANDING - -------------------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED OCTOBER 31, 2007(a) OCTOBER 31, 2006 ---------------------------- ---------------------------- SHARES AMOUNT SHARES AMOUNT - -------------------------------------------------------------------------------------------------------------------------- Sold: Class A 3,967,324 $ 55,511,347 6,950,288 $ 89,904,101 - -------------------------------------------------------------------------------------------------------------------------- Class B 1,270,117 17,549,749 2,123,032 27,181,960 - -------------------------------------------------------------------------------------------------------------------------- Class C 1,005,035 13,897,674 1,313,145 17,092,506 - -------------------------------------------------------------------------------------------------------------------------- Class R 22,058 307,279 36,096 472,177 - -------------------------------------------------------------------------------------------------------------------------- Investor Class 1,935,746 27,081,953 2,424,328 31,254,402 - -------------------------------------------------------------------------------------------------------------------------- Institutional Class 1,923,009 27,098,131 2,301,390 29,960,920 ========================================================================================================================== Issued as reinvestment of dividends: Class A 1,040,937 14,289,160 441,148 5,620,783 - -------------------------------------------------------------------------------------------------------------------------- Class B 346,802 4,710,395 139,034 1,749,870 - -------------------------------------------------------------------------------------------------------------------------- Class C 203,789 2,765,862 65,628 825,919 - -------------------------------------------------------------------------------------------------------------------------- Class R 1,976 27,170 168 2,187 - -------------------------------------------------------------------------------------------------------------------------- Investor Class 5,973,840 82,005,396 3,058,799 38,929,501 - -------------------------------------------------------------------------------------------------------------------------- Institutional Class 151,943 2,093,669 19,848 257,687 ========================================================================================================================== Automatic conversion of Class B shares to Class A shares: Class A 869,865 12,156,875 639,340 8,263,997 - -------------------------------------------------------------------------------------------------------------------------- Class B (877,954) (12,156,875) (645,065) (8,263,997) ========================================================================================================================== Reacquired: Class A (8,132,612) (113,376,064) (6,637,587) (85,525,594) - -------------------------------------------------------------------------------------------------------------------------- Class B (1,903,414) (26,482,326) (2,120,974) (27,077,639) - -------------------------------------------------------------------------------------------------------------------------- Class C (1,590,221) (21,905,141) (1,072,394) (13,638,613) - -------------------------------------------------------------------------------------------------------------------------- Class R (3,205) (44,493) (6,119) (81,434) - -------------------------------------------------------------------------------------------------------------------------- Investor Class (14,378,813) (201,779,984) (23,451,173) (301,334,979) - -------------------------------------------------------------------------------------------------------------------------- Institutional Class (460,313) (6,490,769) (191,739) (2,521,090) ========================================================================================================================== (8,634,091) $(122,740,992) (14,612,807) $(186,927,336) __________________________________________________________________________________________________________________________ ==========================================================================================================================
(a) There is one entity that is record owner of more than 5% of the outstanding shares of the Fund and it owns 9% of the outstanding shares of the Fund. ADI has an agreement with this entity to sell Fund shares. The Fund, AIM and/or AIM affiliates may make payments to this entity, which is considered to be related to the Fund, for providing services to the Fund, AIM and/or AIM affiliates including but not limited to services such as, securities brokerage, distribution, third party record keeping and account servicing. The Trust has no knowledge as to whether all or any portion of the shares owned of record by this entity are owned beneficially. NOTE 12--NEW ACCOUNTING STANDARD In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48"). FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement for a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The provisions for FIN 48 are effective for fiscal years beginning after December 15, 2006. Management has assessed the application of FIN 48 to the Fund and has determined that the adopting of FIN 48 is not expected to have a material impact on the Fund. Management intends for the Fund to adopt FIN 48 provisions during the fiscal year ending October 31, 2008 as required. 21 AIM Diversified Dividend Fund NOTE 13--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
CLASS A --------------------------------------------------------------- YEAR ENDED OCTOBER 31, --------------------------------------------------------------- 2007 2006 2005 2004 2003 - ----------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 13.88 $ 12.11 $ 11.48 $ 10.26 $ 8.70 - ----------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.20 0.19(a) 0.17(b) 0.14 0.06(a) - ----------------------------------------------------------------------------------------------------------------------------- Net gains on securities (both realized and unrealized) 0.99 1.92 0.85 1.23 1.54 ============================================================================================================================= Total from investment operations 1.19 2.11 1.02 1.37 1.60 ============================================================================================================================= Less distributions: Dividends from net investment income (0.21) (0.18) (0.18) (0.15) (0.04) - ----------------------------------------------------------------------------------------------------------------------------- Distributions from net realized gains (0.59) (0.16) (0.21) -- -- ============================================================================================================================= Total distributions (0.80) (0.34) (0.39) (0.15) (0.04) ============================================================================================================================= Net asset value, end of period $ 14.27 $ 13.88 $ 12.11 $ 11.48 $ 10.26 _____________________________________________________________________________________________________________________________ ============================================================================================================================= Total return(c) 8.86% 17.66% 8.92% 13.36% 18.39% _____________________________________________________________________________________________________________________________ ============================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $237,467 $262,276 $212,029 $63,513 $22,375 _____________________________________________________________________________________________________________________________ ============================================================================================================================= Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.00%(d) 1.00% 1.00% 1.00% 1.51% - ----------------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.00%(d) 1.03% 1.15% 1.70% 2.12% ============================================================================================================================= Ratio of net investment income to average net assets 1.45%(d) 1.43% 1.27%(b) 1.27% 0.65% _____________________________________________________________________________________________________________________________ ============================================================================================================================= Portfolio turnover rate 17% 9% 22% 30% 72% _____________________________________________________________________________________________________________________________ =============================================================================================================================
(a) Calculated using average shares outstanding. (b) Net investment income per share and the ratio of net investment income to average net assets include a special cash dividend received of $3.00 per share owned of Microsoft Corp. on December 2, 2004. Net investment income per share, excluding the sprecial dividend, remained the same and the ratio of net investment income to average net assets, excluding the special dividend are 1.24%. (c) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges. (d) Ratios are based on average daily net assets of $258,061,984. 22 AIM Diversified Dividend Fund NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
CLASS B ------------------------------------------------------------ YEAR ENDED OCTOBER 31, ------------------------------------------------------------ 2007 2006 2005 2004 2003 - -------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 13.76 $ 12.01 $ 11.38 $ 10.17 $ 8.65 - -------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.11 0.10(a) 0.09(b) 0.07 0.00(a) - -------------------------------------------------------------------------------------------------------------------------- Net gains on securities (both realized and unrealized) 0.98 1.90 0.85 1.21 1.53 ========================================================================================================================== Total from investment operations 1.09 2.00 0.94 1.28 1.53 ========================================================================================================================== Less distributions: Dividends from net investment income (0.12) (0.09) (0.10) (0.07) (0.01) - -------------------------------------------------------------------------------------------------------------------------- Distributions from net realized gains (0.59) (0.16) (0.21) -- -- ========================================================================================================================== Total distributions (0.71) (0.25) (0.31) (0.07) (0.01) ========================================================================================================================== Net asset value, end of period $ 14.14 $ 13.76 $ 12.01 $ 11.38 $ 10.17 __________________________________________________________________________________________________________________________ ========================================================================================================================== Total return(c) 8.15% 16.87% 8.28% 12.63% 17.67% __________________________________________________________________________________________________________________________ ========================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $85,172 $98,901 $92,394 $45,700 $21,582 __________________________________________________________________________________________________________________________ ========================================================================================================================== Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.65%(d) 1.65% 1.65% 1.65% 2.16% - -------------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.75%(d) 1.78% 1.85% 2.35% 2.77% ========================================================================================================================== Ratio of net investment income to average net assets 0.80%(d) 0.78% 0.62%(b) 0.62% 0.00% __________________________________________________________________________________________________________________________ ========================================================================================================================== Portfolio turnover rate 17% 9% 22% 30% 72% __________________________________________________________________________________________________________________________ ==========================================================================================================================
(a) Calculated using average shares outstanding. (b) Net investment income per share and the ratio of net investment income to average net assets include a special cash dividend received of $3.00 per share owned of Microsoft Corp. on December 2, 2004. Net investment income per share, excluding the sprecial dividend, remained the same and the ratio of net investment income to average net assets, excluding the special dividend are 0.59%. (c) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges. (d) Ratios are based on average daily net assets of $97,322,248.
CLASS C ----------------------------------------------------------- YEAR ENDED OCTOBER 31, ----------------------------------------------------------- 2007 2006 2005 2004 2003 - ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 13.74 $ 11.99 $ 11.37 $ 10.16 $ 8.65 - ------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.11 0.10(a) 0.09(b) 0.07 0.00(a) - ------------------------------------------------------------------------------------------------------------------------- Net gains on securities (both realized and unrealized) 0.98 1.90 0.84 1.21 1.52 ========================================================================================================================= Total from investment operations 1.09 2.00 0.93 1.28 1.52 ========================================================================================================================= Less distributions: Dividends from net investment income (0.12) (0.09) (0.10) (0.07) (0.01) - ------------------------------------------------------------------------------------------------------------------------- Distributions from net realized gains (0.59) (0.16) (0.21) -- -- ========================================================================================================================= Total distributions (0.71) (0.25) (0.31) (0.07) (0.01) ========================================================================================================================= Net asset value, end of period $ 14.12 $ 13.74 $ 11.99 $ 11.37 $10.16 _________________________________________________________________________________________________________________________ ========================================================================================================================= Total return(c) 8.16% 16.90% 8.20% 12.64% 17.55% _________________________________________________________________________________________________________________________ ========================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $52,524 $56,354 $45,513 $15,316 $5,848 _________________________________________________________________________________________________________________________ ========================================================================================================================= Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.65%(d) 1.65% 1.65% 1.65% 2.16% - ------------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.75%(d) 1.78% 1.85% 2.35% 2.77% ========================================================================================================================= Ratio of net investment income to average net assets 0.80%(d) 0.78% 0.62%(b) 0.62% 0.00% _________________________________________________________________________________________________________________________ ========================================================================================================================= Portfolio turnover rate 17% 9% 22% 30% 72% _________________________________________________________________________________________________________________________ =========================================================================================================================
(a) Calculated using average shares outstanding. (b) Net investment income per share and the ratio of net investment income to average net assets include a special cash dividend received of $3.00 per share owned of Microsoft Corp. on December 2, 2004. Net investment income (loss) per share, excluding the sprecial dividend, remained the same and the ratio of net investment income to average net assets, excluding the special dividend are 0.59%. (c) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges. (d) Ratios are based on average daily net assets of $56,104,470. 23 AIM Diversified Dividend Fund NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
CLASS R ---------------------------------------- OCTOBER 25, 2005 YEAR ENDED (COMMENCEMENT OCTOBER 31, DATE) TO -------------------- OCTOBER 31, 2007 2006 2005 - ------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 13.88 $12.11 $11.99 - ------------------------------------------------------------------------------------------------------ Income from investment operations: Net investment income 0.17 0.16(a) 0.00 - ------------------------------------------------------------------------------------------------------ Net gains on securities (both realized and unrealized) 1.00 1.92 0.12 ====================================================================================================== Total from investment operations 1.17 2.08 0.12 ====================================================================================================== Less distributions: Dividends from net investment income (0.18) (0.15) -- - ------------------------------------------------------------------------------------------------------ Distributions from net realized gains (0.59) (0.16) -- ====================================================================================================== Total distributions (0.77) (0.31) -- ====================================================================================================== Net asset value, end of period $ 14.28 $13.88 $12.11 ______________________________________________________________________________________________________ ====================================================================================================== Total return(b) 8.67% 17.38% 1.00% ______________________________________________________________________________________________________ ====================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $ 740 $ 430 $ 10 ______________________________________________________________________________________________________ ====================================================================================================== Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.25%(c) 1.25% 1.25%(d) - ------------------------------------------------------------------------------------------------------ Without fee waivers and/or expense reimbursements 1.25%(c) 1.28% 1.39%(d) ====================================================================================================== Ratio of net investment income to average net assets 1.20%(c) 1.18% 1.03%(d) ______________________________________________________________________________________________________ ====================================================================================================== Portfolio turnover rate(e) 17% 9% 22% ______________________________________________________________________________________________________ ======================================================================================================
(a) Calculated using average shares outstanding. (b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Not annualized for periods less than one year. (c) Ratios are based on average daily net assets of $599,836. (d) Annualized. (e) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year. 24 AIM Diversified Dividend Fund NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
INVESTOR CLASS -------------------------------------------------- JULY 15, 2005 YEAR ENDED (COMMENCEMENT OCTOBER 31, DATE) TO --------------------------- OCTOBER 31, 2007 2006 2005 - ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 13.88 $ 12.11 $ 12.36 - ---------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.22 0.20(a) 0.05 - ---------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) 0.98 1.92 (0.26) ================================================================================================================ Total from investment operations 1.20 2.12 (0.21) ================================================================================================================ Less distributions: Dividends from net investment income (0.23) (0.19) (0.04) - ---------------------------------------------------------------------------------------------------------------- Distributions from net realized gains (0.59) (0.16) -- ================================================================================================================ Total distributions (0.82) (0.35) (0.04) ================================================================================================================ Net asset value, end of period $ 14.26 $ 13.88 $ 12.11 ________________________________________________________________________________________________________________ ================================================================================================================ Total return(b) 8.91% 17.77% (1.68)% ________________________________________________________________________________________________________________ ================================================================================================================ Ratios/supplemental data: Net assets, end of period (000s omitted) $1,472,311 $1,522,235 $1,546,221 ________________________________________________________________________________________________________________ ================================================================================================================ Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 0.91%(c) 0.87% 0.97%(d) - ---------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 0.91%(c) 0.90% 1.09%(d) ================================================================================================================ Ratio of net investment income to average net assets 1.54%(c) 1.56% 1.30%(d) ________________________________________________________________________________________________________________ ================================================================================================================ Portfolio turnover rate(e) 17% 9% 22% ________________________________________________________________________________________________________________ ================================================================================================================
(a) Calculated using average shares outstanding. (b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Not annualized for periods less than one year. (c) Ratios are based on average daily net assets of $1,512,487,940. (d) Annualized. (e) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year. 25 AIM Diversified Dividend Fund NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
INSTITUTIONAL CLASS -------------------------------------------- OCTOBER 25, 2005 YEAR ENDED (COMMENCEMENT OCTOBER 31, DATE) TO --------------------- OCTOBER 31, 2007 2006 2005 - ---------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 13.88 $ 12.12 $ 11.99 - ---------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.25 0.02(a) 0.00 - ---------------------------------------------------------------------------------------------------------- Net gains on securities (both realized and unrealized) 0.98 2.12 0.13 ========================================================================================================== Total from investment operations 1.23 2.14 0.13 ========================================================================================================== Less distributions: Dividends from net investment income (0.26) (0.22) -- - ---------------------------------------------------------------------------------------------------------- Distributions from net realized gains (0.59) (0.16) -- ========================================================================================================== Total distributions (0.85) (0.38) -- ========================================================================================================== Net asset value, end of period $ 14.26 $ 13.88 $ 12.12 __________________________________________________________________________________________________________ ========================================================================================================== Total return(b) 9.17% 17.96% 1.08% __________________________________________________________________________________________________________ ========================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $53,464 $29,606 $ 48 __________________________________________________________________________________________________________ ========================================================================================================== Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 0.66%(c) 0.59% 0.68%(d) - ---------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 0.66%(c) 0.59% 0.80%(d) ========================================================================================================== Ratio of net investment income to average net assets 1.79%(c) 1.84% 1.59%(d) __________________________________________________________________________________________________________ ========================================================================================================== Portfolio turnover rate(e) 17% 9% 22% __________________________________________________________________________________________________________ ==========================================================================================================
(a) Calculated using average shares outstanding. (b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Not annualized for periods less than one year. (c) Ratios are based on average daily net assets of $43,508,460. (d) Annualized. (e) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year. NOTE 14--LEGAL PROCEEDINGS Terms used in the Legal Proceedings Note are defined terms solely for the purpose of this note. SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING On July 6, 2007, the Securities and Exchange Commission ("SEC") published notice of two proposed distribution plans ("Distribution Plans") for the distribution of monies placed into two separate Fair Funds created pursuant to a settlement reached on October 8, 2004 between Invesco Funds Group, Inc. ("IFG"), A I M Advisors, Inc. ("AIM") and A I M Distributors, Inc. and the SEC (the "Order"). One of the Fair Funds consists of $325 million, plus interest and any contributions by other settling parties, for distribution to shareholders of certain mutual funds formerly advised by IFG who may have been harmed by market timing and related activity. The second Fair Fund consists of $50 million, plus interest and any contributions by other settling parties, for distribution to shareholders of mutual funds advised by AIM who may have been harmed by market timing and related activity. Comments on the Distribution Plans were due no later than August 6, 2007 and the Distribution Plans are awaiting final approval by the SEC. Distributions from the Fair Funds will begin after the SEC finally approves the Distribution Plans. The proposed Distribution Plans provide for distribution to all eligible investors, for the periods spanning January 1, 2000 through July 31, 2003 (for the IFG Fair Fund) and January 1, 2001 through September 30, 2003 (for the AIM Fair Fund), their proportionate share of the applicable Fair Fund to compensate such investors for injury they may have suffered as a result of market timing in the affected funds. The Distribution Plans include a provision for any residual amounts in the Fair Funds to be distributed in the future to the affected funds. Because the Distribution Plans have not received final approval from the SEC and distribution of the Fair Funds has not yet commenced, management of AIM and the Fund are unable to estimate the amount of distribution to be made to the Fund, if any. At the request of the trustees of the AIM Funds, Invesco Ltd. ("Invesco"), the parent company of IFG and AIM, has agreed to reimburse expenses incurred by the AIM Funds related to market timing matters. PENDING LITIGATION AND REGULATORY INQUIRIES On August 30, 2005, the West Virginia Office of the State Auditor -- Securities Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of Right to Hearing to AIM and ADI (Order No. 05-1318). The WVASC makes findings of fact that AIM and ADI entered into certain arrangements permitting market timing of the AIM Funds and failed to disclose these arrangements in the prospectuses for such Funds, and conclusions of law to the effect that AIM and ADI violated the West Virginia securities laws. The WVASC orders AIM and ADI to cease any further violations and seeks to impose monetary sanctions, including restitution to affected investors, disgorgement of fees, reimbursement of investigatory, administrative and legal costs 26 AIM Diversified Dividend Fund NOTE 14--LEGAL PROCEEDINGS--(CONTINUED) and an "administrative assessment," to be determined by the Commissioner. Initial research indicates that these damages could be limited or capped by statute. By agreement with the Commissioner of Securities, AIM's time to respond to that Order has been indefinitely suspended. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or related entities and individuals, depending on the lawsuit, alleging: - that the defendants permitted improper market timing and related activity in the AIM Funds; and - that certain AIM Funds inadequately employed fair value pricing. These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws and ERISA, negligence, breach of fiduciary duty and/or breach of contract. These lawsuits seek remedies that include, depending on the lawsuit, damages, restitution, injunctive relief, imposition of a constructive trust, removal of certain directors and/or employees, various corrective measures under ERISA, rescission of certain AIM Funds' advisory agreements and/or distribution plans and recovery of all fees paid. All lawsuits based on allegations of market timing, late trading and related issues have been transferred to the United States District Court for the District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court, plaintiffs in these lawsuits consolidated their claims for pre-trial purposes into three amended complaints against various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint for Violations of the Employee Retirement Income Securities Act ("ERISA") purportedly brought on behalf of participants in Invesco's 401(k) plan. Based on orders issued by the MDL Court, all claims asserted against the AIM Funds that have been transferred to the MDL Court have been dismissed, although certain Funds remain nominal defendants in the Consolidated Amended Fund Derivative Complaint. On September 15, 2006, the MDL Court granted the Invesco defendants' motion to dismiss the Amended Class Action Complaint for Violations of ERISA and dismissed such Complaint. The plaintiff has commenced an appeal from that decision. IFG, AIM, ADI and/or related entities and individuals have received inquiries from numerous regulators in the form of subpoenas or other oral or written requests for information and/or documents related to one or more of the following issues, among others, some of which concern one or more AIM Funds: market timing activity, late trading, fair value pricing, excessive or improper advisory and/or distribution fees, mutual fund sales practices, including revenue sharing and directed-brokerage arrangements, investments in securities of other registered investment companies, contractual plans, issues related to Section 529 college savings plans and procedures for locating lost security holders. IFG, AIM and ADI have advised the Fund that they are providing full cooperation with respect to these inquiries. Regulatory actions and/or additional civil lawsuits related to these or other issues may be filed against the AIM Funds, IFG, AIM and/or related entities and individuals in the future. At the present time, management of AIM and the Fund are unable to estimate the impact, if any, that the outcome of the Pending Litigation and Regulatory Inquiries described above may have on AIM, ADI or the Fund. 27 AIM Diversified Dividend Fund REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Trustees of AIM Equity Funds and Shareholders of AIM Diversified Dividend Fund: In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of AIM Diversified Dividend Fund (one of the funds constituting AIM Equity Funds, hereafter referred to as the "Fund") at October 31, 2007, 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 three periods then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at October 31, 2007 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights for each of the periods ended on or before October 31, 2004 were audited by another independent registered public accounting firm whose report, dated December 15, 2004, expressed an unqualified opinion on those financial highlights. PRICEWATERHOUSECOOPERS LLP December 19, 2007 Houston, Texas 28 AIM Diversified Dividend Fund CALCULATING YOUR ONGOING FUND EXPENSES EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments or contingent deferred sales charges on redemptions, and redemption fees, if any; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period May 1, 2007, through October 31, 2007. ACTUAL EXPENSES The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions, and redemption fees, if any. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
HYPOTHETICAL (5% ANNUAL RETURN BEFORE ACTUAL EXPENSES) BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE CLASS (05/01/07) (10/31/07)(1) PERIOD(2) (10/31/07) PERIOD(2) RATIO A $1,000.00 $1,013.20 $5.02 $1,020.21 $5.04 0.99% B 1,000.00 1,010.70 8.36 1,016.89 8.39 1.65 C 1,000.00 1,010.00 8.36 1,016.89 8.39 1.65 R 1,000.00 1,012.70 6.29 1,018.95 6.31 1.24 Investor 1,000.00 1,013.80 4.57 1,020.67 4.58 0.90
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2007, through October 31, 2007, 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. (2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. 29 Supplement to Annual Report dated 10/31/07 AIM DIVERSIFIED DIVIDEND FUND ====================================== PLEASE NOTE THAT PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. MORE RECENT RETURNS INSTITUTIONAL CLASS SHARES AVERAGE ANNUAL TOTAL RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. ALL RETURNS For periods ended 10/31/07 ASSUME REINVESTMENT OF DISTRIBUTIONS AT NAV. The following information has been INVESTMENT RETURN AND PRINCIPAL VALUE WILL prepared to provide Institutional Class Inception 8.84% FLUCTUATE SO YOUR SHARES, WHEN REDEEMED, MAY BE shareholders with a performance 5 Years 13.50 WORTH MORE OR LESS THAN THEIR ORIGINAL COST. SEE overview specific to their holdings. 1 Year 9.17 FULL REPORT FOR INFORMATION ON COMPARATIVE Institutional Class shares are offered BENCHMARKS. PLEASE CONSULT YOUR FUND PROSPECTUS exclusively to institutional investors, AVERAGE ANNUAL TOTAL RETURNS FOR MORE INFORMATION. FOR THE MOST CURRENT including defined contribution plans For periods ended 9/30/07, most recent MONTH-END PERFORMANCE, PLEASE CALL 800-451-4246 that meet certain criteria. calendar quarter-end OR VISIT AIMINVESTMENTS.COM. Inception 8.88% 5 Years 14.60 1 Year 12.36 ====================================== INSTITUTIONAL CLASS SHARES' INCEPTION DATE IS OCTOBER 25, 2005. RETURNS SINCE THAT DATE ARE HISTORICAL RETURNS. ALL OTHER RETURNS ARE BLENDED RETURNS OF HISTORICAL INSTITUTIONAL CLASS SHARE PERFORMANCE AND RESTATED CLASS A SHARE PERFORMANCE (FOR PERIODS PRIOR TO THE INCEPTION DATE OF INSTITUTIONAL CLASS SHARES) AT NET ASSET VALUE (NAV) AND REFLECT THE HIGHER RULE 12B-1 FEES APPLICABLE TO CLASS A SHARES. CLASS A SHARES' INCEPTION DATE IS DECEMBER 31, 2001. INSTITUTIONAL CLASS SHARES HAVE NO SALES CHARGE; THEREFORE, PERFORMANCE IS AT NAV. PERFORMANCE OF INSTITUTIONAL CLASS SHARES WILL DIFFER FROM PERFORMANCE OF OTHER SHARE CLASSES PRIMARILY DUE TO DIFFERING SALES CHARGES AND CLASS EXPENSES. HAD THE ADVISOR NOT WAIVED FEES ======================================= AND/OR REIMBURSED EXPENSES IN THE NASDAQ SYMBOL DDFIX PAST, PERFORMANCE WOULD HAVE BEEN ======================================= LOWER. Over for information on your Fund's expenses. ================================================================================ THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING. ================================================================================
FOR INSTITUTIONAL INVESTOR USE ONLY This material is for institutional investor use only and may not be quoted, reproduced or shown to the public, nor used in written form as sales literature for public use. AIMinvestments.com DDI-INS-1 A I M Distributors, Inc. [AIM INVESTMENTS LOGO] -- REGISTERED TRADEMARK -- AIM Diversified Dividend Fund CALCULATING YOUR ONGOING FUND EXPENSES EXAMPLE As a shareholder of the Fund, you incur ongoing costs, including management fees and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period May 1, 2007, through October 31, 2007. ACTUAL EXPENSES The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL (5% ANNUAL RETURN BEFORE ACTUAL EXPENSES) BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE SHARE CLASS (05/01/07) (10/31/07)(1) PERIOD(2) (10/31/07) PERIOD(2) RATIO Institutional $1,000.00 $1,014.90 $3.35 $1,021.88 $3.36 0.66%
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2007, through October 31, 2007, 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. (2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. AIMinvestments.com DDI-INS-1 A I M Distributors, Inc. AIM Diversified Dividend Fund APPROVAL OF INVESTMENT ADVISORY fees and expenses of the AIM Funds to A. NATURE, EXTENT AND QUALITY OF SERVICES AGREEMENT the full Board. Moreover, the PROVIDED BY AIM Investments Committee considers each The Board of Trustees (the Board) of Sub-Committee's recommendations in The Board reviewed the advisory services provided AIM Equity Funds is required under the making its annual recommendation to to the Fund by AIM under the Fund's advisory Investment Company Act of 1940 to the Board whether to approve the agreement, the performance of AIM in providing approve annually the renewal of the AIM continuance of each AIM Fund's these services, and the credentials and Diversified Dividend Fund (the Fund) investment advisory agreement and experience of the officers and employees of AIM investment advisory agreement with sub-advisory agreement, if applicable who provide these services. The Board's review of A I M Advisors, Inc. (AIM). During (advisory agreements), for another the qualifications of AIM to provide these contract renewal meetings held on June year. services included the Board's consideration of 25-27, 2007, the Board as a whole and AIM's portfolio and product review process, the disinterested or "independent" The independent Trustees, as various back office support functions provided by Trustees, voting separately, approved mentioned above, are assisted in their AIM, and AIM's equity and fixed income trading the continuance of the Fund's annual evaluation of the advisory operations. The Board concluded that the nature, investment advisory agreement for agreements by the independent Senior extent and quality of the advisory services another year, effective July 1, 2007. Officer. One responsibility of the provided to the Fund by AIM were appropriate and In doing so, the Board determined that Senior Officer is to manage the that AIM currently is providing satisfactory the Fund's advisory agreement is in the process by which the AIM Funds' advisory services in accordance with the terms of best interests of the Fund and its proposed management fees are the Fund's advisory agreement. In addition, based shareholders and that the compensation negotiated during the annual contract on their ongoing meetings throughout the year to AIM under the Fund's advisory renewal process to ensure that they with the Fund's portfolio managers, the Board agreement is fair and reasonable. are negotiated in a manner which is at concluded that these individuals are competent arms' length and reasonable. and able to continue to carry out their The independent Trustees met Accordingly, the Senior Officer must responsibilities under the Fund's advisory separately during their evaluation of either supervise a competitive bidding agreement. the Fund's investment advisory process or prepare an independent agreement with independent legal written evaluation. The Senior Officer In determining whether to continue the Fund's counsel from whom they received has recommended that an independent advisory agreement, the Board considered the independent legal advice, and the written evaluation be provided and, prior relationship between AIM and the Fund, as independent Trustees also received upon the direction of the Board, has well as the Board's knowledge of AIM's assistance during their deliberations prepared an independent written operations, and concluded that it was beneficial from the independent Senior Officer, a evaluation. to maintain the current relationship, in part, full-time officer of the AIM Funds who because of such knowledge. The Board also reports directly to the independent During the annual contract renewal considered the steps that AIM and its affiliates Trustees. The following discussion more process, the Board considered the have taken over the last several years to improve fully describes the process employed by factors discussed below under the the quality and efficiency of the services they the Board to evaluate the performance heading "Factors and Conclusions and provide to the Funds in the areas of investment of the AIM Funds (including the Fund) Summary of Independent Written Fee performance, product line diversification, throughout the year and, more Evaluation" in evaluating the fairness distribution, fund operations, shareholder specifically, during the annual and reasonableness of the Fund's services and compliance. The Board concluded that contract renewal meetings. advisory agreement at the contract the quality and efficiency of the services AIM renewal meetings and at their meetings and its affiliates provide to the AIM Funds in THE BOARD'S FUND EVALUATION PROCESS throughout the year as part of their each of these areas have generally improved, and ongoing oversight of the Fund. The support the Board's approval of the continuance The Board's Investments Committee has Fund's advisory agreement was of the Fund's advisory agreement. established three Sub-Committees which considered separately, although the are responsible for over-seeing the Board also considered the common B. FUND PERFORMANCE management of a number of the series interests of all of the AIM Funds in portfolios of the AIM Funds. This their deliberations. The Board The Board compared the Fund's performance during Sub-Committee structure permits the comprehensively considered all of the the past one, three and five calendar years to Trustees to focus on the performance of information provided to them and did the performance of funds in the Fund's Lipper the AIM Funds that have been assigned not identify any particular factor peer group that are not managed by AIM, and to them. The Sub-Committees meet that was controlling. Furthermore, against the performance of all funds in the throughout the year to review the each Trustee may have evaluated the Lipper Large-Cap Core Funds Index. The Board also performance of their assigned funds, information provided differently from reviewed the methodology used by Lipper to and the Sub-Committees review monthly one another and attributed different identify the Fund's peers. The Board noted that and quarterly comparative performance weight to the various factors. The the Fund's performance was above the median information and periodic asset flow Trustees recognized that the advisory performance of its peers for the one, three and data for their assigned funds. These arrangements and resulting advisory five year periods. The Board noted that the materials are prepared under the fees for the Fund and the other AIM Fund's performance was above the performance of direction and supervision of the Funds are the result of years of the Index for the one, three and five year independent Senior Officer. Over the review and negotiation between the periods. The Board also considered the steps AIM course of each year, the Sub-Committees Trustees and AIM, that the Trustees has taken over the last several years to improve meet with portfolio managers for their may focus to a greater extent on the quality and efficiency of the services that assigned funds and other members of certain aspects of these arrangements AIM provides to the AIM Funds. The Board management and review with these in some years than others, and that concluded that AIM continues to be responsive to individuals the performance, investment the Trustees' deliberations and the Board's focus on fund performance. Although objective(s), policies, strategies and conclusions in a particular year may the independent written evaluation of the Fund's limitations of these funds. be based in part on their Senior Officer (discussed below) only considered deliberations and conclusions of these Fund performance through the most recent calendar In addition to their meetings same arrangements throughout the year year, the Board also reviewed more recent Fund throughout the year, the Sub-Committees and in prior years. performance and this review did not change their meet at designated contract renewal conclusions. meetings each year to conduct an FACTORS AND CONCLUSIONS AND SUMMARY OF in-depth review of the performance, INDEPENDENT WRITTEN FEE EVALUATION (continued) fees and expenses of their assigned funds. During the contract renewal The discussion below serves as a process, the Trustees receive summary of the Senior Officer's comparative performance and fee data independent written evaluation, as regarding all the AIM Funds prepared by well as a discussion of the material an independent company, Lipper, Inc., factors and related conclusions that under the direction and supervision of formed the basis for the Board's the independent Senior Officer who also approval of the Fund's advisory prepares a separate analysis of this agreement. Unless otherwise stated, information for the Trustees. Each information set forth below is as of Sub-Committee then makes June 27, 2007 and does not reflect any recommendations to the Investments changes that may have occurred since Committee regarding the performance, that date, including but not limited fees and expenses of their assigned to changes to the Fund's performance, funds. The Investments Committee advisory fees, expense limitations considers each Sub-Committee's and/or fee waivers. recommendations and makes its own recommendations regarding the performance,
30 AIM Diversified Dividend Fund C. ADVISORY FEES AND FEE WAIVERS advisory fee schedule or through considered that these services are provided to advisory fee waivers or expense the Fund pursuant to written contracts which are The Board compared the Fund's limitations. The Board noted that the reviewed and approved on an annual basis by the contractual advisory fee rate to the Fund's contractual advisory fee Board. The Board concluded that AIM and its contractual advisory fee rates of funds schedule includes six breakpoints and affiliates were providing these services in a in the Fund's Lipper peer group that that the level of the Fund's advisory satisfactory manner and in accordance with the are not managed by AIM, at a common fees, as a percentage of the Fund's terms of their contracts, and were qualified to asset level and as of the end of the net assets, has decreased as net continue to provide these services to the Fund. past calendar year. The Board noted assets increased because of the that the Fund's advisory fee rate was breakpoints. Based on this The Board considered the benefits realized by below the median advisory fee rate of information, the Board concluded that AIM as a result of portfolio brokerage its peers. The Board also reviewed the the Fund's advisory fees appropriately transactions executed through "soft dollar" methodology used by Lipper and noted reflect economies of scale at current arrangements. Under these arrangements, portfolio that the contractual fee rates shown by asset levels. The Board also noted brokerage commissions paid by the Fund and/or Lipper include any applicable long-term that the Fund shares directly in other funds advised by AIM are used to pay for contractual fee waivers. The Board also economies of scale through lower fees research and execution services. The Board noted compared the Fund's contractual charged by third party service that soft dollar arrangements shift the payment advisory fee rate to the contractual providers based on the combined size obligation for the research and executions advisory fee rates of other clients of of all of the AIM Funds and services from AIM to the funds and therefore may AIM and its affiliates with investment affiliates. reduce AIM's expenses. The Board also noted that strategies comparable to those of the research obtained through soft dollar Fund, including three mutual funds E. PROFITABILITY AND FINANCIAL arrangements may be used by AIM in making advised by AIM and one mutual fund RESOURCES OF AIM investment decisions for the Fund and may sub-advised by an AIM affiliate. The therefore benefit Fund shareholders. The Board Board noted that the Fund's rate was: The Board reviewed information from concluded that AIM's soft dollar arrangements (i) below the rates for the three AIM concerning the costs of the were appropriate. The Board also concluded mutual funds; and (ii) comparable to advisory and other services that AIM that, based on their review and representations the sub-advisory fee rate for the and its affiliates provide to the Fund made by AIM, these arrangements were consistent sub-advised mutual fund, although the and the profitability of AIM and its with regulatory requirements. advisory fee for such sub-advised fund affiliates in providing these was above the Fund's. services. The Board also reviewed information concerning the financial The Board considered the fact that the Fund's Additionally, the Board compared the condition of AIM and its affiliates. uninvested cash and cash collateral from any Fund's contractual advisory fee rate The Board also reviewed with AIM the securities lending arrangements may be invested to the total advisory fees paid by methodology used to prepare the in money market funds advised by AIM pursuant to numerous separately managed profitability information. The Board procedures approved by the Board. The Board noted accounts/wrap accounts advised by an considered the overall profitability that AIM will receive advisory fees from these AIM affiliate. The Board noted that the of AIM, as well as the profitability affiliated money market funds attributable to Fund's rate was generally above the of AIM in connection with managing the such investments, although AIM has contractually rates for the separately managed Fund. The Board noted that AIM agreed to waive the advisory fees payable by the accounts/wrap accounts. The Board continues to operate at a net profit, Fund with respect to its investment of uninvested considered that management of the although increased expenses in recent cash in these affiliated money market funds separately managed accounts/wrap years have reduced the profitability through at least June 30, 2008. The Board accounts by the AIM affiliate involves of AIM and its affiliates. The Board considered the contractual nature of this fee different levels of services and concluded that the Fund's advisory waiver and noted that it remains in effect until different operational and regulatory fees were fair and reasonable, and at least June 30, 2008. The Board concluded that requirements than AIM's management of that the level of profits realized the Fund's investment of uninvested cash and cash the Fund. The Board concluded that by AIM and its affiliates from collateral from any securities lending these differences are appropriately providing services to the Fund was not arrangements in the affiliated money market funds reflected in the fee structure for excessive in light of the nature, is in the best interests of the Fund and its the Fund and the separately managed quality and extent of the services shareholders. accounts/wrap accounts. provided. The Board considered whether AIM is financially sound and has the The Board noted that AIM has resources necessary to perform its contractually agreed to waive fees obligations under the Fund's and/or limit expenses of the Fund advisory agreement, and concluded that through at least June 30, 2008 in an AIM has the financial resources amount necessary to limit total annual necessary to fulfill these obligations. operating expenses to a specified percentage of average daily net assets F. INDEPENDENT WRITTEN EVALUATION OF for each class of the Fund. The Board THE FUND'S SENIOR OFFICER considered the contractual nature of this fee waiver and noted that it The Board noted that, upon their remains in effect until at least June direction, the Senior Officer of the 30, 2008. The Board reviewed the Fund's Fund, who is independent of AIM and effective advisory fee rate, after AIM's affiliates, had prepared an taking account of this expense independent written evaluation to limitation, and considered the effect assist the Board in determining the this expense limitation would have on reasonableness of the proposed the Fund's estimated total expenses. management fees of the AIM Funds, The Board concluded that the levels of including the Fund. The Board noted fee waivers/expense limitations for the that they had relied upon the Senior Fund were fair and reasonable. Officer's written evaluation instead of a competitive bidding process. In After taking account of the Fund's determining whether to continue the contractual advisory fee rate, as well Fund's advisory agreement, the Board as the comparative advisory fee considered the Senior Officer's information and the expense limitation written evaluation. discussed above, the Board concluded that the Fund's advisory fees were fair G. COLLATERAL BENEFITS TO AIM AND ITS and reasonable. AFFILIATES D. ECONOMIES OF SCALE AND BREAKPOINTS The Board considered various other benefits received by AIM and its The Board considered the extent to affiliates resulting from AIM's which there are economies of scale in relationship with the Fund, including AIM's provision of advisory services to the fees received by AIM and its the Fund. The Board also considered affiliates for their provision of whether the Fund benefits from such administrative, transfer agency and economies of scale through contractual distribution services to the Fund. The breakpoints in the Fund's Board considered the performance of AIM and its affiliates in providing these services and the organizational structure employed by AIM and its affiliates to provide these services. The Board also
31 AIM Diversified Dividend Fund TAX INFORMATION Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors. The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state's requirement. The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended October 31, 2007: FEDERAL AND STATE INCOME TAX Long-Term Capital Gain Dividends $ 72,707,608 Qualified Dividend Income* 100% Corporate Dividends Received Deduction* 100% U.S. Treasury Obligations* 0.31%
* The above percentages are based on ordinary income dividends paid to shareholders during the fund's fiscal year. NON-RESIDENT ALIEN SHAREHOLDERS Qualified Short-Term Gains $10,957,930 Qualified Interest Income** 2.62%
** The above percentage is based on income dividends paid to shareholders during the fund's fiscal year. ADDITIONAL NON-RESIDENT ALIEN SHAREHOLDER INFORMATION The percentages of qualifying assets not subject to the U.S. estate tax for the fiscal quarters ended January 31, 2007, April 30, 2007, July 31, 2007 and October 31, 2007 were 8.32%, 6.23%, 7.65%, and 5.95%, respectively. 32 AIM Diversified Dividend Fund TRUSTEES AND OFFICERS The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. Each trustee oversees 104 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. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
OTHER TRUSTEE TRUSTEESHIP(S)/ NAME, YEAR OF BIRTH AND AND/OR DIRECTORSHIP(S) POSITION(S) HELD WITH THE OFFICER PRINCIPAL OCCUPATION(S) HELD BY TRUST SINCE DURING PAST 5 YEARS TRUSTEE/ DIRECTOR - ------------------------------------------------------------------------------------------------------------------------- Interested Persons - ------------------------------------------------------------------------------------------------------------------------- Martin L. Flanagan(1) -- 1960 2007 Director, Chief Executive Officer and None Trustee President, Invesco Ltd. (ultimate parent of AIM and a global investment management firm) and, INVESCO PLC (parent of AIM and a global investment management firm); Chairman, A I M Advisors, Inc. (registered investment advisor); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company); and INVESCO North American Holdings, Inc. (holding company); Chairman and President, INVESCO Group Services, Inc. (service provider); Trustee, The AIM Family of Funds(R); Vice Chairman, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business Formerly: Chairman, Investment Company Institute; President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) - ------------------------------------------------------------------------------------------------------------------------- Philip A. Taylor(2) -- 1954 2006 Director, Chief Executive Officer and None Trustee, President and President, AIM Mutual Fund Dealer Inc. Principal (registered broker dealer), A I M Executive Officer Advisors, Inc., AIM Funds Management Inc. d/b/a INVESCO Enterprise Services (registered investment advisor and registered transfer agent) and 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, A I M Management Group Inc. (financial services holding company) and A I M Capital Management, Inc. (registered investment advisor); Director and President, INVESCO Funds Group, Inc. (registered investment advisor and register transfer agent) and AIM GP Canada Inc. (general partner for a limited partnership); Director, A I M Distributors, Inc. (registered broker dealer); Director and Chairman, AIM Investment Services, Inc. (registered transfer agent) and INVESCO Distributors, Inc. (registered broker dealer); Director, President and Chairman, IVZ Callco Inc. (holding company), INVESCO Inc. (holding company) and AIM Canada Holdings Inc. (holding company); Director and Chief Executive Officer, AIM Trimark Corporate Class Inc. (formerly AIM Trimark Global Fund Inc.) (corporate mutual fund company) and AIM Trimark Canada Fund Inc. (corporate mutual fund company); Trustee, President and Principal Executive Officer of The AIM Family of Funds--Registered Trademark-- (other than AIM Treasurer's Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust); Trustee and Executive Vice President, The AIM Family of Funds--Registered Trademark-- (AIM Treasurer's Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only); and Manager, PowerShares Capital Management LLC Formerly: Director and Chairman, Fund Management Company (registered broker dealer); President and Principal Executive Officer, The AIM Family of Funds--Registered Trademark-- (AIM Treasurer's Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only); Chairman, AIM Canada Holdings, Inc.; President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc.; and Director, Trimark Trust (federally regulated Canadian Trust Company) - ------------------------------------------------------------------------------------------------------------------------- Independent Trustees - ------------------------------------------------------------------------------------------------------------------------- Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company); Trustee and Chair (technology consulting company) and Captaris, Inc. (unified messaging provider) - ------------------------------------------------------------------------------------------------------------------------- Bob R. Baker -- 1936 2003 Retired None Trustee - ------------------------------------------------------------------------------------------------------------------------- Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered Trustee investment company) (2 portfolios) Formerly: Partner, law firm of Baker & McKenzie - ------------------------------------------------------------------------------------------------------------------------- James T. Bunch -- 1942 2003 Founder, Green, Manning & Bunch Ltd., None Trustee (investment banking firm); and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation - ------------------------------------------------------------------------------------------------------------------------- Albert R. Dowden -- 1941 2000 Director of a number of public and None Trustee private business corporations, including the Boss Group Ltd. (private investment and management); Reich & Tang Funds (Chairman) (registered investment company) (7 portfolios), Daily Income Fund (4 portfolios), California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc. and New Jersey Daily Municipal Fund, Inc., Annuity and Life Re (Holdings), Ltd. (insurance company), and Homeowners of America Holding Corporation (property casualty company) Formerly: Director, CompuDyne Corporation (provider of product and services to the public security market); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various affiliated Volvo companies; and Director, Magellan Insurance Company - ------------------------------------------------------------------------------------------------------------------------- Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff Trustee Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), and Discovery Global Education Fund (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) - ------------------------------------------------------------------------------------------------------------------------- Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Director, Reich & Tang Funds) (7 Trustee Naftalis and Frankel LLP portfolios) - ------------------------------------------------------------------------------------------------------------------------- Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None Trustee of the USA - ------------------------------------------------------------------------------------------------------------------------- Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper None Trustee - ------------------------------------------------------------------------------------------------------------------------- Ruth H. Quigley -- 1935 2001 Retired None Trustee - ------------------------------------------------------------------------------------------------------------------------- Larry Soll -- 1942 2003 Retired None Trustee - ------------------------------------------------------------------------------------------------------------------------- Raymond Stickel, Jr. -- 1944 2005 Retired None Trustee Formerly: Partner, Deloitte & Touche; and Director, Mainstay VP Series Funds, Inc. (25 portfolios) - -------------------------------------------------------------------------------------------------------------------------
(1) Mr. Flanagan was appointed as Trustee of the Trust on February 24, 2007. Mr. Flanagan is considered an interested person of the Trust because he is an officer of the advisor to the Trust, and an officer and a director of INVESCO PLC, parent of the advisor to the Trust. (2) Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the advisor to, and a director of the principal underwriter of, the Trust. 33 TRUSTEES AND OFFICERS--(CONTINUED) AIM Diversified Dividend Fund
OTHER TRUSTEE TRUSTEESHIP(S)/ NAME, YEAR OF BIRTH AND AND/OR DIRECTORSHIP(S) POSITION(S) HELD WITH THE OFFICER PRINCIPAL OCCUPATION(S) HELD BY TRUSTEE/ TRUST SINCE DURING PAST 5 YEARS DIRECTOR - ------------------------------------------------------------------------------------------------------------------------- Other Officers - ------------------------------------------------------------------------------------------------------------------------- Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer N/A Senior Vice President and of The AIM Family of Funds--Registered Senior Officer Trademark-- Formerly: Director of Compliance and Assistant General Counsel, ICON Advisers, Inc.; Financial Consultant, Merrill Lynch; General Counsel and Director of Compliance, ALPS Mutual Funds, Inc. - ------------------------------------------------------------------------------------------------------------------------- John M. Zerr -- 1962 2006 Director, Senior Vice President, N/A Senior Vice President, Chief Secretary and General Counsel, A I M Legal Officer and Secretary Management Group Inc., A I M Advisors, Inc. and A I M Capital Management, Inc.; Director, Vice President and Secretary, AIM Investment Services, Inc. and INVESCO Distributors, Inc.; Director, Senior Vice President and Secretary, A I M Distributors, Inc.; Director and Vice President, INVESCO Funds Group Inc.; Senior Vice President, Chief Legal Officer and Secretary of The AIM Family of Funds--Registered Trademark--; and Manager, PowerShares Capital Management LLC Formerly: Director, Vice President and Secretary, Fund Management Company; Vice President, A I M Capital Management, Inc.; Chief Operating Officer, Senior Vice President, General Counsel and Secretary, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company); Vice President and Secretary, PBHG Insurance Series Fund (an investment company); General Counsel and Secretary, Pilgrim Baxter Value Investors (an investment adviser); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator); General Counsel and Secretary, Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) - ------------------------------------------------------------------------------------------------------------------------- Lisa O. Brinkley -- 1959 2004 Global Compliance Director, INVESCO PLC; N/A Vice President and Vice President of The AIM Family of Funds--Registered Trademark-- Formerly: Senior Vice President, A I M Management Group Inc. (financial services holding company); Senior Vice President and Chief Compliance Officer, A I M Advisors, Inc. and The AIM Family of Funds--Registered Trademark--; Vice President and Chief Compliance Officer, A I M Capital Management, Inc. and A I M Distributors, Inc.; Vice President, AIM Investment Services, Inc. and Fund Management Company; Senior Vice President and Chief Compliance Officer of The AIM Family of Funds--Registered Trademark--; and Senior Vice President and Compliance Director, Delaware Investments Family of Funds - ------------------------------------------------------------------------------------------------------------------------- Kevin M. Carome -- 1956 2003 Senior Vice President and General Vice President Counsel, INVESCO PLC; Director, INVESCO Funds Group, Inc.; Director and Secretary, IVZ, Inc. and INVESCO Group Services, Inc.; Secretary, INVESCO North American Holdings, Inc.; and Vice President of The AIM Family of Funds--Registered Trademark-- Formerly: Director, Senior Vice N/A President, Secretary and General Counsel, A I M Management Group Inc. and A I M Advisors, Inc.; Senior Vice President, A I M Distributors, Inc.; Director, General Counsel and Vice President, Fund Management Company; Vice President, A I M Capital Management, Inc. and AIM Investment Services, Inc.; Senior Vice President, Chief Legal Officer and Secretary of The AIM Family of Funds--Registered Trademark--; Director and Vice President, INVESCO Distributors, Inc.; Chief Executive Officer and President, INVESCO Funds Group, Inc.; and Senior Vice President and General Counsel, Liberty Financial Companies, Inc. - ------------------------------------------------------------------------------------------------------------------------- Sidney M. Dilgren -- 1961 2004 Vice President, A I M Advisors, Inc. and N/A Vice President, Principal A I M Capital Management, Inc.; and Vice Financial Officer and President, Treasurer and Principal Treasurer Financial Officer of The AIM Family of Funds--Registered Trademark-- Formerly: Fund Treasurer, A I M Advisors, Inc.; Senior Vice President, AIM Investment Services, Inc.; and Vice President, A I M Distributors, Inc. - ------------------------------------------------------------------------------------------------------------------------- Karen Dunn Kelley -- 1960 2004 Head of INVESCO's World Wide Fixed N/A Vice President Income and Cash Management Group; Director of Cash Management and Senior Vice President, A I M Advisors, Inc. and A I M Capital Management, Inc; Executive Vice President, A I M Distributors, Inc.; Senior Vice President, A I M Management Group Inc.; Vice President, The AIM Family of Funds--Registered Trademark-- (other than AIM Treasurer's Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust); and President and Principal Executive Officer, The AIM Family of Funds--Registered Trademark-- (AIM Treasurer's Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only) Formerly: Director and President, Fund N/A Management Company; Chief Cash Management Officer and Managing Director, A I M Capital Management, Inc.; Vice President, A I M Advisors, Inc. and The AIM Family of Funds--Registered Trademark-- (AIM Treasurer's Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only) - ------------------------------------------------------------------------------------------------------------------------- Lance A. Rejsek -- 1967 2005 Anti-Money Laundering Compliance N/A Anti-Money Laundering Officer, A I M Advisors, Inc., A I M Compliance Officer Capital Management, Inc., A I M Distributors, Inc., AIM Investment Services, Inc., AIM Private Asset Management, Inc. and The AIM Family of Funds--Registered Trademark-- Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company; and Manager of the Fraud Prevention Department, AIM Investment Services, Inc. - ------------------------------------------------------------------------------------------------------------------------- Todd L. Spillane -- 1958 2006 Senior Vice President, A I M Management N/A Chief Compliance Officer Group Inc.; Senior Vice President and Chief Compliance Officer, A I M Advisors, Inc. and A I M Capital Management, Inc.; Chief Compliance Officer of The AIM Family of Funds--Registered Trademark--, INVESCO Global Asset Management (N.A.), Inc., (registered investment advisor), INVESCO Institutional (N.A.), Inc., (registered investment advisor), INVESCO Private Capital Investments, Inc. (holding company), INVESCO Private Capital, Inc. (registered investment advisor) and INVESCO Senior Secured Management, Inc. (registered investment advisor); and Vice President, A I M Distributors, Inc. and AIM Investment Services, Inc. Formerly: Vice President, A I M Capital Management, Inc. and Fund Management Company; Global Head of Product Development, AIG-Global Investment Group, Inc.; and Chief Compliance Officer and Deputy General Counsel, AIG-SunAmerica Asset Management - -------------------------------------------------------------------------------------------------------------------------
The Statement of Additional Information of the Trust includes additional information about the Fund's Trustees and is available upon request, without charge, by calling 1.800.959.4246. OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS 11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers Suite 100 11 Greenway Plaza Inc. LLP Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street Houston, TX 77046-1173 Suite 100 Suite 2900 Houston, TX 77046-1173 Houston, TX 77002-5678 COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN Ballard Spahr INDEPENDENT TRUSTEES AIM Investment State Street Bank and Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust 1735 Market Street, 51st & Frankel LLP P.O. Box 4739 Company Floor 1177 Avenue of the Houston, TX 77210-4739 225 Franklin Street Philadelphia, PA 19103-7599 Americas Boston, MA 02110-2801 New York, NY 10036-2714
34 [EDELIVERY Fund holdings and proxy voting information GO PAPERLESS AIMINVESTMENTS.COM/EDELIVERY The Fund provides a complete list of its holdings four times in GRAPHIC] each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund's semiannual and annual REGISTER FOR EDELIVERY reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission eDelivery is the process of receiving your fund and account (SEC) on Form N-Q. The most recent list of portfolio holdings is information via e-mail. Once your quarterly statements,tax available at AIMinvestments.com. From our home page, click on forms, fund reports, and prospectuses are available, we will Products & Performance, then Mutual Funds, then Fund Overview. send you an e-mail notification containing links to these Select your Fund from the drop-down menu and click on Complete documents. For security purposes, you will need to log in to your Quarterly Holdings. Shareholders can also look up the Fund's account to view your statements and tax forms. Forms N-Q on the SEC Web site at sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied at the SEC Public Reference WHY SIGN UP? Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information Register for eDelivery to: about duplicating fee charges, by calling 202-942-8090 or 800-732-0330, or by electronic request at the following e-mail o save your Fund the cost of printing and postage. address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-01424 and 002-25469. o reduce the amount of paper you receive. A description of the policies and procedures that the Fund uses o gain access to your documents faster by not waiting for the to determine how to vote proxies relating to portfolio mail. securities is available without charge, upon request, from our Client Services department at 800-959-4246 or on the AIM Web o view your documents online anytime at your convenience. site, AIMinvestments.com. On the home page, scroll down and click on Proxy Policy. The information is also available on the o save the documents to your personal computer or print them out SEC Web site, sec.gov. for your records. Information regarding how the Fund voted proxies related to its HOW DO I SIGN UP? portfolio securities during the 12 months ended June 30, 2007, is available at our Web site. Go to AIMinvestments.com, access It's easy. Just follow these simple steps: the About Us tab, click on Required Notices and then click on Voting Activity. Next, select the Fund from the drop-down menu. 1. Log in to your account. Proxy The information is also available on the SEC Web site, sec.gov. 2. Click on the "Service Center" tab. If used after January 20, 2008, this report must be accompanied 3. Select "Register for eDelivery" and complete the consent by a Fund fact sheet or by an AIM Quarterly Performance Review process. for the most recent quarter-end. Mutual funds and exchange-traded funds distributed by A I M Distributors, Inc. This AIM service is provided by AIM Investment Services, Inc. DDI-AR-1 A I M Distributors, Inc. [AIM INVESTMENTS LOGO] -- REGISTERED TRADEMARK --
DOMESTIC EQUITY AIM Large Cap Basic Value Fund Annual Report to Shareholders - October 31, 2007 Large-Cap Value Table of Contents Letters to Shareholders ......... 2 Performance Summary ............. 4 Management Discussion ........... 4 Long-term Fund Performance ...... 6 Supplemental Information ........ 8 Schedule of Investments ......... 9 Financial Statements ............ 11 Notes to Financial Statements ... 13 Financial Highlights ............ 21 Auditor's Report ................ 25 Fund Expenses ................... 26 Approval of Advisory Agreement .. 27 [COVER GLOBE IMAGE] Tax Information ................. 29 Trustees and Officers ........... 30
[AIM INVESTMENT SOLUTIONS] [GRAPHIC] [GRAPHIC] [DOMESTIC [FIXED EQUITY] INCOME] [GRAPHIC] [GRAPHIC] [GRAPHIC] [TARGET [TARGET [DIVERSIFIED RISK] MATURITY] PORTFOLIOS] [GRAPHIC] [GRAPHIC] [SECTOR [INTERNATIONAL/ EQUITY] GLOBAL EQUITY] [AIM INVESTMENTS LOGO] - -- REGISTERED TRADEMARK -- AIM Large Cap Basic Value Fund Dear Shareholders of the AIM Family of Funds: I'm pleased to provide you with this report, which includes a discussion of how your Fund was managed during the period under review and factors that affected its performance. The following pages contain important information that answers questions you may have about your investment. [TAYLOR PHOTO] Despite notable volatility at points throughout the fiscal year ended October 31, 2007, major stock market indexes in the U.S. and abroad generally performed well. Reasons for their favorable performance included positive economic growth, particularly overseas; strong corporate profits; and action by the U.S. Federal Reserve Board (the Fed) to reassure skittish markets, among other factors. Philip Taylor At its September 18, 2007, meeting, the Fed cut the federal funds target rate for the first time since June 2003.(1) The cut followed 17 rate increases from June 2004 to June 2006(1) and was intended to address investor concerns about a weak housing market generally and problems in the subprime mortgage market specifically. The Fed's action triggered an immediate and broad stock market rally. The Fed cut this key interest rate again on October 31, 2007(1). At AIM Investments --REGISTERED TRADEMARK--, we know that market conditions change--often suddenly and sometimes dramatically. We can help you deal with market volatility by offering a broad range of mutual funds, including: o Domestic, global and international equity funds o Taxable and tax-exempt fixed-income funds o Allocation portfolios, with risk/return characteristics to match your needs o AIM Independence Funds--target-maturity funds that combine retail mutual funds and PowerShares --REGISTERED TRADEMARK-- exchange-traded funds--with risk/return characteristics that change as your target retirement date nears I encourage you to talk with your financial advisor if you have concerns about your portfolio. We believe in the value of working with a trusted financial advisor who can recommend AIM funds that are appropriate for your portfolio and that address your long-term investment goals and risk tolerance regardless of prevailing short-term market conditions. In conclusion My colleague, Bob Graham, recently announced his decision to step down as vice chair of the AIM Funds board of directors. In 1976, Bob was one of three men who co-founded AIM. In the three decades since, he has been instrumental in transforming AIM from a small investment management firm into one of America's most respected mutual fund companies--and, in 1997, into a global independent retail and institutional investment manager. In May, with shareholder approval, AIM Investments' parent company changed its name from AMVESCAP PLC to Invesco Ltd., uniting our worldwide operations and global expertise under one new name. While the name of our parent company may be new to you, I can assure you that our commitment to excellent customer service remains unchanged. Our highly trained, courteous client service representatives are eager to answer your questions, provide you with product information or assist you with account transactions. I encourage you to give us an opportunity to serve you by calling us at 800-959-4246. We at AIM are committed to helping you achieve your financial goals. We work every day to earn your trust, and we're grateful for the confidence you've placed in us. Sincerely, /S/ PHILIP TAYLOR Philip Taylor President - AIM Funds CEO, AIM Investments December 17, 2007 Source: (1)U.S. Federal Reserve Board AIM Investments is a registered service mark of A I M Management Group Inc. A I M Advisors, Inc. and A I M Capital Management, Inc. are the investment advisors. A I M Distributors, Inc. is the distributor for the retail mutual funds represented by AIM Investments and the PowerShares Exchange-Traded Fund Trust.
2 AIM Large Cap Basic Value Fund Dear Fellow Shareholders: In overseeing the management of the AIM family of funds on your behalf, your Board of Trustees of the AIM Funds continues to focus on improved investment performance, reduced shareholder costs, and high ethical standards. [CROCKETT PHOTO] Your Board welcomes two new members: Marty Flanagan, President and CEO of INVESCO, AIM's parent company, and Phil Taylor, who was named CEO of AIM Investments --REGISTERED TRADEMARK-- in April 2006. Robert Graham, who has given more than 30 years of leadership to the company and the mutual fund industry since founding AIM in 1976, has retired, stepping down in the process from his most recent role as vice chairman Bruce L. Crockett of the Board. We thank Bob for his many contributions and wish him a long and happy future. Our review of fund performance has shown healthy progress, but the process is necessarily one of continuous improvement. In general, as of October 31, 2007, we have seen persistent investment discipline and more consistently good results. While this statement may not apply to every AIM Fund all the time, as I write this letter, the overall trend in fund management and performance has been positive. The investment management talent at AIM has recently been enhanced by the promotion of Karen Dunn Kelley to Head of INVESCO's Worldwide Fixed Income as well as Director of AIM Global and Cash Management, with responsibility for all fixed income and money market funds that serve both institutional and individual investors. Under Karen's direction, AIM's cash management organization grew to one of the world's largest and most respected, with top-tier performance. The operations now combined under her charge represent more than $150 billion in assets, 120 investment professionals, and products that span the entire yield curve (as of October 31, 2007). In other news, your Board took a more active role in preparing for "proxy season," the period when fund managers must vote the shares held by their funds "for" or "against" various proposals on the ballots of the issuing companies. Beginning in the 2007 proxy season, AIM implemented new proxy voting policies, developed by management in conjunction with an ad hoc Board committee, which provided a solid framework for properly evaluating and executing the many decisions the AIM Funds are required to make to vote shares. In general, the AIM Funds voted for proposals that would allow shareholders a greater role in election of directors, proxy access and "say for pay." The AIM Funds voted against directors whom AIM believed failed to govern well in cases of corporate mismanagement, such as the backdating of options grants, and against "poison pill" and "take under" proposals that would favor the financial interests of managers at the expense of investors in the case of a merger or acquisition. You can view the proxy votes cast for your fund by going to AIMinvestments.com. Click the "About Us" tab, then go to "Required Notices" and "Proxy Voting Activity." Additionally, your Board raised the amount its members are recommended to invest in the AIM Funds within three years of joining the Board, with the goal of aligning our interests even more closely with yours. Furthermore, at our June meeting we renewed the investment advisory contracts between the AIM Funds and AIM for another year, applying the same rigorous evaluation process that was enhanced and formalized in 2005. For more information on this process, please visit AIMinvestments.com. Click on the "Products and Performance" tab and go to "Investment Advisory Agreement Renewals." Your Board's ability to best represent your interests depends on our knowledge of your opinions and concerns. Please send me an email (bruce@brucecrockett.com) with your thoughts on the following: 1) How important is it to you to hear about your Board's decisions and activities in these letters? 2) What other information (on overall performance, specific funds, managers, etc.) would make the letters more meaningful to you? 3) Would you prefer that communications from your Board continue to be delivered in paper form by regular mail or be sent electronically by email? If you would prefer to communicate through a quick online survey, please go to AIMinvestments.com and provide your responses there. We need to hear from you to do our best job, and I look forward to your responses. Sincerely, /S/ BRUCE L. CROCKETT Bruce L. Crockett Independent Chair AIM Funds Board of Directors December 17, 2007 AIM Investments is a registered service mark of A I M Management Group Inc. A I M Advisors, Inc. and A I M Capital Management, Inc. are the investment advisors. A I M Distributors, Inc. is the distributor for the retail mutual funds represented by AIM Investments and the PowerShares Exchange-Traded Fund Trust.
3 AIM Large Cap Basic Value Fund Management's discussion of Fund performance highly disciplined and relatively unique, it is important to understand the benefits ======================================================================================= and limitations of our process. First, the PERFORMANCE SUMMARY investment strategy is intended to preserve your capital while growing it at For the fiscal year ended October 31, 2007, Class A shares of AIM Large Cap Basic Value above-market rates over the long term. Fund, excluding applicable sales charges, outperformed the Russell 1000 Value Index, Second, our investments have little in performed roughly in line with the Lipper Large-Cap Value Funds Index and common with popular benchmark indexes and underperformed the S&P 500 Index. most of our peers. And third, the Fund's short-term relative performance will We attribute the Fund's outperformance versus its style-specific index to naturally be different than the market and above-market returns from selected investments in consumer discretionary, consumer peers and have little information value staples and energy. Selected investments in financials and consumer discretionary since we simply don't own the same stocks. contributed to the Fund's underperformance versus the broad market index. Market conditions and your Fund Your Fund's long-term performance information appears later in this report. Equity markets posted healthy gains as FUND VS. INDEXES strong economic growth, solid corporate profits, and increased merger and Total returns, 10/31/06-10/31/07, excluding applicable sales charges. If sales charges acquisition activity overshadowed concerns were included, returns would be lower. about record high oil prices, a weak U.S. dollar and the housing market with its Class A Shares 12.08% related subprime credit situation. Class B Shares 11.17 Class C Shares 11.25 Beginning in July, most financial Class R Shares 11.82 markets witnessed an increase in price Investor Class Shares 12.06 volatility from housing-related stress and S&P 500 Index* (Broad Market Index) 14.55 the aging of our economic expansion. It is Russell 1000 Value Index* (Style-Specific Index) 10.83 important to understand that these periods Lipper Large-Cap Value Funds Index* (Peer Group Index) 12.58 of stress are healthy for financial markets in general and typically create SOURCE: *LIPPER INC. opportunities for our investment strategy ======================================================================================= in particular. We are hopeful that stock valuation dispersion will increase as How we invest estimated. Importantly, this estimated credit spreads and market volatility fair business value is independent of the return to normal levels, potentially We seek to create wealth by maintaining a company's stock price. creating opportunities for us to grow long-term investment horizon and investing portfolio intrinsic value at an in companies that are selling at a o Market prices are more volatile than above-average rate. While investment significant discount to their estimated business values, partly because investors results can be uneven during these periods intrinsic value--a value that is based on regularly overreact to negative news. of stress, historically these times have the estimated future cash flows generated yielded attractive opportunities for by the business. The Fund's philosophy is future capital growth. based on key elements that we believe have o Long-term investment results are a extensive empirical evidence: function of the level and growth of Aided by strong earnings and a more business value in the portfolio. than 50%1 increase in oil prices, energy o Company intrinsic values can be stocks extended their multi-year market reasonably Since our application of this strategy is (continued) ========================================== ========================================== ========================================== PORTFOLIO COMPOSITION TOP FIVE INDUSTRIES TOP 10 EQUITY HOLDINGS* By sector 1. Oil & Gas Equipment & 1. UnitedHealth Group Inc. 4.7% Financials 18.1% Services 6.8% 2. Dell Inc. 4.6 Consumer Discretionary 18.0 2. Systems Software 6.3 3. Apollo Group, Inc.-Class A 3.9 Information Technology 18.0 3. Pharmaceuticals 5.7 4. Cardinal Health, Inc. 3.7 Health Care 15.6 4. Other Diversified 5. Transocean Inc. 3.5 Energy 10.3 Financial Services 5.5 6. Schlumberger Ltd. 3.5 Industrials 9.3 5. Advertising 5.3 7. CA Inc. 3.4 Consumer Staples 5.0 Total Net Assets $378.95 million 8. Molson Coors Brewing Co.-Class B 3.3 Materials 2.8 9. Halliburton Co. 3.3 Telecommunication Services 1.8 Total Number of Holdings* 42 10. Citigroup Inc. 3.2 Money Market Funds Plus Other Assets Less Liabilities 1.1 The Fund's holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security. *Excluding money market fund holdings. ========================================== ========================================== ==========================================
4 AIM Large Cap Basic Value Fund outperformance. Drilling company folio grew at an attractive rate despite Worse," Financial Analysts Journal, essay Transocean and oil service company modest impairments in the business values by John C. Bogle, 2005; (3)"How Active Is Schlumberger made significant of some of our financial service Your Fund Manager: A New Measure That contributions to the Fund's performance investments. Predicts Performance," Martijn Cremens and during the fiscal year. Antti Petajistto, Yale School of At the close of the fiscal year, and in Management, August 2006 APOLLO GROUP, a new addition to the our opinion, the difference between the Fund during the fiscal year, was the top market price and the estimated intrinsic THE VIEWS AND OPINIONS EXPRESSED IN contributor to performance. Apollo value of the portfolio was above the MANAGEMENT'S DISCUSSION OF FUND provides postsecondary education programs Fund's historical average, and we believed PERFORMANCE ARE THOSE OF A I M ADVISORS, for working adults and is best known for this value content was greater than what INC. THESE VIEWS AND OPINIONS ARE SUBJECT its University of Phoenix subsidiary. was available in the broad market. While TO CHANGE AT ANY TIME BASED ON FACTORS Apollo's stock price declined in recent there is no assurance that market value SUCH AS MARKET AND ECONOMIC CONDITIONS. years as the company experienced will ever reflect our estimate of the THESE VIEWS AND OPINIONS MAY NOT BE RELIED decelerating enrollment and revenue portfolio's intrinsic value, we believe UPON AS INVESTMENT ADVICE OR growth. We believed the postsecondary this provides the best indication that RECOMMENDATIONS, OR AS AN OFFER FOR A education industry remained healthy and your Fund is positioned to potentially PARTICULAR SECURITY. THE INFORMATION IS that Apollo's stock price was selling at a achieve its objective of long-term growth NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF significant discount to business value. of capital. ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR Recent positive trends in student THE FUND. STATEMENTS OF FACT ARE FROM enrollment and profit margins lent support CONTEXT FOR RESULTS SOURCES CONSIDERED RELIABLE, BUT A I M to our view and the company's stock price ADVISORS, INC. MAKES NO REPRESENTATION OR increased to better reflect our estimate As managers and shareholders, we know a WARRANTY AS TO THEIR COMPLETENESS OR of intrinsic value. long-term investment horizon and ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE attractive potential upside to our IS NO GUARANTEE OF FUTURE RESULTS, THESE The largest detractors from Fund estimate of portfolio intrinsic value are INSIGHTS MAY HELP YOU UNDERSTAND OUR performance were CITIGROUP, HOME DEPOT, critical to creating wealth. But we INVESTMENT MANAGEMENT PHILOSOPHY. and MERRILL LYNCH. understand maintaining a long-term investment horizon is a challenge. So, See important Fund and index General underperformance by when you consider our short-term results disclosures later in this report. financial-market-sensitive stocks combined we encourage you to review our long-term with company-specific subprime mortgage results. We are long-term investors who Bret W. Stanley issues resulted in stock price declines provide a portfolio that in our opinion is [STANLEY Chartered Financial for Citigroup and Merrill Lynch. Both distinct from market indexes and most of PHOTO] Analyst, senior portfolio companies have announced large write-downs our peers. manager, is lead manager of their sub-prime holdings which, in of AIM Large Cap Basic Value Fund. He part, led to the resignation of each Recent studies have shown short-term earned a B.B.A. in finance from The company's CEO near the close of the fiscal results have little information value and University of Texas at Austin and an M.S. year. While we acknowledge the subprime the frequent trading of stocks or mutual in finance from the University of Houston. issue's negative near term impact on funds is a costly exercise--reducing Citigroup's and Merrill's business, we actual returns by several percentage R. Canon Coleman II believe investors may have overreacted to points per year as shareholders [COLEMAN Chartered Financial these events and that both stocks were unknowingly exchange tomorrow's winner for PHOTO] Analyst, portfolio trading at substantial discounts to their tomorrow's loser.2 In addition, a recent manager, is manager of AIM long-term business value at the close of Yale University study reveals half of all Large Cap Basic Value Fund. He earned a the fiscal year. mutual funds charge an active management B.S. and an M.S. in accounting from the fee for essentially a closet-index University of Florida. He also earned an Home Depot, a new investment during the portfolio.3 While this creates smooth and M.B.A. from the Wharton School at the fiscal year, traded lower on investor innocuous short-term relative performance, University of Pennsylvania. fears regarding the potential depth and it typically leads to long-term breadth of the housing decline in the U.S. underperformance. Considering these Matthew W. Seinsheimer Despite investor fears, we continue to be factors, your Fund is doing something [SEINSHEIMER Chartered Financial attracted to Home Depot's long-term different and old fashioned--investing for PHOTO] Analyst, senior portfolio fundamentals. the long term and following a common-sense manager, is manager of AIM approach that has produced a portfolio Large Cap Basic Value Fund. He earned a PORTFOLIO ASSESSMENT that is different from common stock market B.B.A. degree from Southern Methodist indexes and more attractively valued, in University and an M.B.A. from The We believe the single most important our opinion. University of Texas at Austin. indicator of the way AIM Large Cap Basic Value Fund is positioned for potential We remain optimistic about AIM Large Michael J. Simon success is not our historical investment Cap Basic Value Fund's portfolio. As [SIMON Charter Financial Analyst, results or popular statistical measures, always, we are continually searching for PHOTO] senior portfolio manager, but the portfolio's estimated intrinsic opportunities to increase the portfolio's is manager of AIM Large value--the aggregate business value of the estimated intrinsic value. We thank you Cap Basic Value Fund. He earned a B.B.A. portfolio based on our estimate of for your investment and for sharing our in finance from Texas Christian University intrinsic value for each individual long-term horizon. and an M.B.A. from the University of holding. During the year, the estimated Chicago. intrinsic value of the port- Sources: (1)WRTG Economics; (2)"The Mutual Fund Industry Sixty Years Later: For Assisted by the Basic Value Team Better or
5 AIM Large Cap Basic Value Fund YOUR FUND'S LONG-TERM PERFORMANCE Past performance cannot guarantee This chart, which is a logarithmic comparable future results. chart, presents the fluctuations in the value of the Fund and its indexes. We The data shown in the chart include believe that a logarithmic chart is more reinvested distributions, applicable sales effective than other types of charts in charges, Fund expenses and management illustrating changes in value during the fees. Index results include reinvested early years shown in the chart. The dividends, but they do not reflect sales vertical axis, the one that indicates the charges. Performance of an index of funds dollar value of an investment, is reflects fund expenses and management constructed with each segment representing fees; performance of a market index does a percent change in the value of the not. Performance shown in the chart and investment. In this chart, each segment table(s) does not reflect deduction of represents a doubling, or 100% change, in taxes a shareholder would pay on Fund the value of the investment. In other distributions or sale of Fund shares. words, the space between $5,000 and $10,000 is the same size as the space Performance of the indexes does not between $10,000 and $20,000. reflect the effects of taxes. ========================================== ======================================================================================= Continued from page 8 AVERAGE ANNUAL TOTAL RETURNS COMPARISON o Industry classifications used in this Total returns for periods ended 10/31/07, excluding applicable sales charges. If sales report are generally according to the charges were included, returns would be lower. Global Industry Classification Standard, which was developed by and is the SINCE FUND exclusive property and a service mark of 1 YEAR 5 YEARS INCEPTION(1) Morgan Stanley Capital International Inc. and Standard & Poor's. AIM Large Cap Basic Value Fund, Class A Shares 12.08% 13.76% 7.43% Russell 1000 Value Index* 10.83 16.39 6.62 o The Chartered Financial Analyst Lipper Large-Cap Value Funds Index* 12.58 14.59 4.61 - --REGISTERED TRADEMARK-- (CFA --REGISTERED 500 Index* 14.55 13.87 3.12 TRADEMARK--) designation is a globally recognized standard for measuring the (1) Since Fund inception on June 30, 1999 competence and integrity of investment SOURCE: *LIPPER INC. professionals. ========================================== =======================================================================================
6 ==================================================================================================================================== [MOUNTAIN CHART] RESULTS OF A $10,000 INVESTMENT FUND AND INDEX DATA FROM 06/30/99 AIM LARGE CAP BASIC VALUE FUND RUSSELL 1000 LIPPER LARGE-CAP DATE -CLASS A SHARES S&P 500 INDEX(1) VALUE INDEX(1) VALUE FUNDS INDEX(1) 06/30/99 $ 9450 $10000 $10000 $10000 7/99 9100 9689 9707 9716 8/99 8874 9641 9347 9539 9/99 8458 9377 9020 9186 10/99 8883 9970 9540 9629 11/99 9242 10173 9465 9662 12/99 9697 10771 9511 9960 1/00 9424 10230 9200 9539 2/00 9269 10037 8517 9138 3/00 10331 11018 9556 9974 4/00 10292 10687 9445 9863 5/00 10555 10468 9544 9871 6/00 10233 10725 9108 9762 7/00 10457 10558 9222 9718 8/00 11091 11213 9735 10280 9/00 11266 10621 9824 10118 10/00 11744 10576 10066 10199 11/00 11335 9743 9692 9761 12/00 11805 9791 10178 10154 1/01 12138 10138 10217 10239 2/01 11962 9214 9933 9745 3/01 11560 8631 9582 9367 4/01 12178 9301 10052 9897 5/01 12541 9363 10277 10057 6/01 12502 9136 10050 9783 7/01 12492 9046 10028 9717 8/01 11953 8480 9627 9262 9/01 10670 7795 8949 8539 10/01 10728 7944 8872 8594 11/01 11610 8553 9388 9146 12/01 11953 8628 9609 9284 1/02 11717 8502 9535 9112 2/02 11492 8338 9550 9062 3/02 12207 8652 10002 9462 4/02 11786 8128 9659 9059 5/02 11727 8068 9707 9071 6/02 10611 7493 9150 8438 7/02 9699 6909 8299 7709 8/02 9826 6955 8362 7761 9/02 8464 6200 7432 6864 10/02 9013 6745 7983 7368 11/02 9737 7141 8486 7830 12/02 9179 6722 8117 7457 1/03 8905 6546 7921 7279 2/03 8592 6448 7710 7097 3/03 8562 6510 7722 7093 4/03 9385 7046 8402 7692 5/03 10208 7417 8944 8165 6/03 10316 7512 9056 8258 7/03 10552 7644 9191 8373 8/03 10915 7793 9334 8515 9/03 10757 7711 9243 8419 10/03 11159 8147 9809 8884 11/03 11394 8218 9942 8993 12/03 12119 8649 10555 9545 1/04 12364 8808 10741 9689 2/04 12686 8930 10971 9894 3/04 12637 8795 10875 9775 4/04 12363 8658 10609 9595 5/04 12363 8776 10717 9665 6/04 12725 8947 10970 9878 7/04 11941 8651 10816 9640 8/04 11882 8685 10970 9710 9/04 11980 8779 11140 9825 10/04 12107 8913 11325 9929 11/04 12734 9274 11897 10361 12/04 13214 9589 12296 10690 1/05 12999 9356 12078 10482 2/05 13204 9553 12478 10776 3/05 13027 9384 12307 10601 4/05 12812 9206 12086 10391 5/05 13057 9498 12377 10634 6/05 13174 9512 12513 10742 7/05 13546 9866 12875 11092 8/05 13312 9776 12819 11044 9/05 13429 9855 12999 11151 10/05 13242 9690 12669 10918 11/05 13770 10056 13085 11294 ==================================================================================================================================== SOURCE: *LIPPER INC.
==================================================================================================================================== [MOUNTAIN CHART] 12/05 14044 10060 13163 11359 1/06 14564 10326 13674 11690 2/06 14496 10354 13758 11711 3/06 14800 10483 13944 11859 4/06 14957 10624 14299 12154 5/06 14477 10319 13937 11857 6/06 14281 10332 14027 11866 7/06 14330 10396 14367 12047 8/06 14506 10643 14608 12269 9/06 14869 10917 14899 12555 10/06 15319 11272 15387 12929 11/06 15496 11487 15738 13152 12/06 15950 11648 16091 13435 1/07 16198 11824 16297 13608 2/07 15920 11593 16043 13366 3/07 16074 11723 16291 13536 4/07 16767 12242 16893 14116 5/07 17377 12668 17502 14636 6/07 17233 12458 17093 14412 7/07 16509 12072 16303 13834 8/07 16643 12253 16486 13998 9/07 16716 12711 17052 14441 10/07 17176 12913 17054 14555 ====================================================================================================================================
AIM Large Cap Basic Value Fund ========================================== ========================================== INVESTOR CLASS SHARES WAS 1.28%, 2.03%, AVERAGE ANNUAL TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS 2.03%, 1.53% AND 1.28%, RESPECTIVELY. THE EXPENSE RATIOS PRESENTED ABOVE MAY VARY As of 10/31/07, including applicable As of 9/30/07, the most recent FROM THE EXPENSE RATIOS PRESENTED IN OTHER sales charges calendar quarter-end, including SECTIONS OF THIS REPORT THAT ARE BASED ON applicable sales charges EXPENSES INCURRED DURING THE PERIOD CLASS A SHARES COVERED BY THIS REPORT. Inception (6/30/99) 6.70% CLASS A SHARES 5 Years 12.47 Inception (6/30/99) 6.43% CLASS A SHARE PERFORMANCE REFLECTS THE 1 Year 5.92 5 Years 13.30 MAXIMUM 5.50% SALES CHARGE, AND CLASS B 1 Year 6.26 AND CLASS C SHARE PERFORMANCE REFLECTS THE CLASS B SHARES APPLICABLE CONTINGENT DEFERRED SALES Inception (8/1/00) 6.17% CLASS B SHARES CHARGE (CDSC) FOR THE PERIOD INVOLVED. THE 5 Years 12.71 Inception (8/1/00) 5.86% CDSC ON CLASS B SHARES DECLINES FROM 5% 1 Year 6.17 5 Years 13.54 BEGINNING AT THE TIME OF PURCHASE TO 0% AT 1 Year 6.56 THE BEGINNING OF THE SEVENTH YEAR. THE CLASS C SHARES CDSC ON CLASS C SHARES IS 1% FOR THE FIRST Inception (8/1/00) 6.17% CLASS C SHARES YEAR AFTER PURCHASE. CLASS R SHARES DO NOT 5 Years 12.95 Inception (8/1/00) 5.86% HAVE A FRONT-END SALES CHARGE; RETURNS 1 Year 10.25 5 Years 13.78 SHOWN ARE AT NET ASSET VALUE AND DO NOT 1 Year 10.56 REFLECT A 0.75% CDSC THAT MAY BE IMPOSED CLASS R SHARES ON A TOTAL REDEMPTION OF RETIREMENT PLAN Inception 7.23% CLASS R SHARES ASSETS WITHIN THE FIRST YEAR. INVESTOR 5 Years 13.50 Inception 6.96% CLASS SHARES DO NOT HAVE A FRONT-END SALES 1 Year 11.82 5 Years 14.33 CHARGE OR A CDSC; THEREFORE, PERFORMANCE 1 Year 12.15 IS AT NET ASSET VALUE. INVESTOR CLASS SHARES Inception 7.45% INVESTOR CLASS SHARES THE PERFORMANCE OF THE FUND'S SHARE 5 Years 13.80 Inception 7.18% CLASSES WILL DIFFER PRIMARILY DUE TO 1 Year 12.06 5 Years 14.62 DIFFERENT SALES CHARGE STRUCTURES AND 1 Year 12.47 CLASS EXPENSES. ========================================== ========================================== (1) Total annual operating expenses less any contractual fee waivers and/or CLASS R SHARES' INCEPTION DATE IS JUNE 3, THE PERFORMANCE DATA QUOTED REPRESENT expense reimbursements by the advisor 2002. RETURNS SINCE THAT DATE ARE PAST PERFORMANCE AND CANNOT GUARANTEE in effect through at least June 30, HISTORICAL RETURNS. ALL OTHER RETURNS ARE COMPARABLE FUTURE RESULTS; CURRENT 2008. See current prospectus for more BLENDED RETURNS OF HISTORICAL CLASS R PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE information. SHARE PERFORMANCE AND RESTATED CLASS A VISIT AIMINVESTMENTS.COM FOR THE MOST SHARE PERFORMANCE (FOR PERIODS PRIOR TO RECENT MONTH-END PERFORMANCE. PERFORMANCE THE INCEPTION DATE OF CLASS R SHARES) AT FIGURES REFLECT REINVESTED DISTRIBUTIONS, NET ASSET VALUE, ADJUSTED TO REFLECT THE CHANGES IN NET ASSET VALUE AND THE EFFECT HIGHER RULE 12B-1 FEES APPLICABLE TO CLASS OF THE MAXIMUM SALES CHARGE UNLESS R SHARES. CLASS A SHARES' INCEPTION DATE OTHERWISE STATED. INVESTMENT RETURN AND IS JUNE 30, 1999. PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL INVESTOR CLASS SHARES' INCEPTION DATE SHARES. IS SEPTEMBER 30, 2003. RETURNS SINCE THAT DATE ARE HISTORICAL RETURNS. ALL OTHER THE NET ANNUAL FUND OPERATING EXPENSE RETURNS ARE BLENDED RETURNS OF HISTORICAL RATIO SET FORTH IN THE MOST RECENT FUND INVESTOR CLASS SHARE PERFORMANCE AND PROSPECTUS AS OF THE DATE OF THIS REPORT RESTATED CLASS A SHARE PERFORMANCE (FOR FOR CLASS A, CLASS B, CLASS C, CLASS R AND PERIODS PRIOR TO THE INCEPTION DATE OF INVESTOR CLASS SHARES WAS 1.22%, 1.97%, INVESTOR CLASS SHARES) AT NET ASSET VALUE, 1.97%, 1.47% AND 1.22%, RESPECTIVELY.1 THE ========================================== WHICH RESTATED PERFORMANCE WILL REFLECT TOTAL ANNUAL FUND OPERATING EXPENSE RATIO FOR A DISCUSSION OF THE RISKS OF INVESTING THE RULE 12B-1 FEES APPLICABLE TO CLASS A SET FORTH IN THE MOST RECENT FUND IN YOUR FUND AND INDEXES USED IN THIS SHARES FOR THE PERIOD USING BLENDED PROSPECTUS AS OF THE DATE OF THIS REPORT REPORT, PLEASE TURN THE PAGE. RETURNS. CLASS A SHARES' INCEPTION DATE IS FOR CLASS A, CLASS B, CLASS C, CLASS R AND ========================================== JUNE 30, 1999.
7 AIM Large Cap Basic Value Fund AIM LARGE CAP BASIC VALUE FUND'S INVESTMENT OBJECTIVE IS LONG-TERM GROWTH OF CAPITAL. o Unless otherwise stated, information presented in this report is as of October 31, 2007, and is based on total net assets. o Unless otherwise noted, all data in this report are from A I M Management Group Inc. ABOUT SHARE CLASSES o Class B shares are not available as an o Interest rate risk refers to the risk and their industry. investment for retirement plans maintained that bond prices generally fall as pursuant to Section 401 of the Internal interest rates rise; conversely, bond o The Russell 1000 --REGISTERED Revenue Code, including 401(k) plans, prices generally rise as interest rates TRADEMARK-- Value Index measures the money purchase pension plans and profit fall. performance of those Russell 1000 sharing plans. Plans that had existing companies with lower price-to-book ratios accounts invested in Class B shares prior o The Fund may use enhanced investment and lower forecasted growth values. The to September 30, 2003, will continue to be techniques such as leveraging and Russell 1000 Value Index is a allowed to make additional purchases. derivatives. Leveraging entails risks such trademark/service mark of the Frank as magnifying changes in the value of the Russell Company. Russell --REGISTERED o Class R shares are available only to portfolio's securities. Derivatives are TRADEMARK-- is a trademark of the Frank certain retirement plans. Please see the subject to counterparty risk--the risk Russell Company. prospectus for more information. that the other party will not complete the transaction with the Fund. o The LIPPER LARGE-CAP VALUE FUNDS INDEX o Investor Class shares are closed to most is an equally weighted representation of investors. For more information on who may o There is no guarantee that the the largest funds in the Lipper Large-Cap continue to invest in Investor Class investment techniques and risk analyses Value Funds category. These funds shares, please see the prospectus. used by the Fund's portfolio managers will typically have a below-average produce the desired results. price-to-earnings ratio, price-to-book PRINCIPAL RISKS OF INVESTING IN THE FUND ratio, and three-year sales-per-share o The prices of securities held by the growth value, compared to the S&P 500 o Credit risk is the risk of loss on an Fund may decline in response to market Index. investment due to the deterioration of an risks. issuer's financial health. Such a o The Fund is not managed to track the deterioration of financial health may o The Fund may invest in obligations performance of any particular index, result in a reduction of the credit rating issued by agencies and instrumentalities including the indexes defined here, and of the issuer's securities and may lead to of the U.S. government that may vary in consequently, the performance of the Fund the issuer's inability to honor its the level of support they receive from the may deviate significantly from the contractual obligations, including making U.S. government. The U.S. government may performance of the indexes. timely payment of interest and principal. choose not to provide financial support to U.S. government-sponsored agencies or o A direct investment cannot be made in an o Prices of equity securities change in instrumentalities if it is not legally index. Unless otherwise indicated, index response to many factors including the obligated to do so. In this case, if the results include reinvested dividends, and historical and prospective earnings of the issuer defaulted, the underlying fund they do not reflect sales charges. issuer, the value of its assets, general holding securities of such issuer might Performance of an index of funds reflects economic conditions, interest rates, not be able to recover its investment from fund expenses; performance of a market investor perceptions and market liquidity. the U.S. government. index does not. o Foreign securities have additional o The Fund invests in "value" stocks, OTHER INFORMATION risks, including exchange rate changes, which can continue to be inexpensive for political and economic upheaval, the long periods of time and may never realize o The returns shown in the management's relative lack of information, relatively their full value. discussion of Fund performance are based low market liquidity, and the potential on net asset values calculated for lack of strict financial and accounting ABOUT INDEXES USED IN THIS REPORT shareholder transactions. Generally controls and standards. accepted accounting principles require o The S&P 500 --REGISTERED TRADEMARK-- adjustments to be made to the net assets Index is a market capitalization-weighted of the Fund at period end for financial index covering all major areas of the U.S. reporting purposes, and as such, the net economy. It is not the 500 largest asset values for shareholder transactions companies, but rather the most widely held and the returns based on those net asset 500 companies chosen with respect to values may differ from the net asset market size, liquidity, values and returns reported in the Financial Highlights. ======================================================================================= THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND PROSPECTUS, Continued on page 6 WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING. ========================================== ======================================================================================= FUND NASDAQ SYMBOLS NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE AIMINVESTMENTS.COM Class A Shares LCBAX Class B Shares LCBBX Class C Shares LCBCX Class R Shares LCBRX Investor Class Shares LCINX ==========================================
8 AIM Large Cap Basic Value Fund SCHEDULE OF INVESTMENTS(A) October 31, 2007
SHARES VALUE - ----------------------------------------------------------------------- COMMON STOCKS & OTHER EQUITY INTERESTS-98.91% ADVERTISING-5.28% Interpublic Group of Cos., Inc. (The)(b) 902,703 $ 9,342,976 - ----------------------------------------------------------------------- Omnicom Group Inc. 209,462 10,678,373 ======================================================================= 20,021,349 ======================================================================= AEROSPACE & DEFENSE-0.59% Honeywell International Inc. 37,029 2,236,922 ======================================================================= APPAREL RETAIL-2.11% Gap, Inc. (The) 422,821 7,991,317 ======================================================================= ASSET MANAGEMENT & CUSTODY BANKS-2.24% Bank of New York Mellon Corp. (The) 173,439 8,472,495 ======================================================================= BREWERS-3.34% Molson Coors Brewing Co.-Class B 221,190 12,658,704 ======================================================================= COMPUTER HARDWARE-4.62% Dell Inc.(b) 571,627 17,491,786 ======================================================================= CONSTRUCTION MATERIALS-2.76% Cemex S.A.B. de C.V.-ADR (Mexico)(b) 340,566 10,445,159 ======================================================================= DATA PROCESSING & OUTSOURCED SERVICES-3.08% Western Union Co.(c) 529,224 11,664,097 ======================================================================= EDUCATION SERVICES-3.85% Apollo Group, Inc.-Class A(b) 183,972 14,581,621 ======================================================================= ELECTRONIC MANUFACTURING SERVICES-1.15% Tyco Electronics Ltd. 122,544 4,371,144 ======================================================================= ENVIRONMENTAL & FACILITIES SERVICES-0.95% Waste Management, Inc. 98,924 3,599,844 ======================================================================= GENERAL MERCHANDISE STORES-3.04% Target Corp. 187,738 11,519,604 ======================================================================= HEALTH CARE DISTRIBUTORS-3.67% Cardinal Health, Inc. 204,277 13,896,964 ======================================================================= HEALTH CARE EQUIPMENT-1.58% Baxter International Inc. 100,129 6,008,741 ======================================================================= HOME IMPROVEMENT RETAIL-1.76% Home Depot, Inc. (The) 211,347 6,659,544 =======================================================================
SHARES VALUE - -----------------------------------------------------------------------
HUMAN RESOURCE & EMPLOYMENT SERVICES-0.92% Robert Half International, Inc. 115,941 $ 3,488,665 ======================================================================= INDUSTRIAL CONGLOMERATES-4.51% General Electric Co. 264,788 10,898,674 - ----------------------------------------------------------------------- Tyco International Ltd. 150,666 6,202,919 ======================================================================= 17,101,593 ======================================================================= INDUSTRIAL MACHINERY-2.31% Illinois Tool Works Inc. 152,727 8,745,148 ======================================================================= INSURANCE BROKERS-1.19% Marsh & McLennan Cos., Inc. 174,618 4,520,860 ======================================================================= INVESTMENT BANKING & BROKERAGE-2.76% Merrill Lynch & Co., Inc. 64,843 4,280,935 - ----------------------------------------------------------------------- Morgan Stanley 91,971 6,185,969 ======================================================================= 10,466,904 ======================================================================= MANAGED HEALTH CARE-4.65% UnitedHealth Group Inc. 358,750 17,632,563 ======================================================================= MOVIES & ENTERTAINMENT-1.98% Walt Disney Co. (The) 216,414 7,494,417 ======================================================================= MULTI-LINE INSURANCE-1.72% American International Group, Inc. 56,583 3,571,519 - ----------------------------------------------------------------------- Hartford Financial Services Group, Inc. (The) 30,253 2,935,449 ======================================================================= 6,506,968 ======================================================================= OIL & GAS DRILLING-3.54% Transocean Inc.(b) 112,510 13,430,319 ======================================================================= OIL & GAS EQUIPMENT & SERVICES-6.75% Halliburton Co. 312,722 12,327,501 - ----------------------------------------------------------------------- Schlumberger Ltd. 137,265 13,255,681 ======================================================================= 25,583,182 ======================================================================= OTHER DIVERSIFIED FINANCIAL SERVICES-5.54% Citigroup Inc. 290,337 12,165,120 - ----------------------------------------------------------------------- JPMorgan Chase & Co. 187,613 8,817,811 ======================================================================= 20,982,931 ======================================================================= PACKAGED FOODS & MEATS-1.64% Unilever N.V. (Netherlands)(c)(d) 190,965 6,220,605 =======================================================================
9 AIM Large Cap Basic Value Fund
SHARES VALUE - ----------------------------------------------------------------------- PHARMACEUTICALS-5.75% Pfizer Inc. 107,565 $ 2,647,175 - ----------------------------------------------------------------------- Sanofi-Aventis (France)(d) 108,951 9,587,150 - ----------------------------------------------------------------------- Wyeth 196,520 9,556,767 ======================================================================= 21,791,092 ======================================================================= PROPERTY & CASUALTY INSURANCE-1.47% ACE Ltd. 92,261 5,591,939 ======================================================================= SEMICONDUCTOR EQUIPMENT-2.94% KLA-Tencor Corp. 211,966 11,160,010 ======================================================================= SYSTEMS SOFTWARE-6.26% CA Inc. 492,655 13,030,725 - ----------------------------------------------------------------------- Microsoft Corp. 290,163 10,680,900 ======================================================================= 23,711,625 ======================================================================= THRIFTS & MORTGAGE FINANCE-3.20% Fannie Mae 212,375 12,113,870 ======================================================================= WIRELESS TELECOMMUNICATION SERVICES-1.76% Sprint Nextel Corp. 389,832 6,666,127 ======================================================================= Total Common Stocks & Other Equity Interests (Cost $272,584,893) 374,828,109 =======================================================================
SHARES VALUE - -----------------------------------------------------------------------
MONEY MARKET FUNDS-0.69% Liquid Assets Portfolio-Institutional Class(e) 1,299,101 $ 1,299,101 - ----------------------------------------------------------------------- Premier Portfolio-Institutional Class(e) 1,299,101 1,299,101 ======================================================================= Total Money Market Funds (Cost $2,598,202) 2,598,202 ======================================================================= TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)-99.60% (Cost $275,183,095) 377,426,311 ======================================================================= INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES ON LOAN MONEY MARKET FUNDS-1.30% Liquid Assets Portfolio-Institutional Class (Cost $4,950,630)(e)(f) 4,950,630 4,950,630 ======================================================================= TOTAL INVESTMENTS-100.90% (Cost $280,133,725) 382,376,941 - ----------------------------------------------------------------------- OTHER ASSETS LESS LIABILITIES-(0.90)% (3,428,156) - ----------------------------------------------------------------------- NET ASSETS-100.00% $378,948,785 _______________________________________________________________________ =======================================================================
Investment Abbreviations: ADR - American Depositary Receipt
Notes to Schedule of Investments: (a) Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of Morgan Stanley Capital International Inc. and Standard & Poor's. (b) Non-income producing security. (c) All or a portion of this security was out on loan at October 31, 2007. (d) In accordance with the procedures established by the Board of Trustees, the foreign security is fair valued using adjusted closing market prices. The aggregate value of these securities at October 31, 2007 was $15,807,755, which represented 4.17% of the Fund's Net Assets. See Note 1A. (e) The money market fund and the Fund are affiliated by having the same investment advisor. See Note 3. (f) The security has been segregated to satisfy the commitment to return the cash collateral received in securities lending transactions upon the borrower's return of the securities loaned. See Note 8. See accompanying Notes to Financial Statements which are an integral part of the financial statements. 10 AIM Large Cap Basic Value Fund STATEMENT OF ASSETS AND LIABILITIES October 31, 2007 ASSETS: Investments, at value (Cost $272,584,893)* $374,828,109 - ----------------------------------------------------------- Investments in affiliated money market funds (Cost $7,548,832) 7,548,832 - ----------------------------------------------------------- Total investments (Cost $280,133,725) 382,376,941 - ----------------------------------------------------------- Foreign currencies, at value (Cost $86) 91 - ----------------------------------------------------------- Receivables for: Investments sold 2,060,380 - ----------------------------------------------------------- Fund shares sold 184,726 - ----------------------------------------------------------- Dividends 265,783 - ----------------------------------------------------------- Investment for trustee deferred compensation and retirement plans 69,849 - ----------------------------------------------------------- Other assets 24,863 =========================================================== Total assets 384,982,633 ___________________________________________________________ =========================================================== LIABILITIES: Payables for: Fund shares reacquired 681,633 - ----------------------------------------------------------- Trustee deferred compensation and retirement plans 98,218 - ----------------------------------------------------------- Collateral upon return of securities loaned 4,950,630 - ----------------------------------------------------------- Accrued distribution fees 97,734 - ----------------------------------------------------------- Accrued trustees' and officer's fees and benefits 1,682 - ----------------------------------------------------------- Accrued transfer agent fees 96,383 - ----------------------------------------------------------- Accrued operating expenses 107,568 =========================================================== Total liabilities 6,033,848 =========================================================== Net assets applicable to shares outstanding $378,948,785 ___________________________________________________________ =========================================================== NET ASSETS CONSIST OF: Shares of beneficial interest $247,686,091 - ----------------------------------------------------------- Undistributed net investment income 1,389,802 - ----------------------------------------------------------- Undistributed net realized gain 27,629,671 - ----------------------------------------------------------- Unrealized appreciation 102,243,221 =========================================================== $378,948,785 ___________________________________________________________ =========================================================== NET ASSETS: Class A $121,286,680 ___________________________________________________________ =========================================================== Class B $ 48,107,690 ___________________________________________________________ =========================================================== Class C $ 26,122,571 ___________________________________________________________ =========================================================== Class R $ 2,313,940 ___________________________________________________________ =========================================================== Investor Class $ 35,232,025 ___________________________________________________________ =========================================================== Institutional Class $145,885,879 ___________________________________________________________ =========================================================== SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Class A 7,302,357 ___________________________________________________________ =========================================================== Class B 3,038,119 ___________________________________________________________ =========================================================== Class C 1,649,820 ___________________________________________________________ =========================================================== Class R 140,636 ___________________________________________________________ =========================================================== Investor Class 2,117,185 ___________________________________________________________ =========================================================== Institutional Class 8,683,837 ___________________________________________________________ =========================================================== Class A: Net asset value per share $ 16.61 - ----------------------------------------------------------- Offering price per share (Net asset value of $16.61 divided by 94.50%) $ 17.58 ___________________________________________________________ =========================================================== Class B: Net asset value and offering price per share $ 15.83 ___________________________________________________________ =========================================================== Class C: Net asset value and offering price per share $ 15.83 ___________________________________________________________ =========================================================== Class R: Net asset value and offering price per share $ 16.45 ___________________________________________________________ =========================================================== Investor Class: Net asset value and offering price per share $ 16.64 ___________________________________________________________ =========================================================== Institutional Class: Net asset value and offering price per share $ 16.80 ___________________________________________________________ ===========================================================
* At October 31, 2007, securities with an aggregate value of $4,652,815 were on loan to brokers. See accompanying Notes to Financial Statements which are an integral part of the financial statements. 11 AIM Large Cap Basic Value Fund STATEMENT OF OPERATIONS For the year ended October 31, 2007 INVESTMENT INCOME: Dividends (net of foreign withholding taxes of $87,435) $ 5,506,167 - ------------------------------------------------------------------------- Dividends from affiliated money market funds (includes securities lending income of $25,903) 530,166 - ------------------------------------------------------------------------- Interest 1,444 ========================================================================= Total investment income 6,037,777 ========================================================================= EXPENSES: Advisory fees 2,238,142 - ------------------------------------------------------------------------- Administrative services fees 135,795 - ------------------------------------------------------------------------- Custodian fees 25,778 - ------------------------------------------------------------------------- Distribution fees: Class A 315,794 - ------------------------------------------------------------------------- Class B 556,092 - ------------------------------------------------------------------------- Class C 273,594 - ------------------------------------------------------------------------- Class R 10,522 - ------------------------------------------------------------------------- Investor Class 104,868 - ------------------------------------------------------------------------- Transfer agent fees -- A, B, C, R and Investor 682,317 - ------------------------------------------------------------------------- Transfer agent fees -- Institutional 2,999 - ------------------------------------------------------------------------- Trustees' and officer's fees and benefits 29,447 - ------------------------------------------------------------------------- Other 253,464 ========================================================================= Total expenses 4,628,812 ========================================================================= Less: Fees waived, expenses reimbursed and expense offset arrangement(s) (55,663) ========================================================================= Net expenses 4,573,149 ========================================================================= Net investment income 1,464,628 ========================================================================= REALIZED AND UNREALIZED GAIN (LOSS) FROM: Net realized gain (loss) from: Investment securities (includes net gains from securities sold to affiliates of $244,134) 29,368,753 - ------------------------------------------------------------------------- Foreign currencies (7,603) ========================================================================= 29,361,150 ========================================================================= Change in net unrealized appreciation (depreciation) of: Investment securities 11,232,316 - ------------------------------------------------------------------------- Foreign currencies (10) ========================================================================= 11,232,306 ========================================================================= Net realized and unrealized gain 40,593,456 ========================================================================= Net increase in net assets resulting from operations $42,058,084 _________________________________________________________________________ =========================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. 12 AIM Large Cap Basic Value Fund STATEMENT OF CHANGES IN NET ASSETS For the years ended October 31, 2007 and 2006
2007 2006 - ------------------------------------------------------------------------------------------ OPERATIONS: Net investment income $ 1,464,628 $ 1,462,430 - ------------------------------------------------------------------------------------------ Net realized gain 29,361,150 29,621,018 - ------------------------------------------------------------------------------------------ Change in net unrealized appreciation 11,232,306 22,507,916 ========================================================================================== Net increase in net assets resulting from operations 42,058,084 53,591,364 ========================================================================================== Distributions to shareholders from net investment income: Class A (498,576) -- - ------------------------------------------------------------------------------------------ Class R (3,479) -- - ------------------------------------------------------------------------------------------ Investor Class (176,357) -- - ------------------------------------------------------------------------------------------ Institutional Class (807,963) (190,287) ========================================================================================== Total distributions from net investment income (1,486,375) (190,287) ========================================================================================== Distributions to shareholders from net realized gains: Class A (6,267,491) -- - ------------------------------------------------------------------------------------------ Class B (3,114,044) -- - ------------------------------------------------------------------------------------------ Class C (1,409,975) -- - ------------------------------------------------------------------------------------------ Class R (91,691) -- - ------------------------------------------------------------------------------------------ Investor Class (2,216,943) -- - ------------------------------------------------------------------------------------------ Institutional Class (4,273,286) -- ========================================================================================== Total distributions from net realized gains (17,373,430) -- ========================================================================================== Decrease in net assets resulting from distributions (18,859,805) (190,287) ========================================================================================== Share transactions-net: Class A (13,104,751) (21,403,749) - ------------------------------------------------------------------------------------------ Class B (15,493,611) (17,625,053) - ------------------------------------------------------------------------------------------ Class C (2,511,429) (3,141,903) - ------------------------------------------------------------------------------------------ Class R 453,935 223,229 - ------------------------------------------------------------------------------------------ Investor Class (11,883,870) (27,024,996) - ------------------------------------------------------------------------------------------ Institutional Class 52,942,693 (20,483,726) ========================================================================================== Net increase (decrease) in net assets resulting from share transactions 10,402,967 (89,456,198) ========================================================================================== Net increase (decrease) in net assets 33,601,246 (36,055,121) ========================================================================================== NET ASSETS: Beginning of year 345,347,539 381,402,660 ========================================================================================== End of year (including undistributed net investment income of $1,389,802 and $1,419,152, respectively) $378,948,785 $345,347,539 __________________________________________________________________________________________ ==========================================================================================
NOTES TO FINANCIAL STATEMENTS October 31, 2007 NOTE 1--SIGNIFICANT ACCOUNTING POLICIES AIM Large Cap Basic Value Fund (the "Fund") is a series portfolio of AIM Equity Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of six separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The Fund currently consists of multiple classes of shares. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. 13 AIM Large Cap Basic Value Fund The Fund's investment objective is long-term growth of capital. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements. A. SECURITY VALUATIONS -- Securities, including restricted securities, are valued according to the following policy. A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and the ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange ("NYSE"). Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and may make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, ADRs and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust's officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security's fair value. Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer's assets, general economic conditions, interest rates, investor perceptions and market liquidity. B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds as received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. 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. 14 AIM Large Cap Basic Value Fund The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. C. COUNTRY DETERMINATION -- For the purposes of making investment selection decisions and presentation in the Schedule of Investments, AIM may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer's securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America unless otherwise noted. D. DISTRIBUTIONS -- Distributions from income and net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to treat a portion of the proceeds from redemptions as distributions for federal income tax purposes. E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund's taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular class of the Fund are charged to the operations of such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses attributable to the Institutional Class are charged to such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses relating to all other classes are allocated among those classes based on relative net assets. All other expenses are allocated among the classes based on relative net assets. G. ACCOUNTING ESTIMATES -- The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates. H. INDEMNIFICATIONS -- Under the Trust's organizational documents, each Trustee, officer, employee or other agent of the Trust (including the Trust's investment manager) is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts that contain a variety of indemnification clauses. The Fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. I. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (i) sales of foreign currencies, (ii) currency gains or losses realized between the trade and settlement dates on securities transactions, and (iii) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. Taxes are accrued based on the Fund's current interpretation of tax regulations and rates that exist in the foreign markets in which the Fund invests. J. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a foreign currency contract to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. The Fund may also enter into a foreign currency contract for the purchase or sale of a security denominated in a foreign currency in order to "lock in" the U.S. dollar price of that security. Fluctuations in the value of these contracts are recorded as unrealized appreciation (depreciation) until the contracts are closed. When these contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains and losses on these contracts are included in the Statement of Operations. The Fund could be exposed to risk, which may be in excess of the amount reflected in the Statement of Assets and Liabilities, if counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. 15 AIM Large Cap Basic Value Fund NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES The Trust has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to AIM based on the annual rate of the Fund's average daily net assets as follows:
AVERAGE NET ASSETS RATE - -------------------------------------------------------------------- First $1 billion 0.60% - -------------------------------------------------------------------- Next $1 billion 0.575% - -------------------------------------------------------------------- Over $2 billion 0.55% ___________________________________________________________________ ====================================================================
AIM has contractually agreed to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual operating expenses (excluding certain items discussed below) of Class A, Class B, Class C, Class R, Investor Class and Institutional Class shares to 1.22%, 1.97%, 1.97%, 1.47%, 1.22% and 0.97% of average daily net assets, respectively, through at least June 30, 2008. In determining the advisor's obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the net annual operating expenses to exceed the numbers reflected above: (i) interest; (ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary items; (v) expenses related to a merger or reorganization, as approved by the Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Currently, in addition to the expense reimbursement arrangement with Invesco Ltd. ("Invesco") described more fully below, the expense offset arrangements from which the Fund may benefit are in the form of credits that the Fund receives from banks where the Fund or its transfer agent has deposit accounts in which it holds uninvested cash. In addition, the Fund may also benefit from a one time credit to be used to offset custodian expenses. These credits are used to pay certain expenses incurred by the Fund. Further, effective July 1, 2007, AIM has contractually agreed, through at least June 30, 2008, to waive 100% of the advisory fee AIM receives from the affiliated money market funds on investments by the Fund in such affiliated money market funds (excluding investments made in affiliated money market funds with cash collateral from securities loaned by the fund). Prior to July 1, 2007, AIM had voluntarily agreed to waive 25% of the advisory fee AIM receives from the affiliated money market funds on investments by the Fund in such affiliated money market funds. For the year ended October 31, 2007, AIM waived advisory fees of $5,369 and reimbursed $23,744 of class level expenses for Class A, Class B, Class C, Class R and Investor Class in proportion to the net assets of each class. At the request of the Trustees of the Trust, Invesco agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. These expenses along with the related expense reimbursement are included in the Statement of Operations. For the year ended October 31, 2007, Invesco reimbursed expenses of the Fund in the amount of $718. The Trust has entered into a master administrative services agreement with AIM pursuant to which the Fund has agreed to pay AIM for certain administrative costs incurred in providing accounting services, to the Fund. For the year ended October 31, 2007, expenses incurred under the agreement are shown in the Statement of Operations as administrative services fees. The Trust has entered into a transfer agency and service agreement with AIM Investment Services, Inc. ("AIS") pursuant to which the Fund has agreed to pay AIS a fee for providing transfer agency and shareholder services to the Fund and reimburse AIS for certain expenses incurred by AIS in the course of providing such services. AIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. All fees payable by AIS to intermediaries that provide omnibus account services or sub-accounting are charged back to the Fund, subject to certain limitations approved by the Trust's Board of Trustees. For the year ended October 31, 2007, expenses incurred under the agreement are shown in the Statement of Operations as transfer agent fees. The Trust has entered into master distribution agreements with A I M Distributors, Inc. ("ADI") to serve as the distributor for the Class A, Class B, Class C, Class R, Investor Class and Institutional Class shares of the Fund. The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A, Class B, Class C, Class R and Investor Class shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays ADI compensation at the annual rate of 0.25% of the Fund's average daily net assets of Class A shares, 1.00% of the average daily net assets of Class B and Class C shares, 0.50% of the average daily net assets of Class R shares and 0.25% of the average daily net assets of Investor Class shares. Of the Plan payments, up to 0.25% of the average daily net assets of each class of shares may be paid to furnish continuing personal shareholder services to customers who purchase and own shares of such classes. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. Financial Industry Regulatory Authority ("FINRA"), formerly known as National Association of Securities Dealers, 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. For the year ended October 31, 2007, expenses incurred under the Plans are shown in the Statement of Operations as distribution fees. Front-end sales commissions and contingent deferred sales charges ("CDSC") (collectively the "sales charges") are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. During the year ended October 31, 2007, ADI advised the Fund that it retained $45,831 in front-end sales commissions from the sale of Class A shares and $115, $32,529, $2,518 and $0 from Class A, Class B, Class C and Class R shares, respectively, for CDSC imposed on redemptions by shareholders. Certain officers and trustees of the Trust are officers and directors of AIM, AIS and/or ADI. 16 AIM Large Cap Basic Value Fund NOTE 3--INVESTMENTS IN AFFILIATES The Fund is permitted, pursuant to procedures approved by the Board of Trustees, to invest daily available cash balances and cash collateral from securities lending transactions in affiliated money market funds. The Fund and the money market funds below have the same investment advisor and therefore, are considered to be affiliated. The tables below show the transactions in and earnings from investments in affiliated money market funds for the year ended October 31, 2007. During the period each investment maintained a $1.00 net asset value, as such there is no realized gain/(loss) and no change in unrealized appreciation/(depreciation). INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
VALUE PURCHASES PROCEEDS VALUE DIVIDEND FUND 10/31/06 AT COST FROM SALES 10/31/07 INCOME - ------------------------------------------------------------------------------------------------- Liquid Assets Portfolio-Institutional Class $4,247,102 $ 51,823,674 $ (54,771,675) $1,299,101 $252,685 - ------------------------------------------------------------------------------------------------- Premier Portfolio-Institutional Class 4,247,102 51,823,674 (54,771,675) 1,299,101 251,578 ================================================================================================= Subtotal $8,494,204 $103,647,348 $(109,543,350) $2,598,202 $504,263 _________________________________________________________________________________________________ =================================================================================================
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
VALUE PURCHASES PROCEEDS VALUE DIVIDEND FUND 10/31/06 AT COST FROM SALES 10/31/07 INCOME* - ------------------------------------------------------------------------------------------------- Liquid Assets Portfolio-Institutional Class $ 7,064,265 $199,753,755 $(201,867,390) $4,950,630 $ 25,903 ================================================================================================= Total Investments in Affiliates $15,558,469 $303,401,103 $(311,410,740) $7,548,832 $530,166 _________________________________________________________________________________________________ =================================================================================================
* Net of compensation to counterparties. NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS The Fund is permitted to purchase or sell securities from or to certain other AIM Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment advisor (or affiliated investment advisors), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the year ended October 31, 2007, the Fund engaged in securities sales of $627,743, which resulted in net realized gains of $244,134, and securities purchases of $24,266,387. NOTE 5--EXPENSE OFFSET ARRANGEMENTS The expense offset arrangements are comprised of (i) transfer agency credits which result from balances in Demand Deposit Accounts (DDA) used by the transfer agent for clearing shareholder transactions, (ii) custodian credits which result from periodic overnight cash balances at the custodian and (iii) a one time custodian fee credit used to offset custodian fees. For the year ended October 31, 2007, the Fund received credits from these arrangements, which resulted in the reduction of the Fund's total expenses of $25,832. NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various AIM Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. During the year ended October 31, 2007, the Fund paid legal fees of $6,615 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust. NOTE 7--BORROWINGS Pursuant to an exemptive order from the Securities and Exchange Commission, the Fund may participate in an interfund lending facility that AIM has established for temporary borrowings by the AIM Funds. An interfund loan will be made under this facility only if the loan rate (an average of the rate available on bank loans and the rate available on investments in overnight repurchase agreements) is favorable to both the lending fund and the borrowing fund. A loan will be secured by collateral if the Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total assets. To the extent that the loan is required to be secured by collateral, the collateral is marked to market daily to ensure that the market value is at least 102% of the outstanding principal value of the loan. 17 AIM Large Cap Basic Value Fund The Fund is a party to an uncommitted unsecured revolving credit facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM, which are parties to the credit facility, can borrow on a first come, first served basis. Principal on each loan outstanding shall bear interest at the bid rate quoted by SSB at the time of the request for the loan. During the year ended October 31, 2007, the Fund did not borrow or lend under the interfund lending facility or borrow under the uncommitted unsecured revolving credit facility. Additionally, the Fund is permitted to temporarily carry a negative or overdrawn balance in its account with SSB, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (ii) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and AIM, not to exceed the contractually agreed upon rate. NOTE 8--PORTFOLIO SECURITIES LOANED The Fund may lend portfolio securities having a market value up to one-third of the Fund's total assets. Such loans are secured by collateral equal to no less than the market value of the loaned securities determined daily. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds. It is the Fund's policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. Lending securities entails a risk of loss to the Fund if and to the extent that the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower fails to return the securities. The Fund could also experience delays and costs in gaining access to the collateral. The Fund bears the risk of any deficiency in the amount of the collateral available for return to the borrower due to any loss on the collateral invested. At October 31, 2007, securities with an aggregate value of $4,652,815 were on loan to brokers. The loans were secured by cash collateral of $4,950,630 received by the Fund and subsequently invested in an affiliated money market fund. For the year ended October 31, 2007, the Fund received dividends on cash collateral investments of $25,903 for securities lending transactions, which are net of compensation to counterparties. NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS DISTRIBUTIONS TO SHAREHOLDERS: The tax character of distributions paid during the years ended October 31, 2007 and 2006 was as follows:
2007 2006 - ------------------------------------------------------------------------------------- Distributions paid from: Ordinary income $ 1,486,375 $190,287 - ------------------------------------------------------------------------------------- Long-term capital gain 17,373,430 -- ===================================================================================== Total distributions $18,859,805 $190,287 _____________________________________________________________________________________ =====================================================================================
TAX COMPONENTS OF NET ASSETS: As of October 31, 2007, the components of net assets on a tax basis were as follows:
2007 - ---------------------------------------------------------------------------- Undistributed ordinary income $ 3,634,301 - ---------------------------------------------------------------------------- Undistributed long-term gain 27,041,909 - ---------------------------------------------------------------------------- Net unrealized appreciation -- investments 100,655,241 - ---------------------------------------------------------------------------- Temporary book/tax differences (68,757) - ---------------------------------------------------------------------------- Shares of beneficial interest 247,686,091 ============================================================================ Total net assets $378,948,785 ____________________________________________________________________________ ============================================================================
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund's net unrealized appreciation difference is attributable primarily to losses on wash sales. The tax-basis net unrealized appreciation on investments amount includes appreciation on foreign currencies of $5. The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund's temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits. The Fund does not have a capital loss carryforward as of October 31, 2007. 18 AIM Large Cap Basic Value Fund NOTE 10--INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended October 31, 2007 was $103,261,743 and $104,686,536, respectively.
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS - ------------------------------------------------------------------------------ Aggregate unrealized appreciation of investment securities $105,862,257 - ------------------------------------------------------------------------------ Aggregate unrealized (depreciation) of investment securities (5,207,021) ============================================================================== Net unrealized appreciation of investment securities $100,655,236 ______________________________________________________________________________ ============================================================================== Cost of investments for tax purposes is $281,721,705.
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES Primarily as a result of differing book/tax treatment of foreign currency transactions, on October 31, 2007, undistributed net investment income was decreased by $7,603 and undistributed net realized gain was increased by $7,603. This reclassification had no effect on the net assets of the Fund. 19 AIM Large Cap Basic Value Fund NOTE 12--SHARE INFORMATION The Fund currently consists of six different classes of shares: Class A, Class B, Class C, Class R, Investor Class and Institutional Class. Investor Class shares of the Fund are offered only to certain grandfathered investors. Class A shares are sold with a front-end sales charge unless certain waiver criteria are met and under certain circumstances load waiver shares may be subject to a CDSC. Class B shares and Class C shares are sold with a CDSC. Class R shares, Investor Class and Institutional Class shares are sold at net asset value. Under certain circumstances, Class R shares are subject to a CDSC. Generally, Class B shares will automatically convert to Class A shares on or about the month-end which is at least eight years after the date of purchase.
Changes in Shares Outstanding - --------------------------------------------------------------------------------------------------------------------- YEAR ENDED Year ended OCTOBER 31, 2007(a) October 31, 2006 ------------------------- -------------------------- SHARES AMOUNT SHARES AMOUNT - --------------------------------------------------------------------------------------------------------------------- Sold: Class A 814,000 $13,271,412 2,003,429 $ 29,509,350 - --------------------------------------------------------------------------------------------------------------------- Class B 238,390 3,644,754 745,722 10,546,710 - --------------------------------------------------------------------------------------------------------------------- Class C 205,417 3,148,678 253,602 3,604,955 - --------------------------------------------------------------------------------------------------------------------- Class R 58,586 936,624 52,039 761,417 - --------------------------------------------------------------------------------------------------------------------- Investor Class 237,113 3,818,992 573,538 8,402,610 - --------------------------------------------------------------------------------------------------------------------- Institutional Class 3,476,446 55,679,328 4,261,077 63,124,408 ===================================================================================================================== Issued as reinvestment of dividends: Class A 411,557 6,346,212 -- -- - --------------------------------------------------------------------------------------------------------------------- Class B 193,242 2,859,978 -- -- - --------------------------------------------------------------------------------------------------------------------- Class C 89,508 1,324,724 -- -- - --------------------------------------------------------------------------------------------------------------------- Class R 6,216 95,170 -- -- - --------------------------------------------------------------------------------------------------------------------- Investor Class 152,527 2,356,544 -- -- - --------------------------------------------------------------------------------------------------------------------- Institutional Class 327,087 5,079,666 13,123 190,287 ===================================================================================================================== Automatic conversion of Class B shares to Class A shares: Class A 385,674 5,915,234 364,628 5,397,746 - --------------------------------------------------------------------------------------------------------------------- Class B (402,412) (5,915,234) (378,891) (5,397,746) ===================================================================================================================== Reacquired: Class A (2,409,982) (38,637,609) (3,835,554) (56,310,845) - --------------------------------------------------------------------------------------------------------------------- Class B (1,034,166) (16,083,109) (1,608,380) (22,774,017) - --------------------------------------------------------------------------------------------------------------------- Class C (456,071) (6,984,831) (478,309) (6,746,858) - --------------------------------------------------------------------------------------------------------------------- Class R (36,164) (577,859) (37,230) (538,188) - --------------------------------------------------------------------------------------------------------------------- Investor Class (1,109,674) (18,059,406) (2,374,939) (35,427,606) - --------------------------------------------------------------------------------------------------------------------- Institutional Class (472,752) (7,816,301) (5,684,681) (83,798,421) ===================================================================================================================== 674,542 $10,402,967 (6,130,826) $(89,456,198) _____________________________________________________________________________________________________________________ =====================================================================================================================
(a) There is one entity that is a record owner of more than 5% of the outstanding shares of the Fund and it owns 6% of the outstanding shares of the Fund. ADI has an agreement with this entity to sell Fund shares. The Fund, AIM and/or AIM affiliates may make payments to this entity, which is considered to be related to the Fund, for providing services to the Fund, AIM and/or AIM affiliates including but not limited to services such as, securities brokerage, distribution, third party record keeping and account servicing. The Trust has no knowledge as to whether all or any portion of the shares owned of record by this entity are owned beneficially. () In addition, 35% of the outstanding shares of the Fund are owned by affiliated mutual funds. Affiliated mutual funds are other mutual funds that are also advised by AIM. NOTE 13--NEW ACCOUNTING STANDARD In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48"). FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement for a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The provisions for FIN 48 are effective for fiscal years beginning after December 15, 2006. Management has assessed the application of FIN 48 to the Fund and has determined that the adopting of FIN 48 is not expected to have a material impact on the Fund. Management intends for the Fund to adopt FIN 48 provisions during the fiscal year ending October 31, 2008 as required. 20 AIM Large Cap Basic Value Fund NOTE 14--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
CLASS A ----------------------------------------------------------- YEAR ENDED OCTOBER 31, ----------------------------------------------------------- 2007 2006 2005 2004 2003 - ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 15.64 $ 13.52 $ 12.36 $ 11.39 $ 9.20 - ------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss)(a) 0.06 0.06 0.02 0.01 (0.00) - ------------------------------------------------------------------------------------------------------------------------- Net gains on securities (both realized and unrealized) 1.76 2.06 1.14 0.96 2.19 ========================================================================================================================= Total from investment operations 1.82 2.12 1.16 0.97 2.19 ========================================================================================================================= Less distributions: Dividends from net investment income (0.06) -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------- Distributions from net realized gains (0.79) -- -- -- -- ========================================================================================================================= Total distributions (0.85) -- -- -- -- ========================================================================================================================= Net asset value, end of period $ 16.61 $ 15.64 $ 13.52 $ 12.36 $ 11.39 _________________________________________________________________________________________________________________________ ========================================================================================================================= Total return(b) 12.08% 15.68% 9.38% 8.52% 23.80% _________________________________________________________________________________________________________________________ ========================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $121,287 $126,700 $129,410 $150,190 $121,980 _________________________________________________________________________________________________________________________ ========================================================================================================================= Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.23%(c) 1.22% 1.35% 1.33% 1.42% - ------------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.24%(c) 1.28% 1.37% 1.35% 1.42% ========================================================================================================================= Ratio of net investment income (loss) to average net assets 0.39%(c) 0.40% 0.15% 0.11% (0.01)% _________________________________________________________________________________________________________________________ ========================================================================================================================= Portfolio turnover rate 29% 26% 9% 32% 41% _________________________________________________________________________________________________________________________ =========================================================================================================================
(a) Calculated using average shares outstanding. (b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges. (c) Ratios are based on average daily net assets of $126,317,768.
CLASS B ------------------------------------------------------ YEAR ENDED OCTOBER 31, ------------------------------------------------------ 2007 2006 2005 2004 2003 - -------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 15.00 $ 13.06 $ 12.02 $ 11.15 $ 9.07 - -------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss)(a) (0.06) (0.05) (0.07) (0.07) (0.07) - -------------------------------------------------------------------------------------------------------------------- Net gains on securities (both realized and unrealized) 1.68 1.99 1.11 0.94 2.15 ==================================================================================================================== Total from investment operations 1.62 1.94 1.04 0.87 2.08 ==================================================================================================================== Less distributions from net realized gains (0.79) -- -- -- -- ==================================================================================================================== Net asset value, end of period $ 15.83 $ 15.00 $ 13.06 $ 12.02 $ 11.15 ____________________________________________________________________________________________________________________ ==================================================================================================================== Total return(b) 11.17% 14.86% 8.65% 7.80% 22.93% ____________________________________________________________________________________________________________________ ==================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $48,108 $60,627 $69,040 $84,896 $80,018 ____________________________________________________________________________________________________________________ ==================================================================================================================== Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.98%(c) 1.97% 2.03% 1.98% 2.07% - -------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.99%(c) 2.03% 2.05% 2.00% 2.07% ==================================================================================================================== Ratio of net investment income (loss) to average net assets (0.36)%(c) (0.35)% (0.53)% (0.54)% (0.66)% ____________________________________________________________________________________________________________________ ==================================================================================================================== Portfolio turnover rate 29% 26% 9% 32% 41% ____________________________________________________________________________________________________________________ ====================================================================================================================
(a) Calculated using average shares outstanding. (b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges. (c) Ratios are based on average daily net assets of $55,609,167. 21 AIM Large Cap Basic Value Fund NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
CLASS C ------------------------------------------------------ YEAR ENDED OCTOBER 31, ------------------------------------------------------ 2007 2006 2005 2004 2003 - -------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 14.99 $ 13.06 $ 12.02 $ 11.15 $ 9.07 - -------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss)(a) (0.06) (0.05) (0.07) (0.07) (0.07) - -------------------------------------------------------------------------------------------------------------------- Net gains on securities (both realized and unrealized) 1.69 1.98 1.11 0.94 2.15 ==================================================================================================================== Total from investment operations 1.63 1.93 1.04 0.87 2.08 ==================================================================================================================== Less distributions from net realized gains (0.79) -- -- -- -- ==================================================================================================================== Net asset value, end of period $ 15.83 $ 14.99 $ 13.06 $ 12.02 $ 11.15 ____________________________________________________________________________________________________________________ ==================================================================================================================== Total return(b) 11.25% 14.78% 8.65% 7.80% 22.93% ____________________________________________________________________________________________________________________ ==================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $26,123 $27,153 $26,593 $30,835 $26,566 ____________________________________________________________________________________________________________________ ==================================================================================================================== Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.98%(c) 1.97% 2.03% 1.98% 2.07% - -------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.99%(c) 2.03% 2.05% 2.00% 2.07% ==================================================================================================================== Ratio of net investment income (loss) to average net assets (0.36)%(c) (0.35)% (0.53)% (0.54)% (0.66)% ____________________________________________________________________________________________________________________ ==================================================================================================================== Portfolio turnover rate 29% 26% 9% 32% 41% ____________________________________________________________________________________________________________________ ====================================================================================================================
(a) Calculated using average shares outstanding. (b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges. (c) Ratios are based on average daily net assets of $27,359,424.
CLASS R -------------------------------------------------- YEAR ENDED OCTOBER 31, -------------------------------------------------- 2007 2006 2005 2004 2003 - ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 15.50 $13.44 $12.31 $11.36 $ 9.20 - ---------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss)(a) 0.02 0.02 (0.00) (0.01) (0.02) - ---------------------------------------------------------------------------------------------------------------- Net gains on securities (both realized and unrealized) 1.75 2.04 1.13 0.96 2.18 ================================================================================================================ Total from investment operations 1.77 2.06 1.13 0.95 2.16 ================================================================================================================ Less distributions: Dividends from net investment income (0.03) -- -- -- -- - ---------------------------------------------------------------------------------------------------------------- Distributions from net realized gains (0.79) -- -- -- -- ================================================================================================================ Total distributions (0.82) -- -- -- -- ================================================================================================================ Net asset value, end of period $ 16.45 $15.50 $13.44 $12.31 $11.36 ________________________________________________________________________________________________________________ ================================================================================================================ Total return(b) 11.82% 15.33% 9.18% 8.36% 23.48% ________________________________________________________________________________________________________________ ================================================================================================================ Ratios/supplemental data: Net assets, end of period (000s omitted) $ 2,314 $1,736 $1,306 $ 991 $ 588 ________________________________________________________________________________________________________________ ================================================================================================================ Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.48%(c) 1.47% 1.53% 1.48% 1.57% - ---------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.49%(c) 1.53% 1.55% 1.50% 1.57% ================================================================================================================ Ratio of net investment income (loss) to average net assets 0.14%(c) 0.15% (0.03)% (0.04)% (0.16)% ________________________________________________________________________________________________________________ ================================================================================================================ Portfolio turnover rate 29% 26% 9% 32% 41% ________________________________________________________________________________________________________________ ================================================================================================================
(a) Calculated using average shares outstanding. (b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. (c) Ratios are based on average daily net assets of $2,104,308. 22 AIM Large Cap Basic Value Fund NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
INVESTOR CLASS ------------------------------------------------------------------ SEPTEMBER 30, 2003 YEAR ENDED OCTOBER 31, (COMMENCEMENT DATE) ------------------------------------------- TO OCTOBER 31, 2007 2006 2005 2004 2003 - -------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 15.67 $ 13.55 $ 12.37 $ 11.39 $ 10.98 - -------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income(a) 0.06 0.06 0.03 0.03 0.00 - -------------------------------------------------------------------------------------------------------------------------------- Net gains on securities (both realized and unrealized) 1.76 2.06 1.15 0.95 0.41 ================================================================================================================================ Total from investment operations 1.82 2.12 1.18 0.98 0.41 ================================================================================================================================ Less distributions: Dividends from net investment income (0.06) -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------------- Distributions from net realized gains (0.79) -- -- -- -- ================================================================================================================================ Total distributions (0.85) -- -- -- -- ================================================================================================================================ Net asset value, end of period $ 16.64 $ 15.67 $ 13.55 $ 12.37 $ 11.39 ________________________________________________________________________________________________________________________________ ================================================================================================================================ Total return(b) 12.06% 15.65% 9.54% 8.60% 3.73% ________________________________________________________________________________________________________________________________ ================================================================================================================================ Ratios/supplemental data: Net assets, end of period (000s omitted) $35,232 $44,452 $62,838 $70,548 $ 178 ________________________________________________________________________________________________________________________________ ================================================================================================================================ Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.23%(c) 1.22% 1.28% 1.24% 1.25%(d) - -------------------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.24%(c) 1.28% 1.30% 1.25% 1.25%(d) ================================================================================================================================ Ratio of net investment income to average net assets 0.39%(c) 0.40% 0.22% 0.20% 0.16%(d) ________________________________________________________________________________________________________________________________ ================================================================================================================================ Portfolio turnover rate(e) 29% 26% 9% 32% 41% ________________________________________________________________________________________________________________________________ ================================================================================================================================
(a) Calculated using average shares outstanding. (b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Not annualized for periods less than one year. (c) Ratios are based on average daily net assets of $41,947,354. (d) Annualized. (e) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year.
INSTITUTIONAL CLASS -------------------------------------------------------- APRIL 30, 2004 YEAR ENDED OCTOBER 31, (COMMENCEMENT DATE) --------------------------------- TO OCTOBER 31, 2007 2006 2005 2004 - ---------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 15.82 $ 13.63 $ 12.38 $ 12.62 - ---------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income(a) 0.15 0.13 0.10 0.04 - ---------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) 1.77 2.09 1.15 (0.28) ====================================================================================================================== Total from investment operations 1.92 2.22 1.25 (0.24) ====================================================================================================================== Less distributions: Dividends from net investment income (0.15) (0.03) -- -- - ---------------------------------------------------------------------------------------------------------------------- Distributions from net realized gains (0.79) -- -- -- ====================================================================================================================== Total distributions (0.94) (0.03) -- -- ====================================================================================================================== Net asset value, end of period $ 16.80 $ 15.82 $ 13.63 $ 12.38 ______________________________________________________________________________________________________________________ ====================================================================================================================== Total return(b) 12.62% 16.28% 10.10% (1.90)% ______________________________________________________________________________________________________________________ ====================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $145,886 $84,679 $92,214 $18,745 ______________________________________________________________________________________________________________________ ====================================================================================================================== Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 0.72%(c) 0.73% 0.76% 0.80%(d) - ---------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 0.72%(c) 0.73% 0.77% 0.81%(d) ====================================================================================================================== Ratio of net investment income to average net assets 0.90%(c) 0.89% 0.74% 0.64%(d) ______________________________________________________________________________________________________________________ ====================================================================================================================== Portfolio turnover rate(e) 29% 26% 9% 32% ______________________________________________________________________________________________________________________ ======================================================================================================================
(a) Calculated using average shares outstanding. (b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Not annualized for periods less than one year. (c) Ratios are based on average daily net assets of $119,685,708. (d) Annualized. (e) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year. 23 AIM Large Cap Basic Value Fund NOTE 15--LEGAL PROCEEDINGS Terms used in the Legal Proceedings Note are defined terms solely for the purpose of this note. SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING On July 6, 2007, the Securities and Exchange Commission ("SEC") published notice of two proposed distribution plans ("Distribution Plans") for the distribution of monies placed into two separate Fair Funds created pursuant to a settlement reached on October 8, 2004 between Invesco Funds Group, Inc. ("IFG"), A I M Advisors, Inc. ("AIM") and A I M Distributors, Inc. and the SEC (the "Order"). One of the Fair Funds consists of $325 million, plus interest and any contributions by other settling parties, for distribution to shareholders of certain mutual funds formerly advised by IFG who may have been harmed by market timing and related activity. The second Fair Fund consists of $50 million, plus interest and any contributions by other settling parties, for distribution to shareholders of mutual funds advised by AIM who may have been harmed by market timing and related activity. Comments on the Distribution Plans were due no later than August 6, 2007 and the Distribution Plans are awaiting final approval by the SEC. Distributions from the Fair Funds will begin after the SEC finally approves the Distribution Plans. The proposed Distribution Plans provide for distribution to all eligible investors, for the periods spanning January 1, 2000 through July 31, 2003 (for the IFG Fair Fund) and January 1, 2001 through September 30, 2003 (for the AIM Fair Fund), their proportionate share of the applicable Fair Fund to compensate such investors for injury they may have suffered as a result of market timing in the affected funds. The Distribution Plans include a provision for any residual amounts in the Fair Funds to be distributed in the future to the affected funds. Because the Distribution Plans have not received final approval from the SEC and distribution of the Fair Funds has not yet commenced, management of AIM and the Fund are unable to estimate the amount of distribution to be made to the Fund, if any. At the request of the trustees of the AIM Funds, Invesco Ltd. ("Invesco"), the parent company of IFG and AIM, has agreed to reimburse expenses incurred by the AIM Funds related to market timing matters. PENDING LITIGATION AND REGULATORY INQUIRIES On August 30, 2005, the West Virginia Office of the State Auditor -- Securities Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of Right to Hearing to AIM and ADI (Order No. 05-1318). The WVASC makes findings of fact that AIM and ADI entered into certain arrangements permitting market timing of the AIM Funds and failed to disclose these arrangements in the prospectuses for such Funds, and conclusions of law to the effect that AIM and ADI violated the West Virginia securities laws. The WVASC orders AIM and ADI to cease any further violations and seeks to impose monetary sanctions, including restitution to affected investors, disgorgement of fees, reimbursement of investigatory, administrative and legal costs and an "administrative assessment," to be determined by the Commissioner. Initial research indicates that these damages could be limited or capped by statute. By agreement with the Commissioner of Securities, AIM's time to respond to that Order has been indefinitely suspended. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or related entities and individuals, depending on the lawsuit, alleging: - that the defendants permitted improper market timing and related activity in the AIM Funds; and - that certain AIM Funds inadequately employed fair value pricing. These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws and ERISA, negligence, breach of fiduciary duty and/or breach of contract. These lawsuits seek remedies that include, depending on the lawsuit, damages, restitution, injunctive relief, imposition of a constructive trust, removal of certain directors and/or employees, various corrective measures under ERISA, rescission of certain AIM Funds' advisory agreements and/or distribution plans and recovery of all fees paid. All lawsuits based on allegations of market timing, late trading and related issues have been transferred to the United States District Court for the District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court, plaintiffs in these lawsuits consolidated their claims for pre-trial purposes into three amended complaints against various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint for Violations of the Employee Retirement Income Securities Act ("ERISA") purportedly brought on behalf of participants in Invesco's 401(k) plan. Based on orders issued by the MDL Court, all claims asserted against the AIM Funds that have been transferred to the MDL Court have been dismissed, although certain Funds remain nominal defendants in the Consolidated Amended Fund Derivative Complaint. On September 15, 2006, the MDL Court granted the Invesco defendants' motion to dismiss the Amended Class Action Complaint for Violations of ERISA and dismissed such Complaint. The plaintiff has commenced an appeal from that decision. IFG, AIM, ADI and/or related entities and individuals have received inquiries from numerous regulators in the form of subpoenas or other oral or written requests for information and/or documents related to one or more of the following issues, among others, some of which concern one or more AIM Funds: market timing activity, late trading, fair value pricing, excessive or improper advisory and/or distribution fees, mutual fund sales practices, including revenue sharing and directed-brokerage arrangements, investments in securities of other registered investment companies, contractual plans, issues related to Section 529 college savings plans and procedures for locating lost security holders. IFG, AIM and ADI have advised the Fund that they are providing full cooperation with respect to these inquiries. Regulatory actions and/or additional civil lawsuits related to these or other issues may be filed against the AIM Funds, IFG, AIM and/or related entities and individuals in the future. At the present time, management of AIM and the Fund are unable to estimate the impact, if any, that the outcome of the Pending Litigation and Regulatory Inquiries described above may have on AIM, ADI or the Fund. 24 AIM Large Cap Basic Value Fund REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Trustees of AIM Equity Funds and Shareholders of AIM Large Cap Basic Value Fund: In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of AIM Large Cap Basic Value Fund (one of the funds constituting AIM Equity Funds, hereafter referred to as the "Fund") at October 31, 2007, 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 three years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at October 31, 2007 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights for each of the periods ended on or before October 31, 2004 were audited by another independent registered public accounting firm whose report, dated December 15, 2004, expressed an unqualified opinion on those financial highlights. PricewaterhouseCoopers LLP December 19, 2007 Houston, Texas 25 AIM Large Cap Basic Value Fund CALCULATING YOUR ONGOING FUND EXPENSES EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments or contingent deferred sales charges on redemptions, and redemption fees, if any; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period May 1, 2007, through October 31, 2007. ACTUAL EXPENSES The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions, and redemption fees, if any. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
HYPOTHETICAL (5% ANNUAL RETURN BEFORE ACTUAL EXPENSES) BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE SHARE CLASS (05/01/07) (10/31/07)(1) PERIOD(2) (10/31/07) PERIOD(2) RATIO A $1,000.00 $1,024.00 $ 6.27 $1,019.00 $ 6.26 1.23% B 1,000.00 1,019.30 10.08 1,015.22 10.06 1.98 C 1,000.00 1,020.00 10.08 1,015.22 10.06 1.98 R 1,000.00 1,022.40 7.54 1,017.74 7.53 1.48 Investor 1,000.00 1,024.00 6.27 1,019.00 6.26 1.23
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2007, through October 31, 2007, 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. (2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. 26 Supplement to Annual Report dated 10/31/07 AIM Large Cap Basic Value Fund ========================================== Institutional Class Shares AVERAGE ANNUAL TOTAL RETURNS PLEASE NOTE THAT PAST PERFORMANCE IS For periods ended 10/31/07 NOT INDICATIVE OF FUTURE RESULTS. MORE The following information has been RECENT RETURNS MAY BE MORE OR LESS THAN prepared to provide Institutional Class Inception 7.66% THOSE SHOWN. ALL RETURNS ASSUME shareholders with a performance overview 5 Years 14.17 REINVESTMENT OF DISTRIBUTIONS AT NAV. specific to their holdings. Institutional 1 Year 12.62 INVESTMENT RETURN AND PRINCIPAL VALUE WILL Class shares are offered exclusively to FLUCTUATE SO YOUR SHARES, WHEN REDEEMED, institutional investors, including defined AVERAGE ANNUAL TOTAL RETURNS MAY BE WORTH MORE OR LESS THAN THEIR contribution plans that meet certain For periods ended 9/30/07, most recent ORIGINAL COST. SEE FULL REPORT FOR criteria. calendar quarter-end INFORMATION ON COMPARATIVE BENCHMARKS. PLEASE CONSULT YOUR FUND PROSPECTUS FOR Inception 7.39% MORE INFORMATION. FOR THE MOST CURRENT 5 Years 14.99 MONTH-END PERFORMANCE, PLEASE CALL 1 Year 12.96 800-451-4246 OR VISIT AIMINVESTMENTS.COM. ========================================== INSTITUTIONAL CLASS SHARES' INCEPTION DATE IS APRIL 30, 2004. RETURNS SINCE THAT DATE ARE HISTORICAL RETURNS. ALL OTHER RETURNS ARE BLENDED RETURNS OF HISTORICAL INSTITUTIONAL CLASS SHARE PERFORMANCE AND RESTATED CLASS A SHARE PERFORMANCE (FOR PERIODS PRIOR TO THE INCEPTION DATE OF INSTITUTIONAL CLASS SHARES) AT NET ASSET VALUE (NAV) AND REFLECT THE HIGHER RULE 12B-1 FEES APPLICABLE TO CLASS A SHARES. CLASS A SHARES' INCEPTION DATE IS JUNE 30, 1999. INSTITUTIONAL CLASS SHARES HAVE NO SALES CHARGE; THEREFORE, PERFORMANCE IS AT NAV. PERFORMANCE OF INSTITUTIONAL CLASS SHARES WILL DIFFER FROM PERFORMANCE OF ========================================== OTHER SHARE CLASSES PRIMARILY DUE TO NASDAQ SYMBOL LCBIX DIFFERING SALES CHARGES AND CLASS ========================================== EXPENSES. Over for information on your Fund's expenses. ======================================================================================= THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING. ======================================================================================= FOR INSTITUTIONAL INVESTOR USE ONLY This material is for institutional investor use only and may not be quoted, reproduced or shown to the public, nor used in written form as sales literature for public use.
AIMinvestments.com LCBV-INS-1 A I M Distributors, Inc. [AIM INVESTMENTS LOGO] -- REGISTERED TRADEMARK -- AIM Large Cap Basic Value Fund CALCULATING YOUR ONGOING FUND EXPENSES EXAMPLE As a shareholder of the Fund, you incur ongoing costs, including management fees and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period May 1, 2007, through October 31, 2007. ACTUAL EXPENSES The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL (5% ANNUAL RETURN BEFORE ACTUAL EXPENSES) BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE SHARE CLASS (05/01/07) (10/31/07)(1) PERIOD(2) (10/31/07) PERIOD(2) RATIO Institutional $1,000.00 $1,026.30 $3.63 $1,021.63 $3.62 0.71%
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2007, through October 31, 2007, 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. (2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. AIMinvestments.com LCBV-INS-1 A I M Distributors, Inc. AIM Large Cap Basic Value Fund APPROVAL OF INVESTMENT ADVISORY AGREEMENT The Board of Trustees (the Board) of AIM Sub-Committee's recommendations and makes fees, expense limitations and/or fee Equity Funds is required under the its own recommendations regarding the waivers. Investment Company Act of 1940 to approve performance, fees and expenses of the AIM annually the renewal of the AIM Large Cap Funds to the full Board. Moreover, the A. NATURE, EXTENT AND QUALITY OF SERVICES Basic Value Fund (the Fund) investment Investments Committee considers each PROVIDED BY AIM advisory agreement with A I M Advisors, Sub-Committee's recommendations in making Inc. (AIM). During contract renewal its annual recommendation to the Board The Board reviewed the advisory services meetings held on June 25-27, 2007, the whether to approve the continuance of each provided to the Fund by AIM under the Board as a whole and the disinterested or AIM Fund's investment advisory agreement Fund's advisory agreement, the performance "independent" Trustees, voting separately, and sub-advisory agreement, if applicable of AIM in providing these services, and approved the continuance of the Fund's (advisory agreements), for another year. the credentials and experience of the investment advisory agreement for another officers and employees of AIM who provide year, effective July 1, 2007. In doing so, The independent Trustees, as mentioned these services. The Board's review of the the Board determined that the Fund's above, are assisted in their annual qualifications of AIM to provide these advisory agreement is in the best evaluation of the advisory agreements by services included the Board's interests of the Fund and its shareholders the independent Senior Officer. One consideration of AIM's portfolio and and that the compensation to AIM under the responsibility of the Senior Officer is to product review process, various back Fund's advisory agreement is fair and manage the process by which the AIM Funds' office support functions provided by AIM, reasonable. proposed management fees are negotiated and AIM's equity and fixed income trading during the annual contract renewal process operations. The Board concluded that the The independent Trustees met separately to ensure that they are negotiated in a nature, extent and quality of the advisory during their evaluation of the Fund's manner which is at arms' length and services provided to the Fund by AIM were investment advisory agreement with reasonable. Accordingly, the Senior appropriate and that AIM currently is independent legal counsel from whom they Officer must either supervise a providing satisfactory advisory services received independent legal advice, and the competitive bidding process or prepare an in accordance with the terms of the Fund's independent Trustees also received independent written evaluation. The Senior advisory agreement. In addition, based on assistance during their deliberations from Officer has recommended that an their ongoing meetings throughout the year the independent Senior Officer, a independent written evaluation be provided with the Fund's portfolio managers, the full-time officer of the AIM Funds who and, upon the direction of the Board, has Board concluded that these individuals are reports directly to the independent prepared an independent written competent and able to continue to carry Trustees. The following discussion more evaluation. out their responsibilities under the fully describes the process employed by Fund's advisory agreement. the Board to evaluate the performance of During the annual contract renewal the AIM Funds (including the Fund) process, the Board considered the factors In determining whether to continue the throughout the year and, more discussed below under the heading "Factors Fund's advisory agreement, the Board specifically, during the annual contract and Conclusions and Summary of Independent considered the prior relationship between renewal meetings. Written Fee Evaluation" in evaluating the AIM and the Fund, as well as the Board's fairness and reasonableness of the Fund's knowledge of AIM's operations, and THE BOARD'S FUND EVALUATION PROCESS advisory agreement at the contract renewal concluded that it was beneficial to meetings and at their meetings throughout maintain the current relationship, in The Board's Investments Committee has the year as part of their ongoing part, because of such knowledge. The Board established three Sub-Committees which are oversight of the Fund. The Fund's advisory also considered the steps that AIM and its responsible for overseeing the management agreement was considered separately, affiliates have taken over the last of a number of the series portfolios of although the Board also considered the several years to improve the quality and the AIM Funds. This SubCommittee structure common interests of all of the AIM Funds efficiency of the services they provide to permits the Trustees to focus on the in their deliberations. The Board the Funds in the areas of investment performance of the AIM Funds that have comprehensively considered all of the performance, product line diversification, been assigned to them. The Sub-Committees information provided to them and did not distribution, fund operations, shareholder meet throughout the year to review the identify any particular factor that was services and compliance. The Board performance of their assigned funds, and controlling. Furthermore, each Trustee may concluded that the quality and efficiency the Sub-Committees review monthly and have evaluated the information provided of the services AIM and its affiliates quarterly comparative performance differently from one another and provide to the AIM Funds in each of these information and periodic asset flow data attributed different weight to the various areas have generally improved, and support for their assigned funds. These materials factors. The Trustees recognized that the the Board's approval of the continuance of are prepared under the direction and advisory arrangements and resulting the Fund's advisory agreement. supervision of the independent Senior advisory fees for the Fund and the other Officer. Over the course of each year, the AIM Funds are the result of years of B. FUND PERFORMANCE SubCommittees meet with portfolio managers review and negotiation between the for their assigned funds and other members Trustees and AIM, that the Trustees may The Board compared the Fund's performance of management and review with these focus to a greater extent on certain during the past one, three and five individuals the performance, investment aspects of these arrangements in some calendar years to the performance of funds objective(s), policies, strategies and years than others, and that the Trustees' in the Fund's Lipper peer group that are limitations of these funds. deliberations and conclusions in a not managed by AIM, and against the particular year may be based in part on performance of all funds in the Lipper In addition to their meetings their deliberations and conclusions of Large-Cap Value Funds Index. The Board throughout the year, the Sub-Committees these same arrangements throughout the also reviewed the methodology used by meet at designated contract renewal year and in prior years. Lipper to identify the Fund's peers. The meetings each year to conduct an in-depth Board noted that the Fund's performance review of the performance, fees and FACTORS AND CONCLUSIONS AND SUMMARY OF was below the median performance of its expenses of their assigned funds. During INDEPENDENT WRITTEN FEE EVALUATION peers for the one, three and five year the contract renewal process, the Trustees periods. The Board noted that the Fund's receive comparative performance and fee The discussion below serves as a summary performance was below the performance of data regarding all the AIM Funds prepared of the Senior Officer's independent the Index for the one, three and five year by an independent company, Lipper, Inc., written evaluation, as well as a periods. The Board also considered the under the direction and supervision of the discussion of the material factors and steps AIM has taken over the last several independent Senior Officer who also related conclusions that formed the basis years to improve the quality and prepares a separate analysis of this for the Board's approval of the Fund's efficiency of the services that AIM information for the Trustees. Each advisory agreement. Unless otherwise provides to the AIM Funds. The Board Sub-Committee then makes recommendations stated, information set forth below is as concluded that AIM continues to be to the Investments Committee regarding the of June 27, 2007 and does not reflect any responsive to the Board's focus on fund performance, fees and expenses of their changes that may have occurred since that performance. However, due to the Fund's assigned funds. The Investments Committee date, including but not limited to changes underperformance, the Board also concluded considers each to the Fund's performance, advisory that it would be appropriate for the Board to continue to closely monitor and (continued)
27 AIM Large Cap Basic Value Fund review the performance of the Fund. fee information and the expense limitation G. COLLATERAL BENEFITS TO AIM AND ITS Although the independent written discussed above, the Board concluded that AFFILIATES evaluation of the Fund's Senior Officer the Fund's advisory fees were fair and (discussed below) only considered Fund reasonable. The Board considered various other performance through the most recent benefits received by AIM and its calendar year, the Board also reviewed D. ECONOMIES OF SCALE AND BREAKPOINTS affiliates resulting from AIM's more recent Fund performance and this relationship with the Fund, including the review did not change their conclusions. The Board considered the extent to which fees received by AIM and its affiliates there are economies of scale in AIM's for their provision of administrative, C. ADVISORY FEES AND FEE WAIVERS provision of advisory services to the transfer agency and distribution services Fund. The Board also considered whether to the Fund. The Board considered the The Board compared the Fund's contractual the Fund benefits from such economies of performance of AIM and its affiliates in advisory fee rate to the contractual scale through contractual breakpoints in providing these services and the advisory fee rates of funds in the Fund's the Fund's advisory fee schedule or organizational structure employed by AIM Lipper peer group that are not managed by through advisory fee waivers or expense and its affiliates to provide these AIM, at a common asset level and as of the limitations. The Board noted that the services. The Board also considered that end of the past calendar year. The Board Fund's contractual advisory fee schedule these services are provided to the Fund noted that the Fund's advisory fee rate includes two breakpoints but that, due to pursuant to written contracts which are was below the median advisory fee rate of the Fund's asset level at the end of the reviewed and approved on an annual basis its peers. The Board also reviewed the past calendar year and the way in which by the Board. The Board concluded that AIM methodology used by Lipper and noted that the breakpoints have been structured, the and its affiliates were providing these the contractual fee rates shown by Lipper Fund has yet to benefit from the services in a satisfactory manner and in include any applicable long-term breakpoints. Based on this information, accordance with the terms of their contractual fee waivers. The Board also the Board concluded that the Fund's contracts, and were qualified to continue compared the Fund's contractual advisory advisory fees would reflect economies of to provide these services to the Fund. fee rate to the contractual advisory fee scale at higher asset levels. The Board rates of other clients of AIM and its also noted that the Fund shares directly The Board considered the benefits affiliates with investment strategies in economies of scale through lower fees realized by AIM as a result of portfolio comparable to those of the Fund, including charged by third party service providers brokerage transactions executed through three mutual funds advised by AIM, one based on the combined size of all of the "soft dollar" arrangements. Under these mutual fund sub-advised by an AIM AIM Funds and affiliates. arrangements, portfolio brokerage affiliate, and one offshore fund advised commissions paid by the Fund and/or other and sub-advised by AIM affiliates. The E. PROFITABILITY AND FINANCIAL RESOURCES funds advised by AIM are used to pay for Board noted that the Fund's rate was: (i) OF AIM research and execution services. The Board the same as the rate for one of the mutual noted that soft dollar arrangements shift funds and below the rates for two of the The Board reviewed information from AIM the payment obligation for the research mutual funds; (ii) above the sub-advisory concerning the costs of the advisory and and executions services from AIM to the fee rate for the sub-advised mutual fund, other services that AIM and its affiliates funds and therefore may reduce AIM's although the advisory fee rate for such provide to the Fund and the profitability expenses. The Board also noted that sub-advised fund was above the Fund's; and of AIM and its affiliates in providing research obtained through soft dollar (iii) below the advisory fee rate for the these services. The Board also reviewed arrangements may be used by AIM in making offshore fund. information concerning the financial investment decisions for the Fund and may condition of AIM and its affiliates. The therefore benefit Fund shareholders. The Additionally, the Board compared the Board also reviewed with AIM the Board concluded that AIM's soft dollar Fund's contractual advisory fee rate to methodology used to prepare the arrangements were appropriate. The Board the total advisory fees paid by numerous profitability information. The Board also concluded that, based on their review separately managed accounts/wrap accounts considered the overall profitability of and representations made by AIM, these advised by an AIM affiliate. The Board AIM, as well as the profitability of AIM arrangements were consistent with noted that the Fund's rate was generally in connection with managing the Fund. The regulatory requirements. above the rates for the separately managed Board noted that AIM continues to operate accounts/wrap accounts. The Board at a net profit, although increased The Board considered the fact that the considered that management of the expenses in recent years have reduced the Fund's uninvested cash and cash collateral separately managed accounts/wrap accounts profitability of AIM and its affiliates. from any securities lending arrangements by the AIM affiliate involves different The Board concluded that the Fund's may be invested in money market funds levels of services and different advisory fees were fair and reasonable, advised by AIM pursuant to procedures operational and regulatory requirements and that the level of profits realized by approved by the Board. The Board noted than AIM's management of the Fund. The AIM and its affiliates from providing that AIM will receive advisory fees from Board concluded that these differences are services to the Fund was not excessive in these affiliated money market funds appropriately reflected in the fee light of the nature, quality and extent of attributable to such investments, although structure for the Fund and the separately the services provided. The Board AIM has contractually agreed to waive the managed accounts/wrap accounts. considered whether AIM is financially advisory fees payable by the Fund with sound and has the resources necessary to respect to its investment of uninvested The Board noted that AIM has perform its obligations under the Fund's cash in these affiliated money market contractually agreed to waive fees and/or advisory agreement, and concluded that AIM funds through at least June 30, 2008. The limit expenses of the Fund through at has the financial resources necessary to Board considered the contractual nature of least June 30, 2008 in an amount necessary fulfill these obligations. this fee waiver and noted that it remains to limit total annual operating expenses in effect until at least June 30, 2008. to a specified percentage of average daily F. INDEPENDENT WRITTEN EVALUATION OF THE The Board concluded that the Fund's net assets for each class of the Fund. The FUND'S SENIOR OFFICER investment of uninvested cash and cash Board considered the contractual nature of collateral from any securities lending this fee waiver and noted that it remains The Board noted that, upon their arrangements in the affiliated money in effect until at least June 30, 2008. direction, the Senior Officer of the Fund, market funds is in the best interests of The Board reviewed the Fund's effective who is independent of AIM and AIM's the Fund and its shareholders. advisory fee rate, after taking account of affiliates, had prepared an independent this expense limitations, and considered written evaluation to assist the Board in the effect this expense limitation would determining the reasonableness of the have on the Fund's estimated total proposed management fees of the AIM Funds, expenses. The Board concluded that the including the Fund. The Board noted that levels of fee waivers/expense limitations they had relied upon the Senior Officer's for the Fund were fair and reasonable. written evaluation instead of a After taking account of the Fund's competitive bidding process. In contractual advisory fee rate, as well as determining whether to continue the Fund's the comparative advisory advisory agreement, the Board considered the Senior Officer's written evaluation.
28 AIM Large Cap Basic Value Fund TAX INFORMATION Form 1099-DIV, Form 1042-S and other year -- end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors. The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended October 31, 2007: FEDERAL AND STATE INCOME TAX Long-Term Capital Gain Dividends $17,373,430 Qualified Dividend Income* 100% Corporate Dividends Received Deduction* 100%
* The above percentages are based on ordinary income dividends paid to shareholders during the fund's fiscal year. NON-RESIDENT ALIEN SHAREHOLDERS Qualified Interest Income** 6.31%
** The above percentage is based on income dividends paid to shareholders during the fund's fiscal year. ADDITIONAL NON-RESIDENT ALIEN SHAREHOLDER INFORMATION The percentages of qualifying assets not subject to the U.S. estate tax for the fiscal quarters ended January 31, 2007, April 30, 2007, July 31, 2007 and October 31, 2007 were 12.53%, 10.86%, 7.54%, and 7.59%, respectively. DISTRIBUTION INFORMATION Shareholders were sent a notice from the Fund that set forth an estimate on a per share basis of the source or sources from which the distribution was paid in December of 2006. Subsequently, this estimate has been corrected in part. Listed below is a written statement of the sources of this distribution, as corrected, on a generally accepted accounting principles ("GAAP") basis.
GAIN FROM SALE OF NET INCOME SECURITIES RETURN OF PRINCIPAL TOTAL DISTRIBUTION - ----------------------------------------------------------------------------------------------------------------- 12/15/06 Class A $0.0858 $0.7115 $0.0563 $0.8536 - ----------------------------------------------------------------------------------------------------------------- 12/15/06 Class B $ 0.000 $0.7115 $0.0792 $0.7907 - ----------------------------------------------------------------------------------------------------------------- 12/15/06 Class C $ 0.000 $0.7115 $0.0792 $0.7907 - ----------------------------------------------------------------------------------------------------------------- 12/15/06 Class R $0.0531 $0.7115 $0.5610 $0.8207 - ----------------------------------------------------------------------------------------------------------------- 12/15/06 Investor Class $0.0858 $0.7115 $0.0563 $0.8536 - ----------------------------------------------------------------------------------------------------------------- 12/15/06 Institutional Class $0.1727 $0.7115 $0.0560 $0.9402 _________________________________________________________________________________________________________________ =================================================================================================================
Please note that the information in the preceding chart is for financial accounting purposes only. Shareholders should be aware that the tax treatment of distributions may differ from their GAAP treatment. The tax treatment of distributions was set forth in a Form 1099-DIV for the 2006 calendar year. This information is being provided to comply with certain U.S. Securities and Exchange Commission requirements. 29 AIM Large Cap Basic Value Fund TRUSTEES AND OFFICERS The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. Each trustee oversees 104 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. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
OTHER TRUSTEE TRUSTEESHIP(S)/ NAME, YEAR OF BIRTH AND AND/OR DIRECTORSHIP(S) POSITION(S) HELD WITH THE OFFICER PRINCIPAL OCCUPATION(S) HELD BY TRUST SINCE DURING PAST 5 YEARS TRUSTEE/ DIRECTOR - ------------------------------------------------------------------------------------------------------------------------- Interested Persons - ------------------------------------------------------------------------------------------------------------------------- Martin L. Flanagan(1) -- 1960 2007 Director, Chief Executive Officer and None Trustee President, Invesco Ltd. (ultimate parent of AIM and a global investment management firm) and, INVESCO PLC (parent of AIM and a global investment management firm); Chairman, A I M Advisors, Inc. (registered investment advisor); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company); and INVESCO North American Holdings, Inc. (holding company); Chairman and President, INVESCO Group Services, Inc. (service provider); Trustee, The AIM Family of Funds(R); Vice Chairman, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business Formerly: Chairman, Investment Company Institute; President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) - ------------------------------------------------------------------------------------------------------------------------- Philip A. Taylor(2) -- 1954 2006 Director, Chief Executive Officer and None Trustee, President and President, AIM Mutual Fund Dealer Inc. Principal (registered broker dealer), A I M Executive Officer Advisors, Inc., AIM Funds Management Inc. d/b/a INVESCO Enterprise Services (registered investment advisor and registered transfer agent) and 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, A I M Management Group Inc. (financial services holding company) and A I M Capital Management, Inc. (registered investment advisor); Director and President, INVESCO Funds Group, Inc. (registered investment advisor and register transfer agent) and AIM GP Canada Inc. (general partner for a limited partnership); Director, A I M Distributors, Inc. (registered broker dealer); Director and Chairman, AIM Investment Services, Inc. (registered transfer agent) and INVESCO Distributors, Inc. (registered broker dealer); Director, President and Chairman, IVZ Callco Inc. (holding company), INVESCO Inc. (holding company) and AIM Canada Holdings Inc. (holding company); Director and Chief Executive Officer, AIM Trimark Corporate Class Inc. (formerly AIM Trimark Global Fund Inc.) (corporate mutual fund company) and AIM Trimark Canada Fund Inc. (corporate mutual fund company); Trustee, President and Principal Executive Officer of The AIM Family of Funds--Registered Trademark-- (other than AIM Treasurer's Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust); Trustee and Executive Vice President, The AIM Family of Funds--Registered Trademark-- (AIM Treasurer's Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only); and Manager, PowerShares Capital Management LLC Formerly: Director and Chairman, Fund Management Company (registered broker dealer); President and Principal Executive Officer, The AIM Family of Funds--Registered Trademark-- (AIM Treasurer's Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only); Chairman, AIM Canada Holdings, Inc.; President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc.; and Director, Trimark Trust (federally regulated Canadian Trust Company) - ------------------------------------------------------------------------------------------------------------------------- Independent Trustees - ------------------------------------------------------------------------------------------------------------------------- Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company); Trustee and Chair (technology consulting company) and Captaris, Inc. (unified messaging provider) - ------------------------------------------------------------------------------------------------------------------------- Bob R. Baker -- 1936 2003 Retired None Trustee - ------------------------------------------------------------------------------------------------------------------------- Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered Trustee investment company) (2 portfolios) Formerly: Partner, law firm of Baker & McKenzie - ------------------------------------------------------------------------------------------------------------------------- James T. Bunch -- 1942 2003 Founder, Green, Manning & Bunch Ltd., None Trustee (investment banking firm); and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation - ------------------------------------------------------------------------------------------------------------------------- Albert R. Dowden -- 1941 2000 Director of a number of public and None Trustee private business corporations, including the Boss Group Ltd. (private investment and management); Reich & Tang Funds (Chairman) (registered investment company) (7 portfolios), Daily Income Fund (4 portfolios), California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc. and New Jersey Daily Municipal Fund, Inc., Annuity and Life Re (Holdings), Ltd. (insurance company), and Homeowners of America Holding Corporation (property casualty company) Formerly: Director, CompuDyne Corporation (provider of product and services to the public security market); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various affiliated Volvo companies; and Director, Magellan Insurance Company - ------------------------------------------------------------------------------------------------------------------------- Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff Trustee Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), and Discovery Global Education Fund (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) - ------------------------------------------------------------------------------------------------------------------------- Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Director, Reich & Tang Funds) (7 Trustee Naftalis and Frankel LLP portfolios) - ------------------------------------------------------------------------------------------------------------------------- Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None Trustee of the USA - ------------------------------------------------------------------------------------------------------------------------- Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper None Trustee - ------------------------------------------------------------------------------------------------------------------------- Ruth H. Quigley -- 1935 2001 Retired None Trustee - ------------------------------------------------------------------------------------------------------------------------- Larry Soll -- 1942 2003 Retired None Trustee - ------------------------------------------------------------------------------------------------------------------------- Raymond Stickel, Jr. -- 1944 2005 Retired None Trustee Formerly: Partner, Deloitte & Touche; and Director, Mainstay VP Series Funds, Inc. (25 portfolios) - -------------------------------------------------------------------------------------------------------------------------
(1) Mr. Flanagan was appointed as Trustee of the Trust on February 24, 2007. Mr. Flanagan is considered an interested person of the Trust because he is an officer of the advisor to the Trust, and an officer and a director of INVESCO PLC, parent of the advisor to the Trust. (2) Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the advisor to, and a director of the principal underwriter of, the Trust. 30 TRUSTEES AND OFFICERS--(CONTINUED) AIM Large Cap Basic Value Fund
OTHER TRUSTEE TRUSTEESHIP(S)/ NAME, YEAR OF BIRTH AND AND/OR DIRECTORSHIP(S) POSITION(S) HELD WITH THE OFFICER PRINCIPAL OCCUPATION(S) HELD BY TRUSTEE/ TRUST SINCE DURING PAST 5 YEARS DIRECTOR - ------------------------------------------------------------------------------------------------------------------------- Other Officers - ------------------------------------------------------------------------------------------------------------------------- Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer N/A Senior Vice President and of The AIM Family of Funds--Registered Senior Officer Trademark-- Formerly: Director of Compliance and Assistant General Counsel, ICON Advisers, Inc.; Financial Consultant, Merrill Lynch; General Counsel and Director of Compliance, ALPS Mutual Funds, Inc. - ------------------------------------------------------------------------------------------------------------------------- John M. Zerr -- 1962 2006 Director, Senior Vice President, N/A Senior Vice President, Chief Secretary and General Counsel, A I M Legal Officer and Secretary Management Group Inc., A I M Advisors, Inc. and A I M Capital Management, Inc.; Director, Vice President and Secretary, AIM Investment Services, Inc. and INVESCO Distributors, Inc.; Director, Senior Vice President and Secretary, A I M Distributors, Inc.; Director and Vice President, INVESCO Funds Group Inc.; Senior Vice President, Chief Legal Officer and Secretary of The AIM Family of Funds--Registered Trademark--; and Manager, PowerShares Capital Management LLC Formerly: Director, Vice President and Secretary, Fund Management Company; Vice President, A I M Capital Management, Inc.; Chief Operating Officer, Senior Vice President, General Counsel and Secretary, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company); Vice President and Secretary, PBHG Insurance Series Fund (an investment company); General Counsel and Secretary, Pilgrim Baxter Value Investors (an investment adviser); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator); General Counsel and Secretary, Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) - ------------------------------------------------------------------------------------------------------------------------- Lisa O. Brinkley -- 1959 2004 Global Compliance Director, INVESCO PLC; N/A Vice President and Vice President of The AIM Family of Funds--Registered Trademark-- Formerly: Senior Vice President, A I M Management Group Inc. (financial services holding company); Senior Vice President and Chief Compliance Officer, A I M Advisors, Inc. and The AIM Family of Funds--Registered Trademark--; Vice President and Chief Compliance Officer, A I M Capital Management, Inc. and A I M Distributors, Inc.; Vice President, AIM Investment Services, Inc. and Fund Management Company; Senior Vice President and Chief Compliance Officer of The AIM Family of Funds--Registered Trademark--; and Senior Vice President and Compliance Director, Delaware Investments Family of Funds - ------------------------------------------------------------------------------------------------------------------------- Kevin M. Carome -- 1956 2003 Senior Vice President and General Vice President Counsel, INVESCO PLC; Director, INVESCO Funds Group, Inc.; Director and Secretary, IVZ, Inc. and INVESCO Group Services, Inc.; Secretary, INVESCO North American Holdings, Inc.; and Vice President of The AIM Family of Funds--Registered Trademark-- Formerly: Director, Senior Vice N/A President, Secretary and General Counsel, A I M Management Group Inc. and A I M Advisors, Inc.; Senior Vice President, A I M Distributors, Inc.; Director, General Counsel and Vice President, Fund Management Company; Vice President, A I M Capital Management, Inc. and AIM Investment Services, Inc.; Senior Vice President, Chief Legal Officer and Secretary of The AIM Family of Funds--Registered Trademark--; Director and Vice President, INVESCO Distributors, Inc.; Chief Executive Officer and President, INVESCO Funds Group, Inc.; and Senior Vice President and General Counsel, Liberty Financial Companies, Inc. - ------------------------------------------------------------------------------------------------------------------------- Sidney M. Dilgren -- 1961 2004 Vice President, A I M Advisors, Inc. and N/A Vice President, Principal A I M Capital Management, Inc.; and Vice Financial Officer and President, Treasurer and Principal Treasurer Financial Officer of The AIM Family of Funds--Registered Trademark-- Formerly: Fund Treasurer, A I M Advisors, Inc.; Senior Vice President, AIM Investment Services, Inc.; and Vice President, A I M Distributors, Inc. - ------------------------------------------------------------------------------------------------------------------------- Karen Dunn Kelley -- 1960 2004 Head of INVESCO's World Wide Fixed N/A Vice President Income and Cash Management Group; Director of Cash Management and Senior Vice President, A I M Advisors, Inc. and A I M Capital Management, Inc; Executive Vice President, A I M Distributors, Inc.; Senior Vice President, A I M Management Group Inc.; Vice President, The AIM Family of Funds--Registered Trademark-- (other than AIM Treasurer's Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust); and President and Principal Executive Officer, The AIM Family of Funds--Registered Trademark-- (AIM Treasurer's Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only) Formerly: Director and President, Fund Management Company; Chief Cash Management Officer and Managing Director, A I M Capital Management, Inc.; Vice President, A I M Advisors, Inc. and The AIM Family of Funds--Registered Trademark-- (AIM Treasurer's Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only) - ------------------------------------------------------------------------------------------------------------------------- Lance A. Rejsek -- 1967 2005 Anti-Money Laundering Compliance N/A Anti-Money Laundering Officer, A I M Advisors, Inc., A I M Compliance Officer Capital Management, Inc., A I M Distributors, Inc., AIM Investment Services, Inc., AIM Private Asset Management, Inc. and The AIM Family of Funds--Registered Trademark-- Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company; and Manager of the Fraud Prevention Department, AIM Investment Services, Inc. - ------------------------------------------------------------------------------------------------------------------------- Todd L. Spillane -- 1958 2006 Senior Vice President, A I M Management N/A Chief Compliance Officer Group Inc.; Senior Vice President and Chief Compliance Officer, A I M Advisors, Inc. and A I M Capital Management, Inc.; Chief Compliance Officer of The AIM Family of Funds--Registered Trademark--, INVESCO Global Asset Management (N.A.), Inc., (registered investment advisor), INVESCO Institutional (N.A.), Inc., (registered investment advisor), INVESCO Private Capital Investments, Inc. (holding company), INVESCO Private Capital, Inc. (registered investment advisor) and INVESCO Senior Secured Management, Inc. (registered investment advisor); and Vice President, A I M Distributors, Inc. and AIM Investment Services, Inc. Formerly: Vice President, A I M Capital Management, Inc. and Fund Management Company; Global Head of Product Development, AIG-Global Investment Group, Inc.; and Chief Compliance Officer and Deputy General Counsel, AIG-SunAmerica Asset Management - -------------------------------------------------------------------------------------------------------------------------
The Statement of Additional Information of the Trust includes additional information about the Fund's Trustees and is available upon request, without charge, by calling 1.800.959.4246. OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS 11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers Suite 100 11 Greenway Plaza Inc. LLP Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street Houston, TX 77046-1173 Suite 100 Suite 2900 Houston, TX 77046-1173 Houston, TX 77002-5678 COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN Ballard Spahr INDEPENDENT TRUSTEES AIM Investment State Street Bank and Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust 1735 Market Street, 51st & Frankel LLP P.O. Box 4739 Company Floor 1177 Avenue of the Houston, TX 77210-4739 225 Franklin Street Philadelphia, PA 19103-7599 Americas Boston, MA 02110-2801 New York, NY 10036-2714
31 [EDELIVERY GO PAPERLESS FUND HOLDINGS AND PROXY VOTING INFORMATION AIMINVESTMENTS.COM/EDELIVERY GRAPHIC] The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and REGISTER FOR EDELIVERY fourth quarters, the lists appear in the Fund's semiannual and annual reports to shareholders. For the first and third eDelivery is the process of receiving your fund and account quarters, the Fund files the lists with the Securities and information via e-mail. Once your quarterly statements, tax Exchange Commission (SEC) on Form N-Q. The most recent list of forms, fund reports, and prospectuses are available, we will send portfolio holdings is available at AIMinvestments.com. From you an e-mail notification containing links to these documents. our home page, click on Products & Performance, then Mutual For security purposes, you will need to log in to your account to Funds, then Fund Overview. Select your Fund from the drop-down view your statements and tax forms. menu and click on Complete Quarterly Holdings. Shareholders can also look up the Fund's Forms N-Q on the SEC Web site at WHY SIGN UP? sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. Register for eDelivery to: You can obtain information on the operation of the Public Reference Room, including information about duplicating fee o save your Fund the cost of printing and postage. charges, by calling 202-942-8090 or 800-732-0330, or by electronic request at the following e-mail address: o reduce the amount of paper you receive. publicinfo@sec.gov. The SEC file numbers for the Fund are 811-01424 and 022-25469. o gain access to your documents faster by not waiting for the mail. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio o view your documents online anytime at your convenience. securities is available without charge, upon request, from our Client Services department at 800-959-4246 or on the AIM Web o save the documents to your personal computer or print them out site, AIMinvestments.com. On the home page, scroll down and for your records. click on Proxy Policy. The information is also available on the SEC Web site, sec.gov. HOW DO I SIGN UP? Information regarding how the Fund voted proxies related to its It's easy. Just follow these simple steps: portfolio securities during the 12 months ended June 30, 2007, is available at our Web site. Go to AIMinvestments.com, access 1. Log in to your account. the About Us tab, click on Required Notices and then click on Proxy Voting Activity. Next, select the Fund from the drop-down 2. Click on the "Service Center" tab. menu. The information is also available on the SEC Web site, sec.gov. 3. Select "Register for eDelivery" and complete the consent process. If used after January 20, 2008, this report must be accompanied by a Fund fact sheet or by an AIM Quarterly Performance Review This AIM service is provided by AIM Investment Services, Inc. for the most recent quarter-end. Mutual funds and exchange-traded funds distributed by A I M Distributors, Inc. LCBV-AR-1 A I M Distributors, Inc. [AIM INVESTMENTS LOGO] -- REGISTERED TRADEMARK --
DOMESTIC EQUITY AIM Large Cap Growth Fund Annual Report to Shareholders o October 31, 2007 Large-Cap Growth Table of Contents Letters to Shareholders ......... 2 Performance Summary ............. 4 Management Discussion ........... 4 Long-term Fund Performance ...... 6 Supplemental Information ........ 8 Schedule of Investments ......... 9 Financial Statements ............ 12 Notes to Financial Statements ... 15 Financial Highlights ............ 22 Auditor's Report ................ 27 Fund Expenses ................... 28 Approval of Advisory Agreement .. 29 [COVER GLOBE IMAGE] Tax Information ................. 31 Trustees and Officers ........... 32
[AIM INVESTMENT SOLUTIONS] [GRAPHIC] [GRAPHIC] [DOMESTIC [FIXED EQUITY] INCOME] [GRAPHIC] [GRAPHIC] [GRAPHIC] [TARGET [TARGET [DIVERSIFIED RISK] MATURITY] PORTFOLIOS] [GRAPHIC] [GRAPHIC] [SECTOR [INTERNATIONAL/ EQUITY] GLOBAL EQUITY] [AIM INVESTMENTS LOGO] - -- REGISTERED TRADEMARK -- AIM Large Cap Growth Fund Dear Shareholders of the AIM Family of Funds: I'm pleased to provide you with this report, which includes a discussion of how your Fund was managed during the period under review and factors that affected its performance. The following pages contain important information that answers questions you may have about your investment. [TAYLOR PHOTO] Despite notable volatility at points throughout the fiscal year ended October 31, 2007, major stock market indexes in the U.S. and abroad generally performed well. Reasons for their favorable performance included positive economic growth, particularly overseas; strong corporate profits; and action by the U.S. Federal Reserve Board (the Fed) to reassure skittish markets, among other factors. Philip Taylor At its September 18, 2007, meeting, the Fed cut the federal funds target rate for the first time since June 2003.(1) The cut followed 17 rate increases from June 2004 to June 2006(1) and was intended to address investor concerns about a weak housing market generally and problems in the subprime mortgage market specifically. The Fed's action triggered an immediate and broad stock market rally. The Fed cut this key interest rate again on October 31, 2007.(1) At AIM Investments --REGISTERED TRADEMARK--, we know that market conditions change--often suddenly and sometimes dramatically. We can help you deal with market volatility by offering a broad range of mutual funds, including: o Domestic, global and international equity funds o Taxable and tax-exempt fixed-income funds o Allocation portfolios, with risk/return characteristics to match your needs o AIM Independence Funds--target-maturity funds that combine retail mutual funds and PowerShares --REGISTERED TRADEMARK-- exchange-traded funds--with risk/return characteristics that change as your target retirement date nears I encourage you to talk with your financial advisor if you have concerns about your portfolio. We believe in the value of working with a trusted financial advisor who can recommend AIM funds that are appropriate for your portfolio and that address your long-term investment goals and risk tolerance regardless of prevailing short-term market conditions. In conclusion My colleague, Bob Graham, recently announced his decision to step down as vice chair of the AIM Funds board of directors. In 1976, Bob was one of three men who co-founded AIM. In the three decades since, he has been instrumental in transforming AIM from a small investment management firm into one of America's most respected mutual fund companies--and, in 1997, into a global independent retail and institutional investment manager. In May, with shareholder approval, AIM Investments' parent company changed its name from AMVESCAP PLC to Invesco Ltd., uniting our worldwide operations and global expertise under one new name. While the name of our parent company may be new to you, I can assure you that our commitment to excellent customer service remains unchanged. Our highly trained, courteous client service representatives are eager to answer your questions, provide you with product information or assist you with account transactions. I encourage you to give us an opportunity to serve you by calling us at 800-959-4246. We at AIM are committed to helping you achieve your financial goals. We work every day to earn your trust, and we're grateful for the confidence you've placed in us. Sincerely, /S/ PHILIP TAYLOR Philip Taylor President - AIM Funds CEO, AIM Investments December 17, 2007 Source: (1)U.S. Federal Reserve Board AIM Investments is a registered service mark of A I M Management Group Inc. A I M Advisors, Inc. and A I M Capital Management, Inc. are the investment advisors. A I M Distributors, Inc. is the distributor for the retail mutual funds represented by AIM Investments and the PowerShares Exchange-Traded Fund Trust.
2 AIM Large Cap Growth Fund Dear Fellow Shareholders: In overseeing the management of the AIM family of funds on your behalf, your Board of Trustees of the AIM Funds continues to focus on improved investment performance, reduced shareholder costs, and high ethical standards. [CROCKETT PHOTO] Your Board welcomes two new members: Marty Flanagan, President and CEO of INVESCO, AIM's parent company, and Phil Taylor, who was named CEO of AIM Investments --REGISTERED TRADEMARK-- in April 2006. Robert Graham, who has given more than 30 years of leadership to the company and the mutual fund industry since founding AIM in 1976, has retired, stepping down in the process from his most recent role as vice chairman Bruce L. Crockett of the Board. We thank Bob for his many contributions and wish him a long and happy future. Our review of fund performance has shown healthy progress, but the process is necessarily one of continuous improvement. In general, as of October 31, 2007, we have seen persistent investment discipline and more consistently good results. While this statement may not apply to every AIM Fund all the time, as I write this letter, the overall trend in fund management and performance has been positive. The investment management talent at AIM has recently been enhanced by the promotion of Karen Dunn Kelley to Head of INVESCO's Worldwide Fixed Income as well as Director of AIM Global and Cash Management, with responsibility for all fixed income and money market funds that serve both institutional and individual investors. Under Karen's direction, AIM's cash management organization grew to one of the world's largest and most respected, with top-tier performance. The operations now combined under her charge represent more than $150 billion in assets, 120 investment professionals, and products that span the entire yield curve (as of October 31, 2007). In other news, your Board took a more active role in preparing for "proxy season," the period when fund managers must vote the shares held by their funds "for" or "against" various proposals on the ballots of the issuing companies. Beginning in the 2007 proxy season, AIM implemented new proxy voting policies, developed by management in conjunction with an ad hoc Board committee, which provided a solid framework for properly evaluating and executing the many decisions the AIM Funds are required to make to vote shares. In general, the AIM Funds voted for proposals that would allow shareholders a greater role in election of directors, proxy access and "say for pay." The AIM Funds voted against directors whom AIM believed failed to govern well in cases of corporate mismanagement, such as the backdating of options grants, and against "poison pill" and "take under" proposals that would favor the financial interests of managers at the expense of investors in the case of a merger or acquisition. You can view the proxy votes cast for your fund by going to AIMinvestments.com. Click the "About Us" tab, then go to "Required Notices" and "Proxy Voting Activity." Additionally, your Board raised the amount its members are recommended to invest in the AIM Funds within three years of joining the Board, with the goal of aligning our interests even more closely with yours. Furthermore, at our June meeting we renewed the investment advisory contracts between the AIM Funds and AIM for another year, applying the same rigorous evaluation process that was enhanced and formalized in 2005. For more information on this process, please visit AIMinvestments.com. Click on the "Products and Performance" tab and go to "Investment Advisory Agreement Renewals." Your Board's ability to best represent your interests depends on our knowledge of your opinions and concerns. Please send me an email (bruce@brucecrockett.com) with your thoughts on the following: 1) How important is it to you to hear about your Board's decisions and activities in these letters? 2) What other information (on overall performance, specific funds, managers, etc.) would make the letters more meaningful to you? 3) Would you prefer that communications from your Board continue to be delivered in paper form by regular mail or be sent electronically by email? If you would prefer to communicate through a quick online survey, please go to AIMinvestments.com and provide your responses there. We need to hear from you to do our best job, and I look forward to your responses. Sincerely, /S/ BRUCE L. CROCKETT Bruce L. Crockett Independent Chair AIM Funds Board of Directors December 17, 2007 AIM Investments is a registered service mark of A I M Management Group Inc. A I M Advisors, Inc. and A I M Capital Management, Inc. are the investment advisors. A I M Distributors, Inc. is the distributor for the retail mutual funds represented by AIM Investments and the PowerShares Exchange-Traded Fund Trust.
3 AIM Large Cap Growth Fund Management's discussion of Fund performance companies with management teams that profitably reinvest shareholder cash flow ================================================================================ o Valuation--focus on companies that are PERFORMANCE SUMMARY attractively valued given their growth potential For the 12 months ended October 31, 2007, AIM Large Cap Growth Fund, excluding o Risk assessment--avoid "high risk" companies applicable sales charges, had double-digit returns and outperformed the S&P 500 as defined below Index and the Russell 1000 Growth Index.* Our fundamental analysis seeks to determine The Fund outperformed the broad market as represented by the S&P 500 Index the company's drivers of earnings. To accomplish as well as the Russell 1000 Growth Index largely due to strong stock selection this goal, we examine financial statements and in the industrials, telecommunication services and materials sectors. An analyze trends, growth rates and the competitive underweight position in financials stocks also contributed to outperformance landscape. We meet with company management to versus the S&P 500 Index. evaluate proprietary products and the quality of management. We believe stocks that pass our Your Fund's long-term performance appears later in this report. quantitative and fundamental screens are more likely to outperform. FUND VS. INDEXES We construct the portfolio using a bottom-up Total returns, 10/31/06-10/31/07, excluding applicable sales charges. If sales strategy, focusing on individual stocks. While charges were included, returns would be lower. there are no formal sector guidelines or constraints, internal controls and proprietary Class A Shares 22.16% software help us monitor risk levels and sector Class B Shares 21.17 concentration. Class C Shares 21.17 Class R Shares 21.89 Our sell process is designed to avoid "high Investor Class Shares 22.31 risk" situations we believe lead to S&P 500 Index* (Broad Market Index) 14.55 underperformance. Examples of "high risk" Russell 1000 Growth Index* (Style-Specific Index) 19.23 situations include: Lipper Large-Cap Growth Funds Index* (Peer Group Index) 23.14 SOURCE: *LIPPER INC. o Deteriorating business prospects ================================================================================ o Extended valuation How we invest Our quantitative model ranks o Slowing earnings growth companies based on factors we have We believe a growth investment strategy found to be highly correlated with o Weakened balance sheet is an essential component of a outperformance in the large-cap growth diversified portfolio. Our investment universe, including: Market conditions and your Fund process combines quantitative and fundamental analysis to uncover o Earnings--focus on companies Domestic equities posted solid returns during companies exhibiting long-term, exhibiting strong growth in earnings, the fiscal year, leaving several major market sustainable earnings and cash flow revenue and cash flows growth that is not yet reflected in (continued) investor expectations or equity o Quality--focus on companies with valuations. sustainable earnings growth; focus on ======================================= ====================================== ================================================= PORTFOLIO COMPOSITION TOP FIVE INDUSTRIES* TOP 10 EQUITY HOLDINGS* By sector 1. Computer Hardware 11.0% 1. Hewlett-Packard Co. 4.5% Information Technology 36.1% 2. Aerospace & Defense 10.4 2. Cisco Systems, Inc. 4.5 Industrials 18.2 3. Communications Equipment 8.2 3. Lockheed Martin Corp. 3.5 Health Care 16.3 4. Systems Software 6.0 4. Apple Inc. 3.1 Financials 6.6 5. Wireless Telecommunication 5. Goldman Sachs Group, Inc. (The) 3.0 Telecommunication Services 5.3 Services 5.3 6. America Movil S.A.B de C.V.- Energy 4.9 Series L-ADR (Mexico) 2.8 Consumer Discretionary 4.4 Total Net Assets $2.37 billion 7. Accenture Ltd.-Class A 2.8 Materials 3.8 8. ABB Ltd.(Switzerland) 2.7 Consumer Staples 2.8 Total Number of Holdings* 66 9. China Mobile Ltd.(Hong Kong) 2.5 Utilities 1.0 10. Microsoft Corp. 2.5 Money Market Funds Plus Other Assets Less Liabilities 0.6 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. ======================================= ====================================== =================================================
4 AIM Large Cap Growth Fund indexes near multi-year highs.1 Strong Many materials holdings performed well The views and opinions expressed in economic growth, favorable corporate during the fiscal year. The Fund management's discussion of Fund earnings and increased merger and benefited from strong stock selection in performance are those of A I M Advisors, acquisition activity drove equity markets, metals and mining stocks. In this area, Inc. These views and opinions are subject offsetting high energy prices, the slowing holdings that performed well included to change at any time based on factors housing market and sub-prime loan worries Phelps Dodge, Freeport McMoran and Rio such as market and economic conditions. that contributed to high market volatility Tinto. Phelps Dodge was purchased by These views and opinions may not be late in the year. Freeport McMoran during the fiscal year. relied upon as investment advice or Each of these holdings was driven by recommendations, or as an offer for a In this environment, growth stocks strong global demand for commodities. particular security. The information is generally outperformed value stocks. not a complete analysis of every aspect Positive performance was broad among The Fund underperformed the Russell of any market, country, industry, Russell 1000 Growth Index sectors with the 1000 Growth Index by the widest margin in security or the Fund. Statements of fact best returns found in the materials, energy the financials and IT sectors. Many are from sources considered reliable, but and information technology (IT) sectors. financials stocks faced selling pressure A I M Advisors, Inc. makes no late in the reporting period due to representation or warranty as to their The Fund enjoyed strong absolute and concerns about subprime issues. In this completeness or accuracy. Although relative performance during the fiscal environment, examples of holdings that historical performance is no guarantee of year, led by significant contributions from detracted from performance included future results, these insights may help holdings in the industrials, IT, Lehman Brothers and Morgan Stanley, both you understand our investment management telecommunication services and materials of which we sold due to deteriorating philosophy. sectors. Overweight positions in both fundamentals. telecommunication services and materials See important Fund and index holdings also contributed to While the Fund underperformed versus disclosures later in this report. outperformance. the Russell 1000 Growth Index in the IT sector, many IT holdings made solid Geoffrey V. Keeling The industrials sector benefited from a contributions to the Fund's absolute [KEELING Chartered Financial Analyst, broad-based rally during much of the fiscal performance. They include Apple and PHOTO] senior portfolio manager, year, and the Fund outperformed the communications equipment maker Cisco is co-manager of AIM Large Cap benchmark Russell 1000 Growth Index in this Systems. Much of the Fund's Growth Fund. He joined AIM in 1995. Mr. sector due to strong stock selection. underperformance versus the Russell 1000 Keeling earned a B.B.A. in finance from Specific areas of strength for the Fund Growth Index was due to stock selection The University of Texas at Austin. included aerospace and defense, electrical in the software industry, where holdings equipment and industrial conglomerates such as BEA Systems and Amdocs detracted Robert L. Shoss holdings, industries that continued to from performance. One other key detractor [SHOSS Senior portfolio manager, is benefit from global economic expansion. in the IT sector was Motorola. All three PHOTO] co-manager of AIM Large Cap Examples of holdings in the industrials of these holdings were subsequently sold. Growth Fund. He joined AIM in sector that made significant contributions 1995. Mr. Shoss earned a B.A. from The during the fiscal year included electrical Our investment process led us to University of Texas at Austin and an equipment maker ABB Limited and engineering reduce exposure to financials, consumer M.B.A. and a J.D. from the University of and construction firm McDermott discretionary, health care and consumer Houston. International. Several of the Fund's staples due to concerns about growth aerospace and defense holdings also made prospects. Proceeds from these sales were Assisted by the Large/Multi-Cap Growth key contributions to performance. primarily invested in IT, industrials and Team energy stocks. Outperformance in the telecommunication services sector was driven by both stock We are pleased to have provided selection and an overweight position. In positive returns for our investors for this sector, two of the Fund's foreign the fiscal year by focusing on what we wireless holdings were among the top five believe were attractively priced stocks contributors to performance during the of large-cap companies with sustainable period--China Mobile and America Movil. cash flow and earnings growth. We thank These two companies have been successful in you for your commitment to AIM Large Cap rolling out wireless service to expanding Growth Fund. markets in China and Latin America, respectively. Sources: (1)Bloomberg L.P.
5 AIM Large Cap Growth Fund Your Fund's long-term performance Past performance cannot guarantee does not reflect deduction of taxes a the dollar value of an investment, is comparable future results. shareholder would pay on Fund constructed with each segment distributions or sale of Fund shares. representing a percent change in the The data shown in the chart include Performance of the indexes does not value of the investment. In this chart, reinvested distributions, applicable sales reflect the effects of taxes. each segment represents a doubling, or charges, Fund expenses and management fees. 100% change, in the value of the Index results include reinvested dividends, This chart, which is a logarithmic investment. In other words, the space but they do not reflect sales charges. chart, presents the fluctuations in the between $5,000 and $10,000 is the same Performance of an index of funds reflects value of the Fund and its indexes. We size as the space between $10,000 and fund expenses and management fees; believe that a logarithmic chart is more $20,000. performance of a market index does not. effective than other types of charts in Performance shown in the chart and table(s) illustrating changes in value during the early years shown in the chart. The vertical axis, the one that indicates
6 ==================================================================================================================================== [MOUNTAIN CHART] RESULTS OF A $10,000 INVESTMENT INDEX DATA FROM 02/28/99, FUND DATA FROM 03/1/99 AIM LARGE CAP GROWTH FUND RUSSELL 1000 LIPPER LARGE-CAP DATE -CLASS A SHARES S&P 500 INDEX(1) GROWTH INDEX(1) GROWTH FUNDS INDEX(1) 02/28/99 $10000 $10000 $10000 3/99 $10116 10400 10527 10568 4/99 9935 10803 10540 10605 5/99 9621 10548 10216 10253 6/99 10354 11132 10932 10966 7/99 10098 10786 10584 10622 8/99 10117 10732 10757 10624 9/99 10098 10438 10531 10516 10/99 10745 11099 11327 11323 11/99 11458 11324 11938 11882 12/99 13180 11990 13179 13202 1/00 13313 11388 12561 12672 2/00 16092 11173 13175 13338 3/00 16692 12265 14119 14274 4/00 15808 11896 13447 13170 5/00 14818 11652 12770 12412 6/00 16778 11939 13737 13233 7/00 16911 11753 13165 12965 8/00 19529 12482 14357 14086 9/00 18578 11823 12999 13012 10/00 16883 11773 12384 12324 11/00 13809 10846 10558 10670 12/00 14303 10899 10224 10604 1/01 13770 11285 10930 10912 2/01 10762 10257 9075 9223 3/01 9402 9608 8087 8265 4/01 10497 10354 9110 9152 5/01 10258 10423 8976 9083 6/01 9954 10170 8768 8821 7/01 9582 10069 8549 8505 8/01 8812 9440 7850 7858 9/01 7936 8677 7066 7068 10/01 8393 8843 7437 7361 11/01 9049 9521 8151 8036 12/01 9135 9605 8136 8073 1/02 9021 9465 7992 7890 2/02 8517 9282 7661 7564 3/02 8984 9631 7926 7868 4/02 8365 9047 7279 7344 5/02 8184 8981 7103 7210 6/02 7670 8341 6446 6623 7/02 7147 7691 6091 6125 8/02 7156 7742 6109 6159 9/02 6671 6901 5476 5562 10/02 7014 7508 5978 5990 11/02 7062 7949 6303 6238 12/02 6719 7483 5867 5803 1/03 6586 7287 5725 5670 2/03 6624 7178 5699 5609 3/03 6767 7247 5805 5714 4/03 7129 7844 6234 6132 5/03 7529 8257 6545 6433 6/03 7586 8362 6635 6486 7/03 7748 8510 6800 6674 8/03 7995 8675 6969 6838 9/03 7843 8583 6895 6693 10/03 8452 9069 7282 7099 11/03 8624 9148 7358 7166 12/03 8690 9628 7613 7368 1/04 8852 9804 7768 7509 2/04 8852 9941 7818 7542 3/04 8900 9791 7673 7458 4/04 8690 9637 7583 7290 5/04 8957 9769 7725 7422 6/04 9119 9959 7821 7529 7/04 8577 9630 7379 7083 8/04 8491 9668 7343 7033 9/04 8739 9773 7413 7198 10/04 8720 9922 7528 7285 11/04 9196 10324 7787 7610 12/04 9462 10675 8092 7917 1/05 9234 10415 7823 7645 2/05 9330 10634 7906 7695 3/05 9168 10445 7762 7555 4/05 8797 10247 7614 7390 5/05 9225 10573 7982 7801 6/05 9358 10588 7953 7816 7/05 9625 10982 8342 8209 ==================================================================================================================================== Source: (1) Lipper Inc.
==================================================================================================================================== [MOUNTAIN CHART] 8/05 9501 10882 8234 8122 9/05 9768 10970 8272 8219 10/05 9635 10787 8192 8166 11/05 10044 11195 8545 8539 12/05 10121 11199 8518 8517 1/06 10663 11495 8668 8750 2/06 10491 11526 8654 8632 3/06 10662 11670 8782 8715 4/06 10662 11826 8770 8701 5/06 10081 11486 8473 8295 6/06 10072 11501 8439 8268 7/06 9987 11572 8278 8056 8/06 10110 11847 8537 8243 9/06 10339 12152 8771 8421 10/06 10653 12548 9080 8674 11/06 10815 12786 9260 8872 12/06 10938 12966 9291 8919 1/07 11177 13162 9530 9149 2/07 10806 12905 9351 8943 3/07 10978 13049 9402 9010 4/07 11416 13627 9844 9376 5/07 11872 14102 10198 9693 6/07 11720 13868 10046 9602 7/07 11397 13438 9890 9480 8/07 11625 13640 10048 9636 9/07 12272 14149 10469 10224 10/07 13007 14374 10825 10681 ====================================================================================================================================
AIM Large Cap Growth Fund =========================================== ========================================= INVESTOR CLASS SHARES WAS 1.40%, 2.15%, 2.15%, 1.65% AND 1.35%, RESPECTIVELY. THE AVERAGE ANNUAL TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS EXPENSE RATIOS PRESENTED ABOVE MAY VARY FROM THE EXPENSE RATIOS PRESENTED IN As of 10/31/07, including applicable sales As of 9/30/07, the most recent calendar OTHER SECTIONS OF THIS REPORT THAT ARE charges quarter-end, including applicable sales BASED ON EXPENSES INCURRED DURING THE charges PERIOD COVERED BY THIS REPORT. CLASS A SHARES Inception (3/1/99) 3.08% CLASS A SHARES CLASS A SHARE PERFORMANCE REFLECTS THE 5 Years 11.88 Inception (3/1/99) 2.41% MAXIMUM 5.50% SALES CHARGE, AND CLASS B 1 Year 15.46 5 Years 11.68 AND CLASS C SHARE PERFORMANCE REFLECTS 1 Year 12.18 THE APPLICABLE CONTINGENT DEFERRED SALES CLASS B SHARES CHARGE (CDSC) FOR THE PERIOD INVOLVED. Inception (4/5/99) 1.88% CLASS B SHARES THE CDSC ON CLASS B SHARES DECLINES FROM 5 Years 12.08 Inception (4/5/99) 1.20% 5% BEGINNING AT THE TIME OF PURCHASE TO 1 Year 16.17 5 Years 11.91 0% AT THE BEGINNING OF THE SEVENTH YEAR. 1 Year 12.94 THE CDSC ON CLASS C SHARES IS 1% FOR THE CLASS C SHARES FIRST YEAR AFTER PURCHASE. CLASS R SHARES Inception (4/5/99) 1.84% CLASS C SHARES DO NOT HAVE A FRONT-END SALES CHARGE; 5 Years 12.30 Inception (4/5/99) 1.17% RETURNS SHOWN ARE AT NET ASSET VALUE AND 1 Year 20.17 5 Years 12.13 DO NOT REFLECT A 0.75% CDSC THAT MAY BE 1 Year 16.83 IMPOSED ON A TOTAL REDEMPTION OF CLASS R SHARES RETIREMENT PLAN ASSETS WITHIN THE FIRST Inception 3.57% CLASS R SHARES YEAR. INVESTOR CLASS SHARES DO NOT HAVE A 5 Years 12.92 Inception 2.91% FRONT-END SALES CHARGE OR A CDSC; 1 Year 21.89 5 Years 12.73 THEREFORE, PERFORMANCE IS AT NET ASSET 1 Year 18.48 VALUE. THE PERFORMANCE OF THE FUND'S INVESTOR CLASS SHARES SHARE CLASSES WILL DIFFER PRIMARILY DUE Inception 3.83% INVESTOR CLASS SHARES TO DIFFERENT SALES CHARGE STRUCTURES AND 5 Years 13.30 Inception 3.17% CLASS EXPENSES. 1 Year 22.31 5 Years 13.11 1 Year 18.86 (1) Total annual operating expenses less any contractual fee waivers and/or =========================================== ========================================= expense reimbursements by the advisor in effect through at least June 30, CLASS R SHARES' INCEPTION DATE IS JUNE 3, THE PERFORMANCE DATA QUOTED REPRESENT 2008. See current prospectus for more 2002. RETURNS SINCE THAT DATE ARE PAST PERFORMANCE AND CANNOT GUARANTEE information. HISTORICAL RETURNS. ALL OTHER RETURNS ARE COMPARABLE FUTURE RESULTS; CURRENT BLENDED RETURNS OF HISTORICAL CLASS R SHARE PERFORMANCE MAY BE LOWER OR HIGHER. PERFORMANCE AND RESTATED CLASS A SHARE PLEASE VISIT AIMINVESTMENTS.COM FOR THE PERFORMANCE (FOR PERIODS PRIOR TO THE MOST RECENT MONTH-END PERFORMANCE. INCEPTION DATE OF CLASS R SHARES) AT NET PERFORMANCE FIGURES REFLECT REINVESTED ASSET VALUE, ADJUSTED TO REFLECT THE HIGHER DISTRIBUTIONS, CHANGES IN NET ASSET VALUE RULE 12B-1 FEES APPLICABLE TO CLASS R AND THE EFFECT OF THE MAXIMUM SALES SHARES. CLASS A SHARES' INCEPTION DATE IS CHARGE UNLESS OTHERWISE STATED. MARCH 1, 1999. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU MAY HAVE A INVESTOR CLASS SHARES' INCEPTION DATE IS GAIN OR LOSS WHEN YOU SELL SHARES. SEPTEMBER 30, 2003. RETURNS SINCE THAT DATE ARE HISTORICAL RETURNS. ALL OTHER RETURNS THE NET ANNUAL FUND OPERATING EXPENSE ARE BLENDED RETURNS OF HISTORICAL INVESTOR RATIO SET FORTH IN THE MOST RECENT FUND CLASS SHARE PERFORMANCE AND RESTATED CLASS PROSPECTUS AS OF THE DATE OF THIS REPORT A SHARE PERFORMANCE (FOR PERIODS PRIOR TO FOR CLASS A, CLASS B, CLASS C, CLASS R THE INCEPTION DATE OF INVESTOR CLASS AND INVESTOR CLASS SHARES WAS 1.32%, SHARES) AT NET ASSET VALUE, WHICH RESTATED 2.07%, 2.07%, 1.57% AND 1.27%, ========================================== PERFORMANCE WILL REFLECT THE RULE 12B-1 RESPECTIVELY.1 THE TOTAL ANNUAL FUND FEES APPLICABLE TO CLASS A SHARES FOR THE OPERATING EXPENSE RATIO SET FORTH IN THE FOR A DISCUSSION OF THE RISKS OF PERIOD USING BLENDED RETURNS. CLASS A MOST RECENT FUND PROSPECTUS AS OF THE INVESTING IN YOUR FUND AND INDEXES USED SHARES' INCEPTION DATE IS MARCH 1, 1999. DATE OF THIS REPORT FOR CLASS A, CLASS B, IN THIS REPORT, PLEASE TURN THE PAGE. CLASS C, CLASS R AND ==========================================
7 AIM Large Cap Growth Fund AIM LARGE CAP GROWTH FUND'S INVESTMENT OBJECTIVE IS LONG-TERM GROWTH OF CAPITAL. o Unless otherwise stated, information presented in this report is as of October 31, 2007, and is based on total net assets. o Unless otherwise noted, all data in this report are from A I M Management Group Inc. About share classes About indexes used in this report o A direct investment cannot be made in an index. Unless otherwise indicated, o Class B shares are not available as an o The S&P 500 --REGISTERED TRADEMARK-- index results include reinvested investment for retirement plans maintained Index is a market capitalization-weighted dividends, and they do not reflect sales pursuant to Section 401 of the Internal index covering all major areas of the charges. Performance of an index of funds Revenue Code, including 401(k) plans, money U.S. economy. It is not the 500 largest reflects fund expenses; performance of a purchase pension plans and profit sharing companies, but rather the most widely market index does not. plans. Plans that had existing accounts held 500 companies chosen with respect to invested in Class B shares prior to market size, liquidity, and their Other information September 30, 2003, will continue to be industry. allowed to make additional purchases. o The Chartered Financial Analyst o The Russell 1000 --REGISTERED --REGISTERED TRADEMARK-- (CFA o Class R shares are available only to TRADEMARK-- Growth Index measures the --REGISTERED TRADEMARK--) designation is certain retirement plans. Please see the performance of those Russell 1000 a globally recognized standard for prospectus for more information. companies with higher price-to-book measuring the competence and integrity of ratios and higher forecasted growth investment professionals. o Investor Class shares are closed to most values. The Russell 1000 Growth Index is investors. For more information on who may a trademark/service mark of the Frank o The returns shown in the management's continue to invest in Investor Class Russell Company. Russell --REGISTERED discussion of Fund performance are based shares, please see the prospectus. TRADEMARK-- is a trademark of the Frank on net asset values calculated for Russell Company. shareholder transactions. Generally Principal risks of investing in the Fund accepted accounting principles require o The Lipper Large-Cap Growth Funds Index adjustments to be made to the net assets o Prices of equity securities change in is an equally weighted representation of of the Fund at period end for financial response to many factors including the the largest funds in the Lipper Large-Cap reporting purposes, and as such, the net historical and prospective earnings of the Growth Funds category. These funds asset values for shareholder transactions issuer, the value of its assets, general typically have an above-average and the returns based on those net asset economic conditions, interest rates, price-to-earnings ratio, price-to-book values may differ from the net asset investor perceptions and market liquidity. ratio, and three-year sales-per-share values and returns reported in the growth value, compared to the S&P 500 Financial Highlights. o Foreign securities have additional risks, Index. including exchange rate changes, political o Industry classifications used in this and economic upheaval, the relative lack of o The Fund is not managed to track the report are generally according to the information, relatively low market performance of any particular index, Global Industry Classification Standard, liquidity, and the potential lack of strict including the indexes defined here, and which was developed by and is the financial and accounting controls and consequently, the performance of the Fund exclusive property and a service mark of standards. may deviate significantly from the Morgan Stanley Capital International Inc. performance of the indexes. and Standard & Poor's. ======================================================================================= ========================================== THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND FUND NASDAQ SYMBOLS PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING. Class A Shares LCGAX Class B Shares LCGBX ======================================================================================= Class C Shares LCGCX Class R Shares LCRGX NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE Investor Class Shares LCGIX AIMINVESTMENTS.COM ==========================================
8 AIM Large Cap Growth Fund SCHEDULE OF INVESTMENTS(A) October 31, 2007
SHARES VALUE - ------------------------------------------------------------------------- DOMESTIC COMMON STOCKS-82.71% AEROSPACE & DEFENSE-10.39% Boeing Co. (The) 376,448 $ 37,114,009 - ------------------------------------------------------------------------- General Dynamics Corp. 372,296 33,864,044 - ------------------------------------------------------------------------- Honeywell International Inc. 562,614 33,987,512 - ------------------------------------------------------------------------- Lockheed Martin Corp. 752,079 82,758,773 - ------------------------------------------------------------------------- Raytheon Co. 636,602 40,494,253 - ------------------------------------------------------------------------- United Technologies Corp. 231,392 17,722,313 ========================================================================= 245,940,904 ========================================================================= ASSET MANAGEMENT & CUSTODY BANKS-0.88% Ameriprise Financial, Inc. 329,076 20,725,206 ========================================================================= AUTOMOTIVE RETAIL-0.82% AutoZone, Inc.(b) 155,000 19,283,550 ========================================================================= BIOTECHNOLOGY-0.78% Biogen Idec Inc.(b) 247,758 18,443,106 ========================================================================= COMMUNICATIONS EQUIPMENT-5.46% Cisco Systems, Inc.(b) 3,232,525 106,867,276 - ------------------------------------------------------------------------- Juniper Networks, Inc.(b) 619,000 22,284,000 ========================================================================= 129,151,276 ========================================================================= COMPUTER HARDWARE-11.04% Apple Inc.(b) 389,600 74,004,520 - ------------------------------------------------------------------------- Dell Inc.(b) 1,586,686 48,552,592 - ------------------------------------------------------------------------- Hewlett-Packard Co. 2,070,308 106,993,517 - ------------------------------------------------------------------------- International Business Machines Corp. 272,927 31,692,283 ========================================================================= 261,242,912 ========================================================================= COMPUTER STORAGE & PERIPHERALS-0.94% EMC Corp.(b) 880,000 22,343,200 ========================================================================= CONSTRUCTION & ENGINEERING-2.43% Chicago Bridge & Iron Co. N.V.-New York Shares 627,966 31,398,300 - ------------------------------------------------------------------------- Fluor Corp. 165,000 26,070,000 ========================================================================= 57,468,300 ========================================================================= DATA PROCESSING & OUTSOURCED SERVICES-0.71% DST Systems, Inc.(b) 198,505 16,815,359 ========================================================================= DIVERSIFIED METALS & MINING-1.24% Freeport-McMoRan Copper & Gold, Inc. 249,910 29,409,409 ========================================================================= EDUCATION SERVICES-0.89% Apollo Group, Inc.-Class A(b) 265,000 21,003,900 ========================================================================= FOOTWEAR-1.68% Nike, Inc.-Class B 600,496 39,788,865 =========================================================================
SHARES VALUE - -------------------------------------------------------------------------
HEALTH CARE DISTRIBUTORS-2.03% McKesson Corp. 727,725 $ 48,102,622 ========================================================================= HEALTH CARE EQUIPMENT-2.01% Baxter International Inc. 793,408 47,612,414 ========================================================================= HEALTH CARE SERVICES-2.90% Express Scripts, Inc.(b) 496,576 31,333,946 - ------------------------------------------------------------------------- Medco Health Solutions, Inc.(b) 394,879 37,268,680 ========================================================================= 68,602,626 ========================================================================= INDEPENDENT POWER PRODUCERS & ENERGY TRADERS-1.02% NRG Energy, Inc.(b) 529,956 24,197,791 ========================================================================= INDUSTRIAL CONGLOMERATES-2.72% 3M Co. 235,000 20,294,600 - ------------------------------------------------------------------------- McDermott International, Inc.(b) 723,236 44,160,790 ========================================================================= 64,455,390 ========================================================================= INTEGRATED OIL & GAS-4.00% ExxonMobil Corp. 227,718 20,947,779 - ------------------------------------------------------------------------- Marathon Oil Corp. 680,040 40,210,765 - ------------------------------------------------------------------------- Occidental Petroleum Corp. 485,031 33,491,391 ========================================================================= 94,649,935 ========================================================================= INTERNET RETAIL-1.04% Expedia, Inc.(b) 753,000 24,592,980 ========================================================================= INTERNET SOFTWARE & SERVICES-1.96% eBay Inc.(b) 467,000 16,858,700 - ------------------------------------------------------------------------- Google Inc.-Class A(b) 41,865 29,598,555 ========================================================================= 46,457,255 ========================================================================= INVESTMENT BANKING & BROKERAGE-3.02% Goldman Sachs Group, Inc. (The) 287,722 71,332,038 ========================================================================= IT CONSULTING & OTHER SERVICES-2.75% Accenture Ltd.-Class A 1,663,738 64,968,969 ========================================================================= LIFE & HEALTH INSURANCE-2.01% Prudential Financial, Inc. 492,308 47,616,030 ========================================================================= MANAGED HEALTH CARE-4.16% Coventry Health Care, Inc.(b) 380,802 22,966,169 - ------------------------------------------------------------------------- UnitedHealth Group Inc. 638,429 31,378,785 - ------------------------------------------------------------------------- WellPoint Inc.(b) 557,622 44,180,391 ========================================================================= 98,525,345 =========================================================================
9 AIM Large Cap Growth Fund
SHARES VALUE - ------------------------------------------------------------------------- OIL & GAS EQUIPMENT & SERVICES-0.83% National-Oilwell Varco Inc.(b) 268,000 $ 19,628,320 ========================================================================= PHARMACEUTICALS-2.64% Merck & Co. Inc. 655,726 38,202,597 - ------------------------------------------------------------------------- Schering-Plough Corp. 791,369 24,152,582 ========================================================================= 62,355,179 ========================================================================= PROPERTY & CASUALTY INSURANCE-0.71% Chubb Corp. (The) 314,294 16,767,585 ========================================================================= SEMICONDUCTOR EQUIPMENT-2.17% Applied Materials, Inc. 794,756 15,434,161 - ------------------------------------------------------------------------- KLA-Tencor Corp.(c) 278,106 14,642,281 - ------------------------------------------------------------------------- MEMC Electronic Materials, Inc.(b) 292,000 21,380,240 ========================================================================= 51,456,682 ========================================================================= SEMICONDUCTORS-1.46% Intel Corp. 667,741 17,962,233 - ------------------------------------------------------------------------- NVIDIA Corp.(b) 466,500 16,504,770 ========================================================================= 34,467,003 ========================================================================= SOFT DRINKS-1.20% PepsiCo, Inc. 384,484 28,344,160 ========================================================================= SYSTEMS SOFTWARE-6.03% BMC Software, Inc.(b) 749,969 25,378,951 - ------------------------------------------------------------------------- McAfee Inc.(b) 488,164 20,185,582 - ------------------------------------------------------------------------- Microsoft Corp. 1,583,410 58,285,322 - ------------------------------------------------------------------------- Oracle Corp.(b) 1,749,613 38,788,920 ========================================================================= 142,638,775 ========================================================================= TECHNOLOGY DISTRIBUTORS-0.79% Avnet, Inc.(b)(c) 450,000 18,774,000 ========================================================================= Total Domestic Common Stocks (Cost $1,413,921,946) 1,957,161,086 ========================================================================= FOREIGN COMMON STOCKS & OTHER EQUITY INTERESTS-16.69% CANADA-0.77% Research In Motion Ltd. (Communications Equipment)(b) 145,958 18,173,231 ========================================================================= FINLAND-1.97% Nokia Oyj-ADR (Communications Equipment) 1,176,085 46,714,096 =========================================================================
SHARES VALUE - -------------------------------------------------------------------------
HONG KONG-2.49% China Mobile Ltd. (Wireless Telecommunication Services)(d) 2,824,000 $ 58,944,784 ========================================================================= ISRAEL-0.70% Teva Pharmaceutical Industries Ltd.-ADR (Pharmaceuticals) 376,000 16,547,760 ========================================================================= MEXICO-2.84% America Movil S.A.B de C.V.-Series L-ADR (Wireless Telecommunication Services) 1,025,659 67,067,842 ========================================================================= SWITZERLAND-3.95% ABB Ltd. (Heavy Electrical Equipment)(d) 2,107,807 63,743,336 - ------------------------------------------------------------------------- Syngenta A.G. (Fertilizers & Agricultural Chemicals)(d) 123,000 29,704,484 ========================================================================= 93,447,820 ========================================================================= UNITED KINGDOM-3.97% Diageo PLC (Distillers & Vintners)(d) 1,660,000 38,050,841 - ------------------------------------------------------------------------- Rio Tinto PLC-ADR (Diversified Metals & Mining)(c) 82,666 30,999,750 - ------------------------------------------------------------------------- Shire PLC (Pharmaceuticals)(d) 994,462 24,878,734 ========================================================================= 93,929,325 ========================================================================= Total Foreign Common Stocks & Other Equity Interests (Cost $225,026,152) 394,824,858 ========================================================================= MONEY MARKET FUNDS-0.35% Liquid Assets Portfolio-Institutional Class(e) 4,182,068 4,182,068 - ------------------------------------------------------------------------- Premier Portfolio-Institutional Class(e) 4,182,068 4,182,068 ========================================================================= Total Money Market Funds (Cost $8,364,136) 8,364,136 ========================================================================= Total Investments (excluding investments purchased with cash collateral from securities loaned)-99.75% (Cost $1,647,312,234) 2,360,350,080 ========================================================================= INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES ON LOAN MONEY MARKET FUNDS-0.14% Liquid Assets Portfolio-Institutional Class(e)(f)(Cost $3,247,405) 3,247,405 3,247,405 ========================================================================= TOTAL INVESTMENTS-99.89% (Cost $1,650,559,639) 2,363,597,485 ========================================================================= OTHER ASSETS LESS LIABILITIES-0.11% 2,574,431 ========================================================================= NET ASSETS-100.00% $2,366,171,916 _________________________________________________________________________ =========================================================================
Investment Abbreviations: ADR - American Depository Receipt
10 AIM Large Cap Growth Fund Notes to Schedule of Investments: (a) Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of Morgan Stanley Capital International Inc. and Standard & Poor's. (b) Non-income producing security. (c) All or a portion of this security was out on loan at October 31, 2007. (d) In accordance with the procedures established by the Board of Trustees, the foreign security is fair valued using adjusted closing market prices. The aggregate value of these securities at October 31, 2007 was $215,322,179, which represented 9.10% of the Fund's Net Assets. See Note 1A. (e) The money market fund and the Fund are affiliated by having the same investment advisor. See Note 3. (f) The security has been segregated to satisfy the commitment to return the cash collateral received in securities lending transactions upon the borrower's return of the securities loaned. See Note 8. See accompanying Notes to Financial Statements which are an integral part of the financial statements. 11 AIM Large Cap Growth Fund STATEMENT OF ASSETS AND LIABILITIES October 31, 2007 ASSETS: Investments, at value (Cost $1,638,948,098)* $2,351,985,944 - ------------------------------------------------------------ Investments in affiliated money market funds (Cost $11,611,541) 11,611,541 - ------------------------------------------------------------ Total investments (Cost $1,650,559,639) 2,363,597,485 - ------------------------------------------------------------ Foreign currencies, at value (Cost $45) 46 - ------------------------------------------------------------ Receivables for: Investments sold 57,555,296 - ------------------------------------------------------------ Fund shares sold 1,158,276 - ------------------------------------------------------------ Dividends 1,451,674 - ------------------------------------------------------------ Investment for trustee deferred compensation and retirement plans 303,481 - ------------------------------------------------------------ Other assets 24,737 ============================================================ Total assets 2,424,090,995 ____________________________________________________________ ============================================================ LIABILITIES: Payables for: Investments purchased 47,441,091 - ------------------------------------------------------------ Fund shares reacquired 3,922,515 - ------------------------------------------------------------ Trustee deferred compensation and retirement plans 558,370 - ------------------------------------------------------------ Collateral upon return of securities loaned 3,247,405 - ------------------------------------------------------------ Fund expenses advanced 403,818 - ------------------------------------------------------------ Accrued distribution fees 841,561 - ------------------------------------------------------------ Accrued trustees' and officer's fees and benefits 4,025 - ------------------------------------------------------------ Accrued transfer agent fees 1,142,566 - ------------------------------------------------------------ Accrued operating expenses 357,728 ============================================================ Total liabilities 57,919,079 ============================================================ Net assets applicable to shares outstanding $2,366,171,916 ____________________________________________________________ ============================================================ NET ASSETS CONSIST OF: Shares of beneficial interest $2,949,963,439 - ------------------------------------------------------------ Undistributed net investment income (loss) (418,922) - ------------------------------------------------------------ Undistributed net realized gain (loss) (1,296,420,382) - ------------------------------------------------------------ Unrealized appreciation 713,047,781 ============================================================ $2,366,171,916 ____________________________________________________________ ============================================================ NET ASSETS: Class A $1,064,816,731 ____________________________________________________________ ============================================================ Class B $ 497,990,364 ____________________________________________________________ ============================================================ Class C $ 182,975,194 ____________________________________________________________ ============================================================ Class R $ 11,465,160 ____________________________________________________________ ============================================================ Investor Class $ 360,072,568 ____________________________________________________________ ============================================================ Institutional Class $ 248,851,899 ____________________________________________________________ ============================================================ SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Class A 77,913,317 ____________________________________________________________ ============================================================ Class B 38,667,449 ____________________________________________________________ ============================================================ Class C 14,205,533 ____________________________________________________________ ============================================================ Class R 847,605 ____________________________________________________________ ============================================================ Investor Class 26,176,330 ____________________________________________________________ ============================================================ Institutional Class 17,854,009 ____________________________________________________________ ============================================================ Class A: Net asset value per share $ 13.67 - ------------------------------------------------------------ Offering price per share (Net asset value of $13.67 divided by 94.50%) $ 14.47 ____________________________________________________________ ============================================================ Class B: Net asset value and offering price per share $ 12.88 ____________________________________________________________ ============================================================ Class C: Net asset value and offering price per share $ 12.88 ____________________________________________________________ ============================================================ Class R: Net asset value and offering price per share $ 13.53 ____________________________________________________________ ============================================================ Investor Class: Net asset value and offering price per share $ 13.76 ____________________________________________________________ ============================================================ Institutional Class: Net asset value and offering price per share $ 13.94 ____________________________________________________________ ============================================================
* At October 31, 2007, securities with an aggregate value of $3,238,395 were on loan to brokers. See accompanying Notes to Financial Statements which are an integral part of the financial statements. 12 AIM Large Cap Growth Fund STATEMENT OF OPERATIONS For the year ended October 31, 2007 INVESTMENT INCOME: Dividends (net of foreign withholding taxes of $164,779) $ 22,267,301 - -------------------------------------------------------------------------- Dividends from affiliated money market funds (includes securities lending income of $16,149) 808,458 ========================================================================== Total investment income 23,075,759 ========================================================================== EXPENSES: Advisory fees 14,450,820 - -------------------------------------------------------------------------- Administrative services fees 492,253 - -------------------------------------------------------------------------- Custodian fees 149,497 - -------------------------------------------------------------------------- Distribution fees: Class A 2,459,600 - -------------------------------------------------------------------------- Class B 5,503,317 - -------------------------------------------------------------------------- Class C 1,740,324 - -------------------------------------------------------------------------- Class R 55,054 - -------------------------------------------------------------------------- Investor Class 533,916 - -------------------------------------------------------------------------- Transfer agent fees -- A, B, C, R and Investor 8,096,762 - -------------------------------------------------------------------------- Transfer agent fees -- Institutional 50,288 - -------------------------------------------------------------------------- Trustees' and officer's fees and benefits 95,397 - -------------------------------------------------------------------------- Other 500,077 ========================================================================== Total expenses 34,127,305 ========================================================================== Less: Fees waived, expenses reimbursed and expense offset arrangement(s) (503,803) ========================================================================== Net expenses 33,623,502 ========================================================================== Net investment income (loss) (10,547,743) ========================================================================== REALIZED AND UNREALIZED GAIN FROM: Net realized gain from: Investment securities 91,804,428 - -------------------------------------------------------------------------- Foreign currencies 255,184 ========================================================================== 92,059,612 ========================================================================== Change in net unrealized appreciation of: Investment securities 366,171,449 - -------------------------------------------------------------------------- Foreign currencies 9,275 ========================================================================== 366,180,724 ========================================================================== Net realized and unrealized gain 458,240,336 ========================================================================== Net increase in net assets resulting from operations $447,692,593 __________________________________________________________________________ ==========================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. 13 AIM Large Cap Growth Fund STATEMENT OF CHANGES IN NET ASSETS For the years ended October 31, 2007 and 2006
2007 2006 - ---------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ (10,547,743) $ (6,388,762) - ---------------------------------------------------------------------------------------------- Net realized gain 92,059,612 34,640,620 - ---------------------------------------------------------------------------------------------- Change in net unrealized appreciation 366,180,724 41,073,265 ============================================================================================== Net increase in net assets resulting from operations 447,692,593 69,325,123 ============================================================================================== Share transactions-net: Class A (116,424,142) 797,818,235 - ---------------------------------------------------------------------------------------------- Class B (240,673,085) 531,931,575 - ---------------------------------------------------------------------------------------------- Class C (30,338,732) 127,954,867 - ---------------------------------------------------------------------------------------------- Class R (1,882,749) 8,586,939 - ---------------------------------------------------------------------------------------------- Investor Class (56,295,760) (45,992,082) - ---------------------------------------------------------------------------------------------- Institutional Class 70,700,909 731,505 ============================================================================================== Net increase (decrease) in net assets resulting from share transactions (374,913,559) 1,421,031,039 ============================================================================================== Net increase in net assets 72,779,034 1,490,356,162 ============================================================================================== NET ASSETS: Beginning of year 2,293,392,882 803,036,720 ============================================================================================== End of year (including undistributed net investment income (loss) of $(418,922) and $(2,870,028), respectively) $2,366,171,916 $2,293,392,882 ______________________________________________________________________________________________ ==============================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. 14 AIM Large Cap Growth Fund NOTES TO FINANCIAL STATEMENTS October 31, 2007 NOTE 1--SIGNIFICANT ACCOUNTING POLICIES AIM Large Cap Growth Fund (the "Fund") is a series portfolio of AIM Equity Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of six separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The Fund currently consists of multiple classes of shares. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. The Fund's investment objective is long-term growth of capital. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements. A. SECURITY VALUATIONS -- Securities, including restricted securities, are valued according to the following policy. A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and the ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange ("NYSE"). Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and may make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, ADRs and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust's officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security's fair value. Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer's assets, general economic conditions, interest rates, investor perceptions and market liquidity. B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. 15 AIM Large Cap Growth Fund The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds as received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund's net asset value and, accordingly, they reduce the Fund's total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the advisor. The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. C. COUNTRY DETERMINATION -- For the purposes of making investment selection decisions and presentation in the Schedule of Investments, AIM may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer's securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America unless otherwise noted. D. DISTRIBUTIONS -- Distributions from income and net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to treat a portion of the proceeds from redemptions as distributions for federal income tax purposes. E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund's taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular class of the Fund are charged to the operations of such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses attributable to the Institutional Class are charged to such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses relating to all other classes are allocated among those classes based on relative net assets. All other expenses are allocated among the classes based on relative net assets. G. ACCOUNTING ESTIMATES -- The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates. H. INDEMNIFICATIONS -- Under the Trust's organizational documents, each Trustee, officer, employee or other agent of the Trust (including the Trust's investment manager) is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts that contain a variety of indemnification clauses. The Fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. I. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (i) sales of foreign currencies, (ii) currency gains or losses realized between the trade and settlement dates on securities transactions, and (iii) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. Taxes are accrued based on the Fund's current interpretation of tax regulations and rates that exist in the foreign markets in which the Fund invests. J. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a foreign currency contract to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. The Fund may also enter into a foreign currency contract for the purchase or sale of a security denominated in a 16 AIM Large Cap Growth Fund foreign currency in order to "lock in" the U.S. dollar price of that security. Fluctuations in the value of these contracts are recorded as unrealized appreciation (depreciation) until the contracts are closed. When these contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains and losses on these contracts are included in the Statement of Operations. The Fund could be exposed to risk, which may be in excess of the amount reflected in the Statement of Assets and Liabilities, if counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES The Trust has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to AIM based on the annual rate of the Fund's average daily net assets as follows:
AVERAGE NET ASSETS RATE - -------------------------------------------------------------------- First $350 million 0.75% - -------------------------------------------------------------------- Over $350 million 0.625% ___________________________________________________________________ ====================================================================
Effective July 1, 2007, the Trustees approved a reduced contractual advisory fee schedule for the Fund. Prior to July 1, 2007 AIM had contractually waived advisory fees to the same reduced advisory fee schedule. Under the terms of the investment advisory agreement, the Fund will pay an advisory fee to AIM based on the following annual rates of the Fund's average daily net assets:
AVERAGE NET ASSETS RATE - -------------------------------------------------------------------- First $250 million 0.695% - -------------------------------------------------------------------- Next $250 million 0.67% - -------------------------------------------------------------------- Next $500 million 0.645% - -------------------------------------------------------------------- Next $1.5 billion 0.62% - -------------------------------------------------------------------- Next $2.5 billion 0.595% - -------------------------------------------------------------------- Next $2.5 billion 0.57% - -------------------------------------------------------------------- Next $2.5 billion 0.545% - -------------------------------------------------------------------- Over $10 billion 0.52% ___________________________________________________________________ ====================================================================
AIM has contractually agreed to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual operating expenses (excluding certain items discussed below) of Class A, Class B, Class C, Class R, Investor Class and Institutional Class shares to 1.32%, 2.07%, 2.07%, 1.57%, 1.32% and 1.07% of average daily net assets, respectively, through at least June 30, 2008. In determining the advisor's obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the net annual operating expenses to exceed the numbers reflected above: (i) interest; (ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary items; (v) expenses related to a merger or reorganization, as approved by the Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Currently, in addition to the expense reimbursement arrangement with Invesco Ltd. ("Invesco") described more fully below, the expense offset arrangements from which the Fund may benefit are in the form of credits that the Fund receives from banks where the Fund or its transfer agent has deposit accounts in which it holds uninvested cash. In addition, the Fund may also benefit from a one time credit to be used to offset custodian expenses. These credits are used to pay certain expenses incurred by the Fund. Further, effective July 1, 2007, AIM has contractually agreed, through at least June 30, 2008, to waive 100% of the advisory fee AIM receives from the affiliated money market funds on investments by the Fund in such affiliated money market funds (excluding investments made in affiliated money market funds with cash collateral from securities loaned by the fund). Prior to July 1, 2007, AIM had voluntarily agreed to waive 25% of the advisory fee AIM receives from the affiliated money market funds on investments by the Fund in such affiliated money market funds. For the year ended October 31, 2007, AIM waived advisory fees of $82,672 and reimbursed $144,905 of class level expenses of Class A, Class B, Class C, Class R and Investor Class shares in proportion to the net assets of each class. At October 31, 2007, the advisor advanced to the Fund $403,818 for the payment of fund expenses. At the request of the Trustees of the Trust, Invesco agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. These expenses along with the related expense reimbursement are included in the Statement of Operations. For the year ended October 31, 2007, Invesco reimbursed expenses of the Fund in the amount of $766. The Trust has entered into a master administrative services agreement with AIM pursuant to which the Fund has agreed to pay AIM for certain administrative costs incurred in providing accounting services, to the Fund. For the year ended October 31, 2007, expenses incurred under the agreement are shown in the Statement of Operations as administrative services fees. The Trust has entered into a transfer agency and service agreement with AIM Investment Services, Inc. ("AIS") pursuant to which the Fund has agreed to pay AIS a fee for providing transfer agency and shareholder services to the Fund and reimburse AIS for certain expenses incurred by AIS in the course of providing such services. AIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking 17 AIM Large Cap Growth Fund services. All fees payable by AIS to intermediaries that provide omnibus account services or sub-accounting are charged back to the Fund, subject to certain limitations approved by the Trust's Board of Trustees. For the year ended October 31, 2007, expenses incurred under the agreement are shown in the Statement of Operations as transfer agent fees. The Trust has entered into master distribution agreements with A I M Distributors, Inc. ("ADI") to serve as the distributor for the Class A, Class B, Class C, Class R, Investor Class and Institutional Class shares of the Fund. The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A, Class B, Class C, Class R and Investor Class shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays ADI compensation at the annual rate of 0.25% of the Fund's average daily net assets of Class A shares, 1.00% of the average daily net assets of Class B and Class C shares and 0.50% of the average daily net assets of Class R shares. The Fund, pursuant to the Investor Class Plan, reimburses ADI for its allocated share of expenses incurred pursuant to the Investor Class Plan for the period, up to a maximum annual rate of 0.25% of the average daily net assets of Investor Class shares. Of the Plan payments, up to 0.25% of the average daily net assets of each class of shares may be paid to furnish continuing personal shareholder services to customers who purchase and own shares of such classes. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. Financial Industry Regulatory Authority ("FINRA"), formerly known as National Association of Securities Dealers, 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. For the year ended October 31, 2007, expenses incurred under the Plans are shown in the Statement of Operations as distribution fees. Front-end sales commissions and contingent deferred sales charges ("CDSC") (collectively the "sales charges") are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. During the year ended October 31, 2007, ADI advised the Fund that it retained $177,194 in front-end sales commissions from the sale of Class A shares and $716, $394,486, $10,703 and $0 from Class A, Class B, Class C and Class R shares, respectively, for CDSC imposed on redemptions by shareholders. Certain officers and trustees of the Trust are officers and directors of AIM, AIS and/or ADI. NOTE 3--INVESTMENTS IN AFFILIATES The Fund is permitted, pursuant to procedures approved by the Board of Trustees, to invest daily available cash balances and cash collateral from securities lending transactions in affiliated money market funds. The Fund and the money market funds below have the same investment advisor and therefore, are considered to be affiliated. The tables below show the transactions in and earnings from investments in affiliated money market funds for the year ended October 31, 2007. During the period each investment maintained a $1.00 net asset value, as such there is no realized gain/(loss) and no change in unrealized appreciation/(depreciation). INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
VALUE PURCHASES PROCEEDS VALUE DIVIDEND FUND 10/31/06 AT COST FROM SALES 10/31/07 INCOME - ------------------------------------------------------------------------------------------------- Liquid Assets Portfolio-Institutional Class $18,157,343 $218,482,942 $(232,458,217) $4,182,068 $397,118 - ------------------------------------------------------------------------------------------------- Premier Portfolio-Institutional Class 18,157,343 218,482,942 (232,458,217) 4,182,068 395,191 ================================================================================================= Subtotal $36,314,686 $436,965,884 $(464,916,434) $8,364,136 $792,309 _________________________________________________________________________________________________ =================================================================================================
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
VALUE PURCHASES PROCEEDS VALUE DIVIDEND FUND 10/31/06 AT COST FROM SALES 10/31/07 INCOME* - ------------------------------------------------------------------------------------------------- Liquid Assets Portfolio-Institutional Class $ -- $ 317,101,666 $ (313,854,261) $ 3,247,405 $ 2,322 - ------------------------------------------------------------------------------------------------- STIC Prime Portfolio-Institutional Class 34,785,504 812,888,646 (847,674,150) -- 13,827 - ------------------------------------------------------------------------------------------------- Subtotal $34,785,504 $1,129,990,312 $(1,161,528,411) $ 3,247,405 $ 16,149 ================================================================================================= Total Investments in Affiliates $71,100,190 $1,566,956,196 $(1,626,444,845) $11,611,541 $808,458 _________________________________________________________________________________________________ =================================================================================================
* Net of compensation to counterparties. NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS The Fund is permitted to purchase or sell securities from or to certain other AIM Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment advisor (or affiliated investment advisors), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the year ended October 31, 2007, the Fund engaged in securities purchases of $18,275,250. 18 AIM Large Cap Growth Fund NOTE 5--EXPENSE OFFSET ARRANGEMENTS The expense offset arrangements are comprised of (i) transfer agency credits which result from balances in Demand Deposit Accounts (DDA) used by the transfer agent for clearing shareholder transactions, (ii) custodian credits which result from periodic overnight cash balances at the custodian and (iii) a one time custodian fee credit used to offset custodian fees. For the year ended October 31, 2007, the Fund received credits from these arrangements, which resulted in the reduction of the Fund's total expenses of $275,460. NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various AIM Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. During the year ended October 31, 2007, the Fund paid legal fees of $15,070 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust. NOTE 7--BORROWINGS Pursuant to an exemptive order from the Securities and Exchange Commission, the Fund may participate in an interfund lending facility that AIM has established for temporary borrowings by the AIM Funds. An interfund loan will be made under this facility only if the loan rate (an average of the rate available on bank loans and the rate available on investments in overnight repurchase agreements) is favorable to both the lending fund and the borrowing fund. A loan will be secured by collateral if the Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total assets. To the extent that the loan is required to be secured by collateral, the collateral is marked to market daily to ensure that the market value is at least 102% of the outstanding principal value of the loan. The Fund is a party to an uncommitted unsecured revolving credit facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM, which are parties to the credit facility, can borrow on a first come, first served basis. Principal on each loan outstanding shall bear interest at the bid rate quoted by SSB at the time of the request for the loan. During the year ended October 31, 2007, the Fund did not borrow or lend under the interfund lending facility or borrow under the uncommitted unsecured revolving credit facility. Additionally, the Fund is permitted to temporarily carry a negative or overdrawn balance in its account with SSB, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (ii) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and AIM, not to exceed the contractually agreed upon rate. NOTE 8--PORTFOLIO SECURITIES LOANED The Fund may lend portfolio securities having a market value up to one-third of the Fund's total assets. Such loans are secured by collateral equal to no less than the market value of the loaned securities determined daily. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds. It is the Fund's policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. Lending securities entails a risk of loss to the Fund if and to the extent that the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower fails to return the securities. The Fund could also experience delays and costs in gaining access to the collateral. The Fund bears the risk of any deficiency in the amount of the collateral available for return to the borrower due to any loss on the collateral invested. At October 31, 2007, securities with an aggregate value of $3,238,395 were on loan to brokers. The loans were secured by cash collateral of $3,247,405 received by the Fund and subsequently invested in affiliated money market funds. For the year ended October 31, 2007, the Fund received dividends on cash collateral investments of $16,149 for securities lending transactions, which are net of compensation to counterparties. 19 AIM Large Cap Growth Fund 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, 2007 and 2006. TAX COMPONENTS OF NET ASSETS: As of October 31, 2007, the components of net assets on a tax basis were as follows:
2007 - ------------------------------------------------------------------------------- Net unrealized appreciation -- investments $ 700,473,275 - ------------------------------------------------------------------------------- Temporary book/tax differences (418,922) - ------------------------------------------------------------------------------- Capital loss carryforward (1,283,845,876) - ------------------------------------------------------------------------------- Shares of beneficial interest 2,949,963,439 =============================================================================== Total net assets $ 2,366,171,916 _______________________________________________________________________________ ===============================================================================
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund's net unrealized appreciation difference is attributable primarily to losses on wash sales. The tax-basis net unrealized appreciation on investments amount includes appreciation on foreign currencies of $9,934. The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund's temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits. Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions. Under these limitation rules, the Fund is limited as of October 31, 2007 to utilizing $1,124,502,715 of capital loss carryforward in the fiscal year ended October 31, 2008. The Fund utilized $90,679,109 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, 2007 which expires as follows:
CAPITAL LOSS EXPIRATION CARRYFORWARD* - ------------------------------------------------------------------------------ October 31, 2008 $ 205,304,058 - ------------------------------------------------------------------------------ October 31, 2009 617,527,392 - ------------------------------------------------------------------------------ October 31, 2010 425,918,822 - ------------------------------------------------------------------------------ October 31, 2011 35,095,604 ============================================================================== Total capital loss carryforward $1,283,845,876 ______________________________________________________________________________ ==============================================================================
* 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 and March 27, 2006, the dates the reorganizations of INVESCO Growth Fund and AIM Blue Chip Fund, respectively, into the Fund are realized on securities held in each fund at such dates of reorganizations, the capital loss carryforward may be further limited for up to five years from the dates of the reorganizations. NOTE 10--INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended October 31, 2007 was $1,228,142,424 and $1,592,610,327, respectively.
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS - ------------------------------------------------------------------------------ Aggregate unrealized appreciation of investment securities $704,426,469 - ------------------------------------------------------------------------------ Aggregate unrealized (depreciation) of investment securities (3,963,128) ============================================================================== Net unrealized appreciation of investment securities $700,463,341 ______________________________________________________________________________ ============================================================================== Cost of investments for tax purposes is $1,663,134,144.
20 AIM Large Cap Growth Fund NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES Primarily as a result of differing book/tax treatment of net operating losses, capital loss carryforward limitations, passive foreign investment companies, and foreign currency transactions, on October 31, 2007, undistributed net investment income (loss) was increased by $12,998,849, undistributed net realized gain (loss) was increased by $4,342,805 and shares of beneficial interest decreased by $17,341,654. This reclassification had no effect on the net assets of the Fund. NOTE 12--SHARE INFORMATION The Fund currently consists of six different classes of shares: Class A, Class B, Class C, Class R, Investor Class and Institutional Class. Investor Class shares of the Fund are offered only to certain grandfathered investors. Class A shares are sold with a front-end sales charge unless certain waiver criteria are met and under certain circumstances load waiver shares may be subject to a CDSC. Class B shares and Class C shares are sold with a CDSC. Class R shares, Investor Class and Institutional Class shares are sold at net asset value. Under certain circumstances, Class R shares are subject to a CDSC. Generally, Class B shares will automatically convert to Class A shares on or about the month-end which is at least eight years after the date of purchase.
CHANGES IN SHARES OUTSTANDING - --------------------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED OCTOBER 31, 2007(A) OCTOBER 31, 2006 ---------------------------- ----------------------------- SHARES AMOUNT SHARES AMOUNT - --------------------------------------------------------------------------------------------------------------------------- Sold: Class A 7,618,152 $ 91,863,662 7,313,552 $ 79,031,698 - --------------------------------------------------------------------------------------------------------------------------- Class B 2,356,792 26,741,612 2,428,981 25,242,050 - --------------------------------------------------------------------------------------------------------------------------- Class C 1,578,033 17,980,439 1,736,978 17,948,117 - --------------------------------------------------------------------------------------------------------------------------- Class R 361,342 4,194,311 257,873 2,752,465 - --------------------------------------------------------------------------------------------------------------------------- Investor Class 1,656,255 20,005,885 2,925,879 32,053,695 - --------------------------------------------------------------------------------------------------------------------------- Institutional Class 7,234,808 87,008,177 8,121,610 89,171,285 =========================================================================================================================== Issued in connection with acquisitions:(b) Class A -- -- 76,630,601 856,263,389 - --------------------------------------------------------------------------------------------------------------------------- Class B -- -- 65,818,985 701,371,944 - --------------------------------------------------------------------------------------------------------------------------- Class C -- -- 13,971,151 148,874,411 - --------------------------------------------------------------------------------------------------------------------------- Class R -- -- 684,951 7,603,848 - --------------------------------------------------------------------------------------------------------------------------- Investor Class -- -- 2,338,111 26,266,730 - --------------------------------------------------------------------------------------------------------------------------- Institutional Class -- -- 567,245 6,405,708 =========================================================================================================================== Automatic conversion of Class B shares to Class A shares: Class A 9,931,414 118,653,844 5,883,942 63,398,791 - --------------------------------------------------------------------------------------------------------------------------- Class B (10,498,260) (118,653,844) (6,181,086) (63,398,791) =========================================================================================================================== Reacquired: Class A (27,346,381) (326,941,648) (18,606,521) (200,875,643) - --------------------------------------------------------------------------------------------------------------------------- Class B (13,185,360) (148,760,853) (12,775,786) (131,283,628) - --------------------------------------------------------------------------------------------------------------------------- Class C (4,282,431) (48,319,171) (3,780,840) (38,867,661) - --------------------------------------------------------------------------------------------------------------------------- Class R (525,094) (6,077,060) (162,796) (1,769,374) - --------------------------------------------------------------------------------------------------------------------------- Investor Class (6,365,957) (76,301,645) (9,601,772) (104,312,507) - --------------------------------------------------------------------------------------------------------------------------- Institutional Class (1,318,036) (16,307,268) (8,833,359) (94,845,488) =========================================================================================================================== (32,784,723) $(374,913,559) 128,737,699 $1,421,031,039 ___________________________________________________________________________________________________________________________ ===========================================================================================================================
(a) There is one entity that is a record owner of more than 5% of the outstanding shares of the Fund and it owns 6% of the outstanding shares of the Fund. ADI has an agreement with this entity to sell Fund shares. The Fund, AIM and/or AIM affiliates may make payments to this entity, which is considered to be related to the Fund, for providing services to the Fund, AIM and/or AIM affiliates including but not limited to services such as, securities brokerage, distribution, third party record keeping and account servicing. The Trust has no knowledge as to whether all or any portion of the shares owned of record by this entity are owned beneficially. (b) As of the opening of business on March 27, 2006, the Fund acquired all the net assets of AIM Blue Chip Fund pursuant to a plan of reorganization approved by the Trustees of the Fund on November 14, 2005 and by the shareholders of AIM Blue Chip Fund on March 16, 2006. The acquisition was accomplished by a tax free exchange of 160,011,044 shares of the Fund for 143,598,634 shares of AIM Blue Chip Fund shares outstanding as of the close of business on March 24, 2006. Each class of shares of AIM Blue Chip Fund was exchanged for the like class of shares of the Fund based on the relative net asset value of AIM Blue Chip to the net asset value of the Fund on the close of business, March 24, 2006. AIM Blue Chip Fund's net assets as of the close of business on March 24, 2006 of $1,746,786,030 including $179,650,513 of unrealized appreciation, were combined with the net assets of the Fund immediately before the acquisition of $888,920,491. The combined aggregate net assets of the Fund subsequent to the reorganization were $2,635,706,521. 21 AIM Large Cap Growth Fund NOTE 13--NEW ACCOUNTING STANDARD In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48"). FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement for a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The provisions for FIN 48 are effective for fiscal years beginning after December 15, 2006. Management has assessed the application of FIN 48 to the Fund and has determined that the adopting of FIN 48 is not expected to have a material impact on the Fund. Management intends for the Fund to adopt FIN 48 provisions during the fiscal year ending October 31, 2008 as required. NOTE 14--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
CLASS A ------------------------------------------------------------- YEAR ENDED OCTOBER 31, ------------------------------------------------------------- 2007 2006 2005 2004 2003 - --------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 11.19 $ 10.12 $ 9.16 $ 8.88 $ 7.37 - --------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (0.04)(a) (0.01) (0.02)(b) (0.08)(a) (0.08)(a) - --------------------------------------------------------------------------------------------------------------------------- Net gains on securities (both realized and unrealized) 2.52 1.08 0.98 0.36 1.59 =========================================================================================================================== Total from investment operations 2.48 1.07 0.96 0.28 1.51 =========================================================================================================================== Net asset value, end of period $ 13.67 $ 11.19 $ 10.12 $ 9.16 $ 8.88 ___________________________________________________________________________________________________________________________ =========================================================================================================================== Total return(c) 22.16% 10.57% 10.48% 3.15% 20.49% ___________________________________________________________________________________________________________________________ =========================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $1,064,817 $981,750 $166,860 $177,498 $154,052 ___________________________________________________________________________________________________________________________ =========================================================================================================================== Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.33%(d) 1.32% 1.47% 1.54% 1.82% - --------------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.34%(d) 1.42% 1.56% 1.55% 1.82% ___________________________________________________________________________________________________________________________ =========================================================================================================================== Ratio of net investment income (loss) to average net assets (0.30)%(d) (0.17)% (0.20)%(b) (0.92)% (1.01)% - --------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 55% 70% 103% 111% 123% ___________________________________________________________________________________________________________________________ ===========================================================================================================================
(a) Calculated using average shares outstanding. (b) Net investment income (loss) per share and the ratio of net investment income (loss) to average net assets include a special cash dividend received of $3.00 per share owned of Microsoft Corp. on December 2, 2004. Net investment income (loss) per share and the ratio of net investment income (loss) to average net assets excluding the special dividend are $(0.04) and (0.36)%, respectively. (c) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges. (d) Ratios are based on average daily net assets of $983,840,134. 22 AIM Large Cap Growth Fund NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
CLASS B ----------------------------------------------------------- YEAR ENDED OCTOBER 31, ----------------------------------------------------------- 2007 2006 2005 2004 2003 - ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.63 $ 9.69 $ 8.82 $ 8.61 $ 7.20 - ------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (0.12)(a) (0.07) (0.09)(b) (0.14)(a) (0.12)(a) - ------------------------------------------------------------------------------------------------------------------------- Net gains on securities (both realized and unrealized) 2.37 1.01 0.96 0.35 1.53 ========================================================================================================================= Total from investment operations 2.25 0.94 0.87 0.21 1.41 ========================================================================================================================= Net asset value, end of period $ 12.88 $ 10.63 $ 9.69 $ 8.82 $ 8.61 _________________________________________________________________________________________________________________________ ========================================================================================================================= Total return(c) 21.17% 9.70% 9.86% 2.44% 19.58% _________________________________________________________________________________________________________________________ ========================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $497,990 $637,594 $103,688 $112,931 $122,011 _________________________________________________________________________________________________________________________ ========================================================================================================================= Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 2.08%(d) 2.07% 2.15% 2.19% 2.47% - ------------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 2.09%(d) 2.17% 2.24% 2.20% 2.47% _________________________________________________________________________________________________________________________ ========================================================================================================================= Ratio of net investment income (loss) to average net assets (1.05)%(d) (0.92)% (0.88)%(b) (1.57)% (1.66)% - ------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 55% 70% 103% 111% 123% _________________________________________________________________________________________________________________________ =========================================================================================================================
(a) Calculated using average shares outstanding. (b) Net investment income (loss) per share and the ratio of net investment income (loss) to average net assets include a special cash dividend received of $3.00 per share owned of Microsoft Corp. on December 2, 2004. Net investment income (loss) per share and the ratio of net investment income (loss) to average net assets excluding the special dividend are $(0.11) and (1.04)%, respectively. (c) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges. (d) Ratios are based on average daily net assets of $550,331,716.
CLASS C -------------------------------------------------------- YEAR ENDED OCTOBER 31, -------------------------------------------------------- 2007 2006 2005 2004 2003 - ---------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.63 $ 9.69 $ 8.83 $ 8.62 $ 7.21 - ---------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (0.12)(a) (0.07) (0.09)(b) (0.14)(a) (0.12)(a) - ---------------------------------------------------------------------------------------------------------------------- Net gains on securities (both realized and unrealized) 2.37 1.01 0.95 0.35 1.53 ====================================================================================================================== Total from investment operations 2.25 0.94 0.86 0.21 1.41 ====================================================================================================================== Net asset value, end of period $ 12.88 $ 10.63 $ 9.69 $ 8.83 $ 8.62 ______________________________________________________________________________________________________________________ ====================================================================================================================== Total return(c) 21.17% 9.70% 9.74% 2.44% 19.56% ______________________________________________________________________________________________________________________ ====================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $182,975 $179,730 $48,293 $48,420 $44,272 ______________________________________________________________________________________________________________________ ====================================================================================================================== Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 2.08%(d) 2.07% 2.15% 2.19% 2.47% - ---------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 2.09%(d) 2.17% 2.24% 2.20% 2.47% ====================================================================================================================== Ratio of net investment income (loss) to average net assets (1.05)%(d) (0.92)% (0.88)%(b) (1.57)% (1.66)% ______________________________________________________________________________________________________________________ ====================================================================================================================== Portfolio turnover rate 55% 70% 103% 111% 123% ______________________________________________________________________________________________________________________ ======================================================================================================================
(a) Calculated using average shares outstanding. (b) Net investment income (loss) per share and the ratio of net investment income (loss) to average net assets include a special cash dividend received of $3.00 per share owned of Microsoft Corp. on December 2, 2004. Net investment income (loss) per share and the ratio of net investment income (loss) to average net assets excluding the special dividend are $(0.11) and (1.04)%, respectively. (c) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges. (d) Ratios are based on average daily net assets of $174,032,376. 23 AIM Large Cap Growth Fund NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
CLASS R ----------------------------------------------------- YEAR ENDED OCTOBER 31, ----------------------------------------------------- 2007 2006 2005 2004 2003 - ------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 11.10 $ 10.07 $ 9.13 $ 8.87 $ 7.37 - ------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (0.07)(a) (0.03) (0.04)(b) (0.10)(a) (0.09)(a) - ------------------------------------------------------------------------------------------------------------------- Net gains on securities (both realized and unrealized) 2.50 1.06 0.98 0.36 1.59 =================================================================================================================== Total from investment operations 2.43 1.03 0.94 0.26 1.50 =================================================================================================================== Net asset value, end of period $ 13.53 $ 11.10 $ 10.07 $ 9.13 $ 8.87 ___________________________________________________________________________________________________________________ =================================================================================================================== Total return(c) 21.89% 10.23% 10.30% 2.93% 20.35% ___________________________________________________________________________________________________________________ =================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $11,465 $11,231 $ 2,330 $ 2,761 $2,127 ___________________________________________________________________________________________________________________ =================================================================================================================== Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.58%(d) 1.57% 1.65% 1.69% 1.97% - ------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.59%(d) 1.67% 1.74% 1.70% 1.97% =================================================================================================================== Ratio of net investment income (loss) to average net assets (0.55)%(d) (0.42)% (0.38)%(b) (1.07)% (1.16)% ___________________________________________________________________________________________________________________ =================================================================================================================== Portfolio turnover rate 55% 70% 103% 111% 123% ___________________________________________________________________________________________________________________ ===================================================================================================================
(a) Calculated using average shares outstanding. (b) Net investment income (loss) per share and the ratio of net investment income (loss) to average net assets include a special cash dividend received of $3.00 per share owned of Microsoft Corp. on December 2, 2004. Net investment income (loss) per share and the ratio of net investment income (loss) to average net assets excluding the special dividend are $(0.06) and (0.54)%, respectively. (c) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. (d) Ratios are based on average daily net assets of $11,010,820.
INVESTOR CLASS ---------------------------------------------------------------- SEPTEMBER 30, 2003 (COMMENCEMENT YEAR ENDED OCTOBER 31, DATE) TO ----------------------------------------------- OCTOBER 31, 2007 2006 2005 2004 2003 - ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 11.25 $ 10.18 $ 9.20 $ 8.88 $ 8.24 - ------------------------------------------------------------------------------------------------------------------------------ Income from investment operations: Net investment income (loss) (0.03)(a) (0.01) (0.01)(b) (0.05)(a)(c) (0.01)(a) - ------------------------------------------------------------------------------------------------------------------------------ Net gains on securities (both realized and unrealized) 2.54 1.08 0.99 0.37 0.65 ============================================================================================================================== Total from investment operations 2.51 1.07 0.98 0.32 0.64 ============================================================================================================================== Net asset value, end of period $ 13.76 $ 11.25 $ 10.18 $ 9.20 $ 8.88 ______________________________________________________________________________________________________________________________ ============================================================================================================================== Total return(d) 22.31% 10.51% 10.65% 3.60%(c) 7.77% ______________________________________________________________________________________________________________________________ ============================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $360,073 $347,621 $358,498 $376,905 $ 174 ______________________________________________________________________________________________________________________________ ============================================================================================================================== Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.24%(e) 1.27% 1.34% 1.19%(c) 1.56%(f) - ------------------------------------------------------------------------------------------------------------------------------ Without fee waivers and/or expense reimbursements 1.25%(e) 1.37% 1.43% 1.42% 1.56%(f) ============================================================================================================================== Ratio of net investment income (loss) to average net assets (0.21)%(e) (0.12)% (0.07)%(b) (0.57)%(c) (0.75)%(f) ______________________________________________________________________________________________________________________________ ============================================================================================================================== Portfolio turnover rate(g) 55% 70% 103% 111% 123% ______________________________________________________________________________________________________________________________ ==============================================================================================================================
(a) Calculated using average shares outstanding. (b) Net investment income (loss) per share and the ratio of net investment income (loss) to average net assets include a special cash dividend received of $3.00 per share owned of Microsoft Corp. on December 2, 2004. Net investment income (loss) per share and the ratio of net investment income (loss) to average net assets excluding the special dividend are $(0.03) and (0.23)%, respectively. (c) The advisor reimbursed Investor Class expenses related to an overpayment of 12b-1 fees of the INVESCO Growth Fund paid to INVESCO Distributors, Inc., the prior distributor of INVESCO Growth Fund. Had the advisor not rembursed these expenses, the net investment income per share, the ratio of net expenses to average net assets, the ratio of net investment income to average net assets and the total return would have been $(0.07), 1.41%, (0.79)% and 3.27%, repsectively. (d) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Not annualized for periods less than one year. (e) Ratios are based on average daily net assets of $343,536,531. (f) Annualized. (g) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year. 24 AIM Large Cap Growth Fund NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
INSTITUTIONAL CLASS ---------------------------------------------------------------------- APRIL 30, 2004 (COMMENCEMENT YEAR ENDED OCTOBER 31, DATE) TO ---------------------------------------------------- OCTOBER 31, 2007 2006 2005 2004 - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 11.35 $ 10.21 $ 9.18 $ 9.13 - --------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) 0.04(a) 0.05 0.03(b) (0.01)(a) - --------------------------------------------------------------------------------------------------------------------------------- Net gains on securities (both realized and unrealized) 2.55 1.09 1.00 0.06 ================================================================================================================================= Total from investment operations 2.59 1.14 1.03 0.05 ================================================================================================================================= Net asset value, end of period $ 13.94 $ 11.35 $ 10.21 $ 9.18 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Total return(c) 22.82% 11.17% 11.22% 0.55% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $248,852 $135,466 $123,368 $22,190 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 0.72%(d) 0.74% 0.81% 0.92%(e) - --------------------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 0.72%(d) 0.76% 0.88% 0.93%(e) ================================================================================================================================= Ratio of net investment income (loss) to average net assets 0.30%(d) 0.41% 0.46%(b) (0.30)%(e) _________________________________________________________________________________________________________________________________ ================================================================================================================================= Portfolio turnover rate(f) 55% 70% 103% 111% _________________________________________________________________________________________________________________________________ =================================================================================================================================
(a) Calculated using average shares outstanding. (b) Net investment income per share and the ratio of net investment income to average net assets include a special cash dividend received of $3.00 per share owned of Microsoft Corp. on December 2, 2004. Net investment income per share and the ratio of net investment income (loss) to average net assets excluding the special dividend are $0.01 and 0.30%, respectively. (c) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Not annualized for periods less than one year. (d) Ratios are based on average daily net assets of $185,349,139. (e) Annualized. (f) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year. NOTE 15--LEGAL PROCEEDINGS Terms used in the Legal Proceedings Note are defined terms solely for the purpose of this note. SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING On July 6, 2007, the Securities and Exchange Commission ("SEC") published notice of two proposed distribution plans ("Distribution Plans") for the distribution of monies placed into two separate Fair Funds created pursuant to a settlement reached on October 8, 2004 between Invesco Funds Group, Inc. ("IFG"), A I M Advisors, Inc. ("AIM") and A I M Distributors, Inc. and the SEC (the "Order"). One of the Fair Funds consists of $325 million, plus interest and any contributions by other settling parties, for distribution to shareholders of certain mutual funds formerly advised by IFG who may have been harmed by market timing and related activity. The second Fair Fund consists of $50 million, plus interest and any contributions by other settling parties, for distribution to shareholders of mutual funds advised by AIM who may have been harmed by market timing and related activity. Comments on the Distribution Plans were due no later than August 6, 2007 and the Distribution Plans are awaiting final approval by the SEC. Distributions from the Fair Funds will begin after the SEC finally approves the Distribution Plans. The proposed Distribution Plans provide for distribution to all eligible investors, for the periods spanning January 1, 2000 through July 31, 2003 (for the IFG Fair Fund) and January 1, 2001 through September 30, 2003 (for the AIM Fair Fund), their proportionate share of the applicable Fair Fund to compensate such investors for injury they may have suffered as a result of market timing in the affected funds. The Distribution Plans include a provision for any residual amounts in the Fair Funds to be distributed in the future to the affected funds. Because the Distribution Plans have not received final approval from the SEC and distribution of the Fair Funds has not yet commenced, management of AIM and the Fund are unable to estimate the amount of distribution to be made to the Fund, if any. At the request of the trustees of the AIM Funds, Invesco Ltd. ("Invesco"), the parent company of IFG and AIM, has agreed to reimburse expenses incurred by the AIM Funds related to market timing matters. PENDING LITIGATION AND REGULATORY INQUIRIES On August 30, 2005, the West Virginia Office of the State Auditor -- Securities Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of Right to Hearing to AIM and ADI (Order No. 05-1318). The WVASC makes findings of fact that AIM and ADI entered into certain arrangements permitting market timing of the AIM Funds and failed to disclose these arrangements in the prospectuses for such Funds, and conclusions of law to the effect that AIM and ADI violated the West Virginia securities laws. The WVASC orders AIM and ADI to cease any further violations and seeks to impose monetary sanctions, including restitution to affected investors, disgorgement of fees, reimbursement of investigatory, administrative and legal costs 25 AIM Large Cap Growth Fund NOTE 15--LEGAL PROCEEDINGS--(CONTINUED) and an "administrative assessment," to be determined by the Commissioner. Initial research indicates that these damages could be limited or capped by statute. By agreement with the Commissioner of Securities, AIM's time to respond to that Order has been indefinitely suspended. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or related entities and individuals, depending on the lawsuit, alleging: - that the defendants permitted improper market timing and related activity in the AIM Funds; and - that certain AIM Funds inadequately employed fair value pricing. These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws and ERISA, negligence, breach of fiduciary duty and/or breach of contract. These lawsuits seek remedies that include, depending on the lawsuit, damages, restitution, injunctive relief, imposition of a constructive trust, removal of certain directors and/or employees, various corrective measures under ERISA, rescission of certain AIM Funds' advisory agreements and/or distribution plans and recovery of all fees paid. All lawsuits based on allegations of market timing, late trading and related issues have been transferred to the United States District Court for the District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court, plaintiffs in these lawsuits consolidated their claims for pre-trial purposes into three amended complaints against various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint for Violations of the Employee Retirement Income Securities Act ("ERISA") purportedly brought on behalf of participants in Invesco's 401(k) plan. Based on orders issued by the MDL Court, all claims asserted against the AIM Funds that have been transferred to the MDL Court have been dismissed, although certain Funds remain nominal defendants in the Consolidated Amended Fund Derivative Complaint. On September 15, 2006, the MDL Court granted the Invesco defendants' motion to dismiss the Amended Class Action Complaint for Violations of ERISA and dismissed such Complaint. The plaintiff has commenced an appeal from that decision. IFG, AIM, ADI and/or related entities and individuals have received inquiries from numerous regulators in the form of subpoenas or other oral or written requests for information and/or documents related to one or more of the following issues, among others, some of which concern one or more AIM Funds: market timing activity, late trading, fair value pricing, excessive or improper advisory and/or distribution fees, mutual fund sales practices, including revenue sharing and directed-brokerage arrangements, investments in securities of other registered investment companies, contractual plans, issues related to Section 529 college savings plans and procedures for locating lost security holders. IFG, AIM and ADI have advised the Fund that they are providing full cooperation with respect to these inquiries. Regulatory actions and/or additional civil lawsuits related to these or other issues may be filed against the AIM Funds, IFG, AIM and/or related entities and individuals in the future. * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * At the present time, management of AIM and the Fund are unable to estimate the impact, if any, that the outcome of the Pending Litigation and Regulatory Inquiries described above may have on AIM, ADI or the Fund. 26 AIM Large Cap Growth Fund REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Trustees of AIM Equity Funds and Shareholders of AIM Large Cap Growth Fund: In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of AIM Large Cap Growth Fund (one of the funds constituting AIM Equity Funds, hereafter referred to as the "Fund") at October 31, 2007, 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 three years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at October 31, 2007 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights for each of the periods ended on or before October 31, 2004 were audited by another independent registered public accounting firm whose report, dated December 15, 2004, expressed an unqualified opinion on those financial highlights. PRICEWATERHOUSECOOPERS LLP December 19, 2007 Houston, Texas 27 AIM Large Cap Growth Fund CALCULATING YOUR ONGOING FUND EXPENSES EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments or contingent deferred sales charges on redemptions, and redemption fees, if any; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period May 1, 2007, through October 31, 2007. ACTUAL EXPENSES The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions, and redemption fees, if any. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
HYPOTHETICAL (5% ANNUAL RETURN BEFORE ACTUAL EXPENSES) BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE CLASS (05/01/07) (10/31/07)(1) PERIOD(2) (10/31/07) PERIOD(2) RATIO A $1,000.00 $1,140.10 $7.17 $1,018.50 $6.77 1.33% B 1,000.00 1,135.80 11.20 1,014.72 10.56 2.08 C 1,000.00 1,135.80 11.20 1,014.72 10.56 2.08 R 1,000.00 1,138.90 8.52 1,017.24 8.03 1.58 Investor 1,000.00 1,141.00 6.69 1,018.95 6.31 1.24
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2007, through October 31, 2007, 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. (2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. 28 Supplement to Annual Report dated 10/31/07 AIM Large Cap Growth Fund ========================================== Institutional Class Shares AVERAGE ANNUAL TOTAL RETURNS PLEASE NOTE THAT PAST PERFORMANCE IS For periods ended 10/31/07 NOT INDICATIVE OF FUTURE RESULTS. MORE The following information has been RECENT RETURNS MAY BE MORE OR LESS THAN prepared to provide Institutional Class Inception 3.99% THOSE SHOWN. ALL RETURNS ASSUME shareholders with a performance overview 5 Years 13.59 REINVESTMENT OF DISTRIBUTIONS AT NAV. specific to their holdings. Institutional 1 Year 22.82 INVESTMENT RETURN AND PRINCIPAL VALUE WILL Class shares are offered exclusively to FLUCTUATE SO YOUR SHARES, WHEN REDEEMED, institutional investors, including defined AVERAGE ANNUAL TOTAL RETURNS MAY BE WORTH MORE OR LESS THAN THEIR contribution plans that meet certain ORIGINAL COST. SEE FULL REPORT FOR criteria. For periods ended 9/30/07, most recent INFORMATION ON COMPARATIVE BENCHMARKS. calendar quarter-end PLEASE CONSULT YOUR FUND PROSPECTUS FOR MORE INFORMATION. FOR THE MOST CURRENT Inception 3.32% MONTH-END PERFORMANCE, PLEASE CALL 5 Years 13.39 800-451-4246 OR VISIT AIMINVESTMENTS.COM. 1 Year 19.45 ========================================== INSTITUTIONAL CLASS SHARES' INCEPTION DATE IS APRIL 30, 2004. RETURNS SINCE THAT DATE ARE HISTORICAL RETURNS. ALL OTHER RETURNS ARE BLENDED RETURNS OF HISTORICAL INSTITUTIONAL CLASS SHARE PERFORMANCE AND RESTATED CLASS A SHARE PERFORMANCE (FOR PERIODS PRIOR TO THE INCEPTION DATE OF INSTITUTIONAL CLASS SHARES) AT NET ASSET VALUE (NAV) AND REFLECT THE HIGHER RULE 12B-1 FEES APPLICABLE TO CLASS A SHARES. CLASS A SHARES' INCEPTION DATE IS MARCH 1, 1999. INSTITUTIONAL CLASS SHARES HAVE NO SALES CHARGE; THEREFORE, PERFORMANCE IS AT NAV. PERFORMANCE OF INSTITUTIONAL CLASS SHARES WILL DIFFER FROM PERFORMANCE OF ========================================== OTHER SHARE CLASSES PRIMARILY DUE TO NASDAQ SYMBOL LCIGX DIFFERING SALES CHARGES AND CLASS ========================================== EXPENSES. Over for information on your Fund's expenses. ======================================================================================= THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING. ======================================================================================= FOR INSTITUTIONAL INVESTOR USE ONLY This material is for institutional investor use only and may not be quoted, reproduced or shown to the public, nor used in written form as sales literature for public use.
AIMinvestments.com LCG-INS-1 A I M Distributors, Inc. [AIM INVESTMENTS LOGO] -- REGISTERED TRADEMARK -- AIM Large Cap Growth Fund CALCULATING YOUR ONGOING FUND EXPENSES EXAMPLE As a shareholder of the Fund, you incur ongoing costs, including management fees and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period May 1, 2007, through October 31, 2007. ACTUAL EXPENSES The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL (5% ANNUAL RETURN BEFORE ACTUAL EXPENSES) BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE SHARE CLASS (05/01/07) (10/31/07)(1) PERIOD(2) (10/31/07) PERIOD(2) RATIO Institutional $1,000.00 $1,143.60 $3.78 $1,021.68 $3.57 0.70%
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2007, through October 31, 2007, 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. (2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. AIMinvestments.com LCG-INS-1 A I M Distributors, Inc. AIM Large Cap Growth Fund Approval of Investment Advisory Agreement The Board of Trustees (the Board) of AIM regarding the performance, fees and A. NATURE, EXTENT AND QUALITY OF SERVICES Equity Funds is required under the expenses of the AIM Funds to the full PROVIDED BY AIM Investment Company Act of 1940 to approve Board. Moreover, the Investments annually the renewal of the AIM Large Cap Committee considers each Sub-Committee's The Board reviewed the advisory services Growth Fund (the Fund) investment advisory recommendations in making its annual provided to the Fund by AIM under the agreement with A I M Advisors, Inc. (AIM). recommendation to the Board whether to Fund's advisory agreement, the During contract renewal meetings held on approve the continuance of each AIM performance of AIM in providing these June 25-27, 2007, the Board as a whole and Fund's investment advisory agreement and services, and the credentials and the disinterested or "independent" sub-advisory agreement, if applicable experience of the officers and employees Trustees, voting separately, approved the (advisory agreements), for another year. of AIM who provide these services. The continuance of the Fund's investment Board's review of the qualifications of advisory agreement for another year, The independent Trustees, as mentioned AIM to provide these services included effective July 1, 2007. In doing so, the above, are assisted in their annual the Board's consideration of AIM's Board determined that the Fund's advisory evaluation of the advisory agreements by portfolio and product review process, agreement is in the best interests of the the independent Senior Officer. One various back office support functions Fund and its shareholders and that the responsibility of the Senior Officer is provided by AIM, and AIM's equity and compensation to AIM under the Fund's to manage the process by which the AIM fixed income trading operations. The advisory agreement is fair and reasonable. Funds' proposed management fees are Board concluded that the nature, extent negotiated during the annual contract and quality of the advisory services The independent Trustees met separately renewal process to ensure that they are provided to the Fund by AIM were during their evaluation of the Fund's negotiated in a manner which is at arms' appropriate and that AIM currently is investment advisory agreement with length and reasonable. Accordingly, the providing satisfactory advisory services independent legal counsel from whom they Senior Officer must either supervise a in accordance with the terms of the received independent legal advice, and the competitive bidding process or prepare an Fund's advisory agreement. In addition, independent Trustees also received independent written evaluation. The based on their ongoing meetings assistance during their deliberations from Senior Officer has recommended that an throughout the year with the Fund's the independent Senior Officer, a full-time independent written evaluation be portfolio managers, the Board concluded officer of the AIM Funds who reports provided and, upon the direction of the that these individuals are competent and directly to the independent Trustees. The Board, has prepared an independent able to continue to carry out their following discussion more fully describes written evaluation. responsibilities under the Fund's the process employed by the Board to advisory agreement. evaluate the performance of the AIM Funds During the annual contract renewal (including the Fund) throughout the year process, the Board considered the factors In determining whether to continue the and, more specifically, during the annual discussed below under the heading Fund's advisory agreement, the Board contract renewal meetings. "Factors and Conclusions and Summary of considered the prior relationship between Independent Written Fee Evaluation" in AIM and the Fund, as well as the Board's THE BOARD'S FUND EVALUATION PROCESS evaluating the fairness and knowledge of AIM's operations, and reasonableness of the Fund's advisory concluded that it was beneficial to The Board's Investments Committee has agreement at the contract renewal maintain the current relationship, in established three Sub-Committees which are meetings and at their meetings throughout part, because of such knowledge. The responsible for overseeing the management the year as part of their ongoing Board also considered the steps that AIM of a number of the series portfolios of the oversight of the Fund. The Fund's and its affiliates have taken over the AIM Funds. This Sub-Committee structure advisory agreement was considered last several years to improve the quality permits the Trustees to focus on the separately, although the Board also and efficiency of the services they performance of the AIM Funds that have been considered the common interests of all of provide to the Funds in the areas of assigned to them. The Sub-Committees meet the AIM Funds in their deliberations. The investment performance, product line throughout the year to review the Board comprehensively considered all of diversification, distribution, fund performance of their assigned funds, and the information provided to them and did operations, shareholder services and the Sub-Committees review monthly and not identify any particular factor that compliance. The Board concluded that the quarterly comparative performance was controlling. Furthermore, each quality and efficiency of the services information and periodic asset flow data Trustee may have evaluated the AIM and its affiliates provide to the AIM for their assigned funds. These materials information provided differently from one Funds in each of these areas have are prepared under the direction and another and attributed different weight generally improved, and support the supervision of the independent Senior to the various factors. The Trustees Board's approval of the continuance of Officer. Over the course of each year, the recognized that the advisory arrangements the Fund's advisory agreement. SubCommittees meet with portfolio managers and resulting advisory fees for the Fund for their assigned funds and other members and the other AIM Funds are the result of B. FUND PERFORMANCE of management and review with these years of review and negotiation between individuals the performance, investment the Trustees and AIM, that the Trustees The Board compared the Fund's performance objective(s), policies, strategies and may focus to a greater extent on certain during the past one, three and five limitations of these funds. aspects of these arrangements in some calendar years to the performance of years than others, and that the Trustees' funds in the Fund's Lipper peer group In addition to their meetings throughout deliberations and conclusions in a that are not managed by AIM, and against the year, the Sub-Committees meet at particular year may be based in part on the performance of all funds in the designated contract renewal meetings each their deliberations and conclusions of Lipper Large-Cap Growth Funds Index. The year to conduct an in-depth review of the these same arrangements throughout the Board also reviewed the methodology used performance, fees and expenses of their year and in prior years. by Lipper to identify the Fund's peers. assigned funds. During the contract renewal The Board noted that the Fund's process, the Trustees receive comparative FACTORS AND CONCLUSIONS AND SUMMARY OF performance was above the median performance and fee data regarding all the INDEPENDENT WRITTEN FEE EVALUATION performance of its peers for the one, AIM Funds prepared by an independent three and five year periods. The Board company, Lipper, Inc., under the direction The discussion below serves as a noted that the Fund's performance was and supervision of the independent Senior summary of the Senior Officer's above the performance of the Index for Officer who also prepares a separate independent written evaluation, as well the one, three and five year periods. The analysis of this information for the as a discussion of the material factors Board also considered the steps AIM has Trustees. Each Sub-Committee then makes and related conclusions that formed the taken over the last several years to recommendations to the Investments basis for the Board's approval of the improve the quality and efficiency of the Committee regarding the performance, fees Fund's advisory agreement. Unless services that AIM provides to the AIM and expenses of their assigned funds. The otherwise stated, information set forth Funds. The Board concluded that AIM Investments Committee considers each below is as of June 27, 2007 and does not continues to be responsive to the Board's Sub-Committee's recommendations and makes reflect any changes that may have focus on fund performance. Although the its own recommendations occurred since that date, including but independent written evaluation of the not limited to changes to the Fund's Fund's Senior Officer (discussed below) performance, advisory fees, expense only considered Fund performance through limitations and/or fee waivers. the most recent calendar year, the Board also reviewed more recent Fund performance and this review did not change their conclusions. (continued)
29 AIM Large Cap Growth Fund C. ADVISORY FEES AND FEE WAIVERS AIM Funds, including the Fund, should be AIM and AIM's affiliates, had prepared an simplified. The Board concluded that it independent written evaluation to assist The Board compared the Fund's contractual would be appropriate to approve the the Board in determining the advisory fee rate to the contractual proposed amendment to the Fund's reasonableness of the proposed management advisory fee rates of funds in the Fund's contractual advisory fee schedule and fees of the AIM Funds, including the Lipper peer group that are not managed by that it was not necessary at this time to Fund. The Board noted that they had AIM, at a common asset level and as of the discuss with AIM whether to implement any relied upon the Senior Officer's written end of the past calendar year. The Board fee waivers for the Fund. evaluation instead of a competitive noted that the Fund's advisory fee rate was bidding process. In determining whether below the median advisory fee rate of its After taking account of the Fund's to continue the Fund's advisory peers. The Board also reviewed the contractual advisory fee rate, as well as agreement, the Board considered the methodology used by Lipper and noted that the comparative advisory fee information Senior Officer's written evaluation. the contractual fee rates shown by Lipper and the expense limitation discussed include any applicable long-term above, the Board concluded that the G. Collateral Benefits to AIM and its contractual fee waivers. The Board also Fund's advisory fees were fair and Affiliates compared the Fund's contractual advisory reasonable. fee rate to the contractual advisory fee The Board considered various other rates of other clients of AIM and its D. ECONOMIES OF SCALE AND BREAKPOINTS benefits received by AIM and its affiliates with investment strategies affiliates resulting from AIM's comparable to those of the Fund, including The Board considered the extent to which relationship with the Fund, including the two mutual funds advised by AIM and two there are economies of scale in AIM's fees received by AIM and its affiliates mutual funds sub-advised by an AIM provision of advisory services to the for their provision of administrative, affiliate. The Board noted that the Fund's Fund. The Board also considered whether transfer agency and distribution services rate was: (i) comparable to the rate for the Fund benefits from such economies of to the Fund. The Board considered the one mutual fund and below the rate for the scale through contractual breakpoints in performance of AIM and its affiliates in second mutual fund; and (ii) above the the Fund's advisory fee schedule or providing these services and the sub-advisory fee rates for the two through advisory fee waivers or expense organizational structure employed by AIM sub-advised funds, although the advisory limitations. The Board noted that the and its affiliates to provide these fee rates for such sub-advised funds were Fund's contractual advisory fee schedule services. The Board also considered that comparable to or above the Fund's. includes one breakpoint and that the these services are provided to the Fund level of the Fund's advisory fees, as a pursuant to written contracts which are Additionally, the Board compared the percentage of the Fund's net assets, has reviewed and approved on an annual basis Fund's contractual advisory fee rate to the decreased as net assets increased because by the Board. The Board concluded that total advisory fees paid by numerous of the breakpoint. The Board noted that AIM and its affiliates were providing separately managed accounts/wrap accounts the amendment to the Fund's contractual these services in a satisfactory manner advised by an AIM affiliate. The Board advisory fee schedule discussed above and in accordance with the terms of their noted that the Fund's rate generally was provides for seven breakpoints. Based on contracts, and were qualified to continue above the rates for the separately managed this information, the Board concluded to provide these services to the Fund. accounts/wrap accounts. The Board that the Fund's advisory fees considered that management of the appropriately reflect economies of scale The Board considered the benefits separately managed accounts/wrap accounts at current asset levels. The Board also realized by AIM as a result of portfolio by the AIM affiliate involves different noted that the Fund shares directly in brokerage transactions executed through levels of services and different economies of scale through lower fees "soft dollar" arrangements. Under these operational and regulatory requirements charged by third party service providers arrangements, portfolio brokerage than AIM's management of the Fund. The based on the combined size of all of the commissions paid by the Fund and/or other Board concluded that these differences are AIM Funds and affiliates. funds advised by AIM are used to pay for appropriately reflected in the fee research and execution services. The structure for the Fund and the separately E. PROFITABILITY AND FINANCIAL RESOURCES Board noted that soft dollar arrangements managed accounts/wrap accounts. OF AIM shift the payment obligation for the research and executions services from AIM The Board noted that AIM has The Board reviewed information from AIM to the funds and therefore may reduce contractually agreed to waive fees and/or concerning the costs of the advisory and AIM's expenses. The Board also noted that limit expenses of the Fund through at least other services that AIM and its research obtained through soft dollar June 30, 2008 in an amount necessary to affiliates provide to the Fund and the arrangements may be used by AIM in making limit total annual operating expenses to a profitability of AIM and its affiliates investment decisions for the Fund and may specified percentage of average daily net in providing these services. The Board therefore benefit Fund shareholders. The assets for each class of the Fund. The also reviewed information concerning the Board concluded that AIM's soft dollar Board considered the contractual nature of financial condition of AIM and its arrangements were appropriate. The Board this fee waiver and noted that it remains affiliates. The Board also reviewed with also concluded that, based on their in effect until at least June 30, 2008. The AIM the methodology used to prepare the review and representations made by AIM, Board reviewed the Fund's effective profitability information. The Board these arrangements were consistent with advisory fee rate, after taking account of considered the overall profitability of regulatory requirements. this expense limitation, and considered the AIM, as well as the profitability of AIM effect this expense limitation would have in connection with managing the Fund. The The Board considered the fact that the on the Fund's estimated total expenses. The Board noted that AIM continues to operate Fund's uninvested cash and cash Board concluded that the levels of fee at a net profit, although increased collateral from any securities lending waivers/expense limitations for the Fund expenses in recent years have reduced the arrangements may be invested in money were fair and reasonable. profitability of AIM and its affiliates. market funds advised by AIM pursuant to The Board concluded that the Fund's procedures approved by the Board. The The Board noted that AIM has not advisory fees were fair and reasonable, Board noted that AIM will receive proposed any advisory fee waivers for the and that the level of profits realized by advisory fees from these affiliated money Fund. However, the Board also noted that AIM and its affiliates from providing market funds attributable to such AIM has recommended that the Board approve services to the Fund was not excessive in investments, although AIM has an amendment to the Fund's contractual light of the nature, quality and extent contractually agreed to waive the advisory fee schedule that would implement of the services provided. The Board advisory fees payable by the Fund with the contractual advisory fee waiver that considered whether AIM is financially respect to its investment of uninvested had been formerly committed to by AIM, sound and has the resources necessary to cash in these affiliated money market which waiver provided for lower effective perform its obligations under the Fund's funds through at least June 30, 2008. The fee rates at all asset levels than the advisory agreement, and concluded that Board considered the contractual nature Fund's current contractual advisory fee AIM has the financial resources necessary of this fee waiver and noted that it schedule. The Board noted that AIM's to fulfill these obligations. remains in effect until at least June 30, recommendation was made in response to the 2008. The Board concluded that the Fund's recommendation of the independent Senior F. INDEPENDENT WRITTEN EVALUATION OF THE investment of uninvested cash and cash Officer that AIM consider whether the FUND'S SENIOR OFFICER collateral from any securities lending advisory fee waivers for certain equity arrangements in the affiliated money The Board noted that, upon their market funds is in the best interests of direction, the Senior Officer of the the Fund and its shareholders. Fund, who is independent of
30 AIM Large Cap Growth Fund TAX INFORMATION TAX INFORMATION FOR NON-RESIDENT ALIEN SHAREHOLDERS The percentages of qualifying assets not subject to the U.S. estate tax for the fiscal quarters ended January 31, 2007, April 30, 2007, July 31, 2007 and October 31, 2007 were 15.21%, 14.18%, 15.43%, and 16.86%, respectively. 31 AIM Large Cap Growth Fund TRUSTEES AND OFFICERS The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. Each trustee oversees 104 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. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
OTHER TRUSTEE TRUSTEESHIP(S)/ NAME, YEAR OF BIRTH AND AND/OR DIRECTORSHIP(S) POSITION(S) HELD WITH THE OFFICER PRINCIPAL OCCUPATION(S) HELD BY TRUST SINCE DURING PAST 5 YEARS TRUSTEE/ DIRECTOR - ------------------------------------------------------------------------------------------------------------------------- Interested Persons - ------------------------------------------------------------------------------------------------------------------------- Martin L. Flanagan(1) -- 1960 2007 Director, Chief Executive Officer and None Trustee President, Invesco Ltd. (ultimate parent of AIM and a global investment management firm) and, INVESCO PLC (parent of AIM and a global investment management firm); Chairman, A I M Advisors, Inc. (registered investment advisor); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company); and INVESCO North American Holdings, Inc. (holding company); Chairman and President, INVESCO Group Services, Inc. (service provider); Trustee, The AIM Family of Funds(R); Vice Chairman, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business Formerly: Chairman, Investment Company Institute; President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) - ------------------------------------------------------------------------------------------------------------------------- Philip A. Taylor(2) -- 1954 2006 Director, Chief Executive Officer and None Trustee, President and President, AIM Mutual Fund Dealer Inc. Principal (registered broker dealer), A I M Executive Officer Advisors, Inc., AIM Funds Management Inc. d/b/a INVESCO Enterprise Services (registered investment advisor and registered transfer agent) and 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, A I M Management Group Inc. (financial services holding company) and A I M Capital Management, Inc. (registered investment advisor); Director and President, INVESCO Funds Group, Inc. (registered investment advisor and register transfer agent) and AIM GP Canada Inc. (general partner for a limited partnership); Director, A I M Distributors, Inc. (registered broker dealer); Director and Chairman, AIM Investment Services, Inc. (registered transfer agent) and INVESCO Distributors, Inc. (registered broker dealer); Director, President and Chairman, IVZ Callco Inc. (holding company), INVESCO Inc. (holding company) and AIM Canada Holdings Inc. (holding company); Director and Chief Executive Officer, AIM Trimark Corporate Class Inc. (formerly AIM Trimark Global Fund Inc.) (corporate mutual fund company) and AIM Trimark Canada Fund Inc. (corporate mutual fund company); Trustee, President and Principal Executive Officer of The AIM Family of Funds--Registered Trademark-- (other than AIM Treasurer's Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust); Trustee and Executive Vice President, The AIM Family of Funds--Registered Trademark-- (AIM Treasurer's Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only); and Manager, PowerShares Capital Management LLC Formerly: Director and Chairman, Fund Management Company (registered broker dealer); President and Principal Executive Officer, The AIM Family of Funds--Registered Trademark-- (AIM Treasurer's Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only); Chairman, AIM Canada Holdings, Inc.; President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc.; and Director, Trimark Trust (federally regulated Canadian Trust Company) - ------------------------------------------------------------------------------------------------------------------------- Independent Trustees - ------------------------------------------------------------------------------------------------------------------------- Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company); Trustee and Chair (technology consulting company) and Captaris, Inc. (unified messaging provider) - ------------------------------------------------------------------------------------------------------------------------- Bob R. Baker -- 1936 2003 Retired None Trustee - ------------------------------------------------------------------------------------------------------------------------- Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered Trustee investment company) (2 portfolios) Formerly: Partner, law firm of Baker & McKenzie - ------------------------------------------------------------------------------------------------------------------------- James T. Bunch -- 1942 2003 Founder, Green, Manning & Bunch Ltd., None Trustee (investment banking firm); and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation - ------------------------------------------------------------------------------------------------------------------------- Albert R. Dowden -- 1941 2000 Director of a number of public and None Trustee private business corporations, including the Boss Group Ltd. (private investment and management); Reich & Tang Funds (Chairman) (registered investment company) (7 portfolios), Daily Income Fund (4 portfolios), California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc. and New Jersey Daily Municipal Fund, Inc., Annuity and Life Re (Holdings), Ltd. (insurance company), and Homeowners of America Holding Corporation (property casualty company) Formerly: Director, CompuDyne Corporation (provider of product and services to the public security market); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various affiliated Volvo companies; and Director, Magellan Insurance Company - ------------------------------------------------------------------------------------------------------------------------- Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff Trustee Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), and Discovery Global Education Fund (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) - ------------------------------------------------------------------------------------------------------------------------- Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Director, Reich & Tang Funds) (7 Trustee Naftalis and Frankel LLP portfolios) - ------------------------------------------------------------------------------------------------------------------------- Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None Trustee of the USA - ------------------------------------------------------------------------------------------------------------------------- Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper None Trustee - ------------------------------------------------------------------------------------------------------------------------- Ruth H. Quigley -- 1935 2001 Retired None Trustee - ------------------------------------------------------------------------------------------------------------------------- Larry Soll -- 1942 2003 Retired None Trustee - ------------------------------------------------------------------------------------------------------------------------- Raymond Stickel, Jr. -- 1944 2005 Retired None Trustee Formerly: Partner, Deloitte & Touche; and Director, Mainstay VP Series Funds, Inc. (25 portfolios) - -------------------------------------------------------------------------------------------------------------------------
(1) Mr. Flanagan was appointed as Trustee of the Trust on February 24, 2007. Mr. Flanagan is considered an interested person of the Trust because he is an officer of the advisor to the Trust, and an officer and a director of INVESCO PLC, parent of the advisor to the Trust. (2) Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the advisor to, and a director of the principal underwriter of, the Trust. 32 TRUSTEES AND OFFICERS--(CONTINUED) AIM Large Cap Growth Fund
OTHER TRUSTEE TRUSTEESHIP(S)/ NAME, YEAR OF BIRTH AND AND/OR DIRECTORSHIP(S) POSITION(S) HELD WITH THE OFFICER PRINCIPAL OCCUPATION(S) HELD BY TRUSTEE/ TRUST SINCE DURING PAST 5 YEARS DIRECTOR - ------------------------------------------------------------------------------------------------------------------------- Other Officers - ------------------------------------------------------------------------------------------------------------------------- Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer N/A Senior Vice President and of The AIM Family of Funds--Registered Senior Officer Trademark-- Formerly: Director of Compliance and Assistant General Counsel, ICON Advisers, Inc.; Financial Consultant, Merrill Lynch; General Counsel and Director of Compliance, ALPS Mutual Funds, Inc. - ------------------------------------------------------------------------------------------------------------------------- John M. Zerr -- 1962 2006 Director, Senior Vice President, N/A Senior Vice President, Chief Secretary and General Counsel, A I M Legal Officer and Secretary Management Group Inc., A I M Advisors, Inc. and A I M Capital Management, Inc.; Director, Vice President and Secretary, AIM Investment Services, Inc. and INVESCO Distributors, Inc.; Director, Senior Vice President and Secretary, A I M Distributors, Inc.; Director and Vice President, INVESCO Funds Group Inc.; Senior Vice President, Chief Legal Officer and Secretary of The AIM Family of Funds--Registered Trademark--; and Manager, PowerShares Capital Management LLC Formerly: Director, Vice President and Secretary, Fund Management Company; Vice President, A I M Capital Management, Inc.; Chief Operating Officer, Senior Vice President, General Counsel and Secretary, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company); Vice President and Secretary, PBHG Insurance Series Fund (an investment company); General Counsel and Secretary, Pilgrim Baxter Value Investors (an investment adviser); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator); General Counsel and Secretary, Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) - ------------------------------------------------------------------------------------------------------------------------- Lisa O. Brinkley -- 1959 2004 Global Compliance Director, INVESCO PLC; N/A Vice President and Vice President of The AIM Family of Funds--Registered Trademark-- Formerly: Senior Vice President, A I M Management Group Inc. (financial services holding company); Senior Vice President and Chief Compliance Officer, A I M Advisors, Inc. and The AIM Family of Funds--Registered Trademark--; Vice President and Chief Compliance Officer, A I M Capital Management, Inc. and A I M Distributors, Inc.; Vice President, AIM Investment Services, Inc. and Fund Management Company; Senior Vice President and Chief Compliance Officer of The AIM Family of Funds--Registered Trademark--; and Senior Vice President and Compliance Director, Delaware Investments Family of Funds - ------------------------------------------------------------------------------------------------------------------------- Kevin M. Carome -- 1956 2003 Senior Vice President and General Vice President Counsel, INVESCO PLC; Director, INVESCO Funds Group, Inc.; Director and Secretary, IVZ, Inc. and INVESCO Group Services, Inc.; Secretary, INVESCO North American Holdings, Inc.; and Vice President of The AIM Family of Funds--Registered Trademark-- Formerly: Director, Senior Vice N/A President, Secretary and General Counsel, A I M Management Group Inc. and A I M Advisors, Inc.; Senior Vice President, A I M Distributors, Inc.; Director, General Counsel and Vice President, Fund Management Company; Vice President, A I M Capital Management, Inc. and AIM Investment Services, Inc.; Senior Vice President, Chief Legal Officer and Secretary of The AIM Family of Funds--Registered Trademark--; Director and Vice President, INVESCO Distributors, Inc.; Chief Executive Officer and President, INVESCO Funds Group, Inc.; and Senior Vice President and General Counsel, Liberty Financial Companies, Inc. - ------------------------------------------------------------------------------------------------------------------------- Sidney M. Dilgren -- 1961 2004 Vice President, A I M Advisors, Inc. and N/A Vice President, Principal A I M Capital Management, Inc.; and Vice Financial Officer and President, Treasurer and Principal Treasurer Financial Officer of The AIM Family of Funds--Registered Trademark-- Formerly: Fund Treasurer, A I M Advisors, Inc.; Senior Vice President, AIM Investment Services, Inc.; and Vice President, A I M Distributors, Inc. - ------------------------------------------------------------------------------------------------------------------------- Karen Dunn Kelley -- 1960 2004 Head of INVESCO's World Wide Fixed N/A Vice President Income and Cash Management Group; Director of Cash Management and Senior Vice President, A I M Advisors, Inc. and A I M Capital Management, Inc; Executive Vice President, A I M Distributors, Inc.; Senior Vice President, A I M Management Group Inc.; Vice President, The AIM Family of Funds--Registered Trademark-- (other than AIM Treasurer's Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust); and President and Principal Executive Officer, The AIM Family of Funds--Registered Trademark-- (AIM Treasurer's Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only) Formerly: Director and President, Fund Management Company; Chief Cash Management Officer and Managing Director, A I M Capital Management, Inc.; Vice President, A I M Advisors, Inc. and The AIM Family of Funds--Registered Trademark-- (AIM Treasurer's Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only) - ------------------------------------------------------------------------------------------------------------------------- Lance A. Rejsek -- 1967 2005 Anti-Money Laundering Compliance N/A Anti-Money Laundering Officer, A I M Advisors, Inc., A I M Compliance Officer Capital Management, Inc., A I M Distributors, Inc., AIM Investment Services, Inc., AIM Private Asset Management, Inc. and The AIM Family of Funds--Registered Trademark-- Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company; and Manager of the Fraud Prevention Department, AIM Investment Services, Inc. - ------------------------------------------------------------------------------------------------------------------------- Todd L. Spillane -- 1958 2006 Senior Vice President, A I M Management N/A Chief Compliance Officer Group Inc.; Senior Vice President and Chief Compliance Officer, A I M Advisors, Inc. and A I M Capital Management, Inc.; Chief Compliance Officer of The AIM Family of Funds--Registered Trademark--, INVESCO Global Asset Management (N.A.), Inc., (registered investment advisor), INVESCO Institutional (N.A.), Inc., (registered investment advisor), INVESCO Private Capital Investments, Inc. (holding company), INVESCO Private Capital, Inc. (registered investment advisor) and INVESCO Senior Secured Management, Inc. (registered investment advisor); and Vice President, A I M Distributors, Inc. and AIM Investment Services, Inc. Formerly: Vice President, A I M Capital Management, Inc. and Fund Management Company; Global Head of Product Development, AIG-Global Investment Group, Inc.; and Chief Compliance Officer and Deputy General Counsel, AIG-SunAmerica Asset Management - -------------------------------------------------------------------------------------------------------------------------
The Statement of Additional Information of the Trust includes additional information about the Fund's Trustees and is available upon request, without charge, by calling 1.800.959.4246. OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS 11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers Suite 100 11 Greenway Plaza Inc. LLP Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street Houston, TX 77046-1173 Suite 100 Suite 2900 Houston, TX 77046-1173 Houston, TX 77002-5678 COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN Ballard Spahr INDEPENDENT TRUSTEES AIM Investment State Street Bank and Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust 1735 Market Street, 51st & Frankel LLP P.O. Box 4739 Company Floor 1177 Avenue of the Houston, TX 77210-4739 225 Franklin Street Philadelphia, PA 19103-7599 Americas Boston, MA 02110-2801 New York, NY 10036-2714
33 [EDELIVERY Fund holdings and proxy voting information GO PAPERLESS AIMINVESTMENTS.COM/EDELIVERY The Fund provides a complete list of its holdings four times in GRAPHIC] each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund's semiannual and REGISTER FOR EDELIVERY annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and eDelivery is the process of receiving your fund and account Exchange Commission (SEC) on Form N-Q. The most recent list of information via e-mail. Once your quarterly statements, tax portfolio holdings is available at AIMinvestments.com. From our forms, fund reports, and prospectuses are available, we will send home page, click on Products & Performance, then Mutual Funds, you an e-mail notification containing links to these documents. then Fund Overview. Select your Fund from the drop-down menu For security purposes, you will need to log in to your account to and click on Complete Quarterly Holdings. Shareholders can also view your statements and tax forms. look up the Fund's Forms N-Q on the SEC Web site at sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied at WHY SIGN UP? the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Register for eDelivery to: Room, including information about duplicating fee charges, by calling 202-942-8090 or 800-732-0330, or by electronic request o save your Fund the cost of printing and postage. at the following e-mail address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-01424 and 002-25469. o reduce the amount of paper you receive. A description of the policies and procedures that the Fund uses o gain access to your documents faster by not waiting for the to determine how to vote proxies relating to portfolio mail. securities is available without charge, upon request, from our Client Services department at 800-959-4246 or on the AIM Web o view your documents online anytime at your convenience. site, AIMinvestments.com. On the home page, scroll down and click on Proxy Policy. The information is also available on the o save the documents to your personal computer or print them out SEC Web site, sec.gov. for your records. Information regarding how the Fund voted proxies related to its HOW DO I SIGN UP? portfolio securities during the 12 months ended June 30, 2007, is available at our Web site. Go to AIMinvestments.com, access It's easy. Just follow these simple steps: the About Us tab, click on Required Notices and then click on Proxy Voting Activity. Next, select the Fund from the drop-down 1. Log in to your account. menu. The information is also available on the SEC Web site, sec.gov. 2. Click on the "Service Center" tab. If used after January 20, 2008, this report must be accompanied 3. Select "Register for eDelivery" and complete the consent by a Fund fact sheet or by an AIM Quarterly Performance Review process. for the most recent quarter-end. Mutual funds and exchange-traded funds distributed by A I M Distributors, Inc. This AIM service is provided by AIM Investment Services, Inc. LCG-AR-1 A I M Distributors, Inc. [AIM INVESTMENTS LOGO] -- REGISTERED TRADEMARK --
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 Raymond Stickel, Jr. Mr. Stickel is "independent" within the meaning of that term as used in Form N-CSR. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. FEES BILLED BY PRINCIPAL ACCOUNTANT RELATED TO THE REGISTRANT PWC billed the Registrant aggregate fees for services rendered to the Registrant for the last two fiscal years as follows:
Percentage of Fees 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 2007 Pursuant to Fees Billed for year end 2006 to the Registrant Waiver of Services Rendered to Pursuant to Waiver for fiscal Pre-Approval the Registrant for of Pre-Approval year end 2007 Requirement(1) fiscal year end 2006 Requirement(1) ----------------- ------------------- -------------------- -------------------- Audit Fees $225,022 N/A $234,833 N/A Audit-Related Fees(2) $ 20,222 0% $ 0 0% Tax Fees(3) $ 55,143 0% $ 77,560 0% All Other Fees $ 0 0% $ 0 0% -------- -------- Total Fees $300,387 0% $312,393 0%
PWC billed the Registrant aggregate non-audit fees of $75,365 for the fiscal year ended 2007, and $77,560 for the fiscal year ended 2006, 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 during a fiscal year; and (iii) such services are promptly brought to the attention of the Registrant's Audit Committee and approved by the Registrant's Audit Committee prior to the completion of the audit. (2) Audit-Related Fees for the fiscal year ended October 31, 2007 includes fees billed for completing agreed-upon procedures related to fund mergers. (3) Tax Fees for the fiscal year end October 31, 2007 includes fees billed for reviewing tax returns and consultation services. Tax fees for fiscal year end October 31, 2006 includes fees billed for reviewing tax returns and consultation services. FEES BILLED BY PRINCIPAL ACCOUNTANT RELATED TO AIM AND AIM AFFILIATES PWC billed A I M Advisors, Inc. ("AIM"), the Registrant's adviser, and any entity controlling, controlled by or under common control with AIM that provides ongoing services to the Registrant ("AIM Affiliates") aggregate fees for pre-approved non-audit services rendered to AIM and AIM Affiliates as follows:
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 2007 Provided for fiscal fiscal year end 2006 Provided for fiscal That Were Required year end 2007 That Were Required year end 2006 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 Requirement(1) -------------------- -------------------- -------------------- --------------------- Audit-Related Fees $0 0% $0 0% Tax Fees $0 0% $0 0% All Other Fees $0 0% $0 0% --- --- Total Fees(2) $0 0% $0 0%
- ---------- (1) With respect to the provision of non-audit services, the pre-approval requirement is waived pursuant to a de minimis exception if (i) such services were not recognized as non-audit services by the Registrant at the time of engagement, (ii) the aggregate amount of all such services provided is no more than 5% of the aggregate audit and non-audit fees paid by the Registrant, AIM and AIM Affiliates during a fiscal year; and (iii) such services are promptly brought to the attention of the Registrant's Audit Committee and approved by the Registrant's Audit Committee prior to the completion of the audit. (2) Including the fees for services not required to be pre-approved by the registrant's audit committee, PWC billed AIM and AIM Affiliates aggregate non-audit fees of $0 for the fiscal year ended 2007, and $0 for the fiscal year ended 2006, 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 the principal accountant's independence. PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES POLICIES AND PROCEDURES As adopted by the Audit Committees of the AIM Funds (the "Funds") Last Amended September 18, 2006 STATEMENT OF PRINCIPLES Under the Sarbanes-Oxley Act of 2002 and rules adopted by the Securities and Exchange Commission ("SEC") ("Rules"), the Audit Committees of the Funds' (the "Audit Committee") Board of Trustees (the "Board") are responsible for the appointment, compensation and oversight of the work of independent accountants (an "Auditor"). As part of this responsibility and to assure that the Auditor's independence is not impaired, the Audit Committees pre-approve the audit and non-audit services provided to the Funds by each Auditor, as well as all non-audit services provided by the Auditor to the Funds' investment adviser and to affiliates of the adviser that provide ongoing services to the Funds ("Service Affiliates") if the services directly impact the Funds' operations or financial reporting. The SEC Rules also specify the types of services that an Auditor may not provide to its audit client. The following policies and procedures comply with the requirements for pre-approval and provide a mechanism by which management of the Funds may request and secure pre-approval of audit and non-audit services in an orderly manner with minimal disruption to normal business operations. Proposed services either may be pre-approved without consideration of specific case-by-case services by the Audit Committees ("general pre-approval") or require the specific pre-approval of the Audit Committees ("specific pre-approval"). As set forth in these policies and procedures, unless a type of service has received general pre-approval, it will require specific pre-approval by the Audit Committees. Additionally, any fees exceeding 110% of estimated pre-approved fee levels provided at the time the service was pre-approved will also require specific approval by the Audit Committees before payment is made. The Audit Committees will also consider the impact of additional fees on the Auditor's independence when determining whether to approve any additional fees for previously pre-approved services. The Audit Committees will annually review and generally pre-approve the services that may be provided by each Auditor without obtaining specific pre-approval from the Audit Committee. The term of any general pre-approval runs from the date of such pre-approval through September 30th of the following year, unless the Audit Committees consider a different period and state otherwise. The Audit Committees will add to or subtract from the list of general pre-approved services from time to time, based on subsequent determinations. The purpose of these policies and procedures is to set forth the guidelines to assist the Audit Committees in fulfilling their responsibilities. DELEGATION The Audit Committees may from time to time delegate pre-approval authority to one or more of its members who are Independent Trustees. All decisions to pre-approve a service by a delegated member shall be reported to the Audit Committee at its next quarterly meeting. AUDIT SERVICES The annual audit services engagement terms will be subject to specific pre-approval of the Audit Committees. Audit services include the annual financial statement audit and other procedures such as tax provision work that is required to be performed by the independent auditor to be able to form an opinion on the Funds' financial statements. The Audit Committee will obtain, review and consider sufficient information concerning the proposed Auditor to make a reasonable evaluation of the Auditor's qualifications and independence. In addition to the annual Audit services engagement, the Audit Committees may grant either general or specific pre-approval of other audit services, which are those services that only the independent auditor reasonably can provide. Other Audit services may include services such as issuing consents for the inclusion of audited financial statements with SEC registration statements, periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings. NON-AUDIT SERVICES The Audit Committees may provide either general or specific pre-approval of any non-audit services to the Funds and its Service Affiliates if the Audit Committees believe that the provision of the service will not impair the independence of the Auditor, is consistent with the SEC's Rules on auditor independence, and otherwise conforms to the Audit Committee's general principles and policies as set forth herein. AUDIT-RELATED SERVICES "Audit-related services" are assurance and related services that are reasonably related to the performance of the audit or review of the Fund's financial statements or that are traditionally performed by the independent auditor. Audit-related services include, among others, accounting consultations related to accounting, financial reporting or disclosure matters not classified as "Audit services"; assistance with understanding and implementing new accounting and financial reporting guidance from rulemaking authorities; and agreed-upon procedures related to mergers, compliance with ratings agency requirements and interfund lending activities. TAX SERVICES "Tax services" include, but are not limited to, the review and signing of the Funds' federal tax returns, the review of required distributions by the Funds and consultations regarding tax matters such as the tax treatment of new investments or the impact of new regulations. The Audit Committee will scrutinize carefully the retention of the Auditor in connection with a transaction initially recommended by the Auditor, the major business purpose of which may be tax avoidance or the tax treatment of which may not be supported in the Internal Revenue Code and related regulations. The Audit Committee will consult with the Funds' Treasurer (or his or her designee) and may consult with outside counsel or advisors as necessary to ensure the consistency of Tax services rendered by the Auditor with the foregoing policy. No Auditor shall represent any Fund or any Service Affiliate before a tax court, district court or federal court of claims. Under rules adopted by the Public Company Accounting Oversight Board and approved by the SEC, in connection with seeking Audit Committee pre-approval of permissible Tax services, the Auditor shall: 1. Describe in writing to the Audit Committees, which writing may be in the form of the proposed engagement letter: a. The scope of the service, the fee structure for the engagement, and any side letter or amendment to the engagement letter, or any other agreement between the Auditor and the Fund, relating to the service; and b. Any compensation arrangement or other agreement, such as a referral agreement, a referral fee or fee-sharing arrangement, between the Auditor and any person (other than the Fund) with respect to the promoting, marketing, or recommending of a transaction covered by the service; 2. Discuss with the Audit Committees the potential effects of the services on the independence of the Auditor; and 3. Document the substance of its discussion with the Audit Committees. ALL OTHER AUDITOR SERVICES The Audit Committees may pre-approve non-audit services classified as "All other services" that are not categorically prohibited by the SEC, as listed in Exhibit 1 to this policy. PRE-APPROVAL FEE LEVELS OR ESTABLISHED AMOUNTS Pre-approval of estimated fees or established amounts for services to be provided by the Auditor under general or specific pre-approval policies will be set periodically by the Audit Committees. Any proposed fees exceeding 110% of the maximum estimated pre-approved fees or established amounts for pre-approved audit and non-audit services will be reported to the Audit Committees at the quarterly Audit Committees meeting and will require specific approval by the Audit Committees before payment is made. The Audit Committee will always factor in the overall relationship of fees for audit and non-audit services in determining whether to pre-approve any such services and in determining whether to approve any additional fees exceeding 110% of the maximum pre-approved fees or established amounts for previously pre-approved services. PROCEDURES On an annual basis, A I M Advisors, Inc. ("AIM") will submit to the Audit Committees for general pre-approval, a list of non-audit services that the Funds or Service Affiliates of the Funds may request from the Auditor. The list will describe the non-audit services in reasonable detail and will include an estimated range of fees and such other information as the Audit Committee may request. Each request for services to be provided by the Auditor under the general pre-approval of the Audit Committees will be submitted to the Funds' Treasurer (or his or her designee) and must include a detailed description of the services to be rendered. The Treasurer or his or her designee will ensure that such services are included within the list of services that have received the general pre-approval of the Audit Committees. The Audit Committees will be informed at the next quarterly scheduled Audit Committees meeting of any such services for which the Auditor rendered an invoice and whether such services and fees had been pre-approved and if so, by what means. Each request to provide services that require specific approval by the Audit Committees shall be submitted to the Audit Committees jointly by the Fund's Treasurer or his or her designee and the Auditor, and must include a joint statement that, in their view, such request is consistent with the policies and procedures and the SEC Rules. Each request to provide tax services under either the general or specific pre-approval of the Audit Committees will describe in writing: (i) the scope of the service, the fee structure for the engagement, and any side letter or amendment to the engagement letter, or any other agreement between the Auditor and the audit client, relating to the service; and (ii) any compensation arrangement or other agreement between the Auditor and any person (other than the audit client) with respect to the promoting, marketing, or recommending of a transaction covered by the service. The Auditor will discuss with the Audit Committees the potential effects of the services on the Auditor's independence and will document the substance of the discussion. Non-audit services pursuant to the de minimis exception provided by the SEC Rules will be promptly brought to the attention of the Audit Committees for approval, including documentation that each of the conditions for this exception, as set forth in the SEC Rules, has been satisfied. On at least an annual basis, the Auditor will prepare a summary of all the services provided to any entity in the investment company complex as defined in section 2-01(f)(14) of Regulation S-X in sufficient detail as to the nature of the engagement and the fees associated with those services. The Audit Committees have designated the Funds' Treasurer to monitor the performance of all services provided by the Auditor and to ensure such services are in compliance with these policies and procedures. The Funds' Treasurer will report to the Audit Committee on a periodic basis as to the results of such monitoring. Both the Funds' Treasurer and management of AIM will immediately report to the chairman of the Audit Committee any breach of these policies and procedures that comes to the attention of the Funds' Treasurer or senior management of AIM. EXHIBIT 1 TO PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES POLICIES AND PROCEDURES CONDITIONALLY PROHIBITED NON-AUDIT SERVICES (NOT PROHIBITED IF THE FUND CAN REASONABLY CONCLUDE THAT THE RESULTS OF THE SERVICE WOULD NOT BE SUBJECT TO AUDIT PROCEDURES IN CONNECTION WITH THE AUDIT OF THE FUND'S FINANCIAL STATEMENTS) - Bookkeeping or other services related to the accounting records or financial statements of the audit client - Financial information systems design and implementation - Appraisal or valuation services, fairness opinions, or contribution-in-kind reports - Actuarial services - Internal audit outsourcing services CATEGORICALLY PROHIBITED NON-AUDIT SERVICES - Management functions - Human resources - Broker-dealer, investment adviser, or investment banking services - Legal services - Expert services unrelated to the audit - Any service or product provided for a contingent fee or a commission - Services related to marketing, planning, or opining in favor of the tax treatment of confidential transactions or aggressive tax position transactions, a significant purpose of which is tax avoidance - Tax services for persons in financial reporting oversight roles at the Fund - Any other service that the Public Company Oversight Board determines by regulation is impermissible. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. SCHEDULE OF INVESTMENTS. Investments in securities of unaffiliated issuers is included as part of the reports to stockholders filed under Item 1 of this Form. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT COMPANIES. Not applicable. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None ITEM 11. CONTROLS AND PROCEDURES. (a) As of December 17, 2007, 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 17, 2007, the Registrant's disclosure controls and procedures were reasonably designed to ensure: (1) that information required to be disclosed by the Registrant on Form N-CSR is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Securities and Exchange Commission; and (2) that material information relating to the Registrant is made known to the PEO and PFO as appropriate to allow timely decisions regarding required disclosure. (b) There have been no changes in the Registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant's internal control over financial reporting. ITEM 12. EXHIBITS. 12(a)(1) Code of Ethics. 12(a)(2) Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(a) under the Investment Company Act of 1940. 12(a)(3) Not applicable. 12(b) Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(b) under the Investment Company Act of 1940. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Registrant: AIM Equity Funds By: /s/ PHILIP A. TAYLOR --------------------------------- Philip A. Taylor Principal Executive Officer Date: January 4, 2008 Pursuant to the requirements of the Securities and Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By: /s/ PHILIP A. TAYLOR --------------------------------- Philip A. Taylor Principal Executive Officer Date: January 4, 2008 By: /s/ SIDNEY M. DILGREN --------------------------------- Sidney M. Dilgren Principal Financial Officer Date: January 4, 2008 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. EX-99.CODE ETH 2 h51959exv99wcodeeth.txt CODE OF ETHICS EXHIBIT - CODE OF ETHICS DISCLOSURE CONTROLS PROCEDURES THE AIM FAMILY OF FUNDS CODE OF ETHICS FOR SENIOR OFFICERS I. INTRODUCTION The Boards of Directors/Trustees ("Board") of The AIM Family of Funds (the "Companies") have adopted this code of ethics (this "Code") applicable to the Principal Executive Officer and Principal Financial and Accounting Officer (the "Covered Officers") of each Company to promote: - honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; - full, fair, accurate, timely and understandable disclosure in documents filed with the Securities and Exchange Commission ("SEC") and in other public communications; - compliance with applicable governmental laws, rules and regulations; - the prompt internal reporting to an appropriate person or persons identified in the Code of violations of the Code; and - accountability for adherence to the Code. II. COVERED OFFICERS SHOULD ACT HONESTLY AND CANDIDLY Each Covered Officer owes a duty to the Companies to act with integrity. Integrity requires, among other things, being honest and candid. Deceit and subordination of principle are inconsistent with integrity. Each Covered Officer must: - act with integrity, including being honest and candid while still maintaining the confidentiality of information where required by law or the Companies' policies; - observe both the form and spirit of laws and governmental rules and regulations, accounting standards and policies of the Companies; - adhere to a high standard of business ethics; and - place the interests of the Companies before the Covered Officer's own personal interests. Business practices Covered Officers should be guided by and adhere to these fiduciary standards. III. COVERED OFFICERS SHOULD HANDLE ETHICALLY ACTUAL AND APPARENT CONFLICTS OF INTEREST GUIDING PRINCIPLES. A "conflict of interest" occurs when an individual's private interest interferes with the interests of the Companies. A conflict of interest can arise when a Covered Officer takes actions or has interests that may make it difficult to perform his or her work for the Companies objectively and effectively. For example, a conflict of interest would arise if a Covered Officer, or a member or his family, receives improper personal benefits as a result of his or her position in any of the Companies. In addition, investment companies should be sensitive to situations that create apparent, but not actual, conflicts of interest. Service to the Companies should never be subordinated to personal gain and advantage. Certain conflicts of interest covered by this Code arise out of the relationships between Covered Officers and the Companies that already are subject to conflict of interest provisions in the Investment 1 Company Act of 1940, as amended and the Investment Advisers Act of 1940, as amended. Therefore, as to the existing statutory and regulatory prohibitions on individual behavior, they will be deemed to be incorporated in this Code and therefore any material violation will also be deemed a violation of this Code. Covered Officers must in all cases comply with applicable statutes and regulations. As to conflicts arising from, or as a result of the contractual relationship between, the Companies and the investment adviser of which the Covered Officers are also officers or employees, it is recognized by the Board that, subject to the adviser's fiduciary duties to the Companies, the Covered Officers will in the normal course of their duties (whether formally for the Companies or for the adviser, or for both) be involved in establishing policies and implementing decisions which will have different effects on the adviser and the Companies. The Board recognizes that the participation of the Covered Officers in such activities is inherent in the contractual relationship between the Companies and the adviser and is consistent with the expectation of the Board of the performance by the Covered Officers of their duties as officers of the Companies. In addition, it is recognized by the Board that the Covered Officers may also be officers or employees of other investment companies advised by the same adviser and the codes which apply to senior officers of those investment companies will apply to the Covered Officers acting in those distinct capacities. Each Covered Officer must: - avoid conflicts of interest wherever possible; - handle any actual or apparent conflict of interest ethically; - not use his or her personal influence or personal relationships to influence investment decisions or financial reporting by an investment company whereby the Covered Officer would benefit personally to the detriment of any of the Companies; - not cause an investment company to take action, or fail to take action, for the personal benefit of the Covered Officer rather than the benefit of such company; - not use knowledge of portfolio transactions made or contemplated for an investment company to profit or cause others to profit, by the market effect of such transactions; and - as described in more detail below, discuss any material transaction or relationship that could reasonably be expected to give rise to a conflict of interest with the Chief Legal Officer of the AIM Funds (the "Chief Legal Officer"). Some conflict of interest situations that should always be discussed with the Chief Legal Officer, if material, include the following: - any outside business activity that detracts from an individual's ability to devote appropriate time and attention to his or her responsibilities with the Companies; - being in the position of supervising, reviewing or having any influence on the job evaluation, pay or benefit of any immediate family member; - any direct ownership interest in, or any consulting or employment relationship with, any of the Companies' service providers, other than its investment adviser, distributor or other AMVESCAP affiliated entities and other than a de minimis ownership interest (for purposes of this section of the Code an ownership interest of 1% or less shall constitute a de minimis ownership interest, and an ownership interest of more than 1% creates a rebuttable presumption that there may be a material conflict of interest); and - a direct or indirect financial interest in commissions, transaction charges or spreads paid by the Companies for effecting portfolio transactions or for selling or redeeming shares, other than an interest arising from the Covered Officer's employment with AIM, its subsidiaries, its parent organizations and any affiliates or subsidiaries thereof, such as compensation or equity ownership, and other than an interest arising from a de minimis ownership interest in a company 2 with which the Companies execute portfolios transactions or a company that receives commissions or other fees related to its sales and redemptions of shares of the Companies (for purposes of this section of the Code an ownership interest of 1% or less shall constitute a de minimis ownership interest, and an ownership interest of more than 1% creates a rebuttable presumption that there may be a material conflict of interest). IV. DISCLOSURE Each Covered Officer is required to be familiar, and comply, with the Companies' disclosure controls and procedures so that the Companies' subject reports and documents filed with the SEC comply in all material respects with the applicable federal securities laws and SEC rules. In addition, each Covered Officer having direct or supervisory authority regarding these SEC filings or the Companies' other public communications should, to the extent appropriate within his area of responsibility, consult with other officers and employees of the Companies and take other appropriate steps regarding these disclosures with the goal of making full, fair, accurate, timely and understandable disclosure. Each Covered Officer must: - familiarize himself/herself with the disclosure requirements applicable to the Companies as well as the business and financial operations of the Companies; and - not knowingly misrepresent, or cause others to misrepresent, facts about the Companies to others, whether within or outside the Companies, including representations to the Companies' internal auditors, independent Directors/Trustees, independent auditors, and to governmental regulators and self-regulatory organizations. V. COMPLIANCE It is the Companies' policy to comply in all material respects with all applicable governmental laws, rules and regulations. It is the personal responsibility of each Covered Officer to adhere to the standards and restrictions imposed by those laws, rules and regulations, including those relating to affiliated transactions, accounting and auditing matters. VI. REPORTING AND ACCOUNTABILITY Each Covered Officer must: - upon receipt of the Code, sign and submit to the Chief Compliance Officer of the Companies an acknowledgement stating that he or she has received, read, and understands the Code. - annually thereafter submit a form to the Chief Compliance Officer of the Companies confirming that he or she has received, read and understands the Code and has complied with the requirements of the Code. - not retaliate against any employee or other Covered Officer for reports of potential violations that are made in good faith. - notify the Chief Legal Officer promptly if he becomes aware of any existing or potential violation of this Code. Failure to do so is itself a violation of this Code. Except as described otherwise below, the Chief Legal Officer is responsible for applying this Code to specific situations in which questions are presented to him or her and has the authority to interpret this Code in any particular situation. The Chief Legal Officer shall take all action he or she considers appropriate to investigate any actual or potential violations reported to him or her. 3 The Chief Legal Officer is authorized to consult, as appropriate, with the Chairman of the Audit Committees of the Board, counsel to the Companies and counsel to the independent Directors/Trustees, and is encouraged to do so. The Chief Legal Officer is responsible for granting waivers and determining sanctions, as appropriate. In addition, approvals, interpretations, or waivers sought by the Covered Officers may also be considered by the Chairman of the AIM Funds Audit Committees. The Companies will follow these procedures in investigating and enforcing this Code, and in reporting on the Code: - the Chief Legal Officer will take all appropriate action to investigate any violations reported to him or her; - violations and potential violations will be reported to the Chairman of the Audit Committees of the Board after such investigation; - if the Chairman of the Audit Committees determines that a violation has occurred, he or she will inform the Board, which will take all appropriate disciplinary or preventive action; - appropriate disciplinary or preventive action may include a letter of censure, suspension, dismissal or, in the event of criminal or other serious violations of law, notification to the SEC or other appropriate law enforcement authorities; - the Chief Legal Officer will be responsible for granting waivers, as appropriate; and - any changes to or waivers of this Code will, to the extent required, be disclosed on Form N-CSR as provided by SEC rules. VII. OTHER POLICIES AND PROCEDURES The Companies' and the Advisers' and Principal Underwriters' codes of ethics under Rule 17j-1 under the Investment Company Act and the Advisers' more detailed policies and procedures set forth in its Compliance and Supervisory Procedures Manual are separate requirements applying to Covered Officers and others, and are not part of this Code. VIII. AMENDMENTS This Code may not be amended except in written form, which is specifically approved by a majority vote of the Companies' Board, including a majority of independent Directors/Trustees. IX. CONFIDENTIALITY All reports and records prepared or maintained pursuant to this Code shall be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the members of the Companies' Board, counsel to the Companies, and counsel to the independent Directors/Trustees. 4 THE AIM FAMILY OF FUNDS CODE OF ETHICS--ACKNOWLEDGEMENT I hereby acknowledge that I am a Principal Officer of the Companies and I am aware of and subject to the Companies' Code of Ethics. Accordingly, I have read and understood the requirements of the Code of Ethics and I am committed to fully comply with the Code of Ethics. I recognize my obligation to promote: 1. Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; 2. Full, fair, accurate, timely, and understandable disclosure in reports and documents that the Companies file with, or submit to, the Commission and in other public communications made by the Companies; and 3. Compliance with applicable governmental laws, rules, and regulations. - ------------------------------------- ---------------------------------------- Date Name: ---------------------------------- Title: --------------------------------- 5 EX-99.CERT 3 h51959exv99wcert.txt CERTIFICATIONS PURSUANT TO SECTION 302 I, Philip A. Taylor, Principal Executive Officer, certify that: 1. I have reviewed this report on Form N-CSR of AIM Equity Funds; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3 (d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidating subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filling date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: January 4, 2008 /s/ PHILIP A. TAYLOR ---------------------------------------- Philip A. Taylor, Principal Executive Officer I, Sidney M. Dilgren, Principal Financial Officer, certify that: 1. I have reviewed this report on Form N-CSR of AIM Equity Funds; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3 (d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidating subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filling date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: January 4, 2008 /s/ SIDNEY M. DILGREN ---------------------------------------- Sidney M. Dilgren, Principal Financial Officer EX-99.906CERT 4 h51959exv99w906cert.txt CERTIFICATIONS PURSUANT TO SECTION 906 CERTIFICATION OF SHAREHOLDER REPORT In connection with the Certified Shareholder Report of AIM Equity Funds(the "Company") on Form N-CSR for the period ended October 31, 2007, as filed with the Securities and Exchange Commission (the "Report"), I, Philip A. Taylor, Principal Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: January 4, 2008 /s/ Philip A. Taylor ---------------------------------------- Philip A. Taylor, Principal Executive Officer A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided by the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. CERTIFICATION OF SHAREHOLDER REPORT In connection with the Certified Shareholder Report of AIM Equity Funds(the "Company") on Form N-CSR for the period ended October 31, 2007, as filed with the Securities and Exchange Commission (the "Report"), I, Sidney M. Dilgren, Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: January 4, 2008 /s/ Sidney M. Dilgren ---------------------------------------- Sidney M. Dilgren, Principal Financial Officer A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided by the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----