N-CSR 1 h65012nvcsr.txt FORM N-CSR - ANNUAL REPORT ------------------------ OMB APPROVAL ------------------------ OMB Number: 3235-0570 Expires: August 31, 2011 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: 10/31/08 Item 1. Reports to Stockholders. [INVESCO AIM LOGO] AIM CAPITAL DEVELOPMENT FUND -- SERVICE MARK -- Annual Report to Shareholders o October 31, 2008 [MOUNTAIN GRAPHIC] 2 Letters to Shareholders 4 Performance Summary 4 Management Discussion 6 Long-Term Fund Performance 8 Supplemental Information 9 Schedule of Investments 12 Financial Statements 15 Notes to Financial Statements 21 Financial Highlights 23 Auditor's Report 24 Fund Expenses 25 Approval of Investment Advisory Agreement 28 Tax Information 29 Trustees and Officers
Dear Shareholder: In previous reports, I've talked with you about short-term market volatility. I'd like to take this opportunity to update you on recent market developments and provide some perspective and encouragement to my fellow long-term investors. [TAYLOR PHOTO] MARKET OVERVIEW At the start of the fiscal year in November 2007, we saw warning signs of increasing economic ills -- a weakening housing market, rising inflation and slowing job growth, among others. In response, the U.S. Federal Reserve Board Philip Taylor (the Fed) repeatedly cut short-term interest rate targets to stimulate economic growth and expand market liquidity.(1) Also, Congress and the president worked together to enact an economic stimulus plan that included billions of dollars in rebates to taxpayers. These actions helped the economy and the U.S. stock market until the spring of 2008, when other factors came to the forefront -- triggering a severe correction that eventually drove major stock-market indexes to multi-year lows.(2) HOW WE GOT HERE The cause of this correction was years of lax lending associated with the recent housing boom. Mortgage loans of questionable quality were bundled into hard-to-value securities that were bought by, and traded among, financial institutions. As the value of those securities declined, financial institutions sought to unload them -- but there were few buyers. With the value of their assets falling and access to credit tightening, a number of well-established financial firms faced severe difficulties, and investor uncertainty and market volatility spiked. In October 2008, the administration and Congress enacted a plan, the Troubled Assets Relief Program, authorizing the U.S. Department of the Treasury to purchase up to $700 billion in troubled mortgage-related assets -- the largest and most direct effort to resolve a credit crisis in the last half century. The Fed, in concert with other central banks, cut short-term interest rate targets and undertook other initiatives intended to restore investor confidence, expand lending and mitigate the effects of the global credit crisis. The recent volatility in the stock, fixed-income and credit markets has driven home the importance of three timeless investing principles. INVESTING IN VOLATILE MARKETS Through up markets and down, we believe history shows investors should: o INVEST FOR THE LONG TERM. Short-term fluctuations have always been a reality of the markets. We urge you to stick to your investment plan and stay focused on your long-term goals. o DIVERSIFY. Although diversification doesn't eliminate the risk of loss or guarantee a profit, a careful selection of complementary asset classes may cushion your portfolio against excessive volatility. o STAY FULLY INVESTED. Trying to time the market is a gamble, not an investment strategy. A sound investment strategy includes viewing market volatility as a matter of course, not a reason to panic. A trusted financial advisor can explain more fully the potential value of following these principles. An experienced advisor who knows your individual investment goals, financial situation and risk tolerance can be your most valuable asset during times of market volatility. Your advisor can provide guidance and can monitor your investments to ensure they're on course. It's also helpful to remember that many of history's significant buying opportunities resulted from short-term economic crises that, in their time, were considered unprecedented. We believe current market uncertainty may represent a buying opportunity for patient, long-term investors. Rest assured that Invesco Aim's portfolio managers are working diligently on your behalf to capitalize on this situation. MANAGING MONEY IS OUR FOCUS As 2008 draws to a close, I believe Invesco Aim is uniquely positioned to navigate current uncertain markets. Our parent company, Invesco Ltd., is one of the world's largest and most diversified global investment managers. Invesco provides clients with diversified investment strategies from distinct management teams around the globe and a range of investment products. Invesco's single focus is asset management -- which means we focus on doing one thing well: managing your money. That can be reassuring in uncertain times. While market conditions change often, commitment to putting shareholders first, helping clients achieve their investment goals and providing excellent customer service remains constant. If you have questions about this report or your account, please contact one of our client service representatives at 800 959 4246. Thank you for your continued confidence, and we look forward to serving you.
Sincerely, /S/ PHILIP TAYLOR Philip Taylor Senior Managing Director, Invesco Ltd. CEO, Invesco Aim (1) U.S. Federal Reserve; (2) Lipper Inc. 2 AIM CAPITAL DEVELOPMENT FUND Dear Fellow Shareholders: As I write this letter, turbulent financial markets are causing considerable investor anxiety, reminding us again that markets are cyclical and the correction of excess is often painful, at least in the short term. Your Board of Trustees [CROCKETT believes in the wisdom of a long-term perspective and consistent investment PHOTO] discipline. We continue to put your interests first in the effort to improve investment performance, contain shareholder costs and uphold the highest ethical standards. We remain enthusiastic about the global reach and investment expertise that Invesco, a leading independent global investment management company, brings to Bruce Crockett the management of AIM Funds as the parent company of the advisors. The diverse investment strategies deployed throughout the worldwide network of Invesco investment centers has helped strengthen the management of many AIM Funds. The rebranding of the Funds' management company as Invesco Aim was followed by the launch of an upgraded, investor-friendly website (invescoaim.com); a new mountain logo using a Himalayan peak to symbolize stability, endurance, strength and longevity; and a new ad campaign. Emphasizing Invesco Aim's focus and investment quality, the ads will appear in financial publications such as Barron's and Investment News through the end of 2008. At its June meeting, your Board reviewed and renewed the investment advisory contracts between the AIM Funds and Invesco Aim Advisors, Inc. You can find the results of this rigorous annual process at invescoaim.com. Go to "Products & Performance" and click on "Investment Advisory Agreement Renewals." We have recently completed another active proxy voting season during which we acted on your behalf to double the number of votes in favor of separating the roles of chairman and CEO at the companies whose shares your Funds hold. We also continued to support the movement for shareholders to have a bigger role in approving executive compensation, initiatives known as "say on pay." Like virtually all other mutual fund complexes, AIM Funds abstain from voting on social issues as a matter of policy, and I would be interested to hear your thoughts on this policy. As always, you are welcome to email your questions or comments to me at bruce@brucecrockett.com. The dialogue that has been established in this way has been instructive for your Board, and we want it to continue. Although the production schedule for Fund annual reports and prospectuses allows me to write these letters of general report and response just twice a year, please be assured that your comments are received, welcomed and heard in the interim. We look forward to hearing from you and to representing you.
Sincerely, /S/ BRUCE L. CROCKETT Bruce L. Crockett Independent Chair AIM Funds Board of Trustees 3 AIM CAPITAL DEVELOPMENT FUND MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE ======================================================================================= PERFORMANCE SUMMARY We consider selling a stock for any of the following reasons: For the fiscal year ended October 31, 2008, Class A shares of AIM Capital Development Fund, at net asset value, had negative returns and underperformed the broad market, as o There is a change in fundamentals, measured by the S&P 500 Index, and the Fund's style-specific benchmark, the Russell market capitalization or deterioration Midcap Growth Index. in the timeliness profile. Underperformance was due to both stock selection and sector allocation. Your Fund's o The price target set at purchase has Your Fund's long-term performance appears later in this report. been reached. FUND VS. INDEXES o The investment thesis is no longer valid. Total returns, 10/31/07 to 10/31/08, at net asset value (NAV). Performance shown does not include applicable contingent deferred sales charges (CDSC) or front-end sales o Insider selling indicates potential charges, which would have reduced performance. issues. Class A Shares -45.35% MARKET CONDITIONS AND YOUR FUND Class B Shares -45.71 Class C Shares -45.74 Many factors contributed to the negative Class R Shares -45.46 performance of most major market indexes Class Y Shares* -45.29 for the fiscal year ended October 31, Investor Class Shares -45.27 2008.(1) The chief catalyst was the S&P 500 Index(triangle) (Broad Market Index) -36.08 ongoing subprime loan crisis and its Russell Midcap Growth Index(triangle) (Style-Specific Index) -42.65 far-reaching effects on overall credit Lipper Mid-Cap Growth Funds Index(triangle) (Peer Group Index) -42.38 availability. Additionally, record high crude oil prices, falling home values and (triangle) Lipper Inc. the weak U.S. dollar placed significant pressure on the purchasing power of the * Share class incepted during the fiscal year. See page 7 for a detailed explanation U.S. consumer. Later in the fiscal of Fund performance. year, consumer confidence fell and market ======================================================================================= volatility increased dramatically due to growing fears of a global economic HOW WE INVEST this goal, we develop a fully integrated recession. financial model to gain a more complete We believe a growth investment strategy is understanding of the financial health of To ensure the orderly functioning of an essential component of a diversified each investment candidate. Additionally, the credit markets and thereby preventing portfolio. our research involves due diligence of the a more severe economic downturn, in early company, which includes a detailed October Congress enacted a $700 billion Our investment process combines analysis of the strategic plans of the rescue plan -- the Troubled Assets Relief fundamental and quantitative analysis to company's management team. We also analyze Program. In addition, the U.S. Federal uncover companies exhibiting long-term, key competitors, customers and suppliers Reserve (the Fed) -- in concert with other sustainable revenue, earnings and cash to assess the overall attractiveness and world banks -- lowered short-term interest flow growth that is not yet reflected by growth potential of the industry. rates. The Fed reduced the federal funds the stock's market price. target rate from 2.0% to 1.5%, and then Risk management plays an important role again from 1.5% to 1.0%.(2) Our quantitative model ranks companies in portfolio construction, as our target based on a set of fundamental, valuation portfolio attempts to limit volatility and In this environment, the Fund had and timeliness factors. This quantitative downside risk. We seek to accomplish this double-digit negative returns and model is designed to identify stocks with goal by investing in sectors, industries underperformed the Russell Midcap Growth the highest probability of meeting our and companies with attractive fundamental Index during the fiscal year.(1) team's investment criteria. Stocks that prospects. We limit the Fund's sector Underperformance was driven largely by are ranked highest by our quantitative exposure and also seek to minimize stock selection in the financials, model are the focus of our fundamental stock-specific risk by building a information technology, health care and research efforts. diversified portfolio. energy Our fundamental analysis focuses on identifying companies and industries with strong drivers of growth. To accomplish ========================================== ========================================== ========================================== PORTFOLIO COMPOSITION TOP FIVE INDUSTRIES* TOP 10 EQUITY HOLDINGS* By sector 1. Health Care Services 4.5% 1. Apollo Group Inc.-Class A 1.8% Information Technology 19.1% 2. Metal & Glass Containers 4.3 2. Southwestern Energy Co. 1.8 Consumer Discretionary 17.8 3. Apparel Retail 3.9 3. Crown Holdings, Inc. 1.8 Industrials 15.0 4. Application Software 3.9 4. Shoppers Drug Mart Corp. 1.7 Health Care 13.3 5. Education Services 3.5 5. ITT Educational Services, Inc. 1.7 Energy 10.0 ========================================== 6. Corrections Corp. of America 1.7 Financials 8.4 7. McAfee Inc. 1.6 Materials 4.3 ========================================== 8. Check Point Software Consumer Staples 3.2 Total Net Assets $947.5 million Technologies Ltd. 1.6 Utilities 2.0 9. Solera Holdings Inc. 1.6 Telecommunication Services 2.0 Total Number of Holdings* 87 10. Alliance Data Systems Corp. 1.6 Money Market Funds and U.S. ========================================== ========================================== Treasury Securities Plus The Fund's holdings are subject to change, and there is no assurance that the Fund will Other Assets Less Liabilities 4.9 continue to hold any particular security. ========================================== * Excluding money market fund holdings.
4 AIM CAPITAL DEVELOPMENT FUND sectors. An underweight position in the Outperformance in the materials sector PAUL RASPLICKA energy sector also contributed to was largely due to solid stock selection. Chartered Financial Analyst, underperformance. Within this sector, one of the key [RASPLICKA is lead manager of AIM Capital contributors to performance was fertilizer PHOTO] Development Fund. The Fund underperformed by the widest maker POTASH CORP. OF SASKATCHEWAN, which Mr. Rasplicka has been margin in the financials sector, largely benefited from strong demand from emerging associated with the advisor and/or its due to stock selection. The financials markets during the first part of the affiliates since 1994. He began his sector was one of the weakest performing fiscal year. We sold this holding. investment career in 1982 as an equity sectors in the Russell Midcap Growth Index research analyst. A native of Denver, Mr. during the fiscal year, as the credit The Fund also outperformed the Russell Rasplicka is a magna cum laude graduate of crisis intensified and a liquidity crisis Midcap Growth Index in the consumer the University of Colorado in Boulder with emerged. Examples of holdings that discretionary sector. Many consumer a B.S. in business administration. He detracted from performance include discretionary stocks had weak performance earned an M.B.A. from the University of insurance provider XL CAPITAL, which we during the fiscal year due to significant Chicago. He is a Chartered Investment sold, asset management holding AFFILIATED reductions in consumer spending. In this Counselor. MANAGERS GROUP and credit rating holding challenging environment, the Fund MOODY'S. benefited from strong stock selection. One BRENT LIUM holding that held up well in this [LIUM Chartered Financial Analyst, Another area of weakness for the Fund difficult environment was ITT EDUCATIONAL PHOTO] portfolio manager, is manager was the information technology sector, SERVICES, one of the largest U.S. of AIM Capital Development where the Fund's holdings generally providers of technical education. Fund. He joined Invesco in 1999 in its underperformed those of the Russell Midcap corporate associate program and joined Growth Index. Many information technology During the reporting period, the most Invesco Aim in 2003. Mr. Lium earned a holdings were negatively affected by the significant additions to the portfolio B.B.A. from Texas A&M University and an economic slowdown, as both consumers and included the financials sector, where M.B.A. from The University of Texas at companies spent less on technology several attractive investment Austin. products and services. The leading opportunities were identified, as well as detractor from Fund performance was the more defensive consumer staples Assisted by the Mid Cap Growth Team COMMSCOPE, a company that manufactures sector. The most significant reductions coaxial, fiber-optic and other to the portfolio were in the more high-performance cable products for data, economically sensitive consumer voice and video transmission. Other discretionary, materials and information information technology companies that technology sectors, as well as the detracted from Fund performance included telecommunication services sector. All NETAPP and LOGITECH INTERNATIONAL. changes to the Fund were based on our bottom-up stock selection process of Underperformance in the health care identifying high quality growth companies sector was also driven by stock selection. trading at what we believe are attractive One of the leading detractors from Fund valuations. performance was HUMANA, one of the nation's largest health insurers. We thank you for your commitment to AIM Capital Development Fund. The Fund also underperformed in the energy sector, due to both stock selection (1) Lipper Inc. and an overweight position in energy equipment and services holdings. Many of (2) U.S. Federal Reserve these holdings were negatively affected as the price of oil fell sharply in the The views and opinions expressed in second half of the year due to concerns of management's discussion of Fund a global economic slow down. Key performance are those of Invesco Aim detractors from performance included Advisors, Inc. These views and opinions HERCULES OFFSHORE, which we sold. are subject to change at any time based on factors such as market and economic Some of this underperformance was conditions. These views and opinions may offset by outperformance in other sectors, not be relied upon as investment advice or including utilities, materials and recommendations, or as an offer for a consumer discretionary. The Fund's cash particular security. The information is position was also a benefit during the not a complete analysis of every aspect of highly volatile market environment. any market, country, industry, security or the Fund. Statements of fact are from The utilities sector was the weakest sources considered reliable, but Invesco performing sector in the Russell Midcap Aim Advisors, Inc. makes no representation Growth Index during the fiscal year, so or warranty as to their completeness or the Fund's underweight position helped accuracy. Although historical performance performance. The Fund also benefited from is no guarantee of future results, these stock selection in this sector. insights may help you understand our investment management philosophy. See important Fund and index disclosures later in this report.
5 AIM CAPITAL DEVELOPMENT 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 and Fund expenses including illustrating changes in value during the management fees. Index results include early years shown in the chart. The reinvested dividends, but they do not vertical axis, the one that indicates the reflect sales charges. Performance of an dollar value of an investment, is index of funds reflects fund expenses and constructed with each segment representing management fees; performance of a market a percent change in the value of the index does not. Performance shown in the investment. In this chart, each segment chart and table(s) does not reflect represents a doubling, or 100% change, in deduction of taxes a shareholder would pay the value of the investment. In other on Fund distributions or sale of Fund words, the space between $5,000 and shares. $10,000 is the same size as the space between $10,000 and $20,000, and so on.
6 AIM CAPITAL DEVELOPMENT FUND ==================================================================================================================================== [MOUNTAIN CHART] RESULTS OF A $10,000 INVESTMENT -- CLASS A SHARES (OLDEST SHARE CLASS) Fund data from 06/17/96, index data from 06/30/96 AIM Capital Development Lipper Mid-Cap Fund-Class A Russell Midcap Growth Funds Date Shares S&P 500 Index(1) Growth Index(1) Index(1) 6/17/96 $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 13043 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 26071 22569 7/00 19835 22720 24421 21633 8/00 22019 24131 28103 24462 9/00 21083 22857 26730 23286 ====================================================================================================================================
(1) Lipper Inc. ==================================================================================================================================== [MOUNTAIN CHART] 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 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 ====================================================================================================================================
==================================================================================================================================== [MOUNTAIN CHART] 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 33184 27788 28259 24426 11/07 31478 26626 27014 23131 12/07 31337 26441 27088 23368 1/08 28366 24856 24936 21190 2/08 27784 24049 24556 20835 3/08 26709 23945 24122 20379 4/08 28416 25111 25873 21910 5/08 29268 25436 27236 22835 6/08 27474 23294 25243 21398 7/08 26620 23098 24285 20555 8/08 26979 23432 24507 20602 9/08 23070 21346 20763 17726 10/08 18141 17762 16207 14074 ====================================================================================================================================
========================================== ========================================== THE TOTAL ANNUAL FUND OPERATING EXPENSE AVERAGE ANNUAL TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS RATIO SET FORTH IN THE MOST RECENT FUND PROSPECTUS AS OF THE DATE OF THIS REPORT As of 10/31/08, including maximum As of 9/30/08, the most recent calendar FOR CLASS A, CLASS B, CLASS C, CLASS R, applicable sales charges quarter-end, including maximum applicable CLASS Y AND INVESTOR CLASS SHARES WAS sales charges 1.21%, 1.96%, 1.96%, 1.46%, 0.96% AND CLASS A SHARES 1.21%, RESPECTIVELY. THE EXPENSE RATIOS Inception (6/17/96) 4.93% CLASS A SHARES PRESENTED ABOVE MAY VARY FROM THE EXPENSE 10 Years 3.47 Inception (6/17/96) 7.04% RATIOS PRESENTED IN OTHER SECTIONS OF THIS 5 Years -1.27 10 Years 6.34 REPORT THAT ARE BASED ON EXPENSES INCURRED 1 Year -48.36 5 Years 5.15 DURING THE PERIOD COVERED BY THIS REPORT. 1 Year -32.93 CLASS B SHARES CLASS A SHARE PERFORMANCE REFLECTS THE Inception (10/1/96) 4.03% CLASS B SHARES MAXIMUM 5.50% SALES CHARGE, AND CLASS B 10 Years 3.49 Inception (10/1/96) 6.17% AND CLASS C SHARE PERFORMANCE REFLECTS THE 5 Years -1.09 10 Years 6.37 APPLICABLE CONTINGENT DEFERRED SALES 1 Year -48.13 5 Years 5.33 CHARGE (CDSC) FOR THE PERIOD INVOLVED. THE 1 Year -32.63 CDSC ON CLASS B SHARES DECLINES FROM 5% CLASS C SHARES BEGINNING AT THE TIME OF PURCHASE TO 0% AT Inception (8/4/97) 2.41% CLASS C SHARES THE BEGINNING OF THE SEVENTH YEAR. THE 10 Years 3.34 Inception (8/4/97) 4.67% CDSC ON CLASS C SHARES IS 1% FOR THE FIRST 5 Years -0.87 10 Years 6.20 YEAR AFTER PURCHASE. CLASS R SHARES DO NOT 1 Year -46.22 5 Years 5.58 HAVE A FRONT-END SALES CHARGE; RETURNS 1 Year -30.16 SHOWN ARE AT NET ASSET VALUE AND DO NOT CLASS R SHARES REFLECT A 0.75% CDSC THAT MAY BE IMPOSED 10 Years 3.87% CLASS R SHARES ON A TOTAL REDEMPTION OF RETIREMENT PLAN 5 Years -0.36 10 Years 6.75% ASSETS WITHIN THE FIRST YEAR. CLASS Y 1 Year -45.46 5 Years 6.11 SHARES AND INVESTOR CLASS SHARES DO NOT 1 Year -29.15 HAVE A FRONT-END SALES CHARGE OR A CDSC; CLASS Y SHARES THEREFORE, PERFORMANCE IS AT NET ASSET 10 Years 4.07% INVESTOR CLASS SHARES VALUE. 5 Years -0.13 10 Years 6.96% 1 Year -45.29 5 Years 6.37 THE PERFORMANCE OF THE FUND'S SHARE 1 Year -28.96 CLASSES WILL DIFFER PRIMARILY DUE TO INVESTOR CLASS SHARES ========================================== DIFFERENT SALES CHARGE STRUCTURES AND 10 Years 4.08% CLASS EXPENSES. 5 Years -0.11 INVESTOR CLASS SHARES' INCEPTION DATE 1 Year -45.27 IS NOVEMBER 30, 2004. RETURNS SINCE THAT ========================================== DATE ARE HISTORICAL RETURNS. ALL OTHER RETURNS ARE BLENDED RETURNS OF HISTORICAL CLASS R SHARES' INCEPTION DATE IS JUNE 3, INVESTOR CLASS SHARE PERFORMANCE AND 2002. RETURNS SINCE THAT DATE ARE RESTATED CLASS A SHARE PERFORMANCE (FOR HISTORICAL RETURNS. ALL OTHER RETURNS ARE PERIODS PRIOR TO THE INCEPTION DATE OF BLENDED RETURNS OF HISTORICAL CLASS R INVESTOR CLASS SHARES) AT NET ASSET VALUE, SHARE PERFORMANCE AND RESTATED CLASS A WHICH RESTATED PERFORMANCE WILL REFLECT SHARE PERFORMANCE (FOR PERIODS PRIOR TO THE RULE 12B-1 FEES APPLICABLE TO CLASS A THE INCEPTION DATE OF CLASS R SHARES) AT SHARES FOR THE PERIOD USING BLENDED NET ASSET VALUE, ADJUSTED TO REFLECT THE RETURNS. CLASS A SHARES' INCEPTION DATE IS HIGHER RULE 12B-1 FEES APPLICABLE TO CLASS JUNE 17, 1996. R SHARES. CLASS A SHARES' INCEPTION DATE IS JUNE 17, 1996. THE PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE AND CANNOT GUARANTEE CLASS Y SHARES' INCEPTION DATE IS COMPARABLE FUTURE RESULTS; CURRENT OCTOBER 3, 2008; RETURNS SINCE THAT DATE PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE ARE ACTUAL RETURNS. ALL OTHER RETURNS ARE VISIT INVESCOAIM.COM FOR THE MOST RECENT BLENDED RETURNS OF ACTUAL CLASS Y SHARE MONTH-END PERFORMANCE. PERFORMANCE FIGURES PERFORMANCE AND RESTATED CLASS A SHARE REFLECT REINVESTED DISTRIBUTIONS, CHANGES PERFORMANCE (FOR PERIODS PRIOR TO THE IN NET ASSET VALUE AND THE EFFECT OF THE INCEPTION DATE OF CLASS Y SHARES) AT NET MAXIMUM SALES CHARGE UNLESS OTHERWISE ASSET VALUE. THE RESTATED CLASS A SHARE STATED. INVESTMENT RETURN AND PRINCIPAL PERFORMANCE REFLECTS THE RULE 12B-1 FEES VALUE WILL FLUCTUATE SO THAT YOU MAY HAVE APPLICABLE TO CLASS A SHARES AS WELL AS A GAIN OR LOSS WHEN YOU SELL SHARES. ANY FEE WAIVERS OR EXPENSE REIMBURSEMENTS RECEIVED BY CLASS A SHARES. CLASS A SHARES INCEPTION DATE IS JUNE, 17, 1996.
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, 2008, and is based on total net assets. o Unless otherwise noted, all data provided by Invesco Aim. ABOUT SHARE CLASSES o The Fund may engage in active and OTHER INFORMATION frequent trading of portfolio o Effective September 30, 2003, only securities to achieve its investment o The Chartered Financial previously established qualified plans objective. If a fund does trade in this Analyst--REGISTERED TRADEMARK-- are eligible to purchase Class B shares way, it may incur increased costs, (CFA--REGISTERED TRADEMARK--) of any AIM fund. which can lower the actual return of designation is a globally recognized the fund. Active trading may also standard for measuring the competence o Class R shares are available only to increase short term gains and losses, and integrity of investment certain retirement plans. Please see which may affect taxes that must be professionals. the prospectus for more information. paid. o The returns shown in management's o Class Y shares are available to only ABOUT INDEXES USED IN THIS REPORT discussion of Fund performance are certain investors. Please see the based on net asset values calculated prospectus for more information. o The S&P 500--REGISTERED TRADEMARK-- is for shareholder transactions. Generally a market capitalization-weighted index accepted accounting principles require o All Investor Class shares are closed to covering all major areas of the U.S. adjustments to be made to the net new investors. Contact your financial economy. It is not the 500 largest assets of the Fund at period end for advisor about purchasing our other companies, but rather the most widely financial reporting purposes, and as share classes. held 500 companies chosen with respect such, the net asset values for to market size, liquidity, and their shareholder transactions and the PRINCIPAL RISKS OF INVESTING IN THE FUND industry. returns based on those net asset values may differ from the net asset values o Prices of equity securities change in o The RUSSELL MIDCAP--REGISTERED and returns reported in the Financial response to many factors, including the TRADEMARK-- GROWTH INDEX measures the Highlights. historical and prospective earnings of performance of those Russell Midcap the issuer, the value of its assets, companies with higher price-to-book o Industry classifications used in this general economic conditions, interest ratios and higher forecasted growth report are generally according to the rates, investor perceptions and market values. The Russell Midcap Growth Index Global Industry Classification liquidity. is a trademark/service mark of the Standard, which was developed by and is Frank Russell Company. the exclusive property and a service o The Fund invests in "growth" stocks, Russell--REGISTERED TRADEMARK-- is a mark of MSCI Inc. and Standard & which may be more volatile than other trademark of the Frank Russell Company. Poor's. investment styles because growth stocks are more sensitive to investor o The LIPPER MID-CAP GROWTH FUNDS INDEX perceptions of an issuing company's is an equally weighted representation growth potential. of the largest funds in the Lipper Mid-Cap Growth Funds category. These o There is no guarantee that the funds have an above-average investment techniques and risk analysis price-to-earnings ratio, price-to-book used by the fund's portfolio managers ratio, and three-year sales-per-share will produce the desired results. growth value, compared to the S&P MidCap 400 Index. o Mid-cap companies tend to be more vulnerable to adverse developments and o The Fund is not managed to track the more volatile than larger companies. performance of any particular index, Investments in mid-cap companies may including the indexes defined here, and involve special risks, including those consequently, the performance of the associated with dependence on a small Fund may deviate significantly from the management group, little or no performance of the indexes. operating history, little or no track record of success, limited product o A direct investment cannot be made in lines, less publicly available an index. Unless otherwise indicated, information, illiquidity, restricted index results include reinvested resale or less frequent trading. dividends, and they do not reflect sales charges. Performance of an index o The prices of securities held by the of funds reflects fund expenses; fund may decline in response to market performance of a market index does not. risks. ======================================================================================= ========================================== THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND PROSPECTUS, FUND NASDAQ SYMBOLS WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING. Class A Shares ACDAX ======================================================================================= Class B Shares ACDBX Class C Shares ACDCX NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE Class R Shares ACDRX Class Y Shares ACDYX Investor Class Shares ACDIX ==========================================
8 AIM CAPITAL DEVELOPMENT FUND SCHEDULE OF INVESTMENTS(a) October 31, 2008
SHARES VALUE -------------------------------------------------------------------------------- COMMON STOCKS & OTHER EQUITY INTERESTS-95.09% AEROSPACE & DEFENSE-2.51% L-3 Communications Holdings, Inc. 167,731 $ 13,614,725 -------------------------------------------------------------------------------- Precision Castparts Corp. 156,805 10,162,532 ================================================================================ 23,777,257 ================================================================================ AIR FREIGHT & LOGISTICS-0.84% Robinson (C.H.) Worldwide, Inc. 153,805 7,964,023 ================================================================================ APPAREL RETAIL-3.94% Aeropostale, Inc.(b) 423,633 10,256,155 -------------------------------------------------------------------------------- Guess?, Inc. 260,430 5,669,561 -------------------------------------------------------------------------------- Ross Stores, Inc. 379,213 12,396,473 -------------------------------------------------------------------------------- Urban Outfitters, Inc.(b) 415,427 9,031,383 ================================================================================ 37,353,572 ================================================================================ APPAREL, ACCESSORIES & LUXURY GOODS-2.05% Gildan Activewear Inc. (Canada)(b) 364,231 8,508,436 -------------------------------------------------------------------------------- Hanesbrands, Inc.(b) 624,490 10,909,840 ================================================================================ 19,418,276 ================================================================================ APPLICATION SOFTWARE-3.93% Amdocs Ltd.(b) 492,237 11,104,867 -------------------------------------------------------------------------------- ANSYS, Inc.(b) 389,800 11,159,974 -------------------------------------------------------------------------------- Solera Holdings Inc.(b) 600,492 14,946,246 ================================================================================ 37,211,087 ================================================================================ ASSET MANAGEMENT & CUSTODY BANKS-0.87% Affiliated Managers Group, Inc.(b) 178,236 8,266,586 ================================================================================ AUTOMOTIVE RETAIL-1.45% O'Reilly Automotive, Inc.(b) 507,006 13,744,933 ================================================================================ BIOTECHNOLOGY-2.92% Genzyme Corp.(b) 196,360 14,310,717 -------------------------------------------------------------------------------- OSI Pharmaceuticals, Inc.(b) 351,769 13,349,633 ================================================================================ 27,660,350 ================================================================================ CASINOS & GAMING-1.09% Scientific Games Corp.-Class A(b) 575,323 10,355,814 ================================================================================ COMMUNICATIONS EQUIPMENT-1.86% CommScope, Inc.(b) 436,450 6,420,180 -------------------------------------------------------------------------------- Juniper Networks, Inc.(b) 598,707 11,219,769 -------------------------------------------------------------------------------- Lantronix Inc.-Wts. expiring 02/09/11 (Acquired 02/09/07; Cost $0)(b)(c)(d) 7,454 0 ================================================================================ 17,639,949 ================================================================================ COMPUTER & ELECTRONICS RETAIL-1.00% GameStop Corp.-Class A(b) 346,820 9,499,400 ================================================================================ COMPUTER STORAGE & PERIPHERALS-1.44% Logitech International S.A. (Switzerland)(b) 287,698 4,255,054 -------------------------------------------------------------------------------- NetApp, Inc.(b) 689,808 9,333,102 ================================================================================ 13,588,156 ================================================================================ CONSTRUCTION & ENGINEERING-0.69% Foster Wheeler Ltd.(b) 236,500 6,480,100 ================================================================================ CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS-0.95% Bucyrus International, Inc. 110,895 2,675,896 -------------------------------------------------------------------------------- Joy Global Inc. 217,980 6,317,061 ================================================================================ 8,992,957 ================================================================================ CONSUMER FINANCE-1.23% SLM Corp.(b) 1,093,432 11,666,919 ================================================================================ DATA PROCESSING & OUTSOURCED SERVICES-1.57% Alliance Data Systems Corp.(b) 295,900 14,842,344 ================================================================================ DISTRIBUTORS-1.08% LKQ Corp.(b) 893,207 10,218,288 ================================================================================ DIVERSIFIED SUPPORT SERVICES-0.49% Copart, Inc.(b) 132,542 4,625,716 ================================================================================ DRUG RETAIL-1.72% Shoppers Drug Mart Corp. (Canada) 418,273 16,273,572 ================================================================================ EDUCATION SERVICES-3.53% Apollo Group Inc.-Class A(b) 251,332 17,470,087 -------------------------------------------------------------------------------- ITT Educational Services, Inc.(b) 181,715 15,927,320 ================================================================================ 33,397,407 ================================================================================ ELECTRONIC COMPONENTS-1.23% Amphenol Corp.-Class A 406,054 11,633,447 ================================================================================ ENVIRONMENTAL & FACILITIES SERVICES-1.63% Allied Waste Industries, Inc.(b) 552,285 5,754,810 -------------------------------------------------------------------------------- Republic Services, Inc. 409,055 9,694,603 ================================================================================ 15,449,413 ================================================================================ HEALTH CARE EQUIPMENT-1.00% St. Jude Medical, Inc.(b) 249,920 9,504,458 ================================================================================ HEALTH CARE SERVICES-4.49% DaVita, Inc.(b) 182,107 10,334,572 -------------------------------------------------------------------------------- Express Scripts, Inc.(b) 126,739 7,681,651 -------------------------------------------------------------------------------- Laboratory Corp. of America Holdings(b) 220,618 13,565,801 -------------------------------------------------------------------------------- Omnicare, Inc. 398,634 10,990,339 ================================================================================ 42,572,363 ================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. 9 AIM CAPITAL DEVELOPMENT FUND
SHARES VALUE -------------------------------------------------------------------------------- HOUSEWARES & SPECIALTIES-1.33% Jarden Corp.(b) 709,345 $ 12,626,341 ================================================================================ HUMAN RESOURCE & EMPLOYMENT SERVICES-0.50% Robert Half International, Inc. 251,753 4,750,579 ================================================================================ INDEPENDENT POWER PRODUCERS & ENERGY TRADERS-2.04% KGEN Power Corp. (Acquired 01/12/07; Cost $12,297,138)(b)(c)(d) 878,367 13,175,505 -------------------------------------------------------------------------------- NRG Energy, Inc.(b) 265,162 6,165,017 ================================================================================ 19,340,522 ================================================================================ INDUSTRIAL MACHINERY-0.53% Flowserve Corp. 87,669 4,990,119 ================================================================================ INTERNET SOFTWARE & SERVICES-0.59% Google Inc.-Class A(b) 15,535 5,582,658 ================================================================================ INVESTMENT BANKING & BROKERAGE-3.30% Lazard Ltd.-Class A (Bermuda) 415,180 12,525,981 -------------------------------------------------------------------------------- Morgan Stanley 289,099 5,050,559 -------------------------------------------------------------------------------- TD Ameritrade Holding Corp.(b) 1,030,851 13,700,010 ================================================================================ 31,276,550 ================================================================================ IT CONSULTING & OTHER SERVICES-1.14% Cognizant Technology Solutions Corp.-Class A(b) 563,054 10,810,637 ================================================================================ LIFE SCIENCES TOOLS & SERVICES-2.96% Covance Inc.(b) 135,975 6,798,750 -------------------------------------------------------------------------------- Pharmaceutical Product Development, Inc. 399,760 12,384,565 -------------------------------------------------------------------------------- Waters Corp.(b) 202,713 8,878,829 ================================================================================ 28,062,144 ================================================================================ MANAGED HEALTH CARE-1.89% Aveta, Inc. (Acquired 12/21/05-02/21/06; Cost $13,947,028)(b)(c)(d) 1,014,837 6,089,022 -------------------------------------------------------------------------------- Humana Inc.(b) 400,180 11,841,326 ================================================================================ 17,930,348 ================================================================================ METAL & GLASS CONTAINERS-4.34% Crown Holdings, Inc.(b) 823,652 16,621,297 -------------------------------------------------------------------------------- Owens-Illinois, Inc.(b) 446,695 10,220,382 -------------------------------------------------------------------------------- Pactiv Corp.(b) 605,666 14,269,491 ================================================================================ 41,111,170 ================================================================================ OIL & GAS DRILLING-1.56% Noble Corp. 460,000 14,816,600 ================================================================================ OIL & GAS EQUIPMENT & SERVICES-3.45% Cameron International Corp.(b) 430,000 10,431,800 -------------------------------------------------------------------------------- IHS Inc.-Class A(b) 348,821 12,344,775 -------------------------------------------------------------------------------- Smith International, Inc. 288,211 9,937,515 ================================================================================ 32,714,090 ================================================================================ OIL & GAS EXPLORATION & PRODUCTION-3.47% Continental Resources, Inc.(b) 251,601 8,149,356 -------------------------------------------------------------------------------- Range Resources Corp. 180,299 7,612,224 -------------------------------------------------------------------------------- Southwestern Energy Co.(b) 480,548 17,117,120 ================================================================================ 32,878,700 ================================================================================ OIL & GAS STORAGE & TRANSPORTATION-1.51% Williams Cos., Inc. (The) 680,172 14,263,207 ================================================================================ PERSONAL PRODUCTS-1.45% Estee Lauder Cos. Inc. (The)-Class A 381,882 13,763,027 ================================================================================ PUBLISHING-1.11% McGraw-Hill Cos., Inc. (The) 391,671 10,512,450 ================================================================================ REGIONAL BANKS-0.68% Fifth Third Bancorp 596,541 6,472,470 ================================================================================ RESEARCH & CONSULTING SERVICES-1.09% Equifax Inc. 396,481 10,340,224 ================================================================================ RESTAURANTS-1.23% Burger King Holdings Inc. 584,309 11,616,063 ================================================================================ SECURITY & ALARM SERVICES-1.67% Corrections Corp. of America(b) 828,264 15,828,125 ================================================================================ SEMICONDUCTOR EQUIPMENT-2.46% ASML Holding N.V.-New York Shares (Netherlands) 610,838 10,720,207 -------------------------------------------------------------------------------- Lam Research Corp.(b) 562,660 12,581,077 ================================================================================ 23,301,284 ================================================================================ SEMICONDUCTORS-2.89% Altera Corp. 711,295 12,340,968 -------------------------------------------------------------------------------- Intersil Corp.-Class A 793,069 10,857,115 -------------------------------------------------------------------------------- Maxim Integrated Products, Inc. 307,599 4,183,346 ================================================================================ 27,381,429 ================================================================================ SPECIALIZED FINANCE-2.34% Moody's Corp. 553,650 14,173,440 -------------------------------------------------------------------------------- MSCI Inc.- Class A(b) 464,635 8,010,307 ================================================================================ 22,183,747 ================================================================================ SYSTEMS SOFTWARE-3.26% Check Point Software Technologies Ltd. (Israel)(b) 759,958 15,366,351 -------------------------------------------------------------------------------- McAfee Inc.(b) 476,608 15,513,590 ================================================================================ 30,879,941 ================================================================================ TRUCKING-2.85% Con-way Inc. 371,455 12,644,328 -------------------------------------------------------------------------------- Heartland Express, Inc. 936,684 14,368,733 ================================================================================ 27,013,061 ================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. 10 AIM CAPITAL DEVELOPMENT FUND
SHARES VALUE -------------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES-1.94% American Tower Corp.-Class A(b) 406,967 $ 13,149,104 -------------------------------------------------------------------------------- Crown Castle International Corp.(b) 246,678 5,222,173 ================================================================================ 18,371,277 ================================================================================ Total Common Stocks & Other Equity Interests (Cost $1,053,446,632) 900,953,150 ================================================================================ PRINCIPAL AMOUNT U.S. TREASURY BILLS-0.39% 1.82%, 03/05/09(e) (Cost $3,676,799) $ 3,700,000 3,693,205 ================================================================================ MONEY MARKET FUNDS-3.72% Liquid Assets Portfolio-Institutional Class(f) 17,638,154 17,638,154 -------------------------------------------------------------------------------- Premier Portfolio-Institutional Class(f) 17,638,154 17,638,154 ================================================================================ Total Money Market Funds (Cost $35,276,308) 35,276,308 ================================================================================ TOTAL INVESTMENTS-99.20% (Cost $1,092,399,739) 939,922,663 ================================================================================ OTHER ASSETS LESS LIABILITIES-0.80% 7,549,505 ================================================================================ NET ASSETS-100.00% $947,472,168 ________________________________________________________________________________ ================================================================================
Investment Abbreviations: Wts. - Warrants
Notes to Schedule of Investments: (a) Industry and/or sector 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 MSCI Inc. and Standard & Poor's. (b) Non-income producing security. (c) Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at October 31, 2008 was $19,264,527, which represented 2.03% of the Fund's Net Assets. (d) Security fair valued in good faith in accordance with the procedures established by the Board of Trustees. The aggregate value of these securities at October 31, 2008 was $19,264,527, which represented 2.03% of the Fund's Net Assets. See Note 1A. (e) Security traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. (f) The money market fund and the Fund are affiliated by having the same investment advisor. See accompanying Notes to Financial Statements which are an integral part of the financial statements. 11 AIM CAPITAL DEVELOPMENT FUND STATEMENT OF ASSETS AND LIABILITIES October 31, 2008 ASSETS: Investments, at value (Cost $1,057,123,431) $ 904,646,355 ------------------------------------------------------- Investments in affiliated money market funds, at value and cost 35,276,308 ======================================================= Total investments (Cost $1,092,399,739) 939,922,663 ======================================================= Receivables for: Investments sold 18,282,831 ------------------------------------------------------- Investments sold to affiliates 54,795 ------------------------------------------------------- Fund shares sold 866,222 ------------------------------------------------------- Dividends 44,654 ------------------------------------------------------- Investment for trustee deferred compensation and retirement plans 47,627 ------------------------------------------------------- Other assets 75,796 ======================================================= Total assets 959,294,588 _______________________________________________________ ======================================================= LIABILITIES: Payables for: Investments purchased 6,466,636 ------------------------------------------------------- Fund shares reacquired 4,166,339 ------------------------------------------------------- Accrued fees to affiliates 937,427 ------------------------------------------------------- Accrued other operating expenses 77,893 ------------------------------------------------------- Trustee deferred compensation and retirement plans 174,125 ======================================================= Total liabilities 11,822,420 ======================================================= Net assets applicable to shares outstanding $ 947,472,168 _______________________________________________________ ======================================================= NET ASSETS CONSIST OF: Shares of beneficial interest $1,387,084,080 ------------------------------------------------------- Undistributed net investment income (loss) (190,829) ------------------------------------------------------- Undistributed net realized gain (loss) (286,944,007) ------------------------------------------------------- Unrealized appreciation (depreciation) (152,477,076) ======================================================= $ 947,472,168 _______________________________________________________ ======================================================= NET ASSETS: Class A $ 664,270,455 _______________________________________________________ ======================================================= Class B $ 74,231,337 _______________________________________________________ ======================================================= Class C $ 64,620,068 _______________________________________________________ ======================================================= Class R $ 48,027,095 _______________________________________________________ ======================================================= Class Y $ 2,594,995 _______________________________________________________ ======================================================= Investor Class $ 6,260,973 _______________________________________________________ ======================================================= Institutional Class $ 87,467,245 _______________________________________________________ ======================================================= SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Class A 62,529,264 _______________________________________________________ ======================================================= Class B 7,968,514 _______________________________________________________ ======================================================= Class C 6,946,049 _______________________________________________________ ======================================================= Class R 4,601,376 _______________________________________________________ ======================================================= Class Y 244,223 _______________________________________________________ ======================================================= Investor Class 588,630 _______________________________________________________ ======================================================= Institutional Class 7,859,932 _______________________________________________________ ======================================================= Class A: Net asset value per share $ 10.62 ------------------------------------------------------- Maximum offering price per share (Net asset value of $10.62 divided by 94.50%) $ 11.24 _______________________________________________________ ======================================================= Class B: Net asset value and offering price per share $ 9.32 _______________________________________________________ ======================================================= Class C: Net asset value and offering price per share $ 9.30 _______________________________________________________ ======================================================= Class R: Net asset value and offering price per share $ 10.44 _______________________________________________________ ======================================================= Class Y: Net asset value and offering price per share $ 10.63 _______________________________________________________ ======================================================= Investor Class: Net asset value and offering price per share $ 10.64 _______________________________________________________ ======================================================= Institutional Class: Net asset value and offering price per share $ 11.13 _______________________________________________________ =======================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. 12 AIM CAPITAL DEVELOPMENT FUND STATEMENT OF OPERATIONS For the year ended October 31, 2008 INVESTMENT INCOME: Dividends (net of foreign withholding taxes of $64,183) $ 7,589,245 ------------------------------------------------------------------------------------------------ Dividends from affiliated money market funds (includes securities lending income of $900,031) 3,251,020 ------------------------------------------------------------------------------------------------ Interest 17,086 ================================================================================================ Total investment income 10,857,351 ================================================================================================ EXPENSES: Advisory fees 10,714,360 ------------------------------------------------------------------------------------------------ Administrative services fees 414,469 ------------------------------------------------------------------------------------------------ Custodian fees 67,476 ------------------------------------------------------------------------------------------------ Distribution fees: Class A 2,907,383 ------------------------------------------------------------------------------------------------ Class B 1,452,830 ------------------------------------------------------------------------------------------------ Class C 1,157,092 ------------------------------------------------------------------------------------------------ Class R 360,437 ------------------------------------------------------------------------------------------------ Investor Class 24,174 ------------------------------------------------------------------------------------------------ Transfer agent fees -- A, B, C, R, Y and Investor 4,075,947 ------------------------------------------------------------------------------------------------ Transfer agent fees -- Institutional 98,827 ------------------------------------------------------------------------------------------------ Trustees' and officers' fees and benefits 61,695 ------------------------------------------------------------------------------------------------ Other 814,801 ================================================================================================ Total expenses 22,149,491 ================================================================================================ Less: Fees waived, expenses reimbursed and expense offset arrangement(s) (223,865) ================================================================================================ Net expenses 21,925,626 ================================================================================================ Net investment income (loss) (11,068,275) ================================================================================================ REALIZED AND UNREALIZED GAIN (LOSS) FROM: Net realized gain (loss) from: Investment securities (includes net gains (losses) from securities sold to affiliates of $(3,611,140)) (281,947,980) ------------------------------------------------------------------------------------------------ Foreign currencies (98,030) ------------------------------------------------------------------------------------------------ Futures contracts (3,952,157) ------------------------------------------------------------------------------------------------ Option contracts written 83,445 ================================================================================================ (285,914,722) ================================================================================================ Change in net unrealized appreciation (depreciation) of: Investment securities (580,542,317) ------------------------------------------------------------------------------------------------ Foreign currencies (1,370) ------------------------------------------------------------------------------------------------ Option contracts written (43,402) ================================================================================================ (580,587,089) ================================================================================================ Net realized and unrealized gain (loss) (866,501,811) ================================================================================================ Net increase (decrease) in net assets resulting from operations $(877,570,086) ________________________________________________________________________________________________ ================================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. 13 AIM CAPITAL DEVELOPMENT FUND STATEMENT OF CHANGES IN NET ASSETS For the years ended October 31, 2008 and 2007
2008 2007 ----------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ (11,068,275) $ (13,613,653) ----------------------------------------------------------------------------------------------------------- Net realized gain (loss) (285,914,722) 216,202,235 ----------------------------------------------------------------------------------------------------------- Change in net unrealized appreciation (depreciation) (580,587,089) 134,974,304 =========================================================================================================== Net increase (decrease) in net assets resulting from operations (877,570,086) 337,562,886 =========================================================================================================== Distributions to shareholders from net realized gains: Class A (140,744,177) (111,966,779) ----------------------------------------------------------------------------------------------------------- Class B (21,706,955) (25,421,735) ----------------------------------------------------------------------------------------------------------- Class C (16,003,458) (12,433,367) ----------------------------------------------------------------------------------------------------------- Class R (7,944,239) (2,721,934) ----------------------------------------------------------------------------------------------------------- Investor Class (1,169,225) (1,002,814) ----------------------------------------------------------------------------------------------------------- Institutional Class (14,048,801) (4,923,981) =========================================================================================================== Total distributions from net realized gains (201,616,855) (158,470,610) =========================================================================================================== Share transactions-net: Class A (86,424,712) 281,394,711 ----------------------------------------------------------------------------------------------------------- Class B (40,359,126) (39,250,068) ----------------------------------------------------------------------------------------------------------- Class C (8,669,452) 30,554,611 ----------------------------------------------------------------------------------------------------------- Class R 16,154,798 51,074,920 ----------------------------------------------------------------------------------------------------------- Class Y 2,980,068 -- ----------------------------------------------------------------------------------------------------------- Investor Class 569,498 1,293,869 ----------------------------------------------------------------------------------------------------------- Institutional Class 40,670,738 79,313,970 =========================================================================================================== Net increase (decrease) in net assets resulting from share transactions (75,078,188) 404,382,013 =========================================================================================================== Net increase (decrease) in net assets (1,154,265,129) 583,474,289 =========================================================================================================== NET ASSETS: Beginning of year 2,101,737,297 1,518,263,008 =========================================================================================================== End of year (includes undistributed net investment income (loss) of $(190,829) and $(163,585), respectively) $ 947,472,168 $2,101,737,297 ___________________________________________________________________________________________________________ ===========================================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. 14 AIM CAPITAL DEVELOPMENT FUND NOTES TO FINANCIAL STATEMENTS October 31, 2008 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 seven separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The Fund's investment objective is long-term growth of capital. The Fund currently consists of seven different classes of shares: Class A, Class B, Class C, Class R, Class Y, 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 contingent deferred sales charges ("CDSC"). Class B shares and Class C shares are sold with a CDSC. Class R, Class Y, 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. 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, American Depositary Receipts 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. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. 15 AIM CAPITAL DEVELOPMENT FUND 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 related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds 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, the investment advisor 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. The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. 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 by a significant amount. 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. SECURITIES LENDING -- 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 by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. 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. Upon the failure of the borrower to return the securities, collateral may be liquidated and securities may be purchased on the open market to replace the loaned securities. The Fund could 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. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in Dividends from affiliates on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities, if any. J. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations 16 AIM CAPITAL DEVELOPMENT FUND 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. K. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a foreign currency contract to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. The Fund may also enter into a foreign currency contract for the purchase or sale of a security denominated in a foreign currency in order to "lock in" the U.S. dollar price of that security. Fluctuations in the value of these contracts are recorded as unrealized appreciation (depreciation) until the contracts are closed. When these contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains and losses on these contracts are included in the Statement of Operations. The Fund could be exposed to risk, which may be in excess of the amount reflected in the Statement of Assets and Liabilities, if counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. L. 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. M. 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. N. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities as collateral for the account of the broker (the Fund's agent in acquiring the futures position). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by recalculating the value of the contracts on a daily basis. Variation margin payments are received or made depending upon whether unrealized gains or losses are incurred. When the contracts are closed, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund's basis in the contract. If the Fund were unable to liquidate a futures contract and/or enter into an offsetting closing transaction, the Fund would continue to be subject to market risk with respect to the value of the contracts and continue to be required to maintain the margin deposits on the futures contracts. Risks may exceed amounts recognized in the Statement of Assets and Liabilities. O. 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 Invesco Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Advisor 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% _______________________________________________________________________ =======================================================================
Under the terms of a master sub-advisory agreement approved by shareholders of the Fund, effective May 1, 2008, between the Advisor and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the "Affiliated Sub-Advisors") the Advisor, not the Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub-Advisor(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Advisor(s). 17 AIM CAPITAL DEVELOPMENT FUND The Advisor has contractually agreed, through at least June 30, 2009, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Advisor receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds. For the year ended October 31, 2008, the Advisor waived advisory fees of $94,072. 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, 2008, Invesco reimbursed expenses of the Fund in the amount of $22,533. The Trust has entered into a master administrative services agreement with Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim for certain administrative costs incurred in providing accounting services to the Fund. For the year ended October 31, 2008, 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 Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has agreed to pay IAIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the course of providing such services. IAIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. All fees payable by IAIS 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, 2008, 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 Invesco Aim Distributors, Inc. ("IADI") to serve as the distributor for the Class A, Class B, Class C, Class R, Class Y, 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 IADI 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. Rules of the Financial Industry Regulatory Authority ("FINRA") 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, 2008, expenses incurred under the Plans are shown in the Statement of Operations as distribution fees. Front-end sales commissions and 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, 2008, IADI advised the Fund that IADI retained $105,899 in front-end sales commissions from the sale of Class A shares and $9,189, $137,593, $20,128 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 Invesco Aim, IAIS and/or IADI. NOTE 3--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, 2008, the Fund engaged in securities purchases of $11,029,122 and securities sales of $9,095,038, which resulted in net realized gains (losses) of $(3,611,140). NOTE 4--EXPENSE OFFSET ARRANGEMENTS The expense offset arrangements are comprised of (i) transfer agency credits which result from balances in Demand Deposit Accounts (DDA) used by the transfer agent for clearing shareholder transactions and (ii) custodian credits which result from periodic overnight cash balances at the custodian. For the year ended October 31, 2008, the Fund received credits from these arrangements, which resulted in the reduction of the Fund's total expenses of $107,260. NOTE 5--TRUSTEES' AND OFFICERS' FEES AND BENEFITS "Trustees' and Officers' 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 Officers' 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 Officers' 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, 2008, the Fund paid legal fees of $6,741 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 CAPITAL DEVELOPMENT FUND NOTE 6--CASH BALANCES The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company, 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 Invesco Aim, not to exceed the contractually agreed upon rate. NOTE 7--OPTION CONTRACTS WRITTEN
TRANSACTIONS DURING THE PERIOD --------------------------------------------------------------------------------------------------- CALL OPTION CONTRACTS ----------------------- NUMBER OF PREMIUMS CONTRACTS RECEIVED --------------------------------------------------------------------------------------------------- Beginning of period 3,482 $ 191,387 --------------------------------------------------------------------------------------------------- Closed (3,482) (191,387) --------------------------------------------------------------------------------------------------- End of period -- $ -- ___________________________________________________________________________________________________ ===================================================================================================
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS TAX CHARACTER OF DISTRIBUTIONS TO SHAREHOLDERS PAID DURING THE YEARS ENDED OCTOBER 31, 2008 AND 2007:
2008 2007 --------------------------------------------------------------------------------------------------------- Ordinary income $ 37,151,152 $ 45,460,737 --------------------------------------------------------------------------------------------------------- Long-term capital gain 164,465,703 113,009,873 ========================================================================================================= Total distributions $201,616,855 $158,470,610 _________________________________________________________________________________________________________ =========================================================================================================
TAX COMPONENTS OF NET ASSETS AT PERIOD-END:
2008 ------------------------------------------------------------------------------------------------- Net unrealized appreciation (depreciation) -- investments $ (162,637,619) ------------------------------------------------------------------------------------------------- Temporary book/tax differences (190,829) ------------------------------------------------------------------------------------------------- Capital loss carryforward (276,783,464) ------------------------------------------------------------------------------------------------- Shares of beneficial interest 1,387,084,080 ================================================================================================= Total net assets $ 947,472,168 _________________________________________________________________________________________________ =================================================================================================
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 (depreciation) difference is attributable primarily to wash sales. The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund's temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits. Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions. The Fund has a capital loss carryforward as of October 31, 2008 which expires as follows:
CAPITAL LOSS EXPIRATION CARRYFORWARD* ----------------------------------------------------------------------------------------------- October 31, 2016 $276,783,464 _______________________________________________________________________________________________ ===============================================================================================
* Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. NOTE 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, 2008 was $1,728,121,949 and $1,981,648,425, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS ------------------------------------------------------------------------------------------------ Aggregate unrealized appreciation of investment securities $ 75,972,138 ------------------------------------------------------------------------------------------------ Aggregate unrealized (depreciation) of investment securities (238,609,757) ================================================================================================ Net unrealized appreciation (depreciation) of investment securities $(162,637,619) ________________________________________________________________________________________________ ================================================================================================ Cost of investments for tax purposes is $1,102,560,282.
19 AIM CAPITAL DEVELOPMENT FUND NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES Primarily as a result of differing book/tax treatment of net operating losses, on October 31, 2008, undistributed net investment income (loss) was increased by $11,041,031, undistributed net realized gain (loss) was decreased by $353,903 and shares of beneficial interest decreased by $10,687,128. This reclassification had no effect on the net assets of the Fund. NOTE 11--SHARE INFORMATION
SUMMARY OF SHARE ACTIVITY -------------------------------------------------------------------------------------------------------------------------- YEAR ENDED OCTOBER 31, --------------------------------------------------------------- 2008(a) 2007 ----------------------------- ----------------------------- SHARES AMOUNT SHARES AMOUNT -------------------------------------------------------------------------------------------------------------------------- Sold: Class A 10,466,747 $ 173,790,170 20,594,296 $ 412,511,708 -------------------------------------------------------------------------------------------------------------------------- Class B 717,587 10,509,769 1,530,248 27,587,051 -------------------------------------------------------------------------------------------------------------------------- Class C 1,388,328 20,635,417 2,801,785 50,388,647 -------------------------------------------------------------------------------------------------------------------------- Class R 2,447,457 39,495,157 3,277,975 65,142,036 -------------------------------------------------------------------------------------------------------------------------- Class Y(b) 245,067 2,989,378 -- -- -------------------------------------------------------------------------------------------------------------------------- Investor Class 241,584 3,952,625 346,766 6,991,681 -------------------------------------------------------------------------------------------------------------------------- Institutional Class 4,837,148 87,952,001 4,506,438 96,552,871 ========================================================================================================================== Issued as reinvestment of dividends: Class A 7,215,958 131,474,753 5,642,820 105,407,880 -------------------------------------------------------------------------------------------------------------------------- Class B 1,273,477 20,477,506 1,427,154 24,018,992 -------------------------------------------------------------------------------------------------------------------------- Class C 940,033 15,096,928 712,014 11,968,948 -------------------------------------------------------------------------------------------------------------------------- Class R 442,823 7,944,249 145,071 2,679,461 -------------------------------------------------------------------------------------------------------------------------- Investor Class 62,973 1,148,632 52,684 984,665 -------------------------------------------------------------------------------------------------------------------------- Institutional Class 701,740 13,340,070 253,347 4,894,668 ========================================================================================================================== Automatic conversion of Class B shares to Class A shares: Class A 1,935,908 30,895,336 2,364,228 46,708,741 -------------------------------------------------------------------------------------------------------------------------- Class B (2,194,637) (30,895,336) (2,624,574) (46,708,741) ========================================================================================================================== Reacquired: Class A(b) (27,126,112) (422,584,971) (14,084,493) (283,233,618) -------------------------------------------------------------------------------------------------------------------------- Class B (2,861,478) (40,451,065) (2,433,445) (44,147,370) -------------------------------------------------------------------------------------------------------------------------- Class C (3,218,025) (44,401,797) (1,769,464) (31,802,984) -------------------------------------------------------------------------------------------------------------------------- Class R (2,029,430) (31,284,608) (838,520) (16,746,577) -------------------------------------------------------------------------------------------------------------------------- Class Y(b) (844) (9,310) -- -- -------------------------------------------------------------------------------------------------------------------------- Investor Class(b) (282,337) (4,531,759) (332,841) (6,682,477) -------------------------------------------------------------------------------------------------------------------------- Institutional Class (3,630,710) (60,621,333) (1,022,405) (22,133,569) ========================================================================================================================== Net increase (decrease) in share activity (8,426,743) $ (75,078,188) 20,549,084 $ 404,382,013 __________________________________________________________________________________________________________________________ ==========================================================================================================================
(a) There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 20% of the outstanding shares of the Fund. IADI has an agreement with these entities to sell Fund shares. The Fund, Invesco Aim and/or Invesco Aim affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco Aim and/or Invesco 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) Effective upon the commencement date of Class Y shares, October 3, 2008, the following shares were converted from Class A and Investor Class shares into Class Y shares of the Fund:
CLASS SHARES AMOUNT ---------------------------------------------------------------------------------------------------- Class Y 242,809 $ 2,964,694 ---------------------------------------------------------------------------------------------------- Class A (221,114) (2,699,804) ---------------------------------------------------------------------------------------------------- Investor Class ( 21,677) ( 264,890) ____________________________________________________________________________________________________ ====================================================================================================
20 AIM CAPITAL DEVELOPMENT FUND NOTE 12--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
NET GAINS (LOSSES) NET ASSET NET ON SECURITIES DISTRIBUTIONS VALUE, INVESTMENT (BOTH TOTAL FROM FROM NET NET ASSET NET ASSETS, BEGINNING INCOME REALIZED AND INVESTMENT REALIZED VALUE, END TOTAL END OF PERIOD OF PERIOD (LOSS)(A) UNREALIZED) OPERATIONS GAINS OF PERIOD RETURN(B) (000S OMITTED) ------------------------------------------------------------------------------------------------------------------------------ CLASS A Year ended 10/31/08 $21.59 $(0.10) $(8.85) $(8.95) $(2.02) $10.62 (45.35)% $ 664,270 Year ended 10/31/07 19.73 (0.13) 3.99 3.86 (2.00) 21.59 21.13 1,511,918 Year ended 10/31/06 18.85 (0.10) 3.53 3.43 (2.55) 19.73 19.86 1,095,204 Year ended 10/31/05 17.86 (0.11) 2.52 2.41 (1.42) 18.85 13.87 800,830 Year ended 10/31/04 16.66 (0.08) 1.70 1.62 (0.42) 17.86 9.87 617,194 ------------------------------------------------------------------------------------------------------------------------------ CLASS B Year ended 10/31/08 19.33 (0.20) (7.79) (7.99) (2.02) 9.32 (45.71) 74,231 Year ended 10/31/07 17.98 (0.25) 3.60 3.35 (2.00) 19.33 20.27 213,235 Year ended 10/31/06 17.51 (0.22) 3.24 3.02 (2.55) 17.98 18.92 236,175 Year ended 10/31/05 16.79 (0.22) 2.36 2.14 (1.42) 17.51 13.09 317,492 Year ended 10/31/04 15.79 (0.18) 1.60 1.42 (0.42) 16.79 9.13 376,355 ------------------------------------------------------------------------------------------------------------------------------ CLASS C Year ended 10/31/08 19.30 (0.19) (7.79) (7.98) (2.02) 9.30 (45.74) 64,620 Year ended 10/31/07 17.96 (0.25) 3.59 3.34 (2.00) 19.30 20.23 151,259 Year ended 10/31/06 17.50 (0.22) 3.23 3.01 (2.55) 17.96 18.88 109,424 Year ended 10/31/05 16.77 (0.22) 2.37 2.15 (1.42) 17.50 13.16 88,316 Year ended 10/31/04 15.78 (0.18) 1.59 1.41 (0.42) 16.77 9.07 73,929 ------------------------------------------------------------------------------------------------------------------------------ CLASS R Year ended 10/31/08 21.30 (0.14) (8.70) (8.84) (2.02) 10.44 (45.46) 48,027 Year ended 10/31/07 19.53 (0.18) 3.95 3.77 (2.00) 21.30 20.86 79,655 Year ended 10/31/06 18.73 (0.14) 3.49 3.35 (2.55) 19.53 19.52 22,577 Year ended 10/31/05 17.78 (0.14) 2.51 2.37 (1.42) 18.73 13.69 8,379 Year ended 10/31/04 16.62 (0.10) 1.68 1.58 (0.42) 17.78 9.65 5,622 ------------------------------------------------------------------------------------------------------------------------------ CLASS Y Year ended 10/31/08(e) 12.21 (0.00) (1.58) (1.58) -- 10.63 (12.94) 2,595 ------------------------------------------------------------------------------------------------------------------------------ INVESTOR CLASS Year ended 10/31/08 21.60 (0.10) (8.84) (8.94) (2.02) 10.64 (45.27) 6,261 Year ended 10/31/07 19.74 (0.13) 3.99 3.86 (2.00) 21.60 21.12 12,237 Year ended 10/31/06 18.87 (0.10) 3.52 3.42 (2.55) 19.74 19.78 9,866 Year ended 10/31/05(e) 18.95 (0.09) 1.43 1.34 (1.42) 18.87 7.43 6,791 ------------------------------------------------------------------------------------------------------------------------------ INSTITUTIONAL CLASS Year ended 10/31/08 22.42 (0.03) (9.24) (9.27) (2.02) 11.13 (45.07) 87,467 Year ended 10/31/07 20.33 (0.04) 4.13 4.09 (2.00) 22.42 21.68 133,433 Year ended 10/31/06 19.27 (0.00) 3.61 3.61 (2.55) 20.33 20.43 45,017 Year ended 10/31/05 18.13 (0.01) 2.57 2.56 (1.42) 19.27 14.52 24,964 Year ended 10/31/04 16.83 0.01 1.71 1.72 (0.42) 18.13 10.38 67 ______________________________________________________________________________________________________________________________ ============================================================================================================================== RATIO OF RATIO OF EXPENSES EXPENSES TO AVERAGE TO AVERAGE NET RATIO OF NET NET ASSETS ASSETS WITHOUT INVESTMENT WITH FEE WAIVERS FEE WAIVERS INCOME (LOSS) AND/OR EXPENSES AND/OR EXPENSES TO AVERAGE PORTFOLIO ABSORBED ABSORBED NET ASSETS TURNOVER(c) ------------------------------------------------------------------------------------ CLASS A Year ended 10/31/08 1.25%(d) 1.26%(d) (0.59)%(d) 109% Year ended 10/31/07 1.20 1.20 (0.62) 99 Year ended 10/31/06 1.26 1.26 (0.52) 126 Year ended 10/31/05 1.36 1.36 (0.58) 120 Year ended 10/31/04 1.40 1.41 (0.46) 74 ------------------------------------------------------------------------------------ CLASS B Year ended 10/31/08 2.00(d) 2.01(d) (1.34)(d) 109 Year ended 10/31/07 1.95 1.95 (1.37) 99 Year ended 10/31/06 2.01 2.01 (1.27) 126 Year ended 10/31/05 2.04 2.04 (1.26) 120 Year ended 10/31/04 2.05 2.06 (1.11) 74 ------------------------------------------------------------------------------------ CLASS C Year ended 10/31/08 2.00(d) 2.01(d) (1.34)(d) 109 Year ended 10/31/07 1.95 1.95 (1.37) 99 Year ended 10/31/06 2.01 2.01 (1.27) 126 Year ended 10/31/05 2.04 2.04 (1.26) 120 Year ended 10/31/04 2.05 2.06 (1.11) 74 ------------------------------------------------------------------------------------ CLASS R Year ended 10/31/08 1.50(d) 1.51(d) (0.84)(d) 109 Year ended 10/31/07 1.45 1.45 (0.87) 99 Year ended 10/31/06 1.51 1.51 (0.77) 126 Year ended 10/31/05 1.54 1.54 (0.76) 120 Year ended 10/31/04 1.55 1.56 (0.61) 74 ------------------------------------------------------------------------------------ CLASS Y Year ended 10/31/08(e) 1.06(d)(f) 1.07(d)(f) (0.40)(d)(f) 109 ------------------------------------------------------------------------------------ INVESTOR CLASS Year ended 10/31/08 1.25(d) 1.26(d) (0.59)(d) 109 Year ended 10/31/07 1.20 1.20 (0.62) 99 Year ended 10/31/06 1.26 1.26 (0.52) 126 Year ended 10/31/05(e) 1.29(f) 1.29(f) (0.51)(f) 120 ------------------------------------------------------------------------------------ INSTITUTIONAL CLASS Year ended 10/31/08 0.80(d) 0.81(d) (0.14)(d) 109 Year ended 10/31/07 0.75 0.75 (0.17) 99 Year ended 10/31/06 0.76 0.76 (0.02) 126 Year ended 10/31/05 0.81 0.81 (0.03) 120 Year ended 10/31/04 0.86 1.15 0.08 74 ____________________________________________________________________________________ ====================================================================================
(a) Calculated using average shares outstanding. (b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. (c) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. (d) Ratios are based on average daily net assets (000's omitted) of $1,162,953, $145,283, $115,709, $72,087, $2,510, $9,670 and $138,417 for Class A, Class B, Class C, Class R, Class Y, Investor Class and Institutional Class shares, respectively. (e) Commencement date of Class Y and Investor Class shares was October 3, 2008 and November 30, 2004, respectively. (f) Annualized. 21 AIM CAPITAL DEVELOPMENT FUND NOTE 13--LEGAL PROCEEDINGS Terms used in the Legal Proceedings Note are defined terms solely for the purpose of this note. SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING On May 23, 2008, the Securities and Exchange Commission ("SEC") publicly posted its final approval of the 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"), Invesco Aim Advisors, Inc. ("Invesco Aim") and Invesco Aim Distributors, Inc. ("IADI") 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 Invesco Aim who may have been harmed by market timing and related activity. The Distribution Plans provide for the distribution to all eligible investors 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 of the Fair Funds has not yet commenced, management of Invesco 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 Invesco 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 Invesco Aim and IADI (Order No. 05- 1318). The WVASC makes findings of fact that Invesco Aim and IADI 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 Invesco Aim and IADI violated the West Virginia securities laws. The WVASC orders Invesco Aim and IADI 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, Invesco 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, Invesco Aim, IADI 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 the Employee Retirement Income Security Act of 1974, as amended ("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. The case pending in Illinois State Court regarding fair value pricing was dismissed with prejudice on May 6, 2008. 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 Invesco 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 ERISA purportedly brought on behalf of participants in the Invesco 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. Plaintiff appealed this ruling. On June 16, 2008, the Fourth Circuit Court of Appeals reversed the dismissal and remanded this lawsuit back to the MDL Court for further proceedings. IFG, Invesco Aim, IADI 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, Invesco Aim and IADI 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, Invesco Aim and/or related entities and individuals in the future. At the present time, management of Invesco 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 Invesco Aim, IADI or the Fund. 22 AIM CAPITAL DEVELOPMENT FUND NOTE 13--LEGAL PROCEEDINGS--(CONTINUED) 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, 2008, 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 four 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, 2008 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights for the period ended 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 16, 2008 Houston, Texas 23 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. With the exception of the actual ending account value and expenses of the Class Y Shares, 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, 2008, through October 31, 2008. The actual ending account and expenses of the Class Y shares in the below example are based on an investment of $1,000 invested as of close of business October 3, 2008 (the date the share class commenced operations) and held through October 31, 2008. 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 (as of close of business October 3, 2008 through October 31, 2008 for the Class Y shares). Because the actual ending account value and expense information in the example is not based upon a six month period for the Class Y shares, the ending account value and expense information may not provide a meaningful comparison to mutual funds that provide such information for a full six month 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 CLASS (05/01/08) (10/31/08)(1) PERIOD(2) (10/31/08) PERIOD(2, 3) RATIO ---------------------------------------------------------------------------------------------------- A $1,000.00 $638.20 $5.31 $1,018.65 $ 6.55 1.29% ---------------------------------------------------------------------------------------------------- B 1,000.00 636.20 8.39 1,014.88 10.33 2.04 ---------------------------------------------------------------------------------------------------- C 1,000.00 635.70 8.39 1,014.88 10.33 2.04 ---------------------------------------------------------------------------------------------------- R 1,000.00 637.70 6.34 1,017.39 7.81 1.54 ---------------------------------------------------------------------------------------------------- Y 1,000.00 870.60 0.79 1,019.81 5.38 1.06 ---------------------------------------------------------------------------------------------------- Investor 1,000.00 638.70 5.31 1,018.65 6.55 1.29 ----------------------------------------------------------------------------------------------------
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2008, through October 31, 2008 (as of close of business October 3, 2008, through October 31, 2008 for the Class Y shares), after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's expense ratio and a hypothetical annual return of 5% before expenses. (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 184/366 to reflect the most recent fiscal half year. For the Class Y shares actual expenses are equal to the annualized expense ratio indicated above multiplied by the average account value over the period, multiplied by 29 (as of close of business October 3, 2008, through October 31, 2008)/366. Because the Class Y shares have not been in existence for a full six month period, the actual ending account value and expense information shown may not provide a meaningful comparison to fund expense information of classes that show such data for a full six month period and, because the actual ending account value and expense information in the expense example covers a short time period, return and expense data may not be indicative of return and expense data for longer time periods. (3) Hypothetical expenses are equal to the annualized expense ratio indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect a one-half year period. The hypothetical ending account value and expenses may be used to compare ongoing costs of investing in Class Y shares of the Fund and other funds because such data is based on a full six month period. 24 AIM CAPITAL DEVELOPMENT FUND Supplement to Annual Report dated 10/31/08 AIM CAPITAL DEVELOPMENT FUND ========================================== INSTITUTIONAL CLASS SHARES AVERAGE ANNUAL TOTAL RETURNS Please note that past performance is For periods ended 10/31/08 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) -0.11% those shown. All returns assume shareholders with a performance overview 5 Years 0.35 reinvestment of distributions at NAV. specific to their holdings. Institutional 1 Year -45.07 Investment return and principal value will Class shares are offered exclusively to ========================================== fluctuate so your shares, when redeemed, institutional investors, including defined may be worth more or less than their contribution plans that meet certain ========================================== original cost. See full report for criteria. AVERAGE ANNUAL TOTAL RETURNS information on comparative benchmarks. For periods ended 9/30/08, most recent Please consult your Fund prospectus for calendar quarter-end more information. For the most current month-end performance, please call 800 451 Inception (3/15/02) 3.62% 4246 or visit invescoaim.com. 5 Years 6.87 1 Year -28.67 ========================================== 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. The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this supplement for Institutional Class shares was 0.76%. The expense ratios presented above may vary from the expense ratios presented in other sections of the actual report that are based on expenses incurred during the period covered by the report. ========================================== NASDAQ SYMBOL ACDVX ========================================== Over for information on your Fund's expenses. THIS SUPPLEMENT 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. [INVESCO AIM LOGO] invescoaim.com CDV-INS-1 Invesco Aim Distributors, Inc. -- SERVICE MARK --
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, 2008, through October 31, 2008. 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 CLASS (05/01/08) (10/31/08)(1) PERIOD(2) (10/31/08) PERIOD(2) RATIO ----------------------------------------------------------------------------------------------------------- Institutional $1,000.00 $640.00 $3.50 $1,020.86 $4.32 0.85% -----------------------------------------------------------------------------------------------------------
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2008, through October 31, 2008, 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 184/366 to reflect the most recent fiscal half year. AIM CAPITAL DEVELOPMENT FUND APPROVAL OF INVESTMENT ADVISORY AGREEMENT The Board of Trustees (the Board) of AIM renewal process, the Trustees receive from one another and attributed different Equity Funds is required under the comparative performance and fee data weight to the various factors. The Investment Company Act of 1940 to approve regarding the AIM Funds prepared by an Trustees recognized that the advisory annually the renewal of the AIM Capital independent company, Lipper, Inc. arrangements and resulting advisory fees Development Fund's (the Fund) investment (Lipper), under the direction and for the Fund and the other AIM Funds are advisory agreement with Invesco Aim supervision of the independent Senior the result of years of review and Advisors, Inc. (Invesco Aim). During Officer who also prepares a separate negotiation between the Trustees and contract renewal meetings held on June analysis of this information for the Invesco Aim, that the Trustees may focus 18-19, 2008, the Board as a whole and the Trustees. Each Sub-Committee then makes to a greater extent on certain aspects of disinterested or "independent" Trustees, recommendations to the Investments these arrangements in some years than in voting separately, approved the Committee regarding the performance, fees others, and that the Trustees' continuance of the Fund's investment and expenses of their assigned funds. The deliberations and conclusions in a advisory agreement for another year, Investments Committee considers each particular year may be based in part on effective July 1, 2008. In doing so, the Sub-Committee's recommendations and makes their deliberations and conclusions of Board determined that the Fund's its own recommendations regarding the these same arrangements throughout the investment advisory agreement is in the performance, fees and expenses of the AIM year and in prior years. best interests of the Fund and its Funds to the full Board. The Investments shareholders and that the compensation to Committee also considers each FACTORS AND CONCLUSIONS AND SUMMARY OF Invesco Aim under the Fund's investment Sub-Committee's recommendations in making INDEPENDENT WRITTEN FEE EVALUATION advisory agreement is fair and reasonable. its annual recommendation to the Board whether to approve the continuance of each The discussion below serves as a summary The independent Trustees met separately AIM Fund's investment advisory agreement of the Senior Officer's independent during their evaluation of the Fund's and sub-advisory agreements for another written evaluation with respect to the investment advisory agreement with year. Fund's investment advisory agreement as independent legal counsel from whom they well as a discussion of the material received independent legal advice, and the The independent Trustees are assisted factors and related conclusions that independent Trustees also received in their annual evaluation of the Fund's formed the basis for the Board's approval assistance during their deliberations from investment advisory agreement by the of the Fund's investment advisory the independent Senior Officer, a independent Senior Officer. One agreement and sub-advisory agreements. full-time officer of the AIM Funds who responsibility of the Senior Officer is to Unless otherwise stated, information set reports directly to the independent manage the process by which the AIM Funds' forth below is as of June 19, 2008 and Trustees. proposed management fees are negotiated does not reflect any changes that may have during the annual contract renewal process occurred since that date, including but THE BOARD'S FUND EVALUATION PROCESS to ensure that they are negotiated in a not limited to changes to the Fund's manner that is at arms' length and performance, advisory fees, expense The Board's Investments Committee has reasonable. Accordingly, the Senior limitations and/or fee waivers. established three Sub-Committees that are Officer must either supervise a responsible for overseeing the management competitive bidding process or prepare an I. Investment Advisory Agreement of a number of the series portfolios of independent written evaluation. The Senior the AIM Funds. This Sub-Committee Officer has recommended that an A. Nature, Extent and Quality of structure permits the Trustees to focus on independent written evaluation be provided Services Provided by Invesco Aim the performance of the AIM Funds that have and, at the direction of the Board, has been assigned to them. The Sub-Committees prepared an independent written The Board reviewed the advisory services meet throughout the year to review the evaluation. provided to the Fund by Invesco Aim under performance of their assigned funds, and the Fund's investment advisory agreement, the Sub-Committees review monthly and During the annual contract renewal the performance of Invesco Aim in quarterly comparative performance process, the Board considered the factors providing these services, and the information and periodic asset flow data discussed below under the heading "Factors credentials and experience of the officers for their assigned funds. These materials and Conclusions and Summary of Independent and employees of Invesco Aim who provide are prepared under the direction and Written Fee Evaluation" in evaluating the these services. The Board's review of the supervision of the independent Senior fairness and reasonableness of the Fund's qualifications of Invesco Aim to provide Officer. Over the course of each year, the investment advisory agreement and these services included the Board's Sub-Committees meet with portfolio sub-advisory agreements at the contract consideration of Invesco Aim's portfolio managers for their assigned funds and renewal meetings and at their meetings and product review process, various back other members of management and review throughout the year as part of their office support functions provided by with these individuals the performance, ongoing oversight of the Fund. The Fund's Invesco Aim and its affiliates, and investment objective(s), policies, investment advisory agreement and Invesco Aim's equity and fixed income strategies and limitations of these funds. sub-advisory agreements were considered trading operations. The Board concluded separately, although the Board also that the nature, extent and quality of the In addition to their meetings considered the common interests of all of advisory services provided to the Fund by throughout the year, the Sub-Committees the AIM Funds in their deliberations. The Invesco Aim were appropriate and that meet at designated contract renewal Board considered all of the information Invesco Aim currently is providing meetings each year to conduct an in-depth provided to them and did not identify any satisfactory advisory services in review of the performance, fees and particular factor that was controlling. accordance with the terms of the Fund's expenses of their assigned funds. During Each Trustee may have evaluated the investment advisory agreement. In the contract information provided differently addition, based on their ongoing meetings throughout the year with the Fund's portfolio manager or continued
25 AIM CAPITAL DEVELOPMENT FUND managers, the Board concluded that these pendent written evaluation of the Fund's median total expenses of the funds in the individuals are competent and able to Senior Officer only considered Fund Fund's Lipper expense group that are not continue to carry out their performance through the most recent managed by Invesco Aim. responsibilities under the Fund's calendar year, the Board also reviewed investment advisory agreement. more recent Fund performance and this After taking account of the Fund's review did not change their conclusions. contractual advisory fee rate, as well as In determining whether to continue the the comparative advisory fee information Fund's investment advisory agreement, the C. Advisory Fees and Fee Waivers discussed above, the Board concluded that Board considered the prior relationship the Fund's advisory fees were fair and between Invesco Aim and the Fund, as well The Board compared the Fund's contractual reasonable. as the Board's knowledge of Invesco Aim's advisory fee rate to the contractual operations, and concluded that it was advisory fee rates of funds in the Fund's D. Economies of Scale and Breakpoints beneficial to maintain the current expense group that are not managed by relationship, in part, because of such Invesco Aim, at a common asset level and The Board considered the extent to which knowledge. The Board also considered the as of the end of the past calendar year. there are economies of scale in Invesco steps that Invesco Aim and its affiliates The Board noted that the Fund's Aim's provision of advisory services to have taken over the last several years to contractual advisory fee rate was below the Fund. The Board also considered improve the quality and efficiency of the the median contractual advisory fee rate whether the Fund benefits from such services they provide to the AIM Funds in of funds in its expense group. The Board economies of scale through contractual the areas of investment performance, also reviewed the methodology used by breakpoints in the Fund's advisory fee product line diversification, Lipper and noted that the contractual fee schedule or through advisory fee waivers distribution, fund operations, shareholder rates shown by Lipper in determining or expense limitations. The Board noted services and compliance. The Board contractual fee rates. that the Fund's contractual advisory fee concluded that the quality and efficiency schedule includes one breakpoint and that of the services Invesco Aim and its The Board also compared the Fund's the level of the Fund's advisory fees, as affiliates provide to the AIM Funds each effective fee rate (the advisory fee after a percentage of the Fund's net assets, has of these areas have generally improved, any advisory fee waivers and before any decreased as net assets increased because and support the Board's approval of the expense limitations/waivers) to the of the breakpoint. Based on this continuance of the Fund's investment advisory fee rates of other clients of information, the Board concluded that the advisory agreement. Invesco Aim and its affiliates with Fund's advisory fees appropriately reflect investment strategies comparable to those economies of scale at current asset B. Fund Performance of the Fund, including three mutual funds levels. The Board also noted that the Fund advised by Invesco Aim and one mutual fund shares directly in economies of scale The Board compared the Fund's performance sub-advised by an Invesco Aim affiliate. through lower fees charged by third party during the past one, three and five The Board noted that the Fund's rate was: service providers based on the combined calendar years to the performance of funds (i) below the rates for two of the mutual size of all of the AIM Funds and in the Fund's performance group that are funds and above the rate for the third affiliates. not managed by Invesco Aim, and against mutual fund; and (ii) above the the performance of all funds in the Lipper sub-advisory fee rate for the sub-advised E. Profitability and Financial Mid-Cap Growth Funds Index. The Board also mutual fund. Resources of Invesco Aim reviewed the criteria used by Invesco Aim to identify the funds in the Fund's Additionally, the Board compared the The Board reviewed information from performance group for inclusion in the Fund's effective fee rate to the total Invesco Aim concerning the costs of the Lipper reports. The Board noted that the advisory fees paid by a separately managed advisory and other services that Invesco Fund's performance was in the fourth account/ wrap account advised by Invesco Aim and its affiliates provide to the Fund quintile of its performance group for the Aim affiliates. The Board noted that the and the profitability of Invesco Aim and one, three and five year periods (the Fund's rate was above the rate for the its affiliates in providing these first quintile being the best performing separately managed account/wrap account. services. The Board also reviewed funds and the fifth quintile being the The Board considered that management of information concerning the financial worst performing funds). The Board noted the separately managed account/wrap condition of Invesco Aim and its that the Fund's performance was below the account by the Invesco Aim affiliate affiliates. The Board also reviewed with performance of the Index for the one, involves different levels of services and Invesco Aim the methodology used to three and five year periods. The Board different operational and regulatory prepare the profitability information. The noted that Invesco Aim acknowledges the requirements than Invesco Aim's management Board considered the overall profitability Fund's underperformance because of shorter of the Fund. The Board concluded that of Invesco Aim, as well as the term performance results and continues to these differences are appropriately profitability of Invesco Aim in connection monitor the Fund. The Board also reflected in the fee structure for the with managing the Fund. The Board noted considered the steps Invesco Aim has taken Fund. that Invesco Aim continues to operate at a over the last several years to improve the net profit, although increased expenses in quality and efficiency of the services The Board noted that Invesco Aim has recent years have reduced the that Invesco Aim provides to the AIM not proposed any advisory fee waivers or profitability of Invesco Aim and its Funds. The Board concluded that Invesco expense limitations for the Fund. The affiliates. The Board concluded that the Aim continues to be responsive to the Board concluded that it was not necessary Fund's fees were fair and reasonable, and Board's focus on fund performance. at this time to discuss with Invesco Aim that the level of profits realized by Although the inde- whether to implement any fee waivers or Invesco Aim and its affiliates from expense limitations because the Fund's providing services to the Fund was not total expenses were below the excessive in light of the nature, quality and extent of the services provided. The continued
26 AIM CAPITAL DEVELOPMENT FUND Board considered whether Invesco Aim is expenses. The Board also noted that filiated Sub-Advisers, which have offices financially sound and has the resources research obtained through soft dollar and personnel that are geographically necessary to perform its obligations under arrangements may be used by Invesco Aim in dispersed in financial centers around the the Fund's investment advisory agreement, making investment decisions for the Fund world, have been formed in part for the and concluded that Invesco Aim has the and may therefore benefit Fund purpose of researching and compiling financial resources necessary to fulfill shareholders. The Board concluded that information and making recommendations on these obligations. Invesco Aim's soft dollar arrangements the markets and economies of various were appropriate. The Board also concluded countries and securities of companies F. Independent Written Evaluation of that, based on their review and located in such countries or on various the Fund's Senior Officer representations made by Invesco Aim, these types of investments and investment arrangements were consistent with techniques, and providing investment The Board noted that, at their direction, regulatory requirements. advisory services. The Board concluded the Senior Officer of the Fund, who is that the sub-advisory agreements will independent of Invesco Aim and Invesco The Board considered the fact that the benefit the Fund and its shareholders by Aim's affiliates, had prepared an Fund's uninvested cash and cash collateral permitting Invesco Aim to utilize the independent written evaluation to assist from any securities lending arrangements additional resources and talent of the the Board in determining the may be invested in money market funds Affiliated Sub-Advisers in managing the reasonableness of the proposed management advised by Invesco Aim pursuant to Fund. fees of the AIM Funds, including the Fund. procedures approved by the Board. The The Board noted that they had relied upon Board noted that Invesco Aim will receive B. Fund Performance the Senior Officer's written evaluation advisory fees from these affiliated money instead of a competitive bidding process. market funds attributable to such The Board did not view Fund performance as In determining whether to continue the investments, although Invesco Aim has a relevant factor in considering whether Fund's investment advisory agreement, the contractually agreed to waive through at to approve the sub-advisory agreements for Board considered the Senior Officer's least June 30, 2009, the advisory fees the Fund, as no Affiliated Sub-Adviser written evaluation. payable by the Fund in an amount equal to currently manages any portion of the 100% of the net advisory fees Invesco Aim Fund's assets. G. Collateral Benefits to Invesco Aim receives from the affiliated money market and its Affiliates funds with respect to the Fund's C. Sub-Advisory Fees investment of uninvested cash, but not The Board considered various other cash collateral. The Board considered the The Board considered the services to be benefits received by Invesco Aim and its contractual nature of this fee waiver and provided by the Affiliated Sub-Advisers affiliates resulting from Invesco Aim's noted that it remains in effect until at pursuant to the sub-advisory agreements relationship with the Fund, including the least June 30, 2009. The Board concluded and the services to be provided by Invesco fees received by Invesco Aim and its that the Fund's investment of uninvested Aim pursuant to the Fund's investment affiliates for their provision of cash and cash collateral from any advisory agreement, as well as the administrative, transfer agency and securities lending arrangements in the allocation of fees between Invesco Aim and distribution services to the Fund. The affiliated money market funds is in the the Affiliated Sub-Advisers pursuant to Board considered the performance of best interests of the Fund and its the sub-advisory agreements. The Board Invesco Aim and its affiliates in shareholders. noted that the sub-advisory fees have no providing these services and the direct effect on the Fund or its organizational structure employed by II. Sub-Advisory Agreements shareholders, as they are paid by Invesco Invesco Aim and its affiliates to provide Aim to the Affiliated Sub-Advisers, and these services. The Board also considered A. Nature, Extent and Quality of that Invesco Aim and the Affiliated that these services are provided to the Services Provided by Affiliated Sub-Advisers are affiliates. After taking Fund pursuant to written contracts which Sub-Advisers account of the Fund's contractual are reviewed and approved on an annual sub-advisory fee rate, as well as other basis by the Board. The Board concluded The Board reviewed the services to be relevant factors, the Board concluded that that Invesco Aim and its affiliates were provided by Invesco Trimark Ltd., Invesco the Fund's sub-advisory fees were fair and providing these services in a satisfactory Asset Management Deutschland, GmbH, reasonable. manner and in accordance with the terms of Invesco Asset Management Limited, Invesco their contracts, and were qualified to Asset Management (Japan) Limited, Invesco D. Financial Resources of the continue to provide these services to the Australia Limited, Invesco Global Asset Affiliated Sub-Advisers Fund. Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco Institutional (N.A.), The Board considered whether each The Board considered the benefits Inc. and Invesco Senior Secured Affiliated Sub-Adviser is financially realized by Invesco Aim as a result of Management, Inc. (collectively, the sound and has the resources necessary to portfolio brokerage transactions executed "Affiliated Sub-Advisers") under the perform its obligations under its through "soft dollar" arrangements. Under sub-advisory agreements and the respective sub-advisory agreement, and these arrangements, portfolio brokerage credentials and experience of the officers concluded that each Affiliated Sub-Adviser commissions paid by the Fund and/or other and employees of the Affiliated has the financial resources necessary to funds advised by Invesco Aim are used to Sub-Advisers who will provide these fulfill these obligations. pay for research and execution services. services. The Board concluded that the The Board noted that soft dollar nature, extent and quality of the services arrangements shift the payment obligation to be provided by the Affiliated for the research and execution services Sub-Advisers were appropriate. The Board from Invesco Aim to the funds and noted that the Af- therefore may reduce Invesco Aim's
27 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, 2008:
FEDERAL AND STATE INCOME TAX ---------------------------- Long-Term Capital Gain Dividends $164,465,703 Qualified Dividend Income* 12.23% Corporate Dividends Received Deduction* 10.21% U.S. Treasury Obligations* 0.09%
* The above percentages are based on ordinary income dividends paid to shareholders during the Fund's fiscal year. 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, 2008, April 30, 2008, July 31, 2008 and October 31, 2008 were 11.00%, 7.00%, 8.01%, and 9.82%, respectively. 28 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 103 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.
NAME, YEAR OF BIRTH AND TRUSTEE AND/ OTHER POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) DIRECTORSHIP(S) TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE -------------------------------------------------------------------------------------------------------------------------------- INTERESTED PERSONS -------------------------------------------------------------------------------------------------------------------------------- Martin L. 2007 Executive Director, Chief Executive Officer and President, None Flanagan(1) -- 1960 Invesco Ltd. (ultimate parent of Invesco Aim and a global Trustee investment management firm); Chairman, Invesco Aim Advisors, Inc. (registered investment advisor); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company); INVESCO North American Holdings, Inc. (holding company); and, INVESCO Group Services, Inc. (service provider); Trustee, The AIM Family of Funds--Registered Trademark--; Vice Chairman, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business Formerly: Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco Aim and a global investment management firm); 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 Head of North American Retail and Senior Managing Director, None Trustee, President and Invesco Ltd.; Director, Chief Executive Officer and Principal President, Invesco Trimark Dealer Inc. (formerly AIM Mutual Executive Officer Fund Dealer Inc.) (registered broker dealer), Invesco Aim Advisors, Inc., and 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Aim Management Group, Inc. (financial services holding company) and Invesco Aim 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, Invesco Aim Distributors, Inc. (registered broker dealer); Director and Chairman, Invesco 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 Invesco Canada Holdings Inc. (formerly AIM Canada Holdings Inc.) (holding company); 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); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltee (formerly AIM Funds Management Inc. d/b/a INVESCO Enterprise Services) (registered investment advisor and registered transfer agent) and Invesco Trimark Dealer Inc. (formerly AIM Mutual Fund Dealer Inc.) (registered broker dealer); Trustee, President and Principal Executive Officer of The AIM Family of Funds--Registered Trademark-- (other than AIM Treasurer's Series Trust and Short-Term Investments Trust); Trustee and Executive Vice President, The AIM Family of Funds--Registered Trademark-- (AIM Treasurer's Series Trust and Short-Term Investments Trust only); and Manager, Invesco PowerShares Capital Management LLC Formerly: President, Invesco Trimark Dealer Inc.; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Director and President, Invesco Trimark Ltd./Invesco Trimark Ltee (formerly AIM Funds Management Inc. d/b/a INVESCO Enterprise Services); Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; 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); 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 (technology ACE Limited Trustee and Chair consulting company) (insurance company); Captaris, Inc. (unified messaging provider); and Investment Company Institute -------------------------------------------------------------------------------------------------------------------------------- Bob R. Baker -- 1936 2003 Retired None Trustee -------------------------------------------------------------------------------------------------------------------------------- Frank S. Bayley -- 1939 2001 Retired Trustee Formerly: Partner, law firm of Baker & McKenzie; and None Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) -------------------------------------------------------------------------------------------------------------------------------- James T. Bunch -- 1942 2003 Founder, Green, Manning & Bunch Ltd., (investment banking Director, Policy Trustee firm) Studies, Inc. and Van Gilder Insurance Corporation -------------------------------------------------------------------------------------------------------------------------------- Albert R. Dowden -- 1941 2000 Director of a number of public and private business None Trustee corporations, including the Boss Group Ltd. (private investment and management); Continental Energy Services, LLC (oil and gas pipeline service); Reich & Tang Funds (registered investment company); Annuity and Life Re (Holdings), Ltd. (reinsurance company), and Homeowners of America Holding Corporation/Homeowners of America Insurance Company (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 public and private corporations -------------------------------------------------------------------------------------------------------------------------------- Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Century Group, Inc. Administaff Trustee (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); and Discovery Global Education Fund (non-profit) -------------------------------------------------------------------------------------------------------------------------------- Carl Frischling -- 1937 1998 Partner, law firm of Kramer Levin Naftalis and Frankel LLP Director, Reich & Trustee Tang Funds) (15 portfolios) -------------------------------------------------------------------------------------------------------------------------------- Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the USA None Trustee -------------------------------------------------------------------------------------------------------------------------------- Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper None Trustee -------------------------------------------------------------------------------------------------------------------------------- Larry Soll -- 1942 2003 Retired None Trustee -------------------------------------------------------------------------------------------------------------------------------- Raymond Stickel, Jr. -- 1944 2005 Retired Trustee Formerly: Partner, Deloitte & Touche; and Director, Mainstay None VP Series Funds, Inc. (25 portfolios) --------------------------------------------------------------------------------------------------------------------------------
(1) 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 Ltd., ultimate 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. 29 AIM CAPITAL DEVELOPMENT FUND TRUSTEES AND OFFICERS--(CONTINUED)
NAME, YEAR OF BIRTH AND TRUSTEE AND/ OTHER POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) DIRECTORSHIP(S) TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE -------------------------------------------------------------------------------------------------------------------------------- OTHER OFFICERS -------------------------------------------------------------------------------------------------------------------------------- Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer of The AIM Family of N/A Senior Vice President and Funds--Registered Trademark-- Senior Officer 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, Secretary and General Counsel, N/A Senior Vice President, Chief Invesco Aim Management Group, Inc., Invesco Aim Advisors, Inc. Legal Officer and Secretary and Invesco Aim Capital Management, Inc.; Director, Senior Vice President and Secretary, Invesco Aim Distributors, Inc.; Director, Vice President and Secretary, Invesco Aim Investment Services, Inc. and INVESCO Distributors, Inc.; Director and Vice President, INVESCO Funds Group Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds--Registered Trademark--; and Manager, Invesco PowerShares Capital Management LLC Formerly: Director, Vice President and Secretary, Fund Management Company; Vice President, Invesco Aim 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); 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 Ltd.; and Vice President, The N/A Vice President AIM Family of Funds--Registered Trademark-- Formerly: Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and The AIM Family of Funds--Registered Trademark--; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Aim Distributors, Inc.; Vice President, Invesco Aim Investment Services, Inc. and Fund Management Company; and Senior Vice President and Compliance Director, Delaware Investments Family of Funds -------------------------------------------------------------------------------------------------------------------------------- Kevin M. Carome -- 1956 2003 General Counsel, Secretary and Senior Managing Director, Invesco N/A Vice President Ltd.; Director and Secretary, Invesco Holding Company Limited, IVZ, Inc. and INVESCO Group Services, Inc.; Director, INVESCO Funds Group, Inc.; Secretary, INVESCO North American Holdings, Inc.; and Vice President, The AIM Family of Funds--Registered Trademark-- Formerly: Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc. and Invesco Aim Advisors, Inc.; Senior Vice President, Invesco Aim Distributors, Inc.; Director, General Counsel and Vice President, Fund Management Company; Vice President, Invesco Aim Capital Management, Inc. and Invesco Aim Investment Services, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds--Registered Trademark--; Director and Vice President, INVESCO Distributors, Inc. and Chief Executive Officer and President, INVESCO Funds Group, Inc. -------------------------------------------------------------------------------------------------------------------------------- Sheri Morris -- 1964 1999 Vice President, Treasurer and Principal Financial Officer, The N/A Vice President, Treasurer AIM Family of Funds--Registered Trademark--; and Vice President, and Principal Financial Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. Officer and Invesco Aim Private Asset Management Inc. Formerly: Assistant Vice President and Assistant Treasurer, The AIM Family of Funds--Registered Trademark-- and Assistant Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. -------------------------------------------------------------------------------------------------------------------------------- Karen Dunn Kelley -- 1960 2004 Head of Invesco's World Wide Fixed Income and Cash Management N/A Vice President Group; Director of Cash Management and Senior Vice President, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc; Executive Vice President, Invesco Aim Distributors, Inc.; Senior Vice President, Invesco Aim Management Group, Inc.; Vice President, The AIM Family of Funds--Registered Trademark-- (other than AIM Treasurer's Series Trust and Short-Term Investments Trust); and President and Principal Executive Officer, The AIM Family of Funds--Registered Trademark-- (AIM Treasurer's Series Trust and Short-Term Investments Trust only) Formerly President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer and Managing Director, Invesco Aim Capital Management, Inc.; and Vice President, Invesco Aim 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 Officer, Invesco Aim Advisors, N/A Anti-Money Laundering Inc., Invesco Aim Capital Management, Inc., Invesco Aim Compliance Officer Distributors, Inc., Invesco Aim Investment Services, Inc., Invesco 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, Invesco Aim Investment Services, Inc. -------------------------------------------------------------------------------------------------------------------------------- Todd L. Spillane -- 1958 2006 Senior Vice President, Invesco Aim Management Group, Inc.; Senior N/A Chief Compliance Officer Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, 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, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc. Formerly: Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company; and Global Head of Product Development, AIG-Global Investment Group, Inc. --------------------------------------------------------------------------------------------------------------------------------
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. Please refer to the Fund's prospectus for information on the Fund's sub- advisors. OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS 11 Greenway Plaza Invesco Aim Advisors, Invesco Aim Distributors, PricewaterhouseCoopers Suite 100 Inc. Inc. LLP Houston, TX 77046-1173 11 Greenway Plaza 11 Greenway Plaza 1201 Louisiana Street Suite 100 Suite 100 Suite 2900 Houston, TX 77046-1173 Houston, TX 77046-1173 Houston, TX 77002-5678 COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN Stradley Ronon Stevens INDEPENDENT TRUSTEES Invesco Aim Investment State Street Bank and & Young, LLP Kramer, Levin, Naftalis & Services, Inc. Trust Company 2600 One Commerce Square Frankel LLP P.O. Box 4739 225 Franklin Street Philadelphia, PA 19103 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801 Americas New York, NY 10036-2714
30 AIM CAPITAL DEVELOPMENT FUND [GO PAPERLESS GRAPHIC] ==================================================================================================================================== GO PAPERLESS WITH EDELIVERY Visit invescoaim.com/edelivery to receive quarterly statements, tax forms, fund reports and prospectuses with a service that's all about eeees: o ENVIRONMENTALLY FRIENDLY. Go green by reducing the number of o EFFICIENT. Stop waiting for regular mail. Your documents will trees used to produce paper. be sent via email as soon as they're available. o ECONOMICAL. Help reduce your fund's printing and delivery o EASY. Download, save and print files using your home computer expenses and put more capital back in your fund's returns. with a few clicks of your mouse. This service is provided by Invesco Aim Investment Services, Inc. ==================================================================================================================================== FUND HOLDINGS AND PROXY VOTING INFORMATION The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund's semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The most recent list of portfolio holdings is available at invescoaim.com. From our home page, click on Products & Performance, then Mutual Funds, then Fund Overview. Select your Fund from the drop-down menu and click on Complete Quarterly Holdings. Shareholders can also look up the Fund's Forms N-Q on the SEC website at sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 942 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-01424 and 002-25469. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or on the Invesco Aim website, invescoaim. com. On the home page, scroll down and click on Proxy Policy. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2008, is available at our website. Go to invescoaim.com, access the About Us tab, click on Required Notices and then click on Proxy Voting Activity. Next, select the Fund from the drop-down menu. The information is also available on the SEC website, sec.gov. If used after January 20, 2009, this report must be accompanied by a Fund fact sheet or Invesco Aim Quarterly Performance Review for the most recent quarter-end. Invesco Aim--SERVICE MARK-- is a service mark of Invesco Aim Management Group, Inc. Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc., Invesco Aim Private Asset Management, Inc. and Invesco PowerShares Capital Management LLC are the investment advisors for the products and services represented by Invesco Aim; they each provide [INVESCO AIM LOGO] investment advisory services to individual and institutional clients and do not sell securities. Please -- SERVICE MARK -- refer to each fund's prospectus for information on the fund's subadvisors. Invesco Aim Distributors, Inc. is the U.S. distributor for the retail mutual funds, exchange-traded funds and institutional money market funds and the subdistributor for the STIC Global Funds represented by Invesco Aim. All entities are indirect, wholly owned subsidiaries of Invesco Ltd. invescoaim.com CDV-AR-1 Invesco Aim Distributors, Inc.
[INVESCO AIM LOGO] AIM CHARTER FUND -- SERVICE MARK -- Annual Report to Shareholders o October 31, 2008 [MOUNTAIN GRAPHIC] 2 Letters to Shareholders 4 Performance Summary 4 Management Discussion 6 Long-Term Fund Performance 8 Supplemental Information 9 Schedule of Investments 11 Financial Statements 14 Notes to Financial Statements 20 Financial Highlights 22 Auditor's Report 23 Fund Expenses 24 Approval of Investment Advisory Agreement 27 Tax Information 28 Trustees and Officers
Dear Shareholder: In previous reports, I've talked with you about short-term market volatility. I'd like to take this opportunity to update you on recent market developments and [TAYLOR provide some perspective and encouragement to my fellow long-term investors. PHOTO] MARKET OVERVIEW At the start of the fiscal year in November 2007, we saw warning signs of increasing economic ills -- a weakening housing market, rising inflation and Philip Taylor slowing job growth, among others. In response, the U.S. Federal Reserve Board (the Fed) repeatedly cut short-term interest rate targets to stimulate economic growth and expand market liquidity.(1) Also, Congress and the president worked together to enact an economic stimulus plan that included billions of dollars in rebates to taxpayers. These actions helped the economy and the U.S. stock market until the spring of 2008, when other factors came to the forefront -- triggering a severe correction that eventually drove major stock-market indexes to multi-year lows.(2) HOW WE GOT HERE The cause of this correction was years of lax lending associated with the recent housing boom. Mortgage loans of questionable quality were bundled into hard-to-value securities that were bought by, and traded among, financial institutions. As the value of those securities declined, financial institutions sought to unload them -- but there were few buyers. With the value of their assets falling and access to credit tightening, a number of well-established financial firms faced severe difficulties, and investor uncertainty and market volatility spiked. In October 2008, the administration and Congress enacted a plan, the Troubled Assets Relief Program, authorizing the U.S. Department of the Treasury to purchase up to $700 billion in troubled mortgage-related assets -- the largest and most direct effort to resolve a credit crisis in the last half century. The Fed, in concert with other central banks, cut short-term interest rate targets and undertook other initiatives intended to restore investor confidence, expand lending and mitigate the effects of the global credit crisis. The recent volatility in the stock, fixed-income and credit markets has driven home the importance of three timeless investing principles. INVESTING IN VOLATILE MARKETS Through up markets and down, we believe history shows investors should: o INVEST FOR THE LONG TERM. Short-term fluctuations have always been a reality of the markets. We urge you to stick to your investment plan and stay focused on your long-term goals. o DIVERSIFY. Although diversification doesn't eliminate the risk of loss or guarantee a profit, a careful selection of complementary asset classes may cushion your portfolio against excessive volatility. o STAY FULLY INVESTED. Trying to time the market is a gamble, not an investment strategy. A sound investment strategy includes viewing market volatility as a matter of course, not a reason to panic. A trusted financial advisor can explain more fully the potential value of following these principles. An experienced advisor who knows your individual investment goals, financial situation and risk tolerance can be your most valuable asset during times of market volatility. Your advisor can provide guidance and can monitor your investments to ensure they're on course. It's also helpful to remember that many of history's significant buying opportunities resulted from short-term economic crises that, in their time, were considered unprecedented. We believe current market uncertainty may represent a buying opportunity for patient, long-term investors. Rest assured that Invesco Aim's portfolio managers are working diligently on your behalf to capitalize on this situation. MANAGING MONEY IS OUR FOCUS As 2008 draws to a close, I believe Invesco Aim is uniquely positioned to navigate current uncertain markets. Our parent company, Invesco Ltd., is one of the world's largest and most diversified global investment managers. Invesco provides clients with diversified investment strategies from distinct management teams around the globe and a range of investment products. Invesco's single focus is asset management -- which means we focus on doing one thing well: managing your money. That can be reassuring in uncertain times. While market conditions change often, commitment to putting shareholders first, helping clients achieve their investment goals and providing excellent customer service remains constant. If you have questions about this report or your account, please contact one of our client service representatives at 800 959 4246. Thank you for your continued confidence, and we look forward to serving you.
Sincerely, /S/ PHILIP TAYLOR Philip Taylor Senior Managing Director, Invesco Ltd. CEO, Invesco Aim (1) U.S. Federal Reserve; (2) Lipper Inc. 2 AIM CHARTER FUND Dear Fellow Shareholders: As I write this letter, turbulent financial markets are causing considerable investor anxiety, reminding us again that markets are cyclical and the correction [CROCKETT of excess is often painful, at least in the short term. Your Board of Trustees PHOTO] believes in the wisdom of a long-term perspective and consistent investment discipline. We continue to put your interests first in the effort to improve investment performance, contain shareholder costs and uphold the highest ethical standards. We remain enthusiastic about the global reach and investment expertise that Invesco, a leading independent global investment management company, brings to Bruce Crockett the management of AIM Funds as the parent company of the advisors. The diverse investment strategies deployed throughout the worldwide network of Invesco investment centers has helped strengthen the management of many AIM Funds. The rebranding of the Funds' management company as Invesco Aim was followed by the launch of an upgraded, investor-friendly website (invescoaim.com); a new mountain logo using a Himalayan peak to symbolize stability, endurance, strength and longevity; and a new ad campaign. Emphasizing Invesco Aim's focus and investment quality, the ads will appear in financial publications such as Barron's and Investment News through the end of 2008. At its June meeting, your Board reviewed and renewed the investment advisory contracts between the AIM Funds and Invesco Aim Advisors, Inc. You can find the results of this rigorous annual process at invescoaim.com. Go to "Products & Performance" and click on "Investment Advisory Agreement Renewals." We have recently completed another active proxy voting season during which we acted on your behalf to double the number of votes in favor of separating the roles of chairman and CEO at the companies whose shares your Funds hold. We also continued to support the movement for shareholders to have a bigger role in approving executive compensation, initiatives known as "say on pay." Like virtually all other mutual fund complexes, AIM Funds abstain from voting on social issues as a matter of policy, and I would be interested to hear your thoughts on this policy. As always, you are welcome to email your questions or comments to me at bruce@brucecrockett.com. The dialogue that has been established in this way has been instructive for your Board, and we want it to continue. Although the production schedule for Fund annual reports and prospectuses allows me to write these letters of general report and response just twice a year, please be assured that your comments are received, welcomed and heard in the interim. We look forward to hearing from you and to representing you.
Sincerely, /S/ BRUCE L. CROCKETT Bruce L. Crockett Independent Chair AIM Funds Board of Trustees 3 AIM CHARTER FUND MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE ======================================================================================= o It exceeds our target price. PERFORMANCE SUMMARY o We have not seen a demonstrable For the fiscal year ended October 31, 2008, Class A shares of AIM Charter Fund, at net improvement in fundamentals. asset value, delivered a return of --27.00% for shareholders, outpacing the broad market S&P 500 Index that returned --36.08% as well as the Fund's style-specific o More compelling investments opportunity benchmark, the Russell 1000 Index, which returned --36.80%. This was a very challenging exists. period, but the Fund's comparative results were a source of strength during these turbulent times. All sectors were down for the period but the Fund benefited from MARKET CONDITIONS AND YOUR FUND select holdings in consumer staples and high quality financials. Select holdings in information technology (IT) were some of the hardest hit. Your Fund's long-term The fiscal year ended October 31, 2008, performance appears later in this report. was a very challenging time for the markets but it is worth noting that AIM FUND VS. INDEXES Charter Fund held up well compared to the broad market and our peers, fulfilling our Total returns, 10/31/07 to 10/31/08, at net asset value (NAV). Performance shown does mandate to be a source of strength during not include applicable contingent deferred sales charges (CDSC) or front-end sales turbulent times. It can be difficult to charges, which would have reduced performance. maintain perspective during times of crisis but we should remember that our Class A Shares -27.00% equity markets have gone through similarly Class B Shares -27.51 difficult environments in the past and Class C Shares -27.55 historically they have always recovered. Class R Shares -27.19 Today's challenges are serious but the Class Y Shares* -27.00 government is taking aggressive action. S&P 500 Index(triangle) (Broad Market Index) -36.08 These issues are not insurmountable, and Russell 1000 Index(triangle) (Style-Specific Index) -36.80 we do not believe this is the time to Lipper Large-Cap Core Funds Index(triangle) (Peer Group Index) -35.90 abandon your long-term investment (triangle)Lipper Inc. strategy. * Share class incepted during the fiscal year. See page 7 for a detailed These days we are often asked how did explanation of Fund performance. our economy get into this mess. It is not ======================================================================================= a simple question to answer, but essentially there was an excessive amount HOW WE INVEST o Business analysis to determine of leverage in the system - too much debt competitive positioning and not enough assets to back it up. For We manage your Fund as a conservative many years now financial institutions have cornerstone, seeking to provide attractive o Valuation analysis to identify been taking on too much risk in an effort upside participation and stronger downside attractively valued companies to keep up with one another, and banks had protection in difficult markets. As part to stretch beyond their traditional of a well-diversified asset allocation Financial analysis provides vital revenue sources to "keep up" with their strategy, the Fund can serve as a insight into historical and potential peers. This was part of our rationale for foundation to a portfolio and complement returns on invested capital, a key moving out of financials several years more aggressive or cyclical investments. indicator of business quality and the ago; a decision that has served as a caliber of management. Business analysis significant source of protection for our We conduct fundamental research of allows us to identify key drivers of the investors. The consumer has also taken companies to gain a thorough understanding company, understand industry challenges more and more risk on their own personal of their business prospects, appreciation and evaluate the sustainability of balance sheets through home equity loans, potential and return on invested capital competitive advantages. Both the financial credit cards, and other forms of credit (ROIC). The process we use to identify and business analyses serve as a basis to being offered. As our research began to potential investments for the Fund construct valuation models that help us uncover cracks in the consumer's armor we includes three phases: estimate a company's value. We use three moved our clients' assets into more primary valuation techniques, including attractive areas. o Financial analysis to evaluate returns discounted cash flow, traditional on invested capital and capital valuation multiples and net asset value. allocation We consider selling a stock when: ========================================== ========================================== ========================================== PORTFOLIO COMPOSITION TOP FIVE INDUSTRIES* TOP 10 EQUITY HOLDINGS* By sector Information Technology 19.8% 1. Pharmaceuticals 6.2% 1. Progressive Corp. (The) 3.0% Financials 16.5 2. Property & Casualty Insurance 5.7 2. 3M Co. 2.8 Health Care 13.1 3. Communications Equipment 5.3 3. Berkshire Hathaway Inc.-Class A 2.7 Industrials 12.9 4. Systems Software 5.2 4. Symantec Corp. 2.6 Consumer Staples 8.5 5. Industrial Conglomerates 4.8 5. Microsoft Corp. 2.6 Energy 6.3 ========================================== 6. Medtronic, Inc. 2.5 Consumer Discretionary 3.8 7. Cadbury PLC 2.5 Telecommunication Services 2.3 ========================================== 8. Nokia-ADR 2.2 Materials 0.2 Total Net Assets $4.2 billion 9. Wells Fargo & Co. 2.1 Money Market Funds Plus Other 10. Comcast Corp.-Class A 2.0 Assets Less Liabilities 16.6 Total Number of Holdings* 66 ========================================== ========================================== ========================================== 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 CHARTER FUND While financial institutions are not We believed the prices of energy companies allocation strategy. Thank you for your exclusively behind the current crisis, had reached levels that greatly minimized continued trust and investment in AIM they have played a role, and our economy the number of attractively valued Charter Fund. is now going through the painful process companies. This resulted in a tangible of "deleveraging". underweight versus our stylespecific (1) Reuters Knowledge index, a contrast to the notable Over the course of the fiscal year, overweight we have had to energy for quite The views and opinions expressed in sources of strength for the Fund have come some time. It was a move that benefited management's discussion of Fund from select holdings in consumer staples shareholders as energy companies' share performance are those of Invesco Aim and high quality financials. Within prices have fallen sharply since Advisors, Inc. These views and opinions consumer staples, WAL-MART STORES was a mid-summer. are subject to change at any time based on top contributor as a weakening economic factors such as market and economic environment and higher inflation caused One of our more disappointing conditions. These views and opinions may many consumers to change their shopping investments over the fiscal year was not be relied upon as investment advice or patterns in favor of the store's lower MOTOROLA. The stock price was under recommendations, or as an offer for a prices. We originally invested in Wal-Mart pressure as the company lost market share particular security. The information is in spring of 2006 as our research to rivals such as NOKIA and the market not a complete analysis of every aspect of indicated that the company was improving worried about Motorola's ability to any market, country, industry, security or its inventory management. We believed this recover. In situations such as these, our the Fund. Statements of fact are from would enhance the firm's financial team objectively re-evaluates our sources considered reliable, but Invesco flexibility, generate higher returns and investment thesis, and sometimes we decide Aim Advisors, Inc. makes no representation increase company earnings. to move on and other times we are left or warranty as to their completeness or with a renewed sense of confidence in our accuracy. Although historical performance Our exposure to high quality investment. We remained invested in is no guarantee of future results, these financials, such as WELLS FARGO, also Motorola and added to our position because insights may help you understand our contributed to the Fund's results. We we believe it has strong global investment management philosophy. began buying Wells Fargo in late 2007 as distribution, good brand recognition, a it fit the profile of our back to basics sound balance sheet and that today's See important Fund and index disclosures thesis in the banking sector: it was well valuation does not adequately reflect the later in this report. managed with a sound deposit base, a company's worth. history of conservative underwriting RONALD SLOAN standards and deep customer relationships. Earlier in the fiscal year we decided Chartered Financial Analyst, In our view, this business model is poised to hedge a portion of our euro and british [SLOAN senior portfolio manager, is to gain market share and thrive in the pound currency exposure of certain PHOTO] lead manager of AIM Charter revamped global financial system. As the non-U.S. holdings. We did this by using a Fund. Mr. Sloan has been in financial crisis has evolved, early derivative, specifically by selling euro the investment industry since 1971. He indications are that Wells Fargo has and british pound futures contracts, which joined Invesco Aim in 1998. Mr. Sloan indeed done well, as it has experienced allowed us to gain exposure to the U.S. attended the University of Missouri, where healthy deposit growth, giving it fresh dollar without having to take actual he earned both a B.S. in business adminis- capital to deploy at more favorable ownership of the underlying currency. This tration and an M.B.A. pricing, and many of its more aggressive benefited the Fund as the U.S. dollar competitors have ceased to exist. We appreciated versus these currencies.(1) TYLER DANN II believe that it will continue to take Currency hedging is not an investment Chartered Financial Analyst, market share from weaker competitors. strategy we frequently use, but we felt it [DANN portfolio manager, is manager While the recently announced acquisition was prudent in this situation. PHOTO] of AIM Charter Fund. Mr. Dann of Wachovia does add some risk to our joined Invesco Aim in 2004. thesis, since Wachovia's loan portfolio is Maintaining a conservative approach is He serves on the Board of Directors for experiencing large losses, we also think an enduring part of our investment the National Association of Petroleum it makes the new Wells Fargo the nation's strategy. However, we are more defensive Investment Analysts and is a member of premier retail bank from coast to coast. than we would be in more favorable market the CFA Society of San Francisco. Mr. Dann At this point, we believe the benefits of conditions. We have capitalized on the earned an A.B. degree from Princeton the acquisition will outweigh the costs. market's volatility to make what we University. believe to be judicious long-term Overall, we have transitioned over the investments in high quality businesses BRIAN NELSON past year from a significant underweight that are less dependent on external Chartered Financial Analyst, in financials versus the broad market to a sources of financing. Most of our portfolio manager, is manager slight overweight. This is an important purchases were in financials while most of [NELSON of AIM Charter Fund. example of our willingness to capitalize our sells were in energy. At the end of PHOTO] Mr. Nelson began his on the market's shortsightedness to make the fiscal year, our largest sector investment career in 1988 and long-term attractive investments in high weightings were IT and financials while we joined Invesco Aim in 2004. He earned a quality companies for our shareholders. had minimal exposure to materials and B.A. from the University of utilities. California-Santa Barbara and is a member Another move that benefited of the Securities Analyst Society of San shareholders had more to do with what we We continue to focus on good companies Francisco. avoided rather than where we invested. In with sound balance sheets, reliable early 2008, we took profits in many of our management teams and attractive Assisted by the Mid/Large Cap Core Team energy holdings as oil and natural gas valuations. This is a long-term strategy prices rallied, partly the result of that facilitates our role as a fundamental reasons and speculative conservative cornerstone within your activity. broader asset
5 AIM CHARTER FUND YOUR FUND'S LONG-TERM PERFORMANCE Past performance cannot guarantee This chart, which is a logarithmic chart, each segment represents a doubling, comparable future results. chart, presents the fluctuations in the or 100% change, in the value of the value of the Fund and its indexes. We investment. In other words, the space The data shown in the chart include believe that a logarithmic chart is more between $5,000 and $10,000 is the same reinvested distributions, applicable sales effective than other types of charts in size as the space between $10,000 and charges and Fund expenses including illustrating changes in value during the $20,000, and so on. management fees. Index results include early years shown in the chart. The reinvested dividends, but they do not vertical axis, the one that indicates the reflect sales charges. Performance of an dollar value of an investment, is index of funds reflects fund expenses and constructed with each segment representing management fees; performance of a market a percent change in the value of the index does not. Performance shown in the investment. In this chart and table(s) does not reflect deduction of taxes a shareholder would pay on Fund distributions or sale of Fund shares.
6 AIM CHARTER FUND ==================================================================================================================================== [MOUNTAIN CHART] RESULTS OF A $10,000 INVESTMENT -- CLASS A SHARES (OLDEST SHARE CLASS) 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 1/73 14167 12257 11/68 9450 $ 10000 2/73 12525 11824 12/68 9365 9609 3/73 12491 11835 1/69 9337 9554 4/73 11191 11381 2/69 9140 9126 5/73 10609 11196 3/69 9292 9464 6/73 10233 11152 4/69 9434 9691 7/73 11635 11605 5/69 9548 9694 8/73 11806 11209 6/69 9007 9179 9/73 13517 11688 7/69 8465 8650 10/73 14167 11707 8/69 9064 9022 11/73 11494 10408 9/69 9064 8820 12/73 12249 10616 10/69 9577 9238 1/74 12009 10539 11/69 9264 8938 2/74 11941 10530 12/69 9086 8798 3/74 11323 10316 1/70 8168 8150 4/74 10706 9947 2/70 8730 8605 5/74 10328 9644 3/70 8375 8643 6/74 10396 9535 4/70 7250 7887 7/74 9676 8829 5/70 6629 7432 8/74 9573 8065 6/70 6185 7085 9/74 8270 7137 7/70 6629 7630 10/74 9745 8337 8/70 6836 7995 11/74 9499 7929 9/70 7250 8284 12/74 8941 7805 10/70 7043 8216 1/75 9465 8798 11/70 7116 8631 2/75 9954 9359 12/70 7574 9148 3/75 10443 9597 1/71 8154 9543 4/75 11630 10086 2/71 8215 9654 5/75 12153 10567 3/71 8673 10035 6/75 12957 11071 4/71 9162 10425 7/75 12258 10358 5/71 9070 10017 8/75 12188 10176 6/71 9193 10051 9/75 11700 9860 7/71 9040 9661 10/75 11909 10503 8/71 9437 10035 11/75 12120 10798 9/71 9559 9991 12/75 11837 10712 10/71 9192 9600 1/76 13357 12016 11/71 9302 9602 2/76 13852 11915 12/71 10325 10455 3/76 14346 12316 1/72 11472 10670 4/76 13922 12220 2/72 11906 10967 5/76 13745 12085 3/72 12371 11057 6/76 14062 12620 4/72 12898 11132 7/76 13850 12559 5/72 14014 11352 8/76 13638 12536 6/72 14137 11131 9/76 14486 12860 7/72 13238 11185 10/76 14380 12620 8/72 12557 11597 11/76 15701 12568 9/72 13021 11568 12/76 16808 13274 10/72 12774 11706 1/77 17236 12646 11/72 13517 12269 2/77 16309 12416 12/72 14167 12442 3/77 16237 12286 ====================================================================================================================================
(1) Lipper Inc. ==================================================================================================================================== [MOUNTAIN CHART] 4/77 16559 12338 11/82 51754 23405 5/77 16274 12096 12/82 52691 23856 6/77 17201 12693 1/83 52949 24744 7/77 16524 12498 2/83 54824 25311 8/77 16167 12320 3/83 58919 26245 9/77 16560 12339 4/83 62843 28313 10/77 16096 11859 5/83 63270 28066 11/77 17020 12235 6/83 66510 29158 12/77 17682 12325 7/83 64548 28298 1/78 16630 11618 8/83 62844 28722 2/78 17213 11382 9/83 64892 29119 3/78 18148 11717 10/83 63951 28781 4/78 19551 12773 11/83 64891 29388 5/78 20720 12891 12/83 62932 29235 6/78 21188 12714 1/84 59382 29072 7/78 23642 13456 2/84 56407 28048 8/78 25746 13861 3/84 57846 28534 9/78 24616 13816 4/84 56695 28805 10/78 21539 12611 5/84 53718 27209 11/78 22170 12883 6/84 55351 27799 12/78 23356 13135 7/84 54294 27455 1/79 24181 13717 8/84 59474 30486 2/79 23612 13275 9/84 58421 30492 3/79 25055 14068 10/84 58999 30611 4/79 25363 14156 11/84 58232 30268 5/79 25363 13849 12/84 59286 31064 6/79 26292 14450 1/85 64634 33484 7/79 26497 14644 2/85 66017 33896 8/79 28351 15489 3/85 64928 33916 9/79 28867 15557 4/85 64136 33885 10/79 27424 14560 5/85 67394 35844 11/79 30537 15251 6/85 68088 36407 12/79 33642 15578 7/85 67890 36356 1/80 36337 16547 8/85 67001 36003 2/80 37274 16545 9/85 64234 34916 3/80 32410 14937 10/85 67497 36529 4/80 33933 15627 11/85 72046 39035 5/80 34697 16432 12/85 74618 40924 6/80 35929 16951 1/86 75357 41153 7/80 38508 18131 2/86 81544 44227 8/80 39741 18314 3/86 85776 46695 9/80 41676 18852 4/86 85013 46172 10/80 42322 19233 5/86 90113 48629 11/80 46004 21282 6/86 92177 49450 12/80 45024 20641 7/86 86969 46686 1/81 43061 19776 8/86 91204 50146 2/81 44043 20118 9/86 84583 45999 3/81 46567 20923 10/86 88821 48653 4/81 46357 20517 11/86 89362 49835 5/81 48601 20568 12/86 87370 48564 6/81 46569 20441 1/87 99095 55106 7/81 46150 20484 2/87 105407 57282 8/81 43833 19300 3/87 107125 58938 9/81 42851 18350 4/87 107264 58413 10/81 45448 19341 5/87 108273 58916 11/81 46130 20138 6/87 111283 61891 12/81 45646 19622 7/87 116591 65029 1/82 44514 19367 8/87 119750 67454 2/82 42813 18285 9/87 119175 65977 3/82 43220 18190 10/87 94792 51772 4/82 44758 19014 11/87 88621 47506 5/82 44029 18365 12/87 96473 51121 6/82 43866 18090 1/88 94061 53269 7/82 43625 17770 2/88 98520 55740 8/82 45727 19927 3/88 96293 54023 9/82 46294 20174 4/88 96110 54623 10/82 49290 22496 5/88 95735 55087 ====================================================================================================================================
==================================================================================================================================== [MOUNTAIN CHART] 6/88 99268 57616 1/94 235529 121388 7/88 97412 57397 2/94 229476 118099 8/88 93876 55451 3/94 221605 112961 9/88 98898 57813 4/94 221849 114407 10/88 100381 59421 5/94 222869 116272 11/88 99448 58571 6/94 218523 113424 12/88 100293 59590 7/94 223353 117144 1/89 107996 63952 8/94 230232 121935 2/89 106268 62360 9/94 225627 118960 3/89 110699 63813 10/94 227680 121625 4/89 116865 67125 11/94 217958 117197 5/89 123024 69830 12/94 218721 118932 6/89 120908 69439 1/95 221149 122012 7/89 133422 75702 2/95 229221 126759 8/89 134383 77178 3/95 238917 130498 9/89 136116 76862 4/95 245941 134335 10/89 134197 75079 5/95 254574 139694 11/89 137283 76603 6/95 265393 142935 12/89 138519 78441 7/95 278398 147667 1/90 130014 73178 8/95 281376 148036 2/90 131925 74122 9/95 294404 154283 3/90 134907 76086 10/95 289223 153727 4/90 134057 74191 11/95 297928 160461 5/90 146819 81410 12/95 296766 163558 6/90 149799 80865 1/96 302731 169119 7/90 151926 80606 2/96 308695 170691 8/90 144269 73327 3/96 310486 172330 9/90 138527 69764 4/96 317968 174863 10/90 139372 69471 5/96 325154 179357 11/90 147038 73951 6/96 323951 180039 12/90 149920 76007 7/96 306231 172081 1/91 156067 79306 8/96 316153 175712 2/91 168365 84968 9/96 335091 185587 3/91 174965 87025 10/96 337503 190709 4/91 173600 87233 11/96 358935 205108 5/91 179520 90985 12/96 354843 201047 6/91 173362 86817 1/97 375353 213592 7/91 183382 90863 2/97 374077 215279 8/91 189764 93008 3/97 351557 206453 9/91 188853 91454 4/97 368924 218757 10/91 191818 92680 5/97 397220 232123 11/91 185891 88954 6/97 413308 242453 12/91 206506 99113 7/97 450092 261728 1/92 200765 97269 8/97 428488 247071 2/92 201488 98524 9/97 454026 260586 3/92 198144 96613 10/97 433958 251882 4/92 200303 99443 11/97 441379 263545 5/92 200784 99931 12/97 442570 268078 6/92 195042 98442 1/98 445447 271026 7/92 200542 102458 2/98 473109 290567 8/92 196009 100368 3/98 495061 305444 9/92 196009 101552 4/98 494715 308560 10/92 199832 101897 5/98 481358 303253 11/92 206286 105362 6/98 505233 315565 12/92 208844 106658 7/98 505940 312220 1/93 210055 107554 8/98 423168 267104 2/93 211757 109017 9/98 445173 284225 3/93 217369 111317 10/98 482479 307305 4/93 213217 108623 11/98 513985 325927 5/93 217140 111523 12/98 561271 344701 6/93 220354 111847 1/99 591019 359109 7/93 222315 111399 2/99 568796 347941 8/93 230185 115621 3/99 607361 361858 9/93 232418 114731 4/99 616046 375862 10/93 233649 117106 5/99 599474 366992 11/93 225004 115993 6/99 642996 387287 12/93 228469 117397 7/99 618884 375242 ====================================================================================================================================
==================================================================================================================================== [MOUNTAIN CHART] 8/99 618512 373366 3/05 553308 363426 9/99 610595 363136 4/05 541578 356521 10/99 646804 386122 5/05 548077 367858 11/99 673970 393960 6/05 550708 368373 12/99 751476 417125 7/05 569872 382077 1/00 723822 396186 8/05 567707 378600 2/00 748214 388698 9/05 572078 381667 3/00 813683 426712 10/05 559035 375293 4/00 760387 413868 11/05 581229 389479 5/00 718490 405384 12/05 584774 389635 6/00 759947 415356 1/06 606294 399960 7/00 761542 408877 2/06 608052 401040 8/00 821323 434268 3/06 618146 406013 9/00 766459 411339 4/06 623400 411453 10/00 734728 409611 5/06 608501 399645 11/00 629809 377334 6/06 606736 400164 12/00 641019 379183 7/06 610680 402645 1/01 668583 392644 8/06 625153 412228 2/01 571371 356874 9/06 641407 422864 3/01 509434 334284 10/06 656801 436649 4/01 568783 360224 11/06 672170 444945 5/01 569637 362638 12/06 679900 451175 6/01 550725 353826 1/07 692274 457987 7/01 530954 350358 2/07 679882 449056 8/01 487946 328461 3/07 693616 454086 9/01 431149 301954 4/07 728089 474202 10/01 450077 307721 5/07 743087 490752 11/01 491799 331323 6/07 741304 482605 12/01 493078 334239 7/07 726700 467644 1/02 483611 329359 8/07 725392 474659 2/02 478436 323003 9/07 750998 492411 3/02 498243 335147 10/07 764666 500243 4/02 481452 314838 11/07 743409 479323 5/02 481019 312539 12/07 736941 476003 6/02 455188 290286 1/08 701568 447456 7/02 418637 267673 2/08 699323 432934 8/02 422949 269413 3/08 693029 431060 9/02 389832 240155 4/08 713612 452047 10/02 411779 261264 5/08 734664 457902 11/02 431586 276627 6/08 687645 419337 12/02 413503 260389 7/08 693490 415810 1/03 399733 253593 8/08 707360 421827 2/03 390699 249789 9/08 654944 384283 3/03 392418 252212 10/08 558720 319626 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 7/04 516204 335089 8/04 514501 336429 9/04 518823 340063 10/04 524426 345266 11/04 539529 359215 12/04 557280 371428 1/05 545076 362365 2/05 563336 369975 ====================================================================================================================================
========================================== ========================================== AVERAGE ANNUAL TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS INCURRED DURING THE PERIOD COVERED BY THIS REPORT. As of 10/31/08, including maximum As of 9/30/08, the most recent calendar applicable sales charges quarter-end, including maximum applicable CLASS A SHARE PERFORMANCE REFLECTS THE sales charges MAXIMUM 5.50% SALES CHARGE, AND CLASS B CLASS A SHARES AND CLASS C SHARE PERFORMANCE REFLECTS THE Inception (11/26/68) 10.60% CLASS A SHARES APPLICABLE CONTINGENT DEFERRED SALES 10 Years 0.89 Inception (11/26/68) 11.07% CHARGE (CDSC) FOR THE PERIOD INVOLVED. THE 5 Years 1.96 10 Years 3.34 CDSC ON CLASS B SHARES DECLINES FROM 5% 1 Year -31.03 5 Years 5.97 BEGINNING AT THE TIME OF PURCHASE TO 0% AT 1 Year -17.58 THE BEGINNING OF THE SEVENTH YEAR. THE CLASS B SHARES CDSC ON CLASS C SHARES IS 1% FOR THE FIRST Inception (6/26/95) 5.24% CLASS B SHARES YEAR AFTER PURCHASE. CLASS R SHARES DO NOT 10 Years 0.88 Inception (6/26/95) 6.55% HAVE A FRONT-END SALES CHARGE; RETURNS 5 Years 2.00 10 Years 3.34 SHOWN ARE AT NET ASSET VALUE AND DO NOT 1 Year -31.12 5 Years 6.09 REFLECT A 0.75% CDSC THAT MAY BE IMPOSED 1 Year -17.69 ON A TOTAL REDEMPTION OF RETIREMENT PLAN CLASS C SHARES ASSETS WITHIN THE FIRST YEAR. CLASS Y Inception (8/4/97) 1.24% CLASS C SHARES SHARES DO NOT HAVE A FRONT-END SALES 10 Years 0.73 Inception (8/4/97) 2.72% CHARGE OR A CDSC; THEREFORE, PERFORMANCE 5 Years 2.36 10 Years 3.19 IS AT NET ASSET VALUE. 1 Year -28.27 5 Years 6.39 1 Year -14.27 THE PERFORMANCE OF THE FUND'S SHARE CLASS R SHARES CLASSES WILL DIFFER PRIMARILY DUE TO 10 Years 1.22% CLASS R SHARES DIFFERENT SALES CHARGE STRUCTURES AND 5 Years 2.86 10 Years 3.69% CLASS EXPENSES. 1 Year -27.19 5 Years 6.90 1 Year -12.96 (1) Total annual operating expenses less CLASS Y SHARES ========================================== contractual advisory fee waivers by 10 Years 1.47 the advisor in effect through at least 5 Years 3.13 THE PERFORMANCE DATA QUOTED REPRESENT December 31, 2012. See current 1 Year -27.00 PAST PERFORMANCE AND CANNOT GUARANTEE prospectus for more information. ========================================== COMPARABLE FUTURE RESULTS; CURRENT PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE (2) Total annual operating expenses less CLASS R SHARES' INCEPTION DATE IS JUNE 3, VISIT INVESCOAIM.COM FOR THE MOST RECENT any contractual fee waivers and/or 2002. RETURNS SINCE THAT DATE ARE MONTH-END PERFORMANCE. PERFORMANCE FIGURES expense reimbursements by the advisor HISTORICAL RETURNS. ALL OTHER RETURNS ARE REFLECT REINVESTED DISTRIBUTIONS, CHANGES in effect through at least June 30, BLENDED RETURNS OF HISTORICAL CLASS R IN NET ASSET VALUE AND THE EFFECT OF THE 2009. See current prospectus for more SHARE PERFORMANCE AND RESTATED CLASS A MAXIMUM SALES CHARGE UNLESS OTHERWISE information. SHARE PERFORMANCE (FOR PERIODS PRIOR TO STATED. INVESTMENT RETURN AND PRINCIPAL THE INCEPTION DATE OF CLASS R SHARES) AT VALUE WILL FLUCTUATE SO THAT YOU MAY HAVE NET ASSET VALUE, ADJUSTED TO REFLECT THE A GAIN OR LOSS WHEN YOU SELL SHARES. HIGHER RULE 12B-1 FEES APPLICABLE TO CLASS R SHARES. CLASS A SHARES' INCEPTION DATE THE NET ANNUAL FUND OPERATING EXPENSE IS NOVEMBER 26, 1968. RATIO SET FORTH IN THE MOST RECENT FUND PROSPECTUS AS OF THE DATE OF THIS REPORT CLASS Y SHARES' INCEPTION DATE IS FOR CLASS A, CLASS B, CLASS C, CLASS R AND OCTOBER 3, 2008; RETURNS SINCE THAT DATE CLASS Y SHARES WAS 1.18%, 1.93%, 1.93%, ARE ACTUAL RETURNS. ALL OTHER RETURNS ARE 1.43%, AND 0.93%, RESPECTIVELY.(1,2) THE BLENDED RETURNS OF ACTUAL CLASS Y SHARE TOTAL ANNUAL FUND OPERATING EXPENSE RATIO PERFORMANCE AND RESTATED CLASS A SHARE SET FORTH IN THE MOST RECENT FUND PERFORMANCE (FOR PERIODS PRIOR TO THE PROSPECTUS AS OF THE DATE OF THIS REPORT INCEPTION DATE OF CLASS Y SHARES) AT NET FOR CLASS A, CLASS B, CLASS C, CLASS R AND ASSET VALUE. THE RESTATED CLASS A SHARE CLASS Y SHARES WAS 1.21%, 1.96%, 1.96%, PERFORMANCE REFLECTS THE RULE 12B-1 FEES 1.46% AND 0.96%, RESPECTIVELY. THE EXPENSE APPLICABLE TO CLASS A SHARES AS WELL AS RATIOS PRESENTED ABOVE MAY VARY FROM THE ANY FEE WAIVERS OR EXPENSE REIMBURSEMENTS EXPENSE RATIOS PRESENTED IN OTHER SECTIONS RECEIVED BY CLASS A SHARES. CLASS A SHARES OF THIS REPORT THAT ARE BASED ON EXPENSES INCEPTION DATE IS NOVEMBER 26, 1968.
11 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, 2008, and is based on total net assets. o Unless otherwise noted, all data provided by Invesco Aim. ABOUT SHARE CLASSES o Effective September 30, 2003, only ABOUT INDEXES USED IN THIS REPORT OTHER INFORMATION previously established qualified plans are eligible to purchase Class B shares o The S&P 500--REGISTERED TRADEMARK-- o The Chartered Financial of any AIM fund. INDEX is a market Analyst--REGISTERED TRADEMARK-- capitalization-weighted index covering (CFA--REGISTERED TRADEMARK--) o Class R shares are available only to all major areas of the U.S. economy. It designation is a globally recognized certain retirement plans. Please see is not the 500 largest companies, but standard for measuring the competence the prospectus for more information. rather the most widely held 500 and integrity of investment companies chosen with respect to market professionals. o Class Y shares are only available to size, liquidity, and their industry. certain investors. Please see the o The returns shown in management's prospectus for more information. o The RUSSELL 1000--REGISTERED discussion of Fund performance are TRADEMARK-- INDEX is comprised of 1000 based on net asset values calculated PRINCIPAL RISKS OF INVESTING IN THE FUND of the largest capitalized U.S. for shareholder transactions. Generally domiciled companies whose common stock accepted accounting principles require o To the extent the Fund holds cash or is traded in the United States. The adjustments to be made to the net cash equivalents rather than equity Russell 1000 Index is a assets of the Fund at period end for securities for risk management trademark/service mark of the Frank financial reporting purposes, and as purposes, the Fund may not achieve its Russell Company. RUSSELL--REGISTERED such, the net asset values for investment objective. TRADEMARK-- is a trademark of the Frank shareholder transactions and the Russell Company. returns based on those net asset values o Prices of equity securities change in may differ from the net asset values response to many factors, including the o The LIPPER LARGE-CAP CORE FUNDS INDEX and returns reported in the Financial historical and prospective earnings of is an equally weighted representation Highlights. the issuer, the value of its assets, of the largest funds in the Lipper general economic conditions, interest Large-Cap Core Funds category. These o Industry classifications used in this rates, investor perceptions and market funds typically have an average report are generally according to the liquidity. price-to-earnings ratio, price-to-book Global Industry Classification ratio, and three-year sales-per-share Standard, which was developed by and is o Foreign securities have additional growth value, compared to the S&P the exclusive property and a service risks, including exchange rate changes, 500--REGISTERED TRADEMARK-- Index. mark of MSCI Inc. and Standard & political and economic upheaval, Poor's. relative lack of information, o The Fund is not managed to track the relatively low market liquidity, and performance of any particular index, the potential lack of strict financial including the indexes defined here, and and accounting controls and standards. consequently, the performance of the Fund may deviate significantly from the o The prices of securities held by the performance of the indexes. Fund may decline in response to market risks. 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, FUND NASDAQ SYMBOLS WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING. Class A Shares CHTRX ======================================================================================= Class B Shares BCHTX Class C Shares CHTCX NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE Class R Shares CHRRX Class Y Shares CHTYX ==========================================
12 AIM CHARTER FUND SCHEDULE OF INVESTMENTS(a) October 31, 2008
SHARES VALUE ---------------------------------------------------------------------------------- COMMON STOCKS & OTHER EQUITY INTERESTS-82.88% AEROSPACE & DEFENSE-2.98% Boeing Co. (The) 618,107 $ 32,308,453 ---------------------------------------------------------------------------------- Northrop Grumman Corp. 689,375 32,324,794 ---------------------------------------------------------------------------------- United Technologies Corp. 1,125,000 61,830,000 ================================================================================== 126,463,247 ================================================================================== AIR FREIGHT & LOGISTICS-1.67% United Parcel Service, Inc.-Class B 1,339,492 70,698,388 ================================================================================== APPAREL, ACCESSORIES & LUXURY GOODS-0.87% Polo Ralph Lauren Corp. 786,011 37,076,139 ================================================================================== ASSET MANAGEMENT & CUSTODY BANKS-1.24% Legg Mason, Inc.(b) 2,363,833 52,453,454 ================================================================================== AUTOMOBILE MANUFACTURERS-0.21% Renault S.A. (France) 293,478 9,010,553 ================================================================================== BIOTECHNOLOGY-1.49% Amgen Inc.(c) 1,057,700 63,345,653 ================================================================================== BROADCASTING-1.99% Comcast Corp.-Class A 5,350,054 84,316,851 ================================================================================== COMMUNICATIONS EQUIPMENT-5.25% Cisco Systems, Inc.(c) 3,645,146 64,774,244 ---------------------------------------------------------------------------------- Motorola, Inc. 11,928,510 64,056,099 ---------------------------------------------------------------------------------- Nokia Oyj-ADR (Finland) 6,184,903 93,886,828 ================================================================================== 222,717,171 ================================================================================== COMPUTER HARDWARE-1.93% Fujitsu Ltd. (Japan) 8,952,000 35,622,002 ---------------------------------------------------------------------------------- International Business Machines Corp. 496,679 46,176,246 ================================================================================== 81,798,248 ================================================================================== COMPUTER STORAGE & PERIPHERALS-1.46% EMC Corp.(c) 3,344,239 39,395,135 ---------------------------------------------------------------------------------- Seagate Technology 3,306,348 22,383,976 ================================================================================== 61,779,111 ================================================================================== CONSUMER FINANCE-1.72% American Express Co. 2,656,607 73,056,693 ================================================================================== DATA PROCESSING & OUTSOURCED SERVICES-1.90% Automatic Data Processing, Inc. 2,311,268 80,778,817 ================================================================================== DIVERSIFIED BANKS-3.44% U.S. Bancorp 1,906,982 56,847,133 ---------------------------------------------------------------------------------- Wells Fargo & Co. 2,612,854 88,967,679 ================================================================================== 145,814,812 ================================================================================== DIVERSIFIED METALS & MINING-0.18% Freeport-McMoRan Copper & Gold, Inc. 260,000 7,566,000 ================================================================================== DRUG RETAIL-1.26% Walgreen Co. 2,098,805 53,435,575 ================================================================================== ELECTRONIC EQUIPMENT & INSTRUMENTS-1.63% Agilent Technologies, Inc.(c) 3,107,050 68,945,440 ================================================================================== ELECTRONIC MANUFACTURING SERVICES-1.11% Tyco Electronics Ltd. 2,423,645 47,115,659 ================================================================================== ENVIRONMENTAL & FACILITIES SERVICES-1.57% Waste Management, Inc. 2,126,222 66,401,913 ================================================================================== HEALTH CARE EQUIPMENT-4.18% Covidien Ltd. 1,585,595 70,226,002 ---------------------------------------------------------------------------------- Medtronic, Inc. 2,651,075 106,917,855 ================================================================================== 177,143,857 ================================================================================== HYPERMARKETS & SUPER CENTERS-1.83% Wal-Mart Stores, Inc. 1,390,752 77,617,869 ================================================================================== INDUSTRIAL CONGLOMERATES-4.77% 3M Co. 1,867,749 120,096,261 ---------------------------------------------------------------------------------- General Electric Co. 1,678,864 32,754,636 ---------------------------------------------------------------------------------- Koninklijke (Royal) Philips Electronics N.V. (Netherlands) 1,864,279 34,415,035 ---------------------------------------------------------------------------------- Tyco International Ltd. 591,656 14,957,064 ================================================================================== 202,222,996 ================================================================================== INDUSTRIAL MACHINERY-0.79% Danaher Corp. 565,800 33,517,992 ================================================================================== INSURANCE BROKERS-1.41% Marsh & McLennan Cos., Inc. 2,043,844 59,925,506 ================================================================================== INTEGRATED OIL & GAS-0.52% Total S.A. (France) 404,239 22,200,125 ================================================================================== INTEGRATED TELECOMMUNICATION SERVICES-0.86% AT&T Inc. 1,362,200 36,466,094 ================================================================================== MANAGED HEALTH CARE-1.21% UnitedHealth Group Inc. 2,164,100 51,354,093 ================================================================================== MOVIES & ENTERTAINMENT-0.71% News Corp.-Class A 2,842,511 30,244,317 ================================================================================== OFFICE ELECTRONICS-0.72% Xerox Corp. 3,832,213 30,734,348 ==================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. 9 AIM CHARTER FUND
SHARES VALUE ---------------------------------------------------------------------------------- OIL & GAS EQUIPMENT & SERVICES-2.50% BJ Services Co. 4,489,495 $ 57,690,011 ---------------------------------------------------------------------------------- Tenaris S.A.-ADR (Argentina) 821,272 16,909,991 ---------------------------------------------------------------------------------- Weatherford International Ltd.(c) 1,868,098 31,533,494 ================================================================================== 106,133,496 ================================================================================== OIL & GAS EXPLORATION & PRODUCTION-2.23% Apache Corp. 310,126 25,532,674 ---------------------------------------------------------------------------------- Chesapeake Energy Corp. 1,109,835 24,383,075 ---------------------------------------------------------------------------------- XTO Energy, Inc. 1,246,761 44,821,058 ================================================================================== 94,736,807 ================================================================================== OIL & GAS STORAGE & TRANSPORTATION-1.01% Williams Cos., Inc. (The) 2,046,100 42,906,717 ================================================================================== PACKAGED FOODS & MEATS-3.92% Cadbury PLC (United Kingdom) 11,545,331 106,054,628 ---------------------------------------------------------------------------------- Unilever N.V. (Netherlands)(b) 2,502,506 60,322,883 ================================================================================== 166,377,511 ================================================================================== PERSONAL PRODUCTS-0.22% Avon Products, Inc. 380,604 9,450,397 ================================================================================== PHARMACEUTICALS-6.24% GlaxoSmithKline PLC-ADR (United Kingdom) 957,369 37,050,180 ---------------------------------------------------------------------------------- Merck & Co. Inc. 770,545 23,848,368 ---------------------------------------------------------------------------------- Pfizer Inc. 4,042,711 71,596,412 ---------------------------------------------------------------------------------- Schering-Plough Corp. 2,302,914 33,369,224 ---------------------------------------------------------------------------------- Teva Pharmaceutical Industries Ltd.-ADR (Israel) 1,342,930 57,584,838 ---------------------------------------------------------------------------------- Wyeth 1,285,196 41,357,607 ================================================================================== 264,806,629 ================================================================================== PROPERTY & CASUALTY INSURANCE-5.69% Berkshire Hathaway Inc.-Class A(c) 1,008 116,413,920 ---------------------------------------------------------------------------------- Progressive Corp. (The) 8,774,344 125,209,889 ================================================================================== 241,623,809 ================================================================================== RAILROADS-1.11% Union Pacific Corp. 703,146 46,949,058 ================================================================================== REGIONAL BANKS-3.03% BB&T Corp.(b) 1,869,346 67,016,054 ---------------------------------------------------------------------------------- PNC Financial Services Group, Inc. 923,996 61,602,813 ================================================================================== 128,618,867 ================================================================================== SEMICONDUCTORS-0.61% Intel Corp. 1,618,775 25,900,400 ================================================================================== SOFT DRINKS-0.75% Coca-Cola Co. (The) 719,345 31,694,341 ================================================================================== SYSTEMS SOFTWARE-5.19% Microsoft Corp. 4,922,040 109,909,153 ---------------------------------------------------------------------------------- Symantec Corp.(c) 8,762,844 110,236,578 ================================================================================== 220,145,731 ================================================================================== WIRELESS TELECOMMUNICATION SERVICES-1.48% Vodafone Group PLC (United Kingdom) 32,553,055 62,679,178 ================================================================================== Total Common Stocks & Other Equity Interests (Cost $4,347,449,256) 3,516,223,862 ================================================================================== PREFERRED STOCK-0.50% HOUSEHOLD PRODUCTS-0.50% Henkel AG & Co. KGaA-Pfd. (Germany) (Cost $39,614,821) 735,000 21,270,239 ================================================================================== MONEY MARKET FUNDS-15.94% Liquid Assets Portfolio-Institutional Class(d) 338,066,566 338,066,566 ---------------------------------------------------------------------------------- Premier Portfolio-Institutional Class(d) 338,066,566 338,066,566 ---------------------------------------------------------------------------------- Total Money Market Funds (Cost $676,133,132) 676,133,132 ================================================================================== TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)-99.32% (Cost $5,063,197,209) 4,213,627,233 ================================================================================== INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES ON LOAN MONEY MARKET FUNDS-1.26% Liquid Assets Portfolio-Institutional Class (Cost $53,546,610)(d)(e) 53,546,610 53,546,610 ================================================================================== TOTAL INVESTMENTS-100.58% (Cost $5,116,743,819) 4,267,173,843 ================================================================================== OTHER ASSETS LESS LIABILITIES-(0.58)% (24,452,409) ================================================================================== NET ASSETS-100.00% $4,242,721,434 __________________________________________________________________________________ ==================================================================================
Investment Abbreviations: ADR - American Depositary Receipt Pfd. - Preferred
Notes to Schedule of Investments: (a) Industry and/or sector 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 MSCI Inc. and Standard & Poor's. (b) All or a portion of this security was out on loan at October 31, 2008. (c) Non-income producing security. (d) The money market fund and the Fund are affiliated by having the same investment advisor. (e) The security has been segregated to satisfy the commitment to return the cash collateral received in securities lending transactions upon the borrower's return of the securities loaned. See Note 1I. See accompanying Notes to Financial Statements which are an integral part of the financial statements. 10 AIM CHARTER FUND STATEMENT OF ASSETS AND LIABILITIES October 31, 2008 ASSETS: Investments, at value (Cost $4,387,064,077)* $ 3,537,494,101 -------------------------------------------------------- Investments in affiliated money market funds, at value and cost 729,679,742 ======================================================== Total investments (Cost $5,116,743,819) 4,267,173,843 ======================================================== Foreign currencies, at value (Cost $399) 352 -------------------------------------------------------- Receivables for: Fund shares sold 11,299,604 -------------------------------------------------------- Dividends 5,278,308 -------------------------------------------------------- Foreign currency contracts outstanding 23,824,584 -------------------------------------------------------- Investment for trustee deferred compensation and retirement plans 334,314 -------------------------------------------------------- Other assets 217,219 ======================================================== Total assets 4,308,128,224 ________________________________________________________ ======================================================== LIABILITIES: Payables for: Fund shares reacquired 6,986,898 -------------------------------------------------------- Collateral upon return of securities loaned 53,546,610 -------------------------------------------------------- Accrued fees to affiliates 3,221,602 -------------------------------------------------------- Accrued other operating expenses 156,937 -------------------------------------------------------- Trustee deferred compensation and retirement plans 1,494,743 ======================================================== Total liabilities 65,406,790 ======================================================== Net assets applicable to shares outstanding $ 4,242,721,434 ________________________________________________________ ======================================================== NET ASSETS CONSIST OF: Shares of beneficial interest $ 7,315,459,563 -------------------------------------------------------- Undistributed net investment income 44,787,776 -------------------------------------------------------- Undistributed net realized gain (loss) (2,290,076,013) -------------------------------------------------------- Unrealized appreciation (depreciation) (827,449,892) ======================================================== $ 4,242,721,434 ________________________________________________________ ======================================================== NET ASSETS: Class A $ 3,454,369,883 ________________________________________________________ ======================================================== Class B $ 388,984,914 ________________________________________________________ ======================================================== Class C $ 179,758,892 ________________________________________________________ ======================================================== Class R $ 7,716,848 ________________________________________________________ ======================================================== Class Y $ 9,423,509 ________________________________________________________ ======================================================== Institutional Class $ 202,467,388 ________________________________________________________ ======================================================== SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Class A 277,253,258 ________________________________________________________ ======================================================== Class B 32,665,883 ________________________________________________________ ======================================================== Class C 15,056,634 ________________________________________________________ ======================================================== Class R 623,098 ________________________________________________________ ======================================================== Class Y 756,047 ________________________________________________________ ======================================================== Institutional Class 15,783,827 ________________________________________________________ ======================================================== Class A: Net asset value per share $ 12.46 -------------------------------------------------------- Maximum offering price per share (Net asset value of $12.46 divided by 94.50%) $ 13.19 ________________________________________________________ ======================================================== Class B: Net asset value and offering price per share $ 11.91 ________________________________________________________ ======================================================== Class C: Net asset value and offering price per share $ 11.94 ________________________________________________________ ======================================================== Class R: Net asset value and offering price per share $ 12.38 ________________________________________________________ ======================================================== Class Y: Net asset value and offering price per share $ 12.46 ________________________________________________________ ======================================================== Institutional Class: Net asset value and offering price per share $ 12.83 ________________________________________________________ ========================================================
* At October 31, 2008, securities with an aggregate value of $54,847,863 were on loan to brokers. See accompanying Notes to Financial Statements which are an integral part of the financial statements. 11 AIM CHARTER FUND STATEMENT OF OPERATIONS For the year ended October 31, 2008 INVESTMENT INCOME: Dividends (net of foreign withholding taxes of $2,098,423) $ 86,409,168 -------------------------------------------------------------------------------------------------- Dividends from affiliated money market funds (includes securities lending income of $850,145) 27,114,675 ================================================================================================== Total investment income 113,523,843 ================================================================================================== EXPENSES: Advisory fees 34,590,867 -------------------------------------------------------------------------------------------------- Administrative services fees 655,486 -------------------------------------------------------------------------------------------------- Custodian fees 150,954 -------------------------------------------------------------------------------------------------- Distribution fees: Class A 11,014,253 -------------------------------------------------------------------------------------------------- Class B 7,241,641 -------------------------------------------------------------------------------------------------- Class C 2,313,173 -------------------------------------------------------------------------------------------------- Class R 36,691 -------------------------------------------------------------------------------------------------- Transfer agent fees -- A, B, C, R and Y 15,007,770 -------------------------------------------------------------------------------------------------- Transfer agent fees -- Institutional 124,075 -------------------------------------------------------------------------------------------------- Trustees' and officers' fees and benefits 164,656 -------------------------------------------------------------------------------------------------- Other 2,461,054 ================================================================================================== Total expenses 73,760,620 ================================================================================================== Less: Fees waived, expenses reimbursed and expense offset arrangement(s) (2,310,341) ================================================================================================== Net expenses 71,450,279 ================================================================================================== Net investment income 42,073,564 ================================================================================================== REALIZED AND UNREALIZED GAIN (LOSS) FROM: Net realized gain from: Investment securities (includes net gains from securities sold to affiliates of $2,478,344) 294,652,769 -------------------------------------------------------------------------------------------------- Foreign currencies 3,782,707 -------------------------------------------------------------------------------------------------- Foreign currency contracts 22,719,057 ================================================================================================== 321,154,533 ================================================================================================== Change in net unrealized appreciation (depreciation) of: Investment securities (2,022,217,651) -------------------------------------------------------------------------------------------------- Foreign currencies (133,648) -------------------------------------------------------------------------------------------------- Foreign currency contracts 22,089,874 ================================================================================================== (2,000,261,425) ================================================================================================== Net realized and unrealized gain (loss) (1,679,106,892) ================================================================================================== Net increase (decrease) in net assets resulting from operations $(1,637,033,328) __________________________________________________________________________________________________ ==================================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. 12 AIM CHARTER FUND STATEMENT OF CHANGES IN NET ASSETS For the years ended October 31, 2008 and 2007
2008 2007 ------------------------------------------------------------------------------------------------------------ OPERATIONS: Net investment income $ 42,073,564 $ 72,808,918 ------------------------------------------------------------------------------------------------------------ Net realized gain 321,154,533 830,447,389 ------------------------------------------------------------------------------------------------------------ Change in net unrealized appreciation (depreciation) (2,000,261,425) 102,046,800 ============================================================================================================ Net increase (decrease) in net assets resulting from operations (1,637,033,328) 1,005,303,107 ============================================================================================================ Distributions to shareholders from net investment income: Class A (63,632,396) (33,924,619) ------------------------------------------------------------------------------------------------------------ Class B (4,147,087) (2,299,763) ------------------------------------------------------------------------------------------------------------ Class C (1,085,344) (432,209) ------------------------------------------------------------------------------------------------------------ Class R (72,529) (28,684) ------------------------------------------------------------------------------------------------------------ Institutional Class (2,345,816) (1,316,876) ============================================================================================================ Total distributions from net investment income (71,283,172) (38,002,151) ============================================================================================================ Share transactions-net: Class A (184,540,385) (517,998,249) ------------------------------------------------------------------------------------------------------------ Class B (477,843,998) (672,272,123) ------------------------------------------------------------------------------------------------------------ Class C (21,977,702) (54,864,868) ------------------------------------------------------------------------------------------------------------ Class R 3,764,852 535,316 ------------------------------------------------------------------------------------------------------------ Class Y 10,515,678 -- ------------------------------------------------------------------------------------------------------------ Institutional Class 133,291,655 (10,903,120) ============================================================================================================ Net increase (decrease) in net assets resulting from share transactions (536,789,900) (1,255,503,044) ============================================================================================================ Net increase (decrease) in net assets (2,245,106,400) (288,202,088) ============================================================================================================ NET ASSETS: Beginning of year 6,487,827,834 6,776,029,922 ============================================================================================================ End of year (includes undistributed net investment income of $44,787,776 and $69,690,401, respectively) $ 4,242,721,434 $ 6,487,827,834 ____________________________________________________________________________________________________________ ============================================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. 13 AIM CHARTER FUND NOTES TO FINANCIAL STATEMENTS October 31, 2008 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 seven separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The Fund's investment objective is growth of capital. The Fund currently consists of six different classes of shares: Class A, Class B, Class C, Class R, Class Y 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 contingent deferred sales charges ("CDSC"). Class B shares and Class C shares are sold with a CDSC. Class R, Class Y 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. 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, American Depositary Receipts 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. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. 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. 14 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 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, the investment advisor 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. The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. 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 by a significant amount. 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. SECURITIES LENDING -- 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 by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. 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. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could 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. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in Dividends from affiliates on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities, if any. J. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or 15 AIM CHARTER FUND 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. K. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a foreign currency contract to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. The Fund may also enter into a foreign currency contract for the purchase or sale of a security denominated in a foreign currency in order to "lock in" the U.S. dollar price of that security. Fluctuations in the value of these contracts are recorded as unrealized appreciation (depreciation) until the contracts are closed. When these contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains and losses on these contracts are included in the Statement of Operations. The Fund could be exposed to risk, which may be in excess of the amount reflected in the Statement of Assets and Liabilities, if counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES The Trust has entered into a master investment advisory agreement with Invesco Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Advisor 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, the Advisor 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% ___________________________________________________________________ ===================================================================
Under the terms of a master sub-advisory agreement approved by shareholders of the Fund, effective May 1, 2008, between the Advisor and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the "Affiliated Sub-Advisors") the Advisor, not the Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub-Advisor(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Advisor(s). Further, the Advisor has contractually agreed, through at least June 30, 2009, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Advisor receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds. For the year ended October 31, 2008, the Advisor waived advisory fees of $1,892,304. 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, 2008, Invesco reimbursed expenses of the Fund in the amount of $92,155. The Trust has entered into a master administrative services agreement with Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim for certain administrative costs incurred in providing accounting services to the Fund. For the year ended October 31, 2008, 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 Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has agreed to pay IAIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the course of providing such services. IAIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. All fees payable by IAIS 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, 2008, 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 Invesco Aim Distributors, Inc. ("IADI") to serve as the distributor for the Class A, Class B, Class C, Class R, Class Y 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 IADI 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 16 AIM CHARTER FUND 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. Rules of the Financial Industry Regulatory Authority ("FINRA") 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, 2008, expenses incurred under the Plans are shown in the Statement of Operations as distribution fees. Front-end sales commissions and 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, 2008, IADI advised the Fund that IADI retained $282,447 in front-end sales commissions from the sale of Class A shares and $997, $546,177, $12,289 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 Invesco Aim, IAIS and/or IADI. NOTE 3--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, 2008, the Fund engaged in securities purchases of $6,444,340 and securities sales of $8,714,024, which resulted in net realized gains of $2,478,344. NOTE 4--EXPENSE OFFSET ARRANGEMENTS The expense offset arrangements are comprised of (i) transfer agency credits which result from balances in Demand Deposit Accounts (DDA) used by the transfer agent for clearing shareholder transactions and (ii) custodian credits which result from periodic overnight cash balances at the custodian. For the year ended October 31, 2008, the Fund received credits from these arrangements, which resulted in the reduction of the Fund's total expenses of $325,882. NOTE 5--TRUSTEES' AND OFFICERS' FEES AND BENEFITS "Trustees' and Officers' 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 Officers' 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 Officers' 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, 2008, the Fund paid legal fees of $15,610 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust. NOTE 6--CASH BALANCES The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company, 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 Invesco Aim, not to exceed the contractually agreed upon rate. NOTE 7--FOREIGN CURRENCY CONTRACTS AT PERIOD-END
OPEN FOREIGN CURRENCY CONTRACTS ---------------------------------------------------------------------------------------------------------------- CONTRACT TO SETTLEMENT --------------------------------------- UNREALIZED DATE DELIVER RECEIVE VALUE APPRECIATION ---------------------------------------------------------------------------------------------------------------- 12/10/2008 EUR 88,480,000 USD 125,308,975 $112,614,395 $12,694,580 ---------------------------------------------------------------------------------------------------------------- 12/10/2008 GBP 63,950,000 USD 112,031,207 102,635,913 9,395,294 ================================================================================================================ Total open foreign currency contracts $22,089,874 ________________________________________________________________________________________________________________ ================================================================================================================
17 AIM CHARTER FUND
CLOSED FOREIGN CURRENCY CONTRACTS ------------------------------------------------------------------------------------------------------------- CONTRACT TO CLOSED -------------------------------------- REALIZED DATE DELIVER RECEIVE VALUE GAIN/(LOSS) ------------------------------------------------------------------------------------------------------------- 09/23/2008 USD 14,788,800 GBP 8,000,000 $14,022,320 $ (766,480) ------------------------------------------------------------------------------------------------------------- 10/28/2008 USD 19,522,172 EUR 15,575,000 22,023,362 2,501,190 ============================================================================================================= Total closed foreign currency contracts $ 1,734,710 ============================================================================================================= Total foreign currency contracts $23,824,584 _____________________________________________________________________________________________________________ =============================================================================================================
CURRENCY ABBREVIATIONS: EUR - Euro GBP - British Pound Sterling USD - U.S. Dollar NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS TAX CHARACTER OF DISTRIBUTIONS TO SHAREHOLDERS PAID DURING THE YEARS ENDED OCTOBER 31, 2008 AND 2007:
2008 2007 -------------------------------------------------------------------------------------------------------- Ordinary income $71,283,172 $38,002,151 ________________________________________________________________________________________________________ ========================================================================================================
TAX COMPONENTS OF NET ASSETS AT PERIOD-END:
2008 -------------------------------------------------------------------------------------------------- Undistributed ordinary income $ 46,413,169 -------------------------------------------------------------------------------------------------- Net unrealized appreciation (depreciation) -- investments (858,815,583) -------------------------------------------------------------------------------------------------- Net unrealized appreciation -- other investments 30,210 -------------------------------------------------------------------------------------------------- Temporary book/tax differences (1,625,393) -------------------------------------------------------------------------------------------------- Capital loss carryforward (2,258,740,532) -------------------------------------------------------------------------------------------------- Shares of beneficial interest 7,315,459,563 ================================================================================================== Total net assets $ 4,242,721,434 __________________________________________________________________________________________________ ==================================================================================================
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 (depreciation) difference is attributable primarily to wash sales. The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund's temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits. Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions. The Fund utilized $332,893,388 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, 2008 which expires as follows:
CAPITAL LOSS EXPIRATION CARRYFORWARD* ------------------------------------------------------------------------------------------------ October 31, 2009 $1,525,684,032 ------------------------------------------------------------------------------------------------ October 31, 2010 733,056,500 ================================================================================================ Total capital loss carryforward $2,258,740,532 ________________________________________________________________________________________________ ================================================================================================
* 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 up to five years from the date of the reorganization. 18 AIM CHARTER FUND NOTE 9--INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended October 31, 2008 was $1,786,066,515 and $2,206,878,913, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS -------------------------------------------------------------------------------------------------- Aggregate unrealized appreciation of investment securities $ 191,086,152 -------------------------------------------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (1,049,901,735) ================================================================================================== Net unrealized appreciation (depreciation) of investment securities $ (858,815,583) __________________________________________________________________________________________________ ================================================================================================== Cost of investments for tax purposes is $5,125,989,426.
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES Primarily as a result of differing book/tax treatment of foreign currency transactions and proxy costs, on October 31, 2008, undistributed net investment income was increased by $4,306,983, undistributed net realized gain (loss) was decreased by $3,821,970 and shares of beneficial interest decreased by $485,013. This reclassification had no effect on the net assets of the Fund. NOTE 11--SHARE INFORMATION
SUMMARY OF SHARE ACTIVITY ---------------------------------------------------------------------------------------------------------------------------- YEAR ENDED OCTOBER 31, ----------------------------------------------------------------- 2008(a) 2007 ----------------------------- ------------------------------- SHARES AMOUNT SHARES AMOUNT ---------------------------------------------------------------------------------------------------------------------------- Sold: Class A 16,007,143 $ 241,415,100 6,638,643 $ 108,366,370 ---------------------------------------------------------------------------------------------------------------------------- Class B 2,727,211 40,298,722 2,775,431 42,569,785 ---------------------------------------------------------------------------------------------------------------------------- Class C 2,186,799 31,914,299 1,030,061 15,808,452 ---------------------------------------------------------------------------------------------------------------------------- Class R 364,707 5,650,360 137,237 2,183,517 ---------------------------------------------------------------------------------------------------------------------------- Class Y(b) 757,026 10,527,979 -- -- ---------------------------------------------------------------------------------------------------------------------------- Institutional Class 14,571,565 235,680,468 4,329,643 72,366,806 ============================================================================================================================ Issued as reinvestment of dividends: Class A 3,599,299 59,244,455 2,074,397 32,111,669 ---------------------------------------------------------------------------------------------------------------------------- Class B 248,883 3,939,829 147,276 2,188,523 ---------------------------------------------------------------------------------------------------------------------------- Class C 63,596 1,009,284 27,284 406,812 ---------------------------------------------------------------------------------------------------------------------------- Class R 4,425 72,526 1,861 28,679 ---------------------------------------------------------------------------------------------------------------------------- Institutional Class 136,321 2,301,095 81,535 1,294,779 ============================================================================================================================ Automatic conversion of Class B shares to Class A shares: Class A 23,711,322 368,251,149 24,199,603 390,922,132 ---------------------------------------------------------------------------------------------------------------------------- Class B (24,730,070) (368,251,149) (25,290,251) (390,922,132) ============================================================================================================================ Reacquired: Class A(b) (55,466,782) (853,451,089) (65,231,388) (1,049,398,420) ---------------------------------------------------------------------------------------------------------------------------- Class B (10,294,711) (153,831,400) (21,131,814) (326,108,299) ---------------------------------------------------------------------------------------------------------------------------- Class C (3,687,944) (54,901,285) (4,603,510) (71,080,132) ---------------------------------------------------------------------------------------------------------------------------- Class R (128,066) (1,958,034) (103,560) (1,676,880) ---------------------------------------------------------------------------------------------------------------------------- Class Y(b) (979) (12,301) -- -- ---------------------------------------------------------------------------------------------------------------------------- Institutional Class (6,490,325) (104,689,908) (4,870,980) (84,564,705) ============================================================================================================================ Net decrease in share activity (36,420,580) $(536,789,900) (79,788,532) $(1,255,503,044) ____________________________________________________________________________________________________________________________ ============================================================================================================================
(a) There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 19% of the outstanding shares of the Fund. IADI has an agreement with these entities to sell Fund shares. The Fund, Invesco Aim and/or Invesco Aim affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco Aim and/or Invesco 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) Effective upon the commencement date of Class Y shares, October 3, 2008, the following shares were converted from Class A into Class Y shares of the Fund:
CLASS SHARES AMOUNT ---------------------------------------------------------------------------------------------------- Class Y 741,559 $ 10,337,327 ---------------------------------------------------------------------------------------------------- Class A (741,559) (10,337,327) ____________________________________________________________________________________________________ ====================================================================================================
19 AIM CHARTER FUND NOTE 12--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
NET GAINS NET ASSET NET ON SECURITIES DIVIDENDS VALUE, INVESTMENT (BOTH TOTAL FROM FROM NET NET ASSET BEGINNING INCOME REALIZED AND INVESTMENT INVESTMENT VALUE, END TOTAL OF PERIOD (LOSS)(a) UNREALIZED) OPERATIONS INCOME OF PERIOD RETURN(b) ------------------------------------------------------------------------------------------------------------------- CLASS A Year ended 10/31/08 $17.30 $ 0.14 $(4.76) $(4.62) $(0.22) $12.46 (27.00)% Year ended 10/31/07 14.96 0.20 2.25(e) 2.45 (0.11) 17.30 16.44(e) Year ended 10/31/06 12.85 0.13 2.10 2.23 (0.12) 14.96 17.49 Year ended 10/31/05 12.16 0.15(f) 0.65 0.80 (0.11) 12.85 6.59 Year ended 10/31/04 11.12 0.06 1.00 1.06 (0.02) 12.16 9.58 ------------------------------------------------------------------------------------------------------------------- CLASS B Year ended 10/31/08 16.50 0.02 (4.54) (4.52) (0.07) 11.91 (27.51) Year ended 10/31/07 14.30 0.08 2.14(e) 2.22 (0.02) 16.50 15.56(e) Year ended 10/31/06 12.27 0.02 2.02 2.04 (0.01) 14.30 16.63 Year ended 10/31/05 11.61 0.05(f) 0.62 0.67 (0.01) 12.27 5.76 Year ended 10/31/04 10.67 (0.02) 0.96 0.94 -- 11.61 8.81 ------------------------------------------------------------------------------------------------------------------- CLASS C Year ended 10/31/08 16.55 0.02 (4.56) (4.54) (0.07) 11.94 (27.55) Year ended 10/31/07 14.34 0.08 2.15(e) 2.23 (0.02) 16.55 15.58(e) Year ended 10/31/06 12.30 0.02 2.03 2.05 (0.01) 14.34 16.67 Year ended 10/31/05 11.64 0.05(f) 0.62 0.67 (0.01) 12.30 5.75 Year ended 10/31/04 10.70 (0.02) 0.96 0.94 -- 11.64 8.79 ------------------------------------------------------------------------------------------------------------------- CLASS R Year ended 10/31/08 17.18 0.10 (4.73) (4.63) (0.17) 12.38 (27.19) Year ended 10/31/07 14.87 0.16 2.23(e) 2.39 (0.08) 17.18 16.12(e) Year ended 10/31/06 12.77 0.09 2.10 2.19 (0.09) 14.87 17.21 Year ended 10/31/05 12.10 0.12(f) 0.63 0.75 (0.08) 12.77 6.22 Year ended 10/31/04 11.08 0.04 1.00 1.04 (0.02) 12.10 9.35 ------------------------------------------------------------------------------------------------------------------- CLASS Y Year ended 10/31/08(g) 13.94 0.01 (1.49) (1.48) -- 12.46 (10.62) ------------------------------------------------------------------------------------------------------------------- INSTITUTIONAL CLASS Year ended 10/31/08 17.81 0.20 (4.88) (4.68) (0.30) 12.83 (26.68) Year ended 10/31/07 15.38 0.28 2.31(e) 2.59 (0.16) 17.81 16.96(e) Year ended 10/31/06 13.22 0.20 2.16 2.36 (0.20) 15.38 18.03 Year ended 10/31/05 12.53 0.22(f) 0.65 0.87 (0.18) 13.22 6.98 Year ended 10/31/04 11.45 0.13 1.03 1.16 (0.08) 12.53 10.21 ___________________________________________________________________________________________________________________ =================================================================================================================== RATIO OF RATIO OF EXPENSES EXPENSES TO AVERAGE TO AVERAGE NET RATIO OF NET NET ASSETS ASSETS WITHOUT INVESTMENT NET ASSETS, WITH FEE WAIVERS FEE WAIVERS INCOME (LOSS) END OF PERIOD AND/OR EXPENSES AND/OR EXPENSES TO AVERAGE PORTFOLIO (000S OMITTED) ABSORBED ABSORBED NET ASSETS TURNOVER(c) ----------------------------------------------------------------------------------------------------------------- CLASS A Year ended 10/31/08 $3,454,370 1.19%(d) 1.23%(d) 0.88%(d) 38% Year ended 10/31/07 5,005,716 1.16 1.19 1.25 39 Year ended 10/31/06 4,812,619 1.26 1.27 0.93 51 Year ended 10/31/05 1,638,002 1.23 1.25 1.16(f) 54 Year ended 10/31/04 1,843,623 1.26 1.27 0.54 36 ----------------------------------------------------------------------------------------------------------------- CLASS B Year ended 10/31/08 388,985 1.94(d) 1.98(d) 0.13(d) 38 Year ended 10/31/07 1,067,897 1.91 1.94 0.50 39 Year ended 10/31/06 1,547,422 2.01 2.02 0.18 51 Year ended 10/31/05 617,534 1.95 1.97 0.44(f) 54 Year ended 10/31/04 885,500 1.96 1.97 (0.16) 36 ----------------------------------------------------------------------------------------------------------------- CLASS C Year ended 10/31/08 179,759 1.94(d) 1.98(d) 0.13(d) 38 Year ended 10/31/07 272,904 1.91 1.94 0.50 39 Year ended 10/31/06 287,359 2.01 2.02 0.18 51 Year ended 10/31/05 107,776 1.95 1.97 0.44(f) 54 Year ended 10/31/04 138,305 1.96 1.97 (0.16) 36 ----------------------------------------------------------------------------------------------------------------- CLASS R Year ended 10/31/08 7,717 1.44(d) 1.48(d) 0.63(d) 38 Year ended 10/31/07 6,565 1.41 1.44 1.00 39 Year ended 10/31/06 5,153 1.51 1.52 0.68 51 Year ended 10/31/05 2,637 1.45 1.47 0.94(f) 54 Year ended 10/31/04 2,534 1.46 1.47 0.34 36 ----------------------------------------------------------------------------------------------------------------- CLASS Y Year ended 10/31/08(g) 9,424 0.97(d)(h) 1.01(d)(h) 1.10(d)(h) 38 ----------------------------------------------------------------------------------------------------------------- INSTITUTIONAL CLASS Year ended 10/31/08 202,467 0.76(d) 0.80(d) 1.31(d) 38 Year ended 10/31/07 134,745 0.73 0.76 1.68 39 Year ended 10/31/06 123,476 0.79 0.80 1.40 51 Year ended 10/31/05 54,728 0.71 0.73 1.68(f) 54 Year ended 10/31/04 3,285 0.74 0.75 1.06 36 _________________________________________________________________________________________________________________ =================================================================================================================
(a) Calculated using average shares outstanding. (b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. (c) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. (d) Ratios are based on average daily net assets (000's omitted) of $4,405,701, $724,164, $231,317, $7,338, $9,039 and $123,376 for Class A, Class B, Class C, Class R, Class Y and Institutional Class shares, respectively. (e) Includes litigation proceeds received during the period. Had the litigation proceeds not been received Net gains on securities (both realized and unrealized) per share would have been $2.12, $2.01, $2.02, $2.10, and $2.18 for Class A, Class B, Class C, Class R, and Institutional Class, respectively and total return would have been lower. (f) 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 would have been $0.10 and 0.80%, $0.00 and 0.08%, $0.00 and 0.08%, $0.07 and 0.58%, $0.17 and 1.32%, for Class A, Class B, Class C, Class R and Institutional Class, respectively. (g) Commencement date of October 3, 2008. (h) Annualized. 20 AIM CHARTER FUND NOTE 13--LEGAL PROCEEDINGS Terms used in the Legal Proceedings Note are defined terms solely for the purpose of this note. SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING On May 23, 2008, the Securities and Exchange Commission ("SEC") publicly posted its final approval of the 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"), Invesco Aim Advisors, Inc. ("Invesco Aim") and Invesco Aim Distributors, Inc. ("IADI") 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 Invesco Aim who may have been harmed by market timing and related activity. The Distribution Plans provide for the distribution to all eligible investors 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 of the Fair Funds has not yet commenced, management of Invesco 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 Invesco 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 Invesco Aim and IADI (Order No. 05- 1318). The WVASC makes findings of fact that Invesco Aim and IADI 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 Invesco Aim and IADI violated the West Virginia securities laws. The WVASC orders Invesco Aim and IADI 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, Invesco 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, Invesco Aim, IADI 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 the Employee Retirement Income Security Act of 1974, as amended ("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. The case pending in Illinois State Court regarding fair value pricing was dismissed with prejudice on May 6, 2008. 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 Invesco 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 ERISA purportedly brought on behalf of participants in the Invesco 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. Plaintiff appealed this ruling. On June 16, 2008, the Fourth Circuit Court of Appeals reversed the dismissal and remanded this lawsuit back to the MDL Court for further proceedings. IFG, Invesco Aim, IADI 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, Invesco Aim and IADI 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, Invesco Aim and/or related entities and individuals in the future. At the present time, management of Invesco 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 Invesco Aim, IADI or the Fund. 21 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, 2008, 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 four 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, 2008 by correspondence with the custodian and broker, provide a reasonable basis for our opinion. The financial highlights for the period ended 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 16, 2008 Houston, Texas 22 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 fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. With the exception of the actual ending account value and expenses of the Class Y Shares, 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, 2008, through October 31, 2008. The actual ending account and expenses of the Class Y shares in the below example are based on an investment of $1,000 invested as of close of business October 3, 2008 (the date the share class commenced operations) and held through October 31, 2008. 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 (as of close of business October 3, 2008 through October 31, 2008 for the Class Y shares). Because the actual ending account value and expense information in the example is not based upon a six month period for the Class Y shares, the ending account value and expense information may not provide a meaningful comparison to mutual funds that provide such information for a full six month 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 transactional costs, such as sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions, and redemption fees, if any. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
---------------------------------------------------------------------------------------------------- HYPOTHETICAL (5% ANNUAL RETURN BEFORE ACTUAL EXPENSES) ------------------------------------------------------- BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE CLASS (05/01/08) (10/31/08)(1) PERIOD(2) (10/31/08) PERIOD(2, 3) RATIO ---------------------------------------------------------------------------------------------------- A $1,000.00 $782.20 $5.38 $1,019.10 $6.09 1.20% ---------------------------------------------------------------------------------------------------- B 1,000.00 779.40 8.72 1,015.33 9.88 1.95 ---------------------------------------------------------------------------------------------------- C 1,000.00 779.40 8.72 1,015.33 9.88 1.95 ---------------------------------------------------------------------------------------------------- R 1,000.00 780.60 6.49 1,017.85 7.35 1.45 ---------------------------------------------------------------------------------------------------- Y 1,000.00 893.80 0.73 1,020.26 4.93 0.97 ----------------------------------------------------------------------------------------------------
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2008, through October 31, 2008 (as of close of business October 3, 2008, through October 31, 2008 for the Class Y shares), after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's expense ratio and a hypothetical annual return of 5% before expenses. (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 184/366 to reflect the most recent fiscal half year. For the Class Y shares actual expenses are equal to the annualized expense ratio indicated above multiplied by the average account value over the period, multiplied by 29 (as of close of business October 3, 2008, through October 31, 2008)/366. Because the Class Y shares have not been in existence for a full six month period, the actual ending account value and expense information shown may not provide a meaningful comparison to fund expense information of classes that show such data for a full six month period and, because the actual ending account value and expense information in the expense example covers a short time period, return and expense data may not be indicative of return and expense data for longer time periods. (3) Hypothetical expenses are equal to the annualized expense ratio indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect a one-half year period. The hypothetical ending account value and expenses may be used to compare ongoing costs of investing in Class Y shares of the Fund and other funds because such data is based on a full six month period. 23 AIM CHARTER FUND Supplement to Annual Report dated 10/31/08 AIM CHARTER FUND ========================================== INSTITUTIONAL CLASS SHARES AVERAGE ANNUAL TOTAL RETURNS Please note that past performance is For periods ended 10/31/08 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) 7.15% those shown. All returns assume shareholders with a performance overview 10 Years 1.92 reinvestment of distributions at NAV. specific to their holdings. Institutional 5 Years 3.60 Investment return and principal value will Class shares are offered exclusively to 1 Year -26.68 fluctuate so your shares, when redeemed, institutional investors, including defined ========================================== may be worth more or less than their contribution plans that meet certain original cost. See full report for criteria. ========================================== information on comparative benchmarks. AVERAGE ANNUAL TOTAL RETURNS Please consult your Fund prospectus for For periods ended 9/30/08, most recent more information. For the most current calendar quarter-end month-end performance, please call 800 451 4246 or visit invescoaim.com. Inception (7/30/91) 8.19% 10 Years 4.41 (1) Total annual operating expenses less 5 Years 7.66 contractual advisory fee waivers by 1 Year -12.42 the advisor in effect through at least ========================================== December 31, 2012. See current prospectus for more information. Institutional Class shares have no sales charge; therefore, performance is at net (2) Total annual operating expenses less asset value (NAV). Performance of any contractual fee waivers and/or Institutional Class shares will differ expense reimbursements by the advisor from performance of other share classes in effect through at least June 30, primarily due to differing sales charges 2009. See current prospectus for more and class expenses. information. The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this supplement for Institutional Class shares was 0.75%.(1,2) The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this supplement for Institutional Class shares was 0.78%.The expense ratios presented above may vary from the expense ratios presented in other sections of the actual report that are based on expenses incurred during the period covered by the report. ========================================== NASDAQ SYMBOL CHTVX ========================================== Over for information on your Fund's expenses. THIS SUPPLEMENT 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. [INVESCO AIM LOGO] invescoaim.com CHT-INS-1 Invesco Aim Distributors, Inc. -- SERVICE MARK --
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, 2008, through October 31, 2008. 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 CLASS (05/01/08) (10/31/08)(1) PERIOD(2) (10/31/08) PERIOD(2) RATIO ----------------------------------------------------------------------------------------------------------- Institutional $1,000.00 $783.70 $3.45 $1,021.27 $3.91 0.77% -----------------------------------------------------------------------------------------------------------
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2008, through October 31, 2008, 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 184/366 to reflect the most recent fiscal half year. AIM CHARTER FUND APPROVAL OF INVESTMENT ADVISORY AGREEMENT The Board of Trustees (the Board) of AIM renewal process, the Trustees receive from one another and attributed different Equity Funds is required under the comparative performance and fee data weight to the various factors. The Investment Company Act of 1940 to approve regarding the AIM Funds prepared by an Trustees recognized that the advisory annually the renewal of the AIM Charter independent company, Lipper, Inc. arrangements and resulting advisory fees Fund's (the Fund) investment advisory (Lipper), under the direction and for the Fund and the other AIM Funds are agreement with Invesco Aim Advisors, Inc. supervision of the independent Senior the result of years of review and (Invesco Aim). During contract renewal Officer who also prepares a separate negotiation between the Trustees and meetings held on June 18-19, 2008, the analysis of this information for the Invesco Aim, that the Trustees may focus Board as a whole and the disinterested or Trustees. Each Sub-Committee then makes to a greater extent on certain aspects of "independent" Trustees, voting separately, recommendations to the Investments these arrangements in some years than in approved the continuance of the Fund's Committee regarding the performance, fees others, and that the Trustees' investment advisory agreement for another and expenses of their assigned funds. The deliberations and conclusions in a year, effective July 1, 2008. In doing so, Investments Committee considers each particular year may be based in part on the Board determined that the Fund's Sub-Committee's recommendations and makes their deliberations and conclusions of investment advisory agreement is in the its own recommendations regarding the these same arrangements throughout the best interests of the Fund and its performance, fees and expenses of the AIM year and in prior years. shareholders and that the compensation to Funds to the full Board. The Investments Invesco Aim under the Fund's investment Committee also considers each FACTORS AND CONCLUSIONS AND SUMMARY OF advisory agreement is fair and reasonable. SubCommittee's recommendations in making INDEPENDENT WRITTEN FEE EVALUATION its annual recommendation to the Board The independent Trustees met separately whether to approve the continuance of each The discussion below serves as a summary during their evaluation of the Fund's AIM Fund's investment advisory agreement of the Senior Officer's independent investment advisory agreement with and sub-advisory agreements for another written evaluation with respect to the independent legal counsel from whom they year. Fund's investment advisory agreement as received independent legal advice, and the well as a discussion of the material independent Trustees also received The independent Trustees are assisted factors and related conclusions that assistance during their deliberations from in their annual evaluation of the Fund's formed the basis for the Board's approval the independent Senior Officer, a investment advisory agreement by the of the Fund's investment advisory full-time officer of the AIM Funds who independent Senior Officer. One agreement and sub-advisory agreements. reports directly to the independent responsibility of the Senior Officer is to Unless otherwise stated, information set Trustees. manage the process by which the AIM Funds' forth below is as of June 19, 2008 and proposed management fees are negotiated does not reflect any changes that may have THE BOARD'S FUND EVALUATION PROCESS during the annual contract renewal process occurred since that date, including but to ensure that they are negotiated in a not limited to changes to the Fund's The Board's Investments Committee has manner that is at arms' length and performance, advisory fees, expense established three Sub-Committees that are reasonable. Accordingly, the Senior limitations and/or fee waivers. responsible for overseeing the management Officer must either supervise a of a number of the series portfolios of competitive bidding process or prepare an I. Investment Advisory Agreement the AIM Funds. This Sub-Committee independent written evaluation. The Senior structure permits the Trustees to focus on Officer has recommended that an A. Nature, Extent and Quality of the performance of the AIM Funds that have independent written evaluation be provided Services Provided by Invesco Aim been assigned to them. The Sub-Committees and, at the direction of the Board, has meet throughout the year to review the prepared an independent written The Board reviewed the advisory services performance of their assigned funds, and evaluation. provided to the Fund by Invesco Aim under the Sub-Committees review monthly and the Fund's investment advisory agreement, quarterly comparative performance During the annual contract renewal the performance of Invesco Aim in information and periodic asset flow data process, the Board considered the factors providing these services, and the for their assigned funds. These materials discussed below under the heading "Factors credentials and experience of the officers are prepared under the direction and and Conclusions and Summary of Independent and employees of Invesco Aim who provide supervision of the independent Senior Written Fee Evaluation" in evaluating the these services. The Board's review of the Officer. Over the course of each year, the fairness and reasonableness of the Fund's qualifications of Invesco Aim to provide Sub-Committees meet with portfolio investment advisory agreement and these services included the Board's managers for their assigned funds and sub-advisory agreements at the contract consideration of Invesco Aim's portfolio other members of management and review renewal meetings and at their meetings and product review process, various back with these individuals the performance, throughout the year as part of their office support functions provided by investment objective(s), policies, ongoing oversight of the Fund. The Fund's Invesco Aim and its affiliates, and strategies and limitations of these funds. investment advisory agreement and Invesco Aim's equity and fixed income sub-advisory agreements were considered trading operations. The Board concluded In addition to their meetings separately, although the Board also that the nature, extent and quality of the throughout the year, the Sub-Committees considered the common interests of all of advisory services provided to the Fund by meet at designated contract renewal the AIM Funds in their deliberations. The Invesco Aim were appropriate and that meetings each year to conduct an in-depth Board considered all of the information Invesco Aim currently is providing review of the performance, fees and provided to them and did not identify any satisfactory advisory services in expenses of their assigned funds. During particular factor that was controlling. accordance with the terms of the Fund's the contract Each Trustee may have evaluated the investment advisory agreement. In information provided differently addition, based on their ongoing meetings throughout the year with the Fund's portfolio manager or continued
24 AIM CHARTER FUND managers, the Board concluded that these calendar year, the Board also reviewed appropriate. individuals are competent and able to more recent Fund performance and this continue to carry out their review did not change their conclusions. After taking account of the Fund's responsibilities under the Fund's contractual advisory fee rate, as well as investment advisory agreement. C. Advisory Fees and Fee Waivers the comparative advisory fee information and the fee waiver discussed above, the In determining whether to continue the The Board compared the Fund's contractual Board concluded that the Fund's advisory Fund's investment advisory agreement, the advisory fee rate to the contractual fees were fair and reasonable. Board considered the prior relationship advisory fee rates of funds in the Fund's between Invesco Aim and the Fund, as well Lipper expense group that are not managed D. Economies of Scale and Breakpoints as the Board's knowledge of Invesco Aim's by Invesco Aim, at a common asset level operations, and concluded that it was and as of the end of the past calendar The Board considered the extent to which beneficial to maintain the current year. The Board noted that the Fund's there are economies of scale in Invesco relationship, in part, because of such contractual advisory fee rate was above Aim's provision of advisory services to knowledge. The Board also considered the the median contractual advisory fee rate the Fund. The Board also considered steps that Invesco Aim and its affiliates of funds in its expense group. The Board whether the Fund benefits from such have taken over the last several years to also reviewed the methodology used by economies of scale through contractual improve the quality and efficiency of the Lipper in determining contractual fee breakpoints in the Fund's advisory fee services they provide to the AIM Funds in rates. schedule or through advisory fee waivers the areas of investment performance, or expense limitations. The Board noted product line diversification, The Board also compared the Fund's that the Fund's contractual advisory fee distribution, fund operations, shareholder effective fee rate (the advisory fee after schedule includes one breakpoint and that services and compliance. The Board any advisory fee waivers and before any the level of the Fund's advisory fees, as concluded that the quality and efficiency expense limitations/waivers) to the a percentage of the Fund's net assets, has of the services Invesco Aim and its advisory fee rates of other clients of decreased as net assets increased because affiliates provide to the AIM Funds in Invesco Aim and its affiliates with of the breakpoint. The Board also noted each of these areas have generally investment strategies comparable to those that Invesco Aim's contractual advisory improved, and support the Board's approval of the Fund, including three mutual funds fee waiver discussed above includes of the continuance of the Fund's advised by Invesco Aim and one mutual fund breakpoints based on net asset levels. investment advisory agreement. sub-advised by an Invesco Aim affiliate. Based on this information, the Board The Board noted that the Fund's rate was: concluded that the Fund's advisory fees B. Fund Performance (i) above the rate for two mutual funds appropriately reflect economies of scale and the same as the rate for the third at current asset levels. The Board also The Board compared the Fund's performance mutual fund; and (ii) above the noted that the Fund shares directly in during the past one, three and five sub-advisory fee rate for the sub-advised economies of scale through lower fees calendar years to the performance of funds mutual fund. charged by third party service providers in the Fund's performance group that are based on the combined size of all of the not managed by Invesco Aim, and against Additionally, the Board compared the AIM Funds and affiliates. the performance of all funds in the Lipper Fund's effective fee rate to the total Large-Cap Core Funds Index. The Board also advisory fees paid by numerous separately E. Profitability and Financial reviewed the criteria used by Invesco Aim managed accounts/wrap accounts advised by Resources of Invesco Aim to identify the funds in the Fund's Invesco Aim affiliates. The Board noted performance group for inclusion in the that the Fund's rate was generally above The Board reviewed information from Lipper reports. The Board noted that the the rates for the separately managed Invesco Aim concerning the costs of the Fund's performance was in the third accounts/ wrap accounts. The Board advisory and other services that Invesco quintile of its performance group for the considered that management of the Aim and its affiliates provide to the Fund one and five year periods and the second separately managed accounts/wrap accounts and the profitability of Invesco Aim and quintile for the three year period (the by the Invesco Aim affiliates involves its affiliates in providing these first quintile being the best performing different levels of services and different services. The Board also reviewed funds and the fifth quintile being the operational and regulatory requirements information concerning the financial worst performing funds). The Board noted than Invesco Aim's management of the Fund. condition of Invesco Aim and its that the Fund's performance was above the The Board concluded that these differences affiliates. The Board also reviewed with performance of the Index for the one, are appropriately reflected in the fee Invesco Aim the methodology used to three, and five year periods. The Board structure for the Fund. prepare the profitability information. The also considered the steps Invesco Aim has Board considered the overall profitability taken over the last several years to The Board noted that Invesco Aim has of Invesco Aim, as well as the improve the quality and efficiency of the contractually agreed to waive advisory profitability of Invesco Aim in connection services that Invesco Aim provides to the fees of the Fund through December 31, 2012 with managing the Fund. The Board noted AIM Funds. The Board concluded that and that this fee waiver includes four that Invesco Aim continues to operate at a Invesco Aim continues to be responsive to breakpoints based on net asset levels. The net profit, although increased expenses in the Board's focus on fund performance. Board considered the contractual nature of recent years have reduced the Although the independent written this fee waiver and noted that it remains profitability of Invesco Aim and its evaluation of the Fund's Senior Officer in effect until December 31, 2012. The affiliates. The Board concluded that the only considered Fund performance through Board noted that Invesco Aim had analyzed Fund's fees were fair and reasonable, and the most recent the expenses of the Fund and determined that the level of profits realized by that they are currently Invesco Aim and its affiliates from providing services to the Fund was not excessive in light of the nature, quality continued
25 AIM CHARTER FUND and extent of the services provided. The and therefore may reduce Invesco Aim's appropriate. The Board noted that the Board considered whether In-vesco Aim is expenses. The Board also noted that Affiliated Sub-Advisers, which have financially sound and has the resources research obtained through soft dollar offices and personnel that are necessary to perform its obligations under arrangements may be used by Invesco Aim in geographically dispersed in financial the Fund's investment advisory agreement, making investment decisions for the Fund centers around the world, have been formed and concluded that Invesco Aim has the and may therefore benefit Fund in part for the purpose of researching and financial resources necessary to fulfill shareholders. The Board concluded that compiling information and making these obligations. Invesco Aim's soft dollar arrangements recommendations on the markets and were appropriate. The Board also concluded economies of various countries and F. Independent Written Evaluation of that, based on their review and securities of companies located in such the Fund's Senior Officer representations made by Invesco Aim, these countries or on various types of arrangements were consistent with investments and investment techniques, and The Board noted that, at their direction, regulatory requirements. providing investment advisory services. the Senior Officer of the Fund, who is The Board concluded that the sub-advisory independent of Invesco Aim and Invesco The Board considered the fact that the agreements will benefit the Fund and its Aim's affiliates, had prepared an Fund's uninvested cash and cash collateral shareholders by permitting Invesco Aim to independent written evaluation to assist from any securities lending arrangements utilize the additional resources and the Board in determining the may be invested in money market funds talent of the Affiliated Sub-Advisers in reasonableness of the proposed management advised by Invesco Aim pursuant to managing the Fund. fees of the AIM Funds, including the Fund. procedures approved by the Board. The The Board noted that they had relied upon Board noted that Invesco Aim will receive B. Fund Performance the Senior Officer's written evaluation advisory fees from these affiliated money instead of a competitive bidding process. market funds attributable to such The Board did not view Fund performance as In determining whether to continue the investments, although Invesco Aim has a relevant factor in considering whether Fund's investment advisory agreement, the contractually agreed to waive through at to approve the sub-advisory agreements for Board considered the Senior Officer's least June 30, 2009, the advisory fees the Fund, as no Affiliated Sub-Adviser written evaluation. payable by the Fund in an amount equal to currently manages any portion of the 100% of the net advisory fees Invesco Aim Fund's assets. G. Collateral Benefits to Invesco Aim receives from the affiliated money market and its Affiliates funds with respect to the Fund's C. Sub-Advisory Fees investment of uninvested cash, but not The Board considered various other cash collateral. The Board considered the The Board considered the services to be benefits received by Invesco Aim and its contractual nature of this fee waiver and provided by the Affiliated Sub-Advisers affiliates resulting from Invesco Aim's noted that it remains in effect until at pursuant to the sub-advisory agreements relationship with the Fund, including the least June 30, 2009. The Board concluded and the services to be provided by Invesco fees received by Invesco Aim and its that the Fund's investment of uninvested Aim pursuant to the Fund's investment affiliates for their provision of cash and cash collateral from any advisory agreement, as well as the administrative, transfer agency and securities lending arrangements in the allocation of fees between Invesco Aim and distribution services to the Fund. The affiliated money market funds is in the the Affiliated Sub-Advisers pursuant to Board considered the performance of best interests of the Fund and its the sub-advisory agreements. The Board Invesco Aim and its affiliates in shareholders. noted that the sub-advisory fees have no providing these services and the direct effect on the Fund or its organizational structure employed by II. Sub-Advisory Agreements shareholders, as they are paid by Invesco Invesco Aim and its affiliates to provide Aim to the Affiliated Sub-Advisers, and these services. The Board also considered A. Nature, Extent and Quality of that Invesco Aim and the Affiliated that these services are provided to the Services Provided by Affiliated Sub-Advisers are affiliates. After taking Fund pursuant to written contracts which Sub-Advisers account of the Fund's contractual are reviewed and approved on an annual sub-advisory fee rate, as well as other basis by the Board. The Board concluded The Board reviewed the services to be relevant factors, the Board concluded that that Invesco Aim and its affiliates were provided by Invesco Trimark Ltd., Invesco the Fund's sub-advisory fees were fair and providing these services in a satisfactory Asset Management Deutschland, GmbH, reasonable. manner and in accordance with the terms of Invesco Asset Management Limited, Invesco their contracts, and were qualified to Asset Management (Japan) Limited, Invesco D. Financial Resources of the continue to provide these services to the Australia Limited, Invesco Global Asset Affiliated Sub-Advisers Fund. Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco Institutional (N.A.), The Board considered whether each The Board considered the benefits Inc. and Invesco Senior Secured Affiliated Sub-Adviser is financially realized by Invesco Aim as a result of Management, Inc. (collectively, the sound and has the resources necessary to portfolio brokerage transactions executed "Affiliated Sub-Advisers") under the perform its obligations under its through "soft dollar" arrangements. Under sub-advisory agreements and the respective sub-advisory agreement, and these arrangements, portfolio brokerage credentials and experience of the officers concluded that each Affiliated Sub-Adviser commissions paid by the Fund and/or other and employees of the Affiliated has the financial resources necessary to funds advised by Invesco Aim are used to Sub-Advisers who will provide these fulfill these obligations. pay for research and execution services. services. The Board concluded that the The Board noted that soft dollar nature, extent and quality of the services arrangements shift the payment obligation to be provided by the Affiliated for the research and execution services Sub-Advisers were from Invesco Aim to the funds
26 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, 2008:
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 SHAREHOLDER INFORMATION The percentages of qualifying assets not subject to the U.S. estate tax for the fiscal quarters ended January 31, 2008, April 30, 2008, July 31, 2008 and October 31, 2008 were 28.10%, 26.71%, 27.55%, and 29.28%, respectively. 27 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 103 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.
NAME, YEAR OF BIRTH AND TRUSTEE AND/ OTHER POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) DIRECTORSHIP(S) TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE -------------------------------------------------------------------------------------------------------------------------------- INTERESTED PERSONS -------------------------------------------------------------------------------------------------------------------------------- Martin L. 2007 Executive Director, Chief Executive Officer and President, None Flanagan(1) -- 1960 Invesco Ltd. (ultimate parent of Invesco Aim and a global Trustee investment management firm); Chairman, Invesco Aim Advisors, Inc. (registered investment advisor); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company); INVESCO North American Holdings, Inc. (holding company); and, INVESCO Group Services, Inc. (service provider); Trustee, The AIM Family of Funds--Registered Trademark--; Vice Chairman, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business Formerly: Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco Aim and a global investment management firm); 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 Head of North American Retail and Senior Managing Director, None Trustee, President and Invesco Ltd.; Director, Chief Executive Officer and Principal President, Invesco Trimark Dealer Inc. (formerly AIM Mutual Executive Officer Fund Dealer Inc.) (registered broker dealer), Invesco Aim Advisors, Inc., and 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Aim Management Group, Inc. (financial services holding company) and Invesco Aim 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, Invesco Aim Distributors, Inc. (registered broker dealer); Director and Chairman, Invesco 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 Invesco Canada Holdings Inc. (formerly AIM Canada Holdings Inc.) (holding company); 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); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltee (formerly AIM Funds Management Inc. d/b/a INVESCO Enterprise Services) (registered investment advisor and registered transfer agent) and Invesco Trimark Dealer Inc. (formerly AIM Mutual Fund Dealer Inc.) (registered broker dealer); Trustee, President and Principal Executive Officer of The AIM Family of Funds--Registered Trademark-- (other than AIM Treasurer's Series Trust and Short-Term Investments Trust); Trustee and Executive Vice President, The AIM Family of Funds--Registered Trademark-- (AIM Treasurer's Series Trust and Short-Term Investments Trust only); and Manager, Invesco PowerShares Capital Management LLC Formerly: President, Invesco Trimark Dealer Inc.; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Director and President, Invesco Trimark Ltd./Invesco Trimark Ltee (formerly AIM Funds Management Inc. d/b/a INVESCO Enterprise Services); Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; 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); 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 (technology ACE Limited Trustee and Chair consulting company) (insurance company); Captaris, Inc. (unified messaging provider); and Investment Company Institute -------------------------------------------------------------------------------------------------------------------------------- Bob R. Baker -- 1936 2003 Retired None Trustee -------------------------------------------------------------------------------------------------------------------------------- Frank S. Bayley -- 1939 2001 Retired Trustee Formerly: Partner, law firm of Baker & McKenzie; and None Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) -------------------------------------------------------------------------------------------------------------------------------- James T. Bunch -- 1942 2003 Founder, Green, Manning & Bunch Ltd., (investment banking Director, Policy Trustee firm) Studies, Inc. and Van Gilder Insurance Corporation -------------------------------------------------------------------------------------------------------------------------------- Albert R. Dowden -- 1941 2000 Director of a number of public and private business None Trustee corporations, including the Boss Group Ltd. (private investment and management); Continental Energy Services, LLC (oil and gas pipeline service); Reich & Tang Funds (registered investment company); Annuity and Life Re (Holdings), Ltd. (reinsurance company), and Homeowners of America Holding Corporation/Homeowners of America Insurance Company (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 public and private corporations -------------------------------------------------------------------------------------------------------------------------------- Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Century Group, Inc. Administaff Trustee (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); and Discovery Global Education Fund (non-profit) -------------------------------------------------------------------------------------------------------------------------------- Carl Frischling -- 1937 1998 Partner, law firm of Kramer Levin Naftalis and Frankel LLP Director, Reich & Trustee Tang Funds) (15 portfolios) -------------------------------------------------------------------------------------------------------------------------------- Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the USA None Trustee -------------------------------------------------------------------------------------------------------------------------------- Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper None Trustee -------------------------------------------------------------------------------------------------------------------------------- Larry Soll -- 1942 2003 Retired None Trustee -------------------------------------------------------------------------------------------------------------------------------- Raymond Stickel, Jr. -- 1944 2005 Retired Trustee Formerly: Partner, Deloitte & Touche; and Director, Mainstay None VP Series Funds, Inc. (25 portfolios) --------------------------------------------------------------------------------------------------------------------------------
(1) 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 Ltd., ultimate 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. 28 AIM CHARTER FUND TRUSTEES AND OFFICERS--(CONTINUED)
NAME, YEAR OF BIRTH AND TRUSTEE AND/ OTHER POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) DIRECTORSHIP(S) TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE -------------------------------------------------------------------------------------------------------------------------------- OTHER OFFICERS -------------------------------------------------------------------------------------------------------------------------------- Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer of The AIM Family of N/A Senior Vice President and Funds--Registered Trademark-- Senior Officer 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, Secretary and General Counsel, N/A Senior Vice President, Chief Invesco Aim Management Group, Inc., Invesco Aim Advisors, Inc. Legal Officer and Secretary and Invesco Aim Capital Management, Inc.; Director, Senior Vice President and Secretary, Invesco Aim Distributors, Inc.; Director, Vice President and Secretary, Invesco Aim Investment Services, Inc. and INVESCO Distributors, Inc.; Director and Vice President, INVESCO Funds Group Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds--Registered Trademark--; and Manager, Invesco PowerShares Capital Management LLC Formerly: Director, Vice President and Secretary, Fund Management Company; Vice President, Invesco Aim 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); 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 Ltd.; and Vice President, The N/A Vice President AIM Family of Funds--Registered Trademark-- Formerly: Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and The AIM Family of Funds--Registered Trademark--; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Aim Distributors, Inc.; Vice President, Invesco Aim Investment Services, Inc. and Fund Management Company; and Senior Vice President and Compliance Director, Delaware Investments Family of Funds -------------------------------------------------------------------------------------------------------------------------------- Kevin M. Carome -- 1956 2003 General Counsel, Secretary and Senior Managing Director, Invesco N/A Vice President Ltd.; Director and Secretary, Invesco Holding Company Limited, IVZ, Inc. and INVESCO Group Services, Inc.; Director, INVESCO Funds Group, Inc.; Secretary, INVESCO North American Holdings, Inc.; and Vice President, The AIM Family of Funds--Registered Trademark-- Formerly: Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc. and Invesco Aim Advisors, Inc.; Senior Vice President, Invesco Aim Distributors, Inc.; Director, General Counsel and Vice President, Fund Management Company; Vice President, Invesco Aim Capital Management, Inc. and Invesco Aim Investment Services, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds--Registered Trademark--; Director and Vice President, INVESCO Distributors, Inc. and Chief Executive Officer and President, INVESCO Funds Group, Inc. -------------------------------------------------------------------------------------------------------------------------------- Sheri Morris -- 1964 1999 Vice President, Treasurer and Principal Financial Officer, The N/A Vice President, Treasurer AIM Family of Funds--Registered Trademark--; and Vice President, and Principal Financial Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. Officer and Invesco Aim Private Asset Management Inc. Formerly: Assistant Vice President and Assistant Treasurer, The AIM Family of Funds--Registered Trademark-- and Assistant Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. -------------------------------------------------------------------------------------------------------------------------------- Karen Dunn Kelley -- 1960 2004 Head of Invesco's World Wide Fixed Income and Cash Management N/A Vice President Group; Director of Cash Management and Senior Vice President, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc; Executive Vice President, Invesco Aim Distributors, Inc.; Senior Vice President, Invesco Aim Management Group, Inc.; Vice President, The AIM Family of Funds--Registered Trademark-- (other than AIM Treasurer's Series Trust and Short-Term Investments Trust); and President and Principal Executive Officer, The AIM Family of Funds--Registered Trademark-- (AIM Treasurer's Series Trust and Short-Term Investments Trust only) Formerly President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer and Managing Director, Invesco Aim Capital Management, Inc.; and Vice President, Invesco Aim 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 Officer, Invesco Aim Advisors, N/A Anti-Money Laundering Inc., Invesco Aim Capital Management, Inc., Invesco Aim Compliance Officer Distributors, Inc., Invesco Aim Investment Services, Inc., Invesco 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, Invesco Aim Investment Services, Inc. -------------------------------------------------------------------------------------------------------------------------------- Todd L. Spillane -- 1958 2006 Senior Vice President, Invesco Aim Management Group, Inc.; Senior N/A Chief Compliance Officer Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, 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, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc. Formerly: Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company; and Global Head of Product Development, AIG-Global Investment Group, Inc. --------------------------------------------------------------------------------------------------------------------------------
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. Please refer to the Fund's prospectus for information on the Fund's sub- advisors. OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS 11 Greenway Plaza Invesco Aim Advisors, Invesco Aim Distributors, PricewaterhouseCoopers Suite 100 Inc. Inc. LLP Houston, TX 77046-1173 11 Greenway Plaza 11 Greenway Plaza 1201 Louisiana Street Suite 100 Suite 100 Suite 2900 Houston, TX 77046-1173 Houston, TX 77046-1173 Houston, TX 77002-5678 COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN Stradley Ronon Stevens INDEPENDENT TRUSTEES Invesco Aim Investment State Street Bank and & Young, LLP Kramer, Levin, Naftalis & Services, Inc. Trust Company 2600 One Commerce Square Frankel LLP P.O. Box 4739 225 Franklin Street Philadelphia, PA 19103 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801 Americas New York, NY 10036-2714
29 AIM CHARTER FUND [GO PAPERLESS GRAPHIC] ==================================================================================================================================== GO PAPERLESS WITH EDELIVERY Visit invescoaim.com/edelivery to receive quarterly statements, tax forms, fund reports and prospectuses with a service that's all about eeees: o ENVIRONMENTALLY FRIENDLY. Go green by reducing the number of o EFFICIENT. Stop waiting for regular mail. Your documents will trees used to produce paper. be sent via email as soon as they're available. o ECONOMICAL. Help reduce your fund's printing and delivery o EASY. Download, save and print files using your home computer expenses and put more capital back in your fund's returns. with a few clicks of your mouse. This service is provided by Invesco Aim Investment Services, Inc. ==================================================================================================================================== FUND HOLDINGS AND PROXY VOTING INFORMATION The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund's semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The most recent list of portfolio holdings is available at invescoaim.com. From our home page, click on Products & Performance, then Mutual Funds, then Fund Overview. Select your Fund from the drop-down menu and click on Complete Quarterly Holdings. Shareholders can also look up the Fund's Forms N-Q on the SEC website at sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 942 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-01424 and 002-25469. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or on the Invesco Aim website, invescoaim.com. On the home page, scroll down and click on Proxy Policy. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2008, is available at our website. Go to invescoaim.com, access the About Us tab, click on Required Notices and then click on Proxy Voting Activity. Next, select the Fund from the drop-down menu. The information is also available on the SEC website, sec.gov. If used after January 20, 2009, this report must be accompanied by a Fund fact sheet or Invesco Aim Quarterly Performance Review for the most recent quarter-end. Invesco Aim--SERVICE MARK-- is a service mark of Invesco Aim Management Group, Inc. Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc., Invesco Aim Private Asset Management, Inc. and Invesco PowerShares Capital Management LLC are the [INVESCO AIM LOGO] investment advisors for the products and services represented by Invesco Aim; they each provide -- SERVICE MARK -- investment advisory services to individual and institutional clients and do not sell securities. Please refer to each fund's prospectus for information on the fund's subadvisors. Invesco Aim Distributors, Inc. is the U.S. distributor for the retail mutual funds, exchange-traded funds and institutional money market funds and the subdistributor for the STIC Global Funds represented by Invesco Aim. All entities are indirect, wholly owned subsidiaries of Invesco Ltd. invescoaim.com CHT-AR-1 Invesco Aim Distributors, Inc.
[INVESCO AIM LOGO] AIM CONSTELLATION FUND -- SERVICE MARK -- Annual Report to Shareholders o October 31, 2008 [MOUNTAIN GRAPHIC] 2 Letters to Shareholders 4 Performance Summary 4 Management Discussion 6 Long-Term Fund Performance 8 Supplemental Information 9 Schedule of Investments 11 Financial Statements 14 Notes to Financial Statements 20 Financial Highlights 22 Auditor's Report 23 Fund Expenses 24 Approval of Investment Advisory Agreement 27 Tax Information 28 Trustees and Officers
Dear Shareholder: In previous reports, I've talked with you about short-term market volatility. I'd like to take this opportunity to update you on recent market developments and provide some perspective and encouragement to my fellow long-term investors. [TAYLOR PHOTO] MARKET OVERVIEW At the start of the fiscal year in November 2007, we saw warning signs of increasing economic ills -- a weakening housing market, rising inflation and Philip Taylor slowing job growth, among others. In response, the U.S. Federal Reserve Board (the Fed) repeatedly cut short-term interest rate targets to stimulate economic growth and expand market liquidity.(1) Also, Congress and the president worked together to enact an economic stimulus plan that included billions of dollars in rebates to taxpayers. These actions helped the economy and the U.S. stock market until the spring of 2008, when other factors came to the forefront -- triggering a severe correction that eventually drove major stock-market indexes to multi-year lows.(2) HOW WE GOT HERE The cause of this correction was years of lax lending associated with the recent housing boom. Mortgage loans of questionable quality were bundled into hard-to-value securities that were bought by, and traded among, financial institutions. As the value of those securities declined, financial institutions sought to unload them -- but there were few buyers. With the value of their assets falling and access to credit tightening, a number of well-established financial firms faced severe difficulties, and investor uncertainty and market volatility spiked. In October 2008, the administration and Congress enacted a plan, the Troubled Assets Relief Program, authorizing the U.S. Department of the Treasury to purchase up to $700 billion in troubled mortgage-related assets -- the largest and most direct effort to resolve a credit crisis in the last half century. The Fed, in concert with other central banks, cut short-term interest rate targets and undertook other initiatives intended to restore investor confidence, expand lending and mitigate the effects of the global credit crisis. The recent volatility in the stock, fixed-income and credit markets has driven home the importance of three timeless investing principles. INVESTING IN VOLATILE MARKETS Through up markets and down, we believe history shows investors should: o INVEST FOR THE LONG TERM. Short-term fluctuations have always been a reality of the markets. We urge you to stick to your investment plan and stay focused on your long-term goals. o DIVERSIFY. Although diversification doesn't eliminate the risk of loss or guarantee a profit, a careful selection of complementary asset classes may cushion your portfolio against excessive volatility. o STAY FULLY INVESTED. Trying to time the market is a gamble, not an investment strategy. A sound investment strategy includes viewing market volatility as a matter of course, not a reason to panic. A trusted financial advisor can explain more fully the potential value of following these principles. An experienced advisor who knows your individual investment goals, financial situation and risk tolerance can be your most valuable asset during times of market volatility. Your advisor can provide guidance and can monitor your investments to ensure they're on course. It's also helpful to remember that many of history's significant buying opportunities resulted from short-term economic crises that, in their time, were considered unprecedented. We believe current market uncertainty may represent a buying opportunity for patient, long-term investors. Rest assured that Invesco Aim's portfolio managers are working diligently on your behalf to capitalize on this situation. MANAGING MONEY IS OUR FOCUS As 2008 draws to a close, I believe Invesco Aim is uniquely positioned to navigate current uncertain markets. Our parent company, Invesco Ltd., is one of the world's largest and most diversified global investment managers. Invesco provides clients with diversified investment strategies from distinct management teams around the globe and a range of investment products. Invesco's single focus is asset management -- which means we focus on doing one thing well: managing your money. That can be reassuring in uncertain times. While market conditions change often, commitment to putting shareholders first, helping clients achieve their investment goals and providing excellent customer service remains constant. If you have questions about this report or your account, please contact one of our client service representatives at 800 959 4246. Thank you for your continued confidence, and we look forward to serving you.
Sincerely, /S/ PHILIP TAYLOR Philip Taylor Senior Managing Director, Invesco Ltd. CEO, Invesco Aim (1) U.S. Federal Reserve; (2) Lipper Inc. 2 AIM CONSTELLATION FUND Dear Fellow Shareholders: As I write this letter, turbulent financial markets are causing considerable investor anxiety, reminding us again that markets are cyclical and the correction of excess is often painful, at least in the short term. Your Board of Trustees [CROCKETT believes in the wisdom of a long-term perspective and consistent investment PHOTO] discipline. We continue to put your interests first in the effort to improve investment performance, contain shareholder costs and uphold the highest ethical standards. We remain enthusiastic about the global reach and investment expertise that Invesco, a leading independent global investment management company, brings to the management of AIM Funds as the parent company of the advisors. The diverse Bruce Crockett investment strategies deployed throughout the worldwide network of Invesco investment centers has helped strengthen the management of many AIM Funds. The rebranding of the Funds' management company as Invesco Aim was followed by the launch of an upgraded, investor-friendly website (invescoaim.com); a new mountain logo using a Himalayan peak to symbolize stability, endurance, strength and longevity; and a new ad campaign. Emphasizing Invesco Aim's focus and investment quality, the ads will appear in financial publications such as Barron's and Investment News through the end of 2008. At its June meeting, your Board reviewed and renewed the investment advisory contracts between the AIM Funds and Invesco Aim Advisors, Inc. You can find the results of this rigorous annual process at invescoaim.com. Go to "Products & Performance" and click on "Investment Advisory Agreement Renewals." We have recently completed another active proxy voting season during which we acted on your behalf to double the number of votes in favor of separating the roles of chairman and CEO at the companies whose shares your Funds hold. We also continued to support the movement for shareholders to have a bigger role in approving executive compensation, initiatives known as "say on pay." Like virtually all other mutual fund complexes, AIM Funds abstain from voting on social issues as a matter of policy, and I would be interested to hear your thoughts on this policy. As always, you are welcome to email your questions or comments to me at bruce@brucecrockett.com. The dialogue that has been established in this way has been instructive for your Board, and we want it to continue. Although the production schedule for Fund annual reports and prospectuses allows me to write these letters of general report and response just twice a year, please be assured that your comments are received, welcomed and heard in the interim. We look forward to hearing from you and to representing you.
Sincerely, /S/ BRUCE L. CROCKETT Bruce L. Crockett Independent Chair AIM Funds Board of Trustees 3 AIM CONSTELLATION FUND MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE ======================================================================================= average analysis and other selected PERFORMANCE SUMMARY factors to identify the timeliness of a stock transaction. A new management team led by Senior Portfolio Manager Rob Lloyd and Portfolio Manager Ryan Amerman took over management responsibilities for AIM Constellation Fund on We carefully construct the portfolio February 4, 2008. A detailed explanation of the team's investment strategy is included with a goal to minimize unnecessary risk. in this report. We seek to accomplish this goal by diversifying portfolio holdings across For the fiscal year ended October 31, 2008, AIM Constellation Fund, at net asset countries, sectors, industries and market value, produced negative returns and underperformed its style-specific index, the capitalizations. Additionally, we avoid Russell 1000 Growth Index. This underperformance was due to both stock selection and building concentrated position sizes and sector allocation. The Fund also underperformed its broad market index, the S&P 500 expect to hold numerous stocks in the Index. Underperformance versus the S&P 500 Index was also due to stock selection and portfolio. Our target holding period is sector allocation. two to three years for each stock. Your Fund's long-term performance appears later in this report. We consider selling a stock when it no longer meets our investment criteria, FUND VS. INDEXES based on: Total returns, 10/31/07 to 10/31/08, at net asset value (NAV). Performance shown does o Deteriorating fundamental business not include applicable contingent deferred sales charges (CDSC) or front-end sales prospects charges, which would have reduced performance. o Declining quantitative rank Class A Shares -42.80% Class B Shares -43.24 o Negative changes to the investment Class C Shares -43.23 thesis Class R Shares -42.93 Class Y Shares* -42.80 o Finding a more attractive opportunity S&P 500 Index(triangle) (Broad Market Index) -36.08 Russell 1000 Growth Index(triangle) (Style-Specific Index) -36.95 MARKET CONDITIONS AND YOUR FUND Lipper Multi-Cap Growth Funds Index(triangle) (Peer Group Index) -41.64 Many factors contributed to the negative (triangle) Lipper Inc. performance of most major market indexes for the fiscal year ended October 31, * Share class incepted during the fiscal year. See page 7 for a detailed 2008.(1) The chief catalyst was the explanation of Fund performance. ongoing subprime loan crisis and its ======================================================================================= far-reaching effects on overall credit availability. Additionally, record high HOW WE INVEST Our stock selection process is based on crude oil prices, falling home values and a rigorous three-step process that the weak U.S. dollar placed significant We believe a growth investment strategy is includes fundamental, valuation and pressure on the purchasing power of an essential component of a diversified timeliness analysis. Importantly, we consumers. Later in the fiscal year, portfolio. search for compelling growth companies in consumer confidence fell and market all areas of the market, including many volatility increased dramatically due to Our investment process seeks to sectors that are not traditionally growing fears of a global recession. identify companies that generate identified as growth sectors. sustainable revenue, earnings and cash To ensure the orderly functioning of flow growth that is not fully reflected in Our fundamental analysis focuses on the credit markets and prevent a more investor expectations or equity identifying industries and companies with severe economic downturn, in early October valuations. strong fundamental drivers of high-quality Congress enacted a $700 billion rescue growth in revenues, earnings and cash plan -- the Troubled Assets Relief We begin with a quantitative model that flow. Our valuation analysis focuses on Program. In addition, the U.S. Federal ranks companies based on a set of growth, identifying attractively valued stocks Reserve (the Fed), in concert with other quality and timeliness factors. This based on their growth potential over a two central banks, lowered short-term proprietary model provides an objective to three-year time horizon. Our timeliness approach to identifying new investment analysis employs moving opportunities. ========================================== ========================================== ========================================== PORTFOLIO COMPOSITION TOP FIVE INDUSTRIES* TOP 10 EQUITY HOLDINGS* By sector Consumer Staples 19.6% 1. Aerospace & Defense 10.4% 1. Procter & Gamble Co. (The) 3.9% Industrials 19.1 2. Health Care Equipment 8.8 2. Johnson & Johnson 3.8 Health Care 16.7 3. Household Products 7.6 3. Colgate-Palmolive Co. 3.7 Energy 14.8 4. Soft Drinks 6.3 4. Microsoft Corp. 3.5 Information Technology 13.0 5. Integrated Oil & Gas 5.2 5. Baxter International Inc. 3.4 Materials 5.7 ========================================== 6. Coca-Cola Co. (The) 3.3 Financials 4.5 7. Kellogg Co. 2.9 Telecommunication Services 2.3 8. Raytheon Co. 2.8 Consumer Discretionary 0.9 ========================================== 9. PepsiCo, Inc. 2.7 Money Market Funds Plus Total Net Assets $3.4 billion 10. Occidental Petroleum Corp. 2.6 Other Assets Less Liabilities 3.4 Total Number of Holdings* 79 ========================================== ========================================== ========================================== 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 interest rates. In early October, the Fed financials and real estate industries were ROBERT LLOYD cut its short term interest rate target also key drivers of outperformance versus Chartered Financial Analyst, from 2.0% to 1.5%; later in the month, it the index, as many companies in these [LLOYD senior portfolio manager, is cut that target rate from 1.5% to 1.0%.(2) industries had steep declines in their PHOTO] lead manager of AIM stock prices when investor confidence Constellation Fund. He joined In this environment, the Fund had faltered. Invesco Aim in 2000. Mr. Lloyd earned a negative performance and underperformed B.B.A. from the University of Notre Dame the Russell 1000 Growth Index for the The Fund also outperformed the Russell and an M.B.A. from the University of fiscal year.(1) Underperformance versus 1000 Growth Index in the consumer staples Chicago. the index was driven mainly by stock sector, due to stock selection. While the selection in the industrials, information consumer staples sector had negative RYAN AMERMAN technology and consumer discretionary returns, its more defensive nature made it Chartered Financial Analyst, sectors, as well as overweight positions a refuge in the volatile market [AMERMAN portfolio manager, is manager of in the materials and energy sectors. Some environment, and it held up better than PHOTO] AIM Constellation Fund. He of this underperform-ance was offset by all other sectors in the index. Examples joined Invesco Aim in 1996. outperformance in the financials and of holdings that made key contributions to Mr. Amerman earned a B.B.A. degree from consumer staples sectors. Fund performance included food and staples Stephen F. Austin State University and an retailing holding KROGER and tobacco M.B.A. with an emphasis in finance from The Fund underperformed the Russell holding UST. Altria (not a Fund holding) the University of St. Thomas. 1000 Growth Index by the widest margin in acquired UST, and we sold our UST holdings the materials and industrials sectors. near the $70-per-share take-out price Assisted by the Large/Multi-Cap Growth While underperformance in the industrials before the close of the fiscal year. Team sector was driven by both stock selection and an overweight position, The Fund's cash position was also a underperformance in the materials sector driver of outperformance versus the was driven primarily by an overweight Russell 1000 Growth Index given the weak position. Many holdings in these two market environment. sectors were hurt by fears that the slowdown in the U.S. economy would lead to During the fiscal year, our investment a global recession. Examples of holdings process led us to reduce exposure to the in these two sectors that detracted from more economically sensitive information Fund performance included materials technology and consumer discretionary holdings XSTRATA and THE MOSAIC COMPANY, sectors, and the troubled financials as well as industrials holding MCDERMOTT sector. Proceeds from these sales were INTERNATIONAL. primarily invested in the more defensive consumer staples sector and the energy, Underperformance in the information materials and industrials sectors where technology and consumer discretionary many companies have benefited from global sectors was driven primarily by stock economic development and expansion. selection. The Fund also underperformed in the energy sector, largely due to an We thank you for your commitment to AIM overweight position. After reaching highs Constellation Fund. earlier in the fiscal year, the price of oil fell sharply due to weakening demand (1) Lipper Inc. caused by the global economic slowdown. Key detractors from performance included (2) U.S. Federal Reserve NATIONAL OILWELL VARCO and CONSOL ENERGY. The views and opinions expressed in The Fund outperformed the Russell 1000 management's discussion of Fund Growth Index by the widest margin in the performance are those of Invesco Aim financials sector. The financials sector Advisors, Inc. These views and opinions was the weakest performing sector in the are subject to change at any time based on index for the fiscal year, as the credit factors such as market and economic crisis intensified and a liquidity crunch conditions. These views and opinions may emerged. Outperformance versus the index not be relied upon as investment advice or was driven by stock selection and an recommendations, or as an offer for a underweight position in the financials particular security. The information is sector. Key contributors to Fund not a complete analysis of every aspect of performance included insurance holdings any market, country, industry, security or CHUBB and ACE. The Fund's underweight the Fund. Statements of fact are from positions in the capital markets, consumer sources considered reliable, but Invesco finance, diversified Aim Advisors, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy. See important Fund and index disclosures later in this report.
5 AIM CONSTELLATION FUND YOUR FUND'S LONG-TERM PERFORMANCE Past performance cannot guarantee shown in the chart and table does not one that indicates the dollar value of an comparable future results. reflect deduction of taxes a shareholder investment, is constructed with each would pay on Fund distributions or sale of segment representing a percent change in The data shown in the chart include Fund shares. the value of the investment. In this reinvested distributions, applicable sales chart, each segment represents a doubling, charges and Fund expenses including This chart, which is a logarithmic or 100% change, in the value of the management fees. Index results include chart, presents the fluctuations in the investment. In other words, the space reinvested dividends, but they do not value of the Fund and its indexes. We between $5,000 and $10,000 is the same reflect sales charges. Performance of an believe that a logarithmic chart is more size as the space between $10,000 and index of funds reflects fund expenses and effective than other types of charts in $20,000, and so on. management fees; performance of a market illustrating changes in value during the index does not. Performance early years shown in the chart. The vertical axis, the
6 AIM CONSTELLATION FUND ==================================================================================================================================== [MOUNTAIN CHART] RESULTS OF A $10,000 INVESTMENT -- CLASS A SHARES (OLDEST SHARE CLASS) Fund and index data from 04/30/76 AIM Constellation Lipper Multi-Cap Fund-Class A Growth Funds Date Shares S&P 500 Index(1) Index(1) 4/30/76 $ 9450 $ 10000 $ 10000 5/76 9171 9889 9865 6/76 9512 10327 10369 7/76 9327 10278 10147 8/76 9265 10258 9966 9/76 9514 10524 10117 10/76 9111 10327 9768 11/76 9173 10285 9956 12/76 9886 10863 10498 1/77 9080 10349 10151 2/77 8668 10160 9836 3/77 8637 10054 9809 4/77 8826 10096 9915 5/77 8731 9898 9841 6/77 9456 10387 10475 7/77 9204 10227 10312 8/77 9046 10082 10189 9/77 9046 10097 10325 10/77 8573 9704 9921 11/77 9299 10012 10605 12/77 9551 10086 10808 1/78 8605 9507 10154 2/78 6966 9314 10132 3/78 9550 9588 10578 4/78 10968 10453 11508 5/78 12134 10549 12022 6/78 11724 10404 12079 7/78 13426 11011 13045 8/78 14404 11342 13722 9/78 13648 11306 13403 10/78 10338 10320 11365 11/78 11095 10542 11986 12/78 11567 10749 12427 1/79 12293 11225 12942 2/79 11505 10863 12407 3/79 12891 11512 13356 4/79 13269 11584 13565 5/79 13143 11333 13303 6/79 14277 11825 14122 7/79 14812 11983 14561 8/79 16987 12675 15751 9/79 17333 12730 15817 10/79 15631 11914 14727 11/79 18184 12480 16101 12/79 20420 12747 16916 1/80 22846 13540 18161 2/80 23982 13539 17989 3/80 18876 12223 15702 4/80 20294 12788 16376 5/80 21398 13446 17311 6/80 22846 13871 18026 ====================================================================================================================================
(1) Lipper Inc. ==================================================================================================================================== [MOUNTAIN CHART] 7/80 25997 14837 20018 8/80 27918 14987 20715 9/80 29587 15427 21649 10/80 31383 15739 22272 11/80 36740 17415 24865 12/80 35638 16891 24104 1/81 32613 16183 22701 2/81 32808 16463 23030 3/81 35193 17121 24306 4/81 35024 16789 24384 5/81 37784 16831 25386 6/81 33934 16727 24231 7/81 33968 16762 23960 8/81 29573 15793 22486 9/81 26021 15016 21391 10/81 30655 15827 23308 11/81 30551 16479 23907 12/81 29427 16057 23285 1/82 27811 15849 22754 2/82 25183 14963 21901 3/82 23189 14885 21662 4/82 25262 15559 22823 5/82 23501 15029 22022 6/82 21898 14803 21908 7/82 21116 14541 21743 8/82 23150 16306 23674 9/82 24011 16509 24233 10/82 29017 18409 27289 11/82 33828 19152 29242 12/82 33751 19522 29494 1/83 36488 20248 30334 2/83 38874 20712 32200 3/83 40320 21476 32789 4/83 45013 23169 34826 5/83 48335 22967 35856 6/83 52560 23860 37577 7/83 47945 23157 35917 8/83 45519 23504 35223 9/83 47121 23828 36093 10/83 40590 23552 34365 11/83 44382 24049 35492 12/83 42034 23924 35115 1/84 38360 23790 33356 2/84 34896 22952 31538 3/84 34896 23349 31939 4/84 34687 23571 31865 5/84 32123 22265 30307 6/84 34224 22749 31247 7/84 32712 22466 30453 8/84 38344 24947 33982 9/84 36328 24952 33204 10/84 35906 25049 33151 11/84 33676 24768 32359 12/84 35653 25420 33275 1/85 40951 27400 36552 2/85 42127 27737 37068 3/85 39814 27754 36541 4/85 38257 27729 36033 5/85 41199 29332 38033 6/85 42208 29792 38931 7/85 42124 29750 38915 8/85 40949 29462 38351 9/85 37923 28572 36621 10/85 39690 29892 38101 11/85 43139 31943 40726 12/85 45831 33489 42392 1/86 48351 33676 43337 ====================================================================================================================================
==================================================================================================================================== [MOUNTAIN CHART] 2/86 53017 36192 47086 3/86 55790 38211 49666 4/86 57302 37783 49338 5/86 62471 39793 52135 6/86 63145 40466 52949 7/86 56837 38204 49025 8/86 59781 41035 51530 9/86 53349 37641 47052 10/86 58182 39813 49692 11/86 59497 40781 50343 12/86 58884 39741 49281 1/87 70738 45094 55387 2/87 78724 46875 59402 3/87 80165 48230 59955 4/87 79355 47800 58935 5/87 79411 48211 59478 6/87 80618 50646 61631 7/87 83673 53214 64700 8/87 88225 55199 66822 9/87 82870 53990 65633 10/87 56766 42366 50176 11/87 51521 38875 46659 12/87 60557 41833 51553 1/88 59413 43590 52182 2/88 65039 45613 55548 3/88 65423 44208 54926 4/88 67713 44699 55321 5/88 66284 45079 54619 6/88 74390 47148 57994 7/88 71623 46969 56713 8/88 67426 45376 54620 9/88 70480 47309 57029 10/88 70001 48625 57051 11/88 67901 47929 55785 12/88 70447 48763 57810 1/89 75773 52333 61862 2/89 74970 51030 60953 3/89 76979 52219 62739 4/89 82807 54929 66685 5/89 87328 57142 70573 6/89 83512 56822 69331 7/89 92322 61948 74725 8/89 98683 63156 77348 9/89 100301 62897 78222 10/89 94855 61438 75093 11/89 96970 62685 76174 12/89 97242 64189 76707 1/90 88792 59882 69934 2/90 93737 60655 71270 3/90 100130 62262 73971 4/90 98318 60712 72063 5/90 112072 66619 79752 6/90 111714 66173 80047 7/90 105435 65961 78206 8/90 90843 60005 70440 9/90 82395 57088 66242 10/90 79503 56849 64784 11/90 90244 60515 69675 12/90 93258 62198 72170 1/91 103516 64897 78052 2/91 111114 69531 83648 3/91 119081 71213 86643 4/91 117628 71384 86088 5/91 126192 74454 90238 6/91 117989 71044 84886 7/91 128124 74354 90396 8/91 135120 76109 93641 ====================================================================================================================================
==================================================================================================================================== [MOUNTAIN CHART] 9/91 136931 74838 93304 10/91 141394 75841 95524 11/91 137054 72792 92085 12/91 158927 81105 103918 1/92 162233 79596 103898 2/92 164813 80623 105487 3/92 158929 79059 101194 4/92 150601 81376 99605 5/92 151700 81774 100452 6/92 144100 80556 97127 7/92 152804 83843 100701 8/92 147410 82132 98375 9/92 152923 83101 100303 10/92 162358 83384 103342 11/92 175720 86219 109429 12/92 182819 87279 112099 1/93 188085 88013 113848 2/93 176687 89210 110820 3/93 184408 91092 114565 4/93 177788 88887 110659 5/93 191140 91261 116678 6/93 194198 91525 117799 7/93 192605 91159 117834 8/93 201542 94614 123761 9/93 208516 93886 126385 10/93 208766 95829 127863 11/93 204966 94919 124002 12/93 214395 96067 128181 1/94 225672 99334 132436 2/94 226281 96642 130304 3/94 211098 92438 123307 4/94 212449 93621 123418 5/94 209262 95147 123035 6/94 197125 92816 117929 7/94 201895 95860 121314 8/94 216714 99781 128035 9/94 217213 97346 126063 10/94 224316 99527 128534 11/94 213773 95904 123521 12/94 217172 97323 124571 1/95 213002 99844 124533 2/95 224760 103728 129565 3/95 235121 106788 133788 4/95 240553 109928 136518 5/95 247889 114314 140081 6/95 268365 116966 148612 7/95 294638 120837 158108 8/95 296671 121139 159420 9/95 307292 126251 163804 10/95 299333 125797 161724 11/95 302985 131307 167109 12/95 294198 133841 166591 1/96 296552 138392 169124 2/96 311320 139679 174096 3/96 310947 141020 175123 4/96 329883 143093 182898 5/96 340341 146770 187928 6/96 327272 147328 183888 7/96 297981 140816 170556 8/96 316009 143787 178026 9/96 339140 151868 189580 10/96 333002 156060 189144 11/96 349585 167842 199925 12/96 342034 164519 196307 1/97 357050 174785 205729 2/97 341340 176166 200051 3/97 319664 168943 189729 ====================================================================================================================================
==================================================================================================================================== [MOUNTAIN CHART] 4/97 324939 179012 195743 5/97 357693 189949 212342 6/97 369461 198402 220305 7/97 408993 214175 240595 8/97 403022 202181 234003 9/97 422770 213241 248815 10/97 395670 206118 237817 11/97 391081 215662 239316 12/97 386114 219371 241350 1/98 378816 221784 242412 2/98 415410 237775 262580 3/98 429617 249949 275394 4/98 439885 252498 278589 5/98 418814 248155 268002 6/98 435944 258230 281778 7/98 419858 255493 274902 8/98 338909 218574 224018 9/98 367886 232585 240170 10/98 386648 251471 253667 11/98 410117 266710 271322 12/98 459126 282073 301222 1/99 466794 293863 319747 2/99 433418 284724 303089 3/99 453139 296113 320334 4/99 468500 307573 328118 5/99 466392 300314 321786 6/99 499179 316921 344279 7/99 484154 307065 336532 8/99 481588 305530 333167 9/99 485344 297158 331268 10/99 521308 315968 354622 11/99 567183 322382 383063 12/99 662924 341338 440905 1/00 651124 324203 436452 2/00 737528 318076 506241 3/00 757810 349184 504267 4/00 697109 338673 462009 5/00 657026 331730 430870 6/00 721348 339891 473612 7/00 714640 334589 458741 8/00 809044 355367 508422 9/00 762928 336603 477510 10/00 711888 335190 449767 11/00 576060 308777 376095 12/00 594206 310290 387792 1/01 621718 321305 395664 2/01 525600 292034 337739 3/01 467469 273548 301533 4/01 514730 294776 338350 5/01 509171 296751 336523 6/01 499955 289540 330533 7/01 480457 286702 312684 8/01 438945 268783 285700 9/01 383287 247092 243245 10/01 405058 251812 260661 11/01 446333 271126 285763 12/01 453921 273512 290220 1/02 445705 269518 282007 2/02 426406 264317 264495 3/02 452288 274255 280258 4/02 426011 257635 263247 5/02 417789 255754 255613 6/02 388418 237545 231789 7/02 352878 219040 210024 8/02 351643 220464 208428 9/02 324320 196521 192254 10/02 353087 213796 206942 ====================================================================================================================================
==================================================================================================================================== [MOUNTAIN CHART] 11/02 367458 226367 219897 12/02 341589 213079 203669 1/03 332332 207518 200308 2/03 330903 204405 198946 3/03 335204 206388 202109 4/03 357596 223373 216883 5/03 375476 235123 232824 6/03 380207 238132 235525 7/03 393970 242324 242826 8/03 409178 247049 252539 9/03 395429 244430 247665 10/03 423347 258240 265200 11/03 432576 260513 270053 12/03 441833 274164 275751 1/04 450051 279208 282618 2/04 453561 283089 286348 3/04 445760 278815 285489 4/04 431585 274437 275925 5/04 440001 278197 282437 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 639316 409355 433896 11/07 608693 392236 412829 12/07 603337 389519 412320 1/08 537814 366158 378396 2/08 523455 354275 369106 3/08 513561 352742 362160 4/08 543759 369916 385069 5/08 569261 374706 397823 ====================================================================================================================================
==================================================================================================================================== [MOUNTAIN CHART] 6/08 534138 343148 371787 7/08 511544 340262 360068 8/08 504382 345186 359344 9/08 442343 314463 312501 10/08 365549 261635 253173 ====================================================================================================================================
========================================== ========================================== AVERAGE ANNUAL TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS FIRST YEAR AFTER PURCHASE. CLASS R SHARES DO NOT HAVE A FRONT-END SALES CHARGE; As of 10/31/08, including maximum As of 9/30/08, the most recent calendar RETURNS SHOWN ARE AT NET ASSET VALUE AND applicable sales charges quarter-end, including maximum applicable DO NOT REFLECT A 0.75% CDSC THAT MAY BE sales charges IMPOSED ON A TOTAL REDEMPTION OF CLASS A SHARES RETIREMENT PLAN ASSETS WITHIN THE FIRST Inception (4/30/76) 11.71% CLASS A SHARES YEAR. CLASS Y SHARES DO NOT HAVE A 10 Years -1.12 Inception (4/30/76) 12.40% FRONT-END SALES CHARGE OR A CDSC; 5 Years -3.98 10 Years 1.28 THEREFORE, PERFORMANCE IS AT NET ASSET 1 Year -45.95 5 Years 1.11 VALUE. 1 Year -32.12 CLASS B SHARES THE PERFORMANCE OF THE FUND'S SHARE Inception (11/3/97) -1.52% CLASS B SHARES CLASSES WILL DIFFER PRIMARILY DUE TO 10 Years -1.15 Inception (11/3/97) 0.20% DIFFERENT SALES CHARGE STRUCTURES AND 5 Years -3.99 10 Years 1.25 CLASS EXPENSES. 1 Year -46.07 5 Years 1.15 1 Year -32.28 (1) Total annual operating expenses less CLASS C SHARES contractual advisory fee waivers by Inception (8/4/97) -1.77% CLASS C SHARES the advisor in effect through at least 10 Years -1.30 Inception (8/4/97) -0.08% December 31, 2012. See current 5 Years -3.61 10 Years 1.10 prospectus for more information. 1 Year -43.80 5 Years 1.53 1 Year -29.40 CLASS R SHARES 10 Years -0.74% CLASS R SHARES 5 Years -3.13 10 Years 1.67% 1 Year -42.93 5 Years 2.01 1 Year -28.37 CLASS Y SHARES ========================================== 10 Years -0.56% 5 Years -2.89 THE MOST RECENT MONTH-END PERFORMANCE. 1 Year -42.80 PERFORMANCE FIGURES REFLECT REINVESTED ========================================== DISTRIBUTIONS, CHANGES IN NET ASSET VALUE AND THE EFFECT OF THE MAXIMUM SALES CHARGE CLASS R SHARES' INCEPTION DATE IS JUNE 3, UNLESS OTHERWISE STATED. INVESTMENT RETURN 2002. RETURNS SINCE THAT DATE ARE AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT HISTORICAL RETURNS. ALL OTHER RETURNS ARE YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL BLENDED RETURNS OF HISTORICAL CLASS R SHARES. SHARE PERFORMANCE AND RESTATED CLASS A SHARE PERFORMANCE (FOR PERIODS PRIOR TO THE NET ANNUAL FUND OPERATING EXPENSE THE INCEPTION DATE OF CLASS R SHARES) AT RATIO SET FORTH IN THE MOST RECENT FUND NET ASSET VALUE, ADJUSTED TO REFLECT THE PROSPECTUS AS OF THE DATE OF THIS REPORT HIGHER RULE 12B-1 FEES APPLICABLE TO CLASS FOR CLASS A, CLASS B, CLASS C, CLASS R AND R SHARES. CLASS A SHARES' INCEPTION DATE CLASS Y SHARES WAS 1.17%, 1.92%, 1.92%, IS APRIL 30, 1976. 1.42% AND 0.92%, RESPECTIVELY.(1) THE TOTAL ANNUAL FUND OPERATING EXPENSE RATIO CLASS Y SHARES' INCEPTION DATE IS SET FORTH IN THE MOST RECENT FUND OCTOBER 3, 2008; RETURNS SINCE THAT DATE PROSPECTUS AS OF THE DATE OF THIS REPORT ARE ACTUAL RETURNS. ALL OTHER RETURNS ARE FOR CLASS A, CLASS B, CLASS C, CLASS R AND BLENDED RETURNS OF ACTUAL CLASS Y SHARE CLASS Y SHARES WAS 1.20%, 1.95%, 1.95%, PERFORMANCE AND RESTATED CLASS A SHARE 1.45%, AND 0.95%, RESPECTIVELY. THE PERFORMANCE (FOR PERIODS PRIOR TO THE EXPENSE RATIOS PRESENTED ABOVE MAY VARY INCEPTION DATE OF CLASS Y SHARES) AT NET FROM THE EXPENSE RATIOS PRESENTED IN OTHER ASSET VALUE. THE RESTATED CLASS A SHARE SECTIONS OF THIS REPORT THAT ARE BASED ON PERFORMANCE REFLECTS THE RULE 12B-1 FEES EXPENSES INCURRED DURING THE PERIOD APPLICABLE TO CLASS A SHARES AS WELL AS COVERED BY THIS REPORT. ANY FEE WAIVERS OR EXPENSE REIMBURSEMENTS RECEIVED BY CLASS A SHARES. CLASS A CLASS A SHARE PERFORMANCE REFLECTS THE SHARES' INCEPTION DATE IS APRIL 30, 1976. MAXIMUM 5.50% SALES CHARGE, AND CLASS B AND CLASS C SHARE PERFORMANCE REFLECTS THE THE PERFORMANCE DATA QUOTED REPRESENT APPLICABLE CONTINGENT DEFERRED SALES PAST PERFORMANCE AND CANNOT GUARANTEE CHARGE (CDSC) FOR THE PERIOD INVOLVED. THE COMPARABLE FUTURE RESULTS; CURRENT CDSC ON CLASS B SHARES DECLINES FROM 5% PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE BEGINNING AT THE TIME OF PURCHASE TO 0% AT VISIT INVESCOAIM.COM FOR THE BEGINNING OF THE SEVENTH YEAR. THE CDSC ON CLASS C SHARES IS 1% FOR THE
14 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, 2008, and is based on total net assets. o Unless otherwise noted, all data provided by Invesco Aim. ABOUT SHARE CLASSES ABOUT INDEXES USED IN THIS REPORT o A direct investment cannot be made in an index. Unless otherwise indicated, o Effective September 30, 2003, only o The S&P 500--REGISTERED TRADEMARK-- index results include reinvested previously established qualified plans INDEX is a market dividends, and they do not reflect are eligible to purchase Class B shares capitalization-weighted index covering sales charges. Performance of an index of any AIM fund. all major areas of the U.S. economy. It of funds reflects fund expenses; is not the 500 largest companies, but performance of a market index does not. o Class R shares are available only to rather the most widely held 500 certain retirement plans. Please see companies chosen with respect to market OTHER INFORMATION the prospectus for more information. size, liquidity, and their industry. o The Chartered Financial o Class Y shares are available only to o The RUSSELL 1000--REGISTERED Analyst--REGISTERED TRADEMARK-- certain investors. Please see the TRADEMARK-- GROWTH INDEX measures the (CFA--REGISTERED TRADEMARK--) prospectus for more information. performance of those Russell 1000 designation is a globally recognized companies with higher price-to-book standard for measuring the competence PRINCIPAL RISKS OF INVESTING IN THE FUND ratios and higher forecasted growth and integrity of investment values. The Russell 1000 Growth Index professionals. o Prices of equity securities change in is a trademark/service mark of the response to many factors, including the Frank Russell Company. o The returns shown in management's historical and prospective earnings of Russell--REGISTERED TRADEMARK-- is a discussion of Fund performance are the issuer, the value of its assets, trademark of the Frank Russell Company. based on net asset values calculated general economic conditions, interest for shareholder transactions. Generally rates, investor perceptions and market o The LIPPER MULTI-CAP GROWTH FUNDS INDEX accepted accounting principles require liquidity. is an equally weighted representation adjustments to be made to the net of the largest funds in the Lipper assets of the Fund at period end for o Foreign securities have additional Multi-Cap Growth Funds category. These financial reporting purposes, and as risks, including exchange rate changes, funds typically have an above-average such, the net asset values for political and economic upheaval, price-to-earnings ratio, price-to-book shareholder transactions and the relative lack of information, ratio, and three-year sales-per-share returns based on those net asset values relatively low market liquidity, and growth value, compared to the S&P may differ from the net asset values the potential lack of strict financial Composite 1500 Index. and returns reported in the Financial and accounting controls and standards. Highlights. o The Fund is not managed to track the o Investing in a fund that invests in performance of any particular index, o Industry classifications used in this smaller companies involves risks not including the indexes defined here, and report are generally according to the associated with investing in more consequently, the performance of the Global Industry Classification established companies, such as business Fund may deviate significantly from the Standard, which was developed by and is risk, stock price fluctuations and performance of the indexes. the exclusive property and a service illiquidity. mark of MSCI Inc. and Standard & Poor's. o The prices of securities held by the Fund may decline in response to market risks. ======================================================================================= ========================================== THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND PROSPECTUS, FUND NASDAQ SYMBOLS WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING. Class A Shares CSTGX ======================================================================================= Class B Shares CSTBX Class C Shares CSTCX NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE Class R Shares CSTRX Class Y Shares CSTYX ==========================================
15 AIM CONSTELLATION FUND SCHEDULE OF INVESTMENTS(a) October 31, 2008
SHARES VALUE --------------------------------------------------------------------------------- COMMON STOCKS & OTHER EQUITY INTERESTS-96.60% AEROSPACE & DEFENSE-10.43% General Dynamics Corp. 553,735 $ 33,401,295 --------------------------------------------------------------------------------- Honeywell International Inc. 1,183,904 36,049,877 --------------------------------------------------------------------------------- Lockheed Martin Corp. 304,738 25,917,967 --------------------------------------------------------------------------------- Precision Castparts Corp. 522,962 33,893,167 --------------------------------------------------------------------------------- Raytheon Co. 1,899,819 97,099,749 --------------------------------------------------------------------------------- Rockwell Collins, Inc. 447,048 16,643,597 --------------------------------------------------------------------------------- Spirit AeroSystems Holdings Inc.-Class A(b) 2,281,434 36,799,530 --------------------------------------------------------------------------------- United Technologies Corp. 1,380,730 75,884,921 ================================================================================= 355,690,103 ================================================================================= APPLICATION SOFTWARE-2.22% Adobe Systems Inc.(b) 1,719,204 45,799,595 --------------------------------------------------------------------------------- Amdocs Ltd.(b) 657,910 14,842,450 --------------------------------------------------------------------------------- Autodesk, Inc.(b) 713,443 15,203,470 ================================================================================= 75,845,515 ================================================================================= AUTO PARTS & EQUIPMENT-0.22% BorgWarner, Inc. 336,869 7,569,446 ================================================================================= BIOTECHNOLOGY-1.97% Gilead Sciences, Inc.(b) 1,463,781 67,114,359 ================================================================================= COAL & CONSUMABLE FUELS-2.55% CONSOL Energy Inc. 1,274,021 39,991,519 --------------------------------------------------------------------------------- Peabody Energy Corp. 1,360,995 46,967,938 ================================================================================= 86,959,457 ================================================================================= COMMUNICATIONS EQUIPMENT-2.51% Cisco Systems, Inc.(b) 1,447,458 25,721,329 --------------------------------------------------------------------------------- Nokia Oyj-ADR (Finland) 2,300,757 34,925,491 --------------------------------------------------------------------------------- Research In Motion Ltd. (Canada)(b) 494,715 24,948,477 ================================================================================= 85,595,297 ================================================================================= COMPUTER HARDWARE-0.49% Apple Inc.(b) 156,051 16,789,527 ================================================================================= CONSTRUCTION & ENGINEERING-2.74% Chicago Bridge & Iron Co. N.V.-New York Shares 485,408 6,014,205 --------------------------------------------------------------------------------- Fluor Corp. 871,003 34,779,150 --------------------------------------------------------------------------------- Foster Wheeler Ltd.(b) 1,443,703 39,557,462 --------------------------------------------------------------------------------- Jacobs Engineering Group Inc.(b) 360,914 13,148,097 ================================================================================= 93,498,914 ================================================================================= CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS-0.83% Joy Global Inc. 508,000 14,721,840 --------------------------------------------------------------------------------- Komatsu Ltd. (Japan) 1,255,600 13,632,788 ================================================================================= 28,354,628 ================================================================================= DIVERSIFIED METALS & MINING-2.99% BHP Billiton Ltd. (Australia) 1,299,440 24,962,261 --------------------------------------------------------------------------------- Companhia Vale do Rio Doce-ADR (Brazil) 985,945 12,935,598 --------------------------------------------------------------------------------- Rio Tinto PLC (United Kingdom) 759,228 35,393,672 --------------------------------------------------------------------------------- Titanium Metals Corp. 432,859 4,029,917 --------------------------------------------------------------------------------- Xstrata PLC (United Kingdom) 1,444,008 24,508,140 ================================================================================= 101,829,588 ================================================================================= EDUCATION SERVICES-0.27% Apollo Group Inc.-Class A(b) 131,135 9,115,194 ================================================================================= ELECTRICAL COMPONENTS & EQUIPMENT-0.56% Emerson Electric Co. 580,321 18,993,906 ================================================================================= ELECTRONIC MANUFACTURING SERVICES-0.30% Trimble Navigation Ltd.(b) 497,731 10,238,327 ================================================================================= ENVIRONMENTAL & FACILITIES SERVICES-0.76% Waste Management, Inc. 828,953 25,888,202 ================================================================================= FERTILIZERS & AGRICULTURAL CHEMICALS-2.70% Monsanto Co. 206,693 18,391,543 --------------------------------------------------------------------------------- Mosaic Co. (The) 1,049,258 41,351,258 --------------------------------------------------------------------------------- Potash Corp. of Saskatchewan Inc. (Canada) 380,373 32,430,602 ================================================================================= 92,173,403 ================================================================================= FOOD RETAIL-1.90% Kroger Co. (The) 2,357,278 64,730,854 ================================================================================= HEALTH CARE EQUIPMENT-8.78% Baxter International Inc. 1,904,493 115,202,782 --------------------------------------------------------------------------------- Becton, Dickinson and Co. 1,154,638 80,131,877 --------------------------------------------------------------------------------- Medtronic, Inc. 814,619 32,853,584 --------------------------------------------------------------------------------- St. Jude Medical, Inc.(b) 1,868,653 71,064,874 ================================================================================= 299,253,117 ================================================================================= HEALTH CARE SERVICES-1.07% Express Scripts, Inc.(b) 288,448 17,482,833 --------------------------------------------------------------------------------- Quest Diagnostics Inc. 404,609 18,935,701 ================================================================================= 36,418,534 ================================================================================= HEAVY ELECTRICAL EQUIPMENT-1.03% ABB Ltd. (Switzerland)(b) 2,648,868 35,012,835 ================================================================================= HOUSEHOLD PRODUCTS-7.63% Colgate-Palmolive Co. 2,024,859 127,080,151 --------------------------------------------------------------------------------- Procter & Gamble Co. (The) 2,059,735 132,935,297 ================================================================================= 260,015,448 ================================================================================= INDUSTRIAL CONGLOMERATES-1.18% McDermott International, Inc.(b) 2,342,013 40,118,683 =================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. 9 AIM CONSTELLATION FUND
SHARES VALUE --------------------------------------------------------------------------------- INDUSTRIAL MACHINERY-0.48% Fanuc Ltd. (Japan) 239,100 $ 16,226,867 ================================================================================= INTEGRATED OIL & GAS-5.19% Exxon Mobil Corp. 766,900 56,842,628 --------------------------------------------------------------------------------- Marathon Oil Corp. 1,050,522 30,570,190 --------------------------------------------------------------------------------- Occidental Petroleum Corp. 1,610,474 89,445,726 ================================================================================= 176,858,544 ================================================================================= INTERNET SOFTWARE & SERVICES-1.18% Google Inc.-Class A(b) 111,998 40,247,601 ================================================================================= IT CONSULTING & OTHER SERVICES-2.87% Accenture Ltd.-Class A 2,501,556 82,676,426 --------------------------------------------------------------------------------- Cognizant Technology Solutions Corp.-Class A(b) 798,749 15,335,981 ================================================================================= 98,012,407 ================================================================================= MARINE-1.09% Mitsui O.S.K. Lines, Ltd. (Japan) 3,053,000 16,165,057 --------------------------------------------------------------------------------- Nippon Yusen Kabushiki Kaisha (Japan) 4,393,000 21,057,526 ================================================================================= 37,222,583 ================================================================================= MULTI-LINE INSURANCE-0.32% Assurant, Inc. 433,039 11,033,834 ================================================================================= OIL & GAS DRILLING-1.59% Transocean Inc. 659,594 54,304,374 ================================================================================= OIL & GAS EQUIPMENT & SERVICES-4.62% Baker Hughes Inc. 902,166 31,530,701 --------------------------------------------------------------------------------- Cameron International Corp.(b) 1,307,750 31,726,015 --------------------------------------------------------------------------------- National-Oilwell Varco Inc.(b) 1,738,566 51,965,738 --------------------------------------------------------------------------------- Schlumberger Ltd. 816,172 42,155,284 ================================================================================= 157,377,738 ================================================================================= OIL & GAS REFINING & MARKETING-0.88% Valero Energy Corp. 1,452,288 29,888,087 ================================================================================= PACKAGED FOODS & MEATS-3.31% General Mills, Inc. 196,714 13,325,407 --------------------------------------------------------------------------------- Kellogg Co. 1,974,179 99,538,105 ================================================================================= 112,863,512 ================================================================================= PERSONAL PRODUCTS-0.45% Avon Products, Inc. 620,727 15,412,651 ================================================================================= PHARMACEUTICALS-4.85% Abbott Laboratories 235,743 13,001,227 --------------------------------------------------------------------------------- Johnson & Johnson 2,108,095 129,310,547 --------------------------------------------------------------------------------- Shire PLC (United Kingdom)(c) 160,282 2,118,016 --------------------------------------------------------------------------------- Shire PLC (United Kingdom) 1,575,732 20,822,214 ================================================================================= 165,252,004 ================================================================================= PROPERTY & CASUALTY INSURANCE-4.18% ACE Ltd. (Switzerland) 1,223,315 70,169,348 --------------------------------------------------------------------------------- Chubb Corp. (The) 1,391,740 72,509,654 ================================================================================= 142,679,002 ================================================================================= PUBLISHING-0.37% Morningstar, Inc.(b) 334,809 12,535,249 ================================================================================= SOFT DRINKS-6.29% Coca-Cola Co. (The) 2,519,538 111,010,844 --------------------------------------------------------------------------------- Hansen Natural Corp.(b) 418,622 10,599,509 --------------------------------------------------------------------------------- PepsiCo, Inc. 1,626,134 92,705,900 ================================================================================= 214,316,253 ================================================================================= SYSTEMS SOFTWARE-3.48% Microsoft Corp. 5,305,933 118,481,484 ================================================================================= WIRELESS TELECOMMUNICATION SERVICES-2.32% China Mobile Ltd. (China) 2,855,500 25,055,137 --------------------------------------------------------------------------------- KDDI Corp. (Japan) 9,070 54,183,365 ================================================================================= 79,238,502 ================================================================================= Total Common Stocks & Other Equity Interests (Cost $4,277,299,263) 3,293,156,029 ================================================================================= MONEY MARKET FUNDS-2.74% Liquid Assets Portfolio-Institutional Class(d) 46,790,150 46,790,150 --------------------------------------------------------------------------------- Premier Portfolio-Institutional Class(d) 46,790,150 46,790,150 ================================================================================= Total Money Market Funds (Cost $93,580,300) 93,580,300 ================================================================================= TOTAL INVESTMENTS-99.34% (Cost $4,370,879,563) 3,386,736,329 ================================================================================= OTHER ASSETS LESS LIABILITIES-0.66% 22,386,299 ================================================================================= NET ASSETS-100.00% $3,409,122,628 _________________________________________________________________________________ =================================================================================
Investment Abbreviations: ADR - American Depositary Receipt
Notes to Schedule of Investments: (a) Industry and/or sector 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 MSCI Inc. and Standard & Poor's. (b) Non-income producing security. (c) Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The value of this security at October 31, 2008 represented 0.06% of the Fund's Net Assets. (d) The money market fund and the Fund are affiliated by having the same investment advisor. See accompanying Notes to Financial Statements which are an integral part of the financial statements. 10 AIM CONSTELLATION FUND STATEMENT OF ASSETS AND LIABILITIES October 31, 2008 ASSETS: Investments, at value (Cost $4,277,299,263) $3,293,156,029 ------------------------------------------------------- Investments in affiliated money market funds, at cost and value 93,580,300 ======================================================= Total investments (Cost $4,370,879,563) 3,386,736,329 ======================================================= Receivables for: Investments sold 33,402,640 ------------------------------------------------------- Fund shares sold 1,808,237 ------------------------------------------------------- Dividends 6,370,122 ------------------------------------------------------- Investment for trustee deferred compensation and retirement plans 415,687 ------------------------------------------------------- Other assets 291,879 ======================================================= Total assets 3,429,024,894 _______________________________________________________ ======================================================= LIABILITIES: Payables for: Investments purchased 9,807,223 ------------------------------------------------------- Fund shares reacquired 4,416,374 ------------------------------------------------------- Accrued fees to affiliates 3,390,107 ------------------------------------------------------- Accrued other operating expenses 561,185 ------------------------------------------------------- Trustee deferred compensation and retirement plans 1,727,377 ======================================================= Total liabilities 19,902,266 ======================================================= Net assets applicable to shares outstanding $3,409,122,628 _______________________________________________________ ======================================================= NET ASSETS CONSIST OF: Shares of beneficial interest $4,878,477,782 ------------------------------------------------------- Undistributed net investment income (loss) (1,889,827) ------------------------------------------------------- Undistributed net realized gain (loss) (483,458,498) ------------------------------------------------------- Unrealized appreciation (depreciation) (984,006,829) ======================================================= $3,409,122,628 _______________________________________________________ ======================================================= NET ASSETS: Class A $2,945,536,234 _______________________________________________________ ======================================================= Class B $ 281,592,267 _______________________________________________________ ======================================================= Class C $ 115,004,459 _______________________________________________________ ======================================================= Class R $ 8,975,974 _______________________________________________________ ======================================================= Class Y $ 5,827,098 _______________________________________________________ ======================================================= Institutional Class $ 52,186,596 _______________________________________________________ ======================================================= SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Class A 165,538,373 _______________________________________________________ ======================================================= Class B 17,386,843 _______________________________________________________ ======================================================= Class C 7,103,558 _______________________________________________________ ======================================================= Class R 510,226 _______________________________________________________ ======================================================= Class Y 327,351 _______________________________________________________ ======================================================= Institutional Class 2,660,830 _______________________________________________________ ======================================================= Class A: Net asset value per share $ 17.79 ------------------------------------------------------- Maximum offering price per share (Net asset value of $17.79 divided by 94.50%) $ 18.83 _______________________________________________________ ======================================================= Class B: Net asset value and offering price per share $ 16.20 _______________________________________________________ ======================================================= Class C: Net asset value and offering price per share $ 16.19 _______________________________________________________ ======================================================= Class R: Net asset value and offering price per share $ 17.59 _______________________________________________________ ======================================================= Class Y: Net asset value and offering price per share $ 17.80 _______________________________________________________ ======================================================= Institutional Class: Net asset value and offering price per share $ 19.61 _______________________________________________________ =======================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. 11 AIM CONSTELLATION FUND STATEMENT OF OPERATIONS For the year ended October 31, 2008 INVESTMENT INCOME: Dividends (net of foreign withholding taxes of $400,518) $ 53,678,730 -------------------------------------------------------------------------------------------------- Dividends from affiliated money market funds (includes securities lending income of $747,242) 6,318,688 ================================================================================================== Total investment income 59,997,418 ================================================================================================== EXPENSES: Advisory fees 34,825,136 -------------------------------------------------------------------------------------------------- Administrative services fees 656,611 -------------------------------------------------------------------------------------------------- Custodian fees 304,783 -------------------------------------------------------------------------------------------------- Distribution fees: Class A 11,712,731 -------------------------------------------------------------------------------------------------- Class B 5,638,884 -------------------------------------------------------------------------------------------------- Class C 1,865,927 -------------------------------------------------------------------------------------------------- Class R 63,628 -------------------------------------------------------------------------------------------------- Transfer agent fees -- A, B, C, R and Y 17,326,110 -------------------------------------------------------------------------------------------------- Transfer agent fees -- Institutional 81,296 -------------------------------------------------------------------------------------------------- Trustees' and officers' fees and benefits 172,399 -------------------------------------------------------------------------------------------------- Other 3,013,278 ================================================================================================== Total expenses 75,660,783 ================================================================================================== Less: Fees waived, expenses reimbursed and expense offset arrangement(s) (1,695,126) ================================================================================================== Net expenses 73,965,657 ================================================================================================== Net investment income (loss) (13,968,239) ================================================================================================== REALIZED AND UNREALIZED GAIN (LOSS) FROM: Net realized gain from: Investment securities (includes net gains (losses) from securities sold to affiliates of $(3,165,517)) 143,769,757 -------------------------------------------------------------------------------------------------- Foreign currencies 1,126,431 ================================================================================================== 144,896,188 ================================================================================================== Change in net unrealized appreciation (depreciation) of: Investment securities (2,977,331,772) -------------------------------------------------------------------------------------------------- Foreign currencies 138,503 ================================================================================================== (2,977,193,269) ================================================================================================== Net realized and unrealized gain (loss) (2,832,297,081) ================================================================================================== Net increase (decrease) in net assets resulting from operations $(2,846,265,320) __________________________________________________________________________________________________ ==================================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. 12 AIM CONSTELLATION FUND STATEMENT OF CHANGES IN NET ASSETS For the years ended October 31, 2008 and 2007
2008 2007 ------------------------------------------------------------------------------------------------------------ OPERATIONS: Net investment income (loss) $ (13,968,239) $ (25,674,989) ------------------------------------------------------------------------------------------------------------ Net realized gain 144,896,188 366,552,567 ------------------------------------------------------------------------------------------------------------ Change in net unrealized appreciation (depreciation) (2,977,193,269) 1,093,662,277 ============================================================================================================ Net increase (decrease) in net assets resulting from operations (2,846,265,320) 1,434,539,855 ============================================================================================================ Share transactions-net: Class A (783,183,615) (1,422,577,412) ------------------------------------------------------------------------------------------------------------ Class B (280,841,384) (333,477,974) ------------------------------------------------------------------------------------------------------------ Class C (44,285,362) (66,221,579) ------------------------------------------------------------------------------------------------------------ Class R 1,105,369 (1,044,154) ------------------------------------------------------------------------------------------------------------ Class Y 6,556,928 -- ------------------------------------------------------------------------------------------------------------ Institutional Class (20,137,169) (10,070,408) ============================================================================================================ Net increase (decrease) in net assets resulting from share transactions (1,120,785,233) (1,833,391,527) ============================================================================================================ Net increase (decrease) in net assets (3,967,050,553) (398,851,672) ============================================================================================================ NET ASSETS: Beginning of year 7,376,173,181 7,775,024,853 ============================================================================================================ End of year (includes undistributed net investment income (loss) of $(1,889,827) and $(1,827,029), respectively) $ 3,409,122,628 $ 7,376,173,181 ____________________________________________________________________________________________________________ ============================================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. 13 AIM CONSTELLATION FUND NOTES TO FINANCIAL STATEMENTS October 31, 2008 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 seven separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The Fund's investment objective is growth of capital. The Fund currently consists of six different classes of shares: Class A, Class B, Class C, Class R, Class Y 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 contingent deferred sales charges ("CDSC"). Class B shares and Class C shares are sold with a CDSC. Class R, Class Y 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. 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, American Depositary Receipts 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. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. 14 AIM CONSTELLATION FUND 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 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, the investment advisor 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. The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. 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 by a significant amount. 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. SECURITIES LENDING -- 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 by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. 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. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could 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. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in Dividends from affiliates on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities, if any. J. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations 15 AIM CONSTELLATION FUND 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. K. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a foreign currency contract to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. The Fund may also enter into a foreign currency contract for the purchase or sale of a security denominated in a foreign currency in order to "lock in" the U.S. dollar price of that security. Fluctuations in the value of these contracts are recorded as unrealized appreciation (depreciation) until the contracts are closed. When these contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains and losses on these contracts are included in the Statement of Operations. The Fund could be exposed to risk, which may be in excess of the amount reflected in the Statement of Assets and Liabilities, if counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES The Trust has entered into a master investment advisory agreement with Invesco Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Advisor 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, the Advisor 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% ___________________________________________________________________ ===================================================================
Under the terms of a master sub-advisory agreement approved by shareholders of the Fund, effective May 1, 2008, between the Advisor and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the "Affiliated Sub-Advisors") the Advisor, not the Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub-Advisor(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Advisor(s). Further, the Advisor has contractually agreed, through at least June 30, 2009, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Advisor receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds. For the year ended October 31, 2008, the Advisor waived advisory fees of $1,228,355. 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, 2008, Invesco reimbursed expenses of the Fund in the amount of $105,378. The Trust has entered into a master administrative services agreement with Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim for certain administrative costs incurred in providing accounting services to the Fund. For the year ended October 31, 2008, 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 Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has agreed to pay IAIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the course of providing such services. IAIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. All fees payable by IAIS 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, 2008, expenses incurred under the agreement are shown in the Statement of Operations as transfer agent fees. 16 AIM CONSTELLATION FUND The Trust has entered into master distribution agreements with Invesco Aim Distributors, Inc. ("IADI") to serve as the distributor for the Class A, Class B, Class C, Class R, Class Y 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 IADI 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. Rules of the Financial Industry Regulatory Authority ("FINRA") 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, 2008, expenses incurred under the Plans are shown in the Statement of Operations as distribution fees. Front-end sales commissions and 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, 2008, IADI advised the Fund that IADI retained $426,675 in front-end sales commissions from the sale of Class A shares and $1,881, $615,752, $14,768 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 Invesco Aim, IAIS and/or IADI. NOTE 3--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, 2008, the Fund engaged in securities purchases of $24,488,142 and securities sales of $16,333,625, which resulted in net realized gains (losses) of $(3,165,517). NOTE 4--EXPENSE OFFSET ARRANGEMENTS The expense offset arrangements are comprised of (i) transfer agency credits which result from balances in Demand Deposit Accounts (DDA) used by the transfer agent for clearing shareholder transactions and (ii) custodian credits which result from periodic overnight cash balances at the custodian. For the year ended October 31, 2008, the Fund received credits from these arrangements, which resulted in the reduction of the Fund's total expenses of $361,393. NOTE 5--TRUSTEES' AND OFFICERS' FEES AND BENEFITS "Trustees' and Officers' 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 Officers' 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 Officers' 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, 2008, the Fund paid legal fees of $16,494 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust. NOTE 6--CASH BALANCES The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company, 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 Invesco Aim, not to exceed the contractually agreed upon rate. 17 AIM CONSTELLATION FUND NOTE 7--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, 2008 and 2007. TAX COMPONENTS OF NET ASSETS AT PERIOD-END:
2008 ------------------------------------------------------------------------------------------------- Net unrealized appreciation (depreciation) -- investments $ (987,384,315) ------------------------------------------------------------------------------------------------- Net unrealized appreciation -- other investments 136,405 ------------------------------------------------------------------------------------------------- Temporary book/tax differences (1,889,827) ------------------------------------------------------------------------------------------------- Capital loss carryforward (480,217,417) ------------------------------------------------------------------------------------------------- Shares of beneficial interest 4,878,477,782 ================================================================================================= Total net assets $3,409,122,628 _________________________________________________________________________________________________ =================================================================================================
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 (depreciation) difference is attributable primarily to wash sales. The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund's temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits. Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions. Under these limitation rules, the Fund is limited to utilizing $335,644,907 of capital loss carryforward in the fiscal year ended October 31, 2009. The Fund utilized $141,277,523 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, 2008 which expires as follows:
CAPITAL LOSS EXPIRATION CARRYFORWARD* ----------------------------------------------------------------------------------------------- October 31, 2009 $ 60,745,898 ----------------------------------------------------------------------------------------------- October 31, 2010 196,611,268 ----------------------------------------------------------------------------------------------- October 31, 2011 222,860,251 =============================================================================================== Total capital loss carryforward $480,217,417 _______________________________________________________________________________________________ ===============================================================================================
* 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. NOTE 8--INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended October 31, 2008 was $5,171,070,875 and $6,338,780,635, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS -------------------------------------------------------------------------------------------------- Aggregate unrealized appreciation of investment securities $ 127,325,447 -------------------------------------------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (1,114,709,762) ================================================================================================== Net unrealized appreciation (depreciation) of investment securities $ (987,384,315) __________________________________________________________________________________________________ ================================================================================================== Cost of investments for tax purposes is $4,374,120,644.
NOTE 9--RECLASSIFICATION OF PERMANENT DIFFERENCES Primarily as a result of differing book/tax treatment of proxy costs, foreign currency transactions, capital loss carryforward expirations and net operating losses, on October 31, 2008, undistributed net investment income (loss) was increased by $13,905,441, undistributed net realized gain (loss) was increased by $1,947,457 and shares of beneficial interest decreased by $15,852,898. This reclassification had no effect on the net assets of the Fund. 18 AIM CONSTELLATION FUND NOTE 10--SHARE INFORMATION
SUMMARY OF SHARE ACTIVITY ----------------------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED OCTOBER 31, 2008(a) OCTOBER 31, 2007 ------------------------------- ------------------------------- SHARES AMOUNT SHARES AMOUNT ----------------------------------------------------------------------------------------------------------------------------- Sold: Class A 5,769,408 $ 145,527,680 7,384,784 $ 205,855,486 ----------------------------------------------------------------------------------------------------------------------------- Class B 1,263,902 29,400,488 1,559,817 39,632,759 ----------------------------------------------------------------------------------------------------------------------------- Class C 681,560 15,975,792 706,186 17,859,433 ----------------------------------------------------------------------------------------------------------------------------- Class R 177,334 4,500,006 151,608 4,126,048 ----------------------------------------------------------------------------------------------------------------------------- Class Y(b) 332,834 6,652,434 -- -- ----------------------------------------------------------------------------------------------------------------------------- Institutional Class 775,039 22,050,482 1,557,578 47,646,681 ============================================================================================================================= Automatic conversion of Class B shares to Class A shares: Class A 7,351,589 183,823,155 4,174,400 116,032,357 ----------------------------------------------------------------------------------------------------------------------------- Class B (8,049,647) (183,823,155) (4,534,920) (116,032,357) ============================================================================================================================= Reacquired: Class A(b) (45,097,498) (1,112,534,450) (63,408,560) (1,744,465,255) ----------------------------------------------------------------------------------------------------------------------------- Class B (5,405,052) (126,418,717) (10,156,390) (257,078,376) ----------------------------------------------------------------------------------------------------------------------------- Class C (2,565,865) (60,261,154) (3,330,877) (84,081,012) ----------------------------------------------------------------------------------------------------------------------------- Class R (139,860) (3,394,637) (189,822) (5,170,202) ----------------------------------------------------------------------------------------------------------------------------- Class Y(b) (5,483) (95,506) -- -- ----------------------------------------------------------------------------------------------------------------------------- Institutional Class (1,495,988) (42,187,651) (1,915,581) (57,717,089) ============================================================================================================================= Net increase (decrease) share activity (46,407,727) $(1,120,785,233) (68,001,777) $(1,833,391,527) _____________________________________________________________________________________________________________________________ =============================================================================================================================
(a) There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 19% of the outstanding shares of the Fund. IADI has an agreement with these entities to sell Fund shares. The Fund, Invesco Aim and/or Invesco Aim affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco Aim and/or Invesco 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) Effective upon the commencement date of Class Y shares, October 3, 2008, the following shares were converted from Class A shares into Class Y shares of the Fund:
CLASS SHARES AMOUNT ---------------------------------------------------------------------------------------------------- Class Y 331,988 $ 6,636,438 ---------------------------------------------------------------------------------------------------- Class A (331,988) (6,636,438) ____________________________________________________________________________________________________ ====================================================================================================
19 AIM CONSTELLATION FUND NOTE 11--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
NET GAINS (LOSSES) ON NET ASSET SECURITIES NET ASSETS, VALUE, (BOTH TOTAL FROM NET ASSET END OF BEGINNING NET INVESTMENT REALIZED AND INVESTMENT VALUE, END TOTAL PERIOD OF PERIOD INCOME (LOSS) UNREALIZED) OPERATIONS OF PERIOD RETURN(A) (000S OMITTED) ------------------------------------------------------------------------------------------------------------------------ CLASS A Year ended 10/31/08 $31.12 $(0.04)(c) $(13.29) $(13.33) $17.79 (42.83)% $2,945,536 Year ended 10/31/07 25.56 (0.07)(c) 5.63 5.56 31.12 21.75 6,145,755 Year ended 10/31/06 23.63 (0.06)(c) 1.99 1.93 25.56 8.17 6,374,641 Year ended 10/31/05 21.27 (0.02)(e) 2.38 2.36 23.63 11.10 4,461,224 Year ended 10/31/04 20.61 (0.13)(c) 0.79 0.66 21.27 3.20 5,616,072 ------------------------------------------------------------------------------------------------------------------------ CLASS B Year ended 10/31/08 28.54 (0.21)(c) (12.13) (12.34) 16.20 (43.24) 281,592 Year ended 10/31/07 23.62 (0.25)(c) 5.17 4.92 28.54 20.83 844,018 Year ended 10/31/06 22.00 (0.23)(c) 1.85 1.62 23.62 7.36 1,008,799 Year ended 10/31/05 19.95 (0.19)(e) 2.24 2.05 22.00 10.28 531,341 Year ended 10/31/04 19.46 (0.26)(c) 0.75 0.49 19.95 2.52 617,005 ------------------------------------------------------------------------------------------------------------------------ CLASS C Year ended 10/31/08 28.52 (0.21)(c) (12.12) (12.33) 16.19 (43.23) 115,004 Year ended 10/31/07 23.61 (0.25)(c) 5.16 4.91 28.52 20.80 256,377 Year ended 10/31/06 21.99 (0.23)(c) 1.85 1.62 23.61 7.37 274,187 Year ended 10/31/05 19.94 (0.19)(e) 2.24 2.05 21.99 10.28 132,056 Year ended 10/31/04 19.46 (0.26)(c) 0.74 0.48 19.94 2.47 162,707 ------------------------------------------------------------------------------------------------------------------------ CLASS R Year ended 10/31/08 30.84 (0.10)(c) (13.15) (13.25) 17.59 (42.96) 8,976 Year ended 10/31/07 25.41 (0.14)(c) 5.57 5.43 30.84 21.37 14,580 Year ended 10/31/06 23.54 (0.12)(c) 1.99 1.87 25.41 7.94 12,982 Year ended 10/31/05 21.24 (0.06)(e) 2.36 2.30 23.54 10.83 7,467 Year ended 10/31/04 20.63 (0.17)(c) 0.78 0.61 21.24 2.96 6,202 ------------------------------------------------------------------------------------------------------------------------ CLASS Y Year ended 10/31/08(f) 19.99 0.00(c) (2.19) (2.19) 17.80 (10.96) 5,827 ------------------------------------------------------------------------------------------------------------------------ INSTITUTIONAL CLASS Year ended 10/31/08 34.14 0.09(c) (14.62) (14.53) 19.61 (42.56) 52,187 Year ended 10/31/07 27.92 0.06(c) 6.16 6.22 34.14 22.28 115,443 Year ended 10/31/06 25.69 0.06(c) 2.17 2.23 27.92 8.68 104,416 Year ended 10/31/05 23.01 0.10(e) 2.58 2.68 25.69 11.65 192,498 Year ended 10/31/04 22.17 (0.01)(c) 0.85 0.84 23.01 3.79 164,664 ________________________________________________________________________________________________________________________ ======================================================================================================================== RATIO OF RATIO OF EXPENSES TO EXPENSES TO AVERAGE NET AVERAGE NET ASSETS WITH ASSETS WITHOUT RATIO OF NET FEE WAIVERS FEE WAIVERS INVESTMENT AND/OR AND/OR INCOME (LOSS) EXPENSES EXPENSES TO AVERAGE PORTFOLIO ABSORBED ABSORBED NET ASSETS TURNOVER(B) ---------------------------------------------------------------------------------- CLASS A Year ended 10/31/08 1.25%(d) 1.27%(d) (0.16)%(d) 96% Year ended 10/31/07 1.17 1.20 (0.25) 68 Year ended 10/31/06 1.21 1.24 (0.24) 123 Year ended 10/31/05 1.29 1.31 (0.06)(e) 59 Year ended 10/31/04 1.27 1.29 (0.59) 50 ---------------------------------------------------------------------------------- CLASS B Year ended 10/31/08 2.00(d) 2.02(d) (0.91)(d) 96 Year ended 10/31/07 1.92 1.95 (1.00) 68 Year ended 10/31/06 1.96 1.99 (0.99) 123 Year ended 10/31/05 2.01 2.03 (0.78)(e) 59 Year ended 10/31/04 1.97 1.99 (1.29) 50 ---------------------------------------------------------------------------------- CLASS C Year ended 10/31/08 2.00(d) 2.02(d) (0.91)(d) 96 Year ended 10/31/07 1.92 1.95 (1.00) 68 Year ended 10/31/06 1.96 1.99 (0.99) 123 Year ended 10/31/05 2.01 2.03 (0.78)(e) 59 Year ended 10/31/04 1.97 1.99 (1.29) 50 ---------------------------------------------------------------------------------- CLASS R Year ended 10/31/08 1.50(d) 1.52(d) (0.41)(d) 96 Year ended 10/31/07 1.42 1.45 (0.50) 68 Year ended 10/31/06 1.46 1.49 (0.49) 123 Year ended 10/31/05 1.51 1.53 (0.28)(e) 59 Year ended 10/31/04 1.47 1.49 (0.79) 50 ---------------------------------------------------------------------------------- CLASS Y Year ended 10/31/08(f) 1.05(d)(g) 1.07(d)(g) 0.04(d)(g) 96 ---------------------------------------------------------------------------------- INSTITUTIONAL CLASS Year ended 10/31/08 0.78(d) 0.80(d) 0.31(d) 96 Year ended 10/31/07 0.71 0.74 0.21 68 Year ended 10/31/06 0.75 0.78 0.22 123 Year ended 10/31/05 0.76 0.78 0.47(e) 59 Year ended 10/31/04 0.72 0.74 (0.04) 50 __________________________________________________________________________________ ==================================================================================
(a) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. (b) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. (c) Calculated using average shares outstanding. (d) Ratios are based on average daily net assets (000's omitted) of $4,685,092, $563,888, $186,593, $12,726, $5,636 and $81,322 for Class A, Class B, Class C, Class R, Class Y and Institutional Class shares, respectively. (e) 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)%; $(0.26) and (1.08)%; $(0.26) and (1.08)%; $(0.13) and (0.58)% and $0.03 and 0.17% for Class A, Class B, Class C, Class R and Institutional Class shares, respectively. (f) Commencement date of October 3, 2008. (g) Annualized. NOTE 12--LEGAL PROCEEDINGS Terms used in the Legal Proceedings Note are defined terms solely for the purpose of this note. SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING On May 23, 2008, the Securities and Exchange Commission ("SEC") publicly posted its final approval of the 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"), Invesco Aim Advisors, Inc. ("Invesco Aim") and Invesco Aim Distributors, Inc. ("IADI") 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 Invesco Aim who may have been harmed by market timing and related activity. The Distribution Plans provide for the distribution to all eligible investors 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 20 AIM CONSTELLATION FUND NOTE 12--LEGAL PROCEEDINGS--(CONTINUED) affected funds. Because the distribution of the Fair Funds has not yet commenced, management of Invesco 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 Invesco 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 Invesco Aim and IADI (Order No. 05-1318). The WVASC makes findings of fact that Invesco Aim and IADI 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 Invesco Aim and IADI violated the West Virginia securities laws. The WVASC orders Invesco Aim and IADI 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, Invesco 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, Invesco Aim, IADI 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 the Employee Retirement Income Security Act of 1974, as amended ("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. The case pending in Illinois State Court regarding fair value pricing was dismissed with prejudice on May 6, 2008. 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 Invesco 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 ERISA purportedly brought on behalf of participants in the Invesco 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. Plaintiff appealed this ruling. On June 16, 2008, the Fourth Circuit Court of Appeals reversed the dismissal and remanded this lawsuit back to the MDL Court for further proceedings. IFG, Invesco Aim, IADI 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, Invesco Aim and IADI 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, Invesco Aim and/or related entities and individuals in the future. At the present time, management of Invesco 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 Invesco Aim, IADI or the Fund. 21 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, 2008, 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 four 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, 2008 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights for the period ended 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 16, 2008 Houston, Texas 22 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. With the exception of the actual ending account value and expenses of the Class Y Shares, 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, 2008, through October 31, 2008. The actual ending account and expenses of the Class Y shares in the below example are based on an investment of $1,000 invested as of close of business October 3, 2008 (commencement date) and held through October 31, 2008. 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 (as of close of business October 3, 2008 through October 31, 2008 for the Class Y shares). Because the actual ending account value and expense information in the example is not based upon a six month period for the Class Y shares, the ending account value and expense information may not provide a meaningful comparison to mutual funds that provide such information for a full six month 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 CLASS (05/01/08) (10/31/08)(1) PERIOD(2) (10/31/08) PERIOD(2,3) RATIO --------------------------------------------------------------------------------------------------- A $1,000.00 $672.50 $5.47 $1,018.60 $ 6.60 1.30% --------------------------------------------------------------------------------------------------- B 1,000.00 670.00 8.61 1,014.83 10.38 2.05 --------------------------------------------------------------------------------------------------- C 1,000.00 669.60 8.60 1,014.83 10.38 2.05 --------------------------------------------------------------------------------------------------- R 1,000.00 671.80 6.51 1,017.34 7.86 1.55 --------------------------------------------------------------------------------------------------- Y 1,000.00 890.40 0.79 1,019.86 5.33 1.05 ---------------------------------------------------------------------------------------------------
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2008, through October 31, 2008 (as of close of business October 3, 2008, through October 31, 2008 for the Class Y shares), after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's expense ratio and a hypothetical annual return of 5% before expenses. (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 184/366 to reflect the most recent fiscal half year. For the Class Y shares actual expenses are equal to the annualized expense ratio indicated above multiplied by the average account value over the period, multiplied by 29 (as of close of business October 3, 2008, through October 31, 2008)/366. Because the Class Y shares have not been in existence for a full six month period, the actual ending account value and expense information shown may not provide a meaningful comparison to fund expense information of classes that show such data for a full six month period and, because the actual ending account value and expense information in the expense example covers a short time period, return and expense data may not be indicative of return and expense data for longer time periods. (3) Hypothetical expenses are equal to the annualized expense ratio indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect a one-half year period. The hypothetical ending account value and expenses may be used to compare ongoing costs of investing in Class Y shares of the Fund and other funds because such data is based on a full six month period. 23 AIM CONSTELLATION FUND Supplement to Annual Report dated 10/31/08 AIM CONSTELLATION FUND ========================================== INSTITUTIONAL CLASS SHARES AVERAGE ANNUAL TOTAL RETURNS Please note that past performance is For periods ended 10/31/08 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) 6.00% those shown. All returns assume shareholders with a performance overview 10 Years -0.07 reinvestment of distributions at NAV. specific to their holdings. Institutional 5 Years -2.41 Investment return and principal value will Class shares are offered exclusively to 1 Year -42.53 fluctuate so your shares, when redeemed, institutional investors, including defined ========================================== may be worth more or less than their contribution plans that meet certain original cost. See full report for criteria. ========================================== information on comparative benchmarks. AVERAGE ANNUAL TOTAL RETURNS Please consult your Fund prospectus for For periods ended 9/30/08, most recent more information. For the most current calendar quarter-end month-end performance, please call 800 451 4246 or visit invescoaim.com. Inception (4/8/92) 7.26% 10 Years 2.35 (1) Total annual operating expenses less 5 Years 2.77 contractual advisory fee waivers by 1 Year -27.86 the advisor in effect through at ========================================== least December 31, 2012. See current prospectus for more information. 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. The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this supplement for Institutional Class shares was 0.71%.(1) The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this supplement for Institutional Class shares was 0.74%.The expense ratios presented above may vary from the expense ratios presented in other sections of the actual report that are based on expenses incurred during the period covered by the report. ========================================== NASDAQ SYMBOL CSITX ========================================== Over for information on your Fund's expenses. THIS SUPPLEMENT 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. [INVESCO AIM LOGO] invescoaim.com CST-INS-1 Invesco Aim Distributors, Inc. -- SERVICE MARK --
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, 2008, through October 31, 2008. 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 CLASS (05/01/08) (10/31/08)(1) PERIOD(2) (10/31/08) PERIOD(2) RATIO ----------------------------------------------------------------------------------------------------------- Institutional $1,000.00 $674.20 $3.41 $1,021.06 $4.12 0.81% -----------------------------------------------------------------------------------------------------------
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2008, through October 31, 2008, 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 184/366 to reflect the most recent fiscal half year. AIM CONSTELLATION FUND APPROVAL OF INVESTMENT ADVISORY AGREEMENT The Board of Trustees (the Board) of AIM renewal process, the Trustees receive from one another and attributed different Equity Funds is required under the comparative performance and fee data weight to the various factors. The Investment Company Act of 1940 to approve regarding the AIM Funds prepared by an Trustees recognized that the advisory annually the renewal of the AIM independent company, Lipper, Inc. arrangements and resulting advisory fees Constellation Fund's (the Fund) investment (Lipper), under the direction and for the Fund and the other AIM Funds are advisory agreement with Invesco Aim supervision of the independent Senior the result of years of review and Advisors, Inc. (Invesco Aim). During Officer who also prepares a separate negotiation between the Trustees and contract renewal meetings held on June analysis of this information for the Invesco Aim, that the Trustees may focus 18-19, 2008, the Board as a whole and the Trustees. Each Sub-Committee then makes to a greater extent on certain aspects of disinterested or "independent" Trustees, recommendations to the Investments these arrangements in some years than in voting separately, approved the Committee regarding the performance, fees others, and that the Trustees' continuance of the Fund's investment and expenses of their assigned funds. The deliberations and conclusions in a advisory agreement for another year, Investments Committee considers each particular year may be based in part on effective July 1, 2008. In doing so, the Sub-Committee's recommendations and makes their deliberations and conclusions of Board determined that the Fund's its own recommendations regarding the these same arrangements throughout the investment advisory agreement is in the performance, fees and expenses of the AIM year and in prior years. best interests of the Fund and its Funds to the full Board. The Investments shareholders and that the compensation to Committee also considers each Sub- FACTORS AND CONCLUSIONS AND SUMMARY OF Invesco Aim under the Fund's investment Committee's recommendations in making its INDEPENDENT WRITTEN FEE EVALUATION advisory agreement is fair and reasonable. annual recommendation to the Board whether to approve the continuance of each AIM The discussion below serves as a summary The independent Trustees met separately Fund's investment advisory agreement and of the Senior Officer's independent during their evaluation of the Fund's sub-advisory agreements for another year. written evaluation with respect to the investment advisory agreement with Fund's investment advisory agreement as independent legal counsel from whom they The independent Trustees are assisted well as a discussion of the material received independent legal advice, and the in their annual evaluation of the Fund's factors and related conclusions that independent Trustees also received investment advisory agreement by the formed the basis for the Board's approval assistance during their deliberations from independent Senior Officer. One of the Fund's investment advisory the independent Senior Officer, a responsibility of the Senior Officer is to agreement and sub-advisory agreements. full-time officer of the AIM Funds who manage the process by which the AIM Funds' Unless otherwise stated, information set reports directly to the independent proposed management fees are negotiated forth below is as of June 19, 2008 and Trustees. during the annual contract renewal process does not reflect any changes that may have to ensure that they are negotiated in a occurred since that date, including but THE BOARD'S FUND EVALUATION PROCESS manner that is at arms' length and not limited to changes to the Fund's reasonable. Accordingly, the Senior performance, advisory fees, expense The Board's Investments Committee has Officer must either supervise a limitations and/or fee waivers. established three Sub-Committees that are competitive bidding process or prepare an responsible for overseeing the management independent written evaluation. The Senior I. Investment Advisory Agreement of a number of the series portfolios of Officer has recommended that an the AIM Funds. This Sub-Committee independent written evaluation be provided A. Nature, Extent and Quality of structure permits the Trustees to focus on and, at the direction of the Board, has Services Provided by Invesco Aim the performance of the AIM Funds that have prepared an independent written been assigned to them. The Sub-Committees evaluation. The Board reviewed the advisory services meet throughout the year to review the provided to the Fund by Invesco Aim under performance of their assigned funds, and During the annual contract renewal the Fund's investment advisory agreement, the Sub-Committees review monthly and process, the Board considered the factors the performance of Invesco Aim in quarterly comparative performance discussed below under the heading "Factors providing these services, and the information and periodic asset flow data and Conclusions and Summary of Independent credentials and experience of the officers for their assigned funds. These materials Written Fee Evaluation" in evaluating the and employees of Invesco Aim who provide are prepared under the direction and fairness and reasonableness of the Fund's these services. The Board's review of the supervision of the independent Senior investment advisory agreement and qualifications of Invesco Aim to provide Officer. Over the course of each year, the sub-advisory agreements at the contract these services included the Board's Sub-Committees meet with portfolio renewal meetings and at their meetings consideration of Invesco Aim's portfolio managers for their assigned funds and throughout the year as part of their and product review process, various back other members of management and review ongoing oversight of the Fund. The Fund's office support functions provided by with these individuals the performance, investment advisory agreement and Invesco Aim, and Invesco Aim's equity and investment objective(s), policies, sub-advisory agreements were considered fixed income trading operations. The Board strategies and limitations of these funds. separately, although the Board also concluded that the nature, extent and considered the common interests of all of quality of the advisory services provided In addition to their meetings the AIM Funds in their deliberations. The to the Fund by Invesco Aim were throughout the year, the Sub-Committees Board considered all of the information appropriate and that Invesco Aim currently meet at designated contract renewal provided to them and did not identify any is providing satisfactory advisory meetings each year to conduct an in-depth particular factor that was controlling. services in accordance with the terms of review of the performance, fees and Each Trustee may have evaluated the the Fund's investment advisory agreement. expenses of their assigned funds. During information provided differently In addition, based on their ongoing the contract meetings throughout the year with the Fund's portfolio manager or managers, continued
24 AIM CONSTELLATION FUND the Board concluded that these individuals The Board concluded that Invesco Aim economies of scale through contractual are competent and able to continue to continues to be responsive to the Board's breakpoints in the Fund's advisory fee carry out their responsibilities under the focus on fund performance. However, due to schedule or through advisory fee waivers Fund's investment advisory agreement. the Fund's underperformance, the Board or expense limitations. The Board noted also concluded that it would be that the Fund's contractual advisory fee In determining whether to continue the appropriate for the Board to monitor more schedule includes one breakpoint and that Fund's investment advisory agreement, the closely the performance of the Fund. the level of the Fund's advisory fees, as Board considered the prior relationship Although the independent written a percentage of the Fund's net assets, has between Invesco Aim and the Fund, as well evaluation of the Fund's Senior Officer decreased as net assets increased because as the Board's knowledge of Invesco Aim's only considered Fund performance through of the breakpoint. The Board also noted operations, and concluded that it was the most recent calendar year, the Board that Invesco Aim's contractual advisory beneficial to maintain the current also reviewed more recent Fund performance fee waiver discussed above includes relationship, in part, because of such and this review did not change their breakpoints based on net asset levels. knowledge. The Board also considered the conclusions. Based on this information, the Board steps that Invesco Aim and its affiliates concluded that the Fund's advisory fees have taken over the last several years to C. Advisory Fees and Fee Waivers appropriately reflect economies of scale improve the quality and efficiency of the at current asset levels. The Board also services they provide to the AIM Funds in The Board compared the Fund's contractual noted that the Fund shares directly in the areas of investment performance, advisory fee rate to the contractual economies of scale through lower fees product line diversification, advisory fee rates of funds in the Fund's charged by third party service providers distribution, fund operations, shareholder expense group that are not managed by based on the combined size of all of the services and compliance. The Board Invesco Aim, at a common asset level and AIM Funds and affiliates. concluded that the quality and efficiency as of the end of the past calendar year. of the services Invesco Aim and its The Board noted that the Fund's E. Profitability and Financial affiliates provide to the AIM Funds in contractual advisory fee rate was above Resources of Invesco Aim each of these areas have generally the median contractual advisory fee rate improved, and support the Board's approval of funds in its expense group. The Board The Board reviewed information from of the continuance of the Fund's also reviewed the methodology used by Invesco Aim concerning the costs of the investment advisory agreement. Lipper in determining contractual fee advisory and other services that Invesco rates. Aim and its affiliates provide to the Fund B. Fund Performance and the profitability of Invesco Aim and The Board also compared the Fund's its affiliates in providing these The Board compared the Fund's performance effective fee rate (the advisory fee after services. The Board also reviewed during the past one, three and five any advisory fee waivers and before any information concerning the financial calendar years to the performance of funds expense limitations/waivers) to the condition of Invesco Aim and its in the Fund's performance group that are advisory fee rates of other clients of affiliates. The Board also reviewed with not managed by Invesco Aim, and against Invesco Aim and its affiliates with Invesco Aim the methodology used to the performance of all funds in the Lipper investment strategies comparable to those prepare the profitability information. The Multi-Cap Growth Funds Index and the of the Fund, including two mutual funds Board considered the overall profitability Lipper Large-Cap Growth Funds Index. The advised by Invesco Aim and four mutual of Invesco Aim, as well as the Board also reviewed the criteria used by funds sub-advised by an Invesco Aim profitability of Invesco Aim in connection Invesco Aim to identify the funds in the affiliate. The Board noted that the Fund's with managing the Fund. The Board noted Fund's performance group for inclusion in rate was: (i) below the rates for the that Invesco Aim continues to operate at a the Lipper reports. The Board noted that mutual funds; and (ii) above the net profit, although increased expenses in the Fund's performance was in the fourth sub-advisory fee rates for the four recent years have reduced the quintile of its performance group for the sub-advised mutual funds. profitability of Invesco Aim and its one, three and five year periods (the affiliates. The Board concluded that the first quintile being the best performing The Board noted that Invesco Aim has Fund's fees were fair and reasonable, and funds and the fifth quintile being the contractually agreed to waive advisory that the level of profits realized by worst performing funds). The Board noted fees of the Fund through December 31, 2012 Invesco Aim and its affiliates from that the Fund's performance was below the and that this fee waiver includes providing services to the Fund was not performance of both Indexes for the one, breakpoints based on net asset levels. The excessive in light of the nature, quality three and five year periods. The Board Board considered the contractual nature of and extent of the services provided. The noted that Invesco Aim made changes to the this fee waiver and noted that it remains Board considered whether Invesco Aim is Fund's portfolio management team in 2005 in effect until December 31, 2012. financially sound and has the resources and 2008, which need more time to be necessary to perform its obligations under evaluated before a conclusion can be After taking account of the Fund's the Fund's investment advisory agreement, reached that the changes have adequately contractual advisory fee rate, as well as and concluded that Invesco Aim has the addressed the Fund's underperformance. The the comparative advisory fee information financial resources necessary to fulfill Board also considered the steps Invesco and the fee waiver discussed above, the these obligations. Aim has taken over the last several years Board concluded that the Fund's advisory to improve the quality and efficiency of fees were fair and reasonable. F. Independent Written Evaluation of the services that Invesco Aim provides to the Fund's Senior Officer the AIM Funds. D. Economies of Scale and Breakpoints The Board noted that, at their direction, The Board considered the extent to which the Senior Officer of the Fund, who is there are economies of scale in Invesco independent of Invesco Aim and Invesco Aim's provision of advisory services to the Fund. The Board also considered whether the Fund benefits from such continued
25 AIM CONSTELLATION FUND Aim's affiliates, had prepared an The Board considered the fact that the that the sub-advisory agreements will independent written evaluation to assist Fund's uninvested cash and cash collateral benefit the Fund and its shareholders by the Board in determining the from any securities lending arrangements permitting Invesco Aim to utilize the reasonableness of the proposed management may be invested in money market funds additional resources and talent of the fees of the AIM Funds, including the Fund. advised by Invesco Aim pursuant to Affiliated Sub-Advisers in managing the The Board noted that they had relied upon procedures approved by the Board. The Fund. the Senior Officer's written evaluation Board noted that Invesco Aim will receive instead of a competitive bidding process. advisory fees from these affiliated money B. Fund Performance In determining whether to continue the market funds attributable to such Fund's investment advisory agreement, the investments, although Invesco Aim has The Board did not view Fund performance as Board considered the Senior Officer's contractually agreed to waive through at a relevant factor in considering whether written evaluation. least June 30, 2009, the advisory fees to approve the sub-advisory agreements for payable by the Fund in an amount equal to the Fund, as no Affiliated Sub-Adviser G. Collateral Benefits to Invesco Aim 100% of the net advisory fees Invesco Aim currently manages any portion of the and its Affiliates receives from the affiliated money market Fund's assets. funds with respect to the Fund's The Board considered various other investment of uninvested cash, but not C. Sub-Advisory Fees benefits received by Invesco Aim and its cash collateral. The Board considered the affiliates resulting from Invesco Aim's contractual nature of this fee waiver and The Board considered the services to be relationship with the Fund, including the noted that it remains in effect until at provided by the Affiliated Sub-Advisers fees received by Invesco Aim and its least June 30, 2009. The Board concluded pursuant to the sub-advisory agreements affiliates for their provision of that the Fund's investment of uninvested and the services to be provided by Invesco administrative, transfer agency and cash and cash collateral from any Aim pursuant to the Fund's investment distribution services to the Fund. The securities lending arrangements in the advisory agreement, as well as the Board considered the performance of affiliated money market funds is in the allocation of fees between Invesco Aim and Invesco Aim and its affiliates in best interests of the Fund and its the Affiliated Sub-Advisers pursuant to providing these services and the shareholders. the sub-advisory agreements. The Board organizational structure employed by noted that the sub-advisory fees have no Invesco Aim and its affiliates to provide II. Sub-Advisory Agreements direct effect on the Fund or its these services. The Board also considered shareholders, as they are paid by Invesco that these services are provided to the A. Nature, Extent and Quality of Aim to the Affiliated Sub-Advisers, and Fund pursuant to written contracts which Services Provided by Affiliated that Invesco Aim and the Affiliated are reviewed and approved on an annual Sub-Advisers Sub-Advisers are affiliates. After taking basis by the Board. The Board concluded account of the Fund's contractual that Invesco Aim and its affiliates were The Board reviewed the services to be sub-advisory fee rate, as well as other providing these services in a satisfactory provided by Invesco Trimark Ltd., Invesco relevant factors, the Board concluded that manner and in accordance with the terms of Asset Management Deutschland, GmbH, the Fund's sub-advisory fees were fair and their contracts, and were qualified to Invesco Asset Management Limited, Invesco reasonable. continue to provide these services to the Asset Management (Japan) Limited, Invesco Fund. Australia Limited, Invesco Global Asset D. Financial Resources of the Management (N.A.), Inc., Invesco Hong Kong Affiliated Sub-Advisers The Board considered the benefits Limited, Invesco Institutional (N.A.), realized by Invesco Aim as a result of Inc. and Invesco Senior Secured The Board considered whether each portfolio brokerage transactions executed Management, Inc. (collectively, the Affiliated Sub-Adviser is financially through "soft dollar" arrangements. Under "Affiliated Sub-Advisers") under the sound and has the resources necessary to these arrangements, portfolio brokerage sub-advisory agreements and the perform its obligations under its commissions paid by the Fund and/or other credentials and experience of the officers respective sub-advisory agreement, and funds advised by Invesco Aim are used to and employees of the Affiliated concluded that each Affiliated Sub-Adviser pay for research and execution services. Sub-Advisers who will provide these has the financial resources necessary to The Board noted that soft dollar services. The Board concluded that the fulfill these obligations. arrangements shift the payment obligation nature, extent and quality of the services for the research and execution services to be provided by the Affiliated from Invesco Aim to the funds and Sub-Advisers were appropriate. The Board therefore may reduce Invesco Aim's noted that the Affiliated Sub-Advisers, expenses. The Board also noted that which have offices and personnel that are research obtained through soft dollar geographically dispersed in financial arrangements may be used by Invesco Aim in centers around the world, have been formed making investment decisions for the Fund in part for the purpose of researching and and may therefore benefit Fund compiling information and making shareholders. The Board concluded that recommendations on the markets and Invesco Aim's soft dollar arrangements economies of various countries and were appropriate. The Board also concluded securities of companies located in such that, based on their review and countries or on various types of representations made by Invesco Aim, these investments and investment techniques, and arrangements were consistent with providing investment advisory services. regulatory requirements. The Board concluded
26 AIM CONSTELLATION FUND TAX INFORMATION NON-RESIDENT ALIEN SHAREHOLDERS The percentage of qualifying assets not subject to the U.S. estate tax for the fiscal quarters ended January 31, 2008, April 30, 2008, July 31, 2008 and October 31, 2008, were 10.44%, 13.81%, 17.46% and 16.35%, respectively. 27 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 103 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.
NAME, YEAR OF BIRTH AND TRUSTEE AND/ OTHER POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) DIRECTORSHIP(S) TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE -------------------------------------------------------------------------------------------------------------------------------- INTERESTED PERSONS -------------------------------------------------------------------------------------------------------------------------------- Martin L. 2007 Executive Director, Chief Executive Officer and President, None Flanagan(1) -- 1960 Invesco Ltd. (ultimate parent of Invesco Aim and a global Trustee investment management firm); Chairman, Invesco Aim Advisors, Inc. (registered investment advisor); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company); INVESCO North American Holdings, Inc. (holding company); and, INVESCO Group Services, Inc. (service provider); Trustee, The AIM Family of Funds--Registered Trademark--; Vice Chairman, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business Formerly: Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco Aim and a global investment management firm); 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 Head of North American Retail and Senior Managing Director, None Trustee, President and Invesco Ltd.; Director, Chief Executive Officer and Principal President, Invesco Trimark Dealer Inc. (formerly AIM Mutual Executive Officer Fund Dealer Inc.) (registered broker dealer), Invesco Aim Advisors, Inc., and 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Aim Management Group, Inc. (financial services holding company) and Invesco Aim 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, Invesco Aim Distributors, Inc. (registered broker dealer); Director and Chairman, Invesco 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 Invesco Canada Holdings Inc. (formerly AIM Canada Holdings Inc.) (holding company); 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); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltee (formerly AIM Funds Management Inc. d/b/a INVESCO Enterprise Services) (registered investment advisor and registered transfer agent) and Invesco Trimark Dealer Inc. (formerly AIM Mutual Fund Dealer Inc.) (registered broker dealer); Trustee, President and Principal Executive Officer of The AIM Family of Funds--Registered Trademark-- (other than AIM Treasurer's Series Trust and Short-Term Investments Trust); Trustee and Executive Vice President, The AIM Family of Funds--Registered Trademark-- (AIM Treasurer's Series Trust and Short-Term Investments Trust only); and Manager, Invesco PowerShares Capital Management LLC Formerly: President, Invesco Trimark Dealer Inc.; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Director and President, Invesco Trimark Ltd./Invesco Trimark Ltee (formerly AIM Funds Management Inc. d/b/a INVESCO Enterprise Services); Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; 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); 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 (technology ACE Limited Trustee and Chair consulting company) (insurance company); Captaris, Inc. (unified messaging provider); and Investment Company Institute -------------------------------------------------------------------------------------------------------------------------------- Bob R. Baker -- 1936 2003 Retired None Trustee -------------------------------------------------------------------------------------------------------------------------------- Frank S. Bayley -- 1939 2001 Retired Trustee Formerly: Partner, law firm of Baker & McKenzie; and None Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) -------------------------------------------------------------------------------------------------------------------------------- James T. Bunch -- 1942 2003 Founder, Green, Manning & Bunch Ltd., (investment banking Director, Policy Trustee firm) Studies, Inc. and Van Gilder Insurance Corporation -------------------------------------------------------------------------------------------------------------------------------- Albert R. Dowden -- 1941 2000 Director of a number of public and private business None Trustee corporations, including the Boss Group Ltd. (private investment and management); Continental Energy Services, LLC (oil and gas pipeline service); Reich & Tang Funds (registered investment company); Annuity and Life Re (Holdings), Ltd. (reinsurance company), and Homeowners of America Holding Corporation/Homeowners of America Insurance Company (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 public and private corporations -------------------------------------------------------------------------------------------------------------------------------- Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Century Group, Inc. Administaff Trustee (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); and Discovery Global Education Fund (non-profit) -------------------------------------------------------------------------------------------------------------------------------- Carl Frischling -- 1937 1998 Partner, law firm of Kramer Levin Naftalis and Frankel LLP Director, Reich & Trustee Tang Funds) (15 portfolios) -------------------------------------------------------------------------------------------------------------------------------- Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the USA None Trustee -------------------------------------------------------------------------------------------------------------------------------- Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper None Trustee -------------------------------------------------------------------------------------------------------------------------------- Larry Soll -- 1942 2003 Retired None Trustee -------------------------------------------------------------------------------------------------------------------------------- Raymond Stickel, Jr. -- 1944 2005 Retired Trustee Formerly: Partner, Deloitte & Touche; and Director, Mainstay None VP Series Funds, Inc. (25 portfolios) --------------------------------------------------------------------------------------------------------------------------------
(1) 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 Ltd., ultimate 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. 28 AIM CONSTELLATION FUND TRUSTEES AND OFFICERS--(CONTINUED)
NAME, YEAR OF BIRTH AND TRUSTEE AND/ OTHER POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) DIRECTORSHIP(S) TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE -------------------------------------------------------------------------------------------------------------------------------- OTHER OFFICERS -------------------------------------------------------------------------------------------------------------------------------- Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer of The AIM Family of N/A Senior Vice President and Funds--Registered Trademark-- Senior Officer 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, Secretary and General Counsel, N/A Senior Vice President, Chief Invesco Aim Management Group, Inc., Invesco Aim Advisors, Inc. Legal Officer and Secretary and Invesco Aim Capital Management, Inc.; Director, Senior Vice President and Secretary, Invesco Aim Distributors, Inc.; Director, Vice President and Secretary, Invesco Aim Investment Services, Inc. and INVESCO Distributors, Inc.; Director and Vice President, INVESCO Funds Group Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds--Registered Trademark--; and Manager, Invesco PowerShares Capital Management LLC Formerly: Director, Vice President and Secretary, Fund Management Company; Vice President, Invesco Aim 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); 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 Ltd.; and Vice President, The N/A Vice President AIM Family of Funds--Registered Trademark-- Formerly: Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and The AIM Family of Funds--Registered Trademark--; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Aim Distributors, Inc.; Vice President, Invesco Aim Investment Services, Inc. and Fund Management Company; and Senior Vice President and Compliance Director, Delaware Investments Family of Funds -------------------------------------------------------------------------------------------------------------------------------- Kevin M. Carome -- 1956 2003 General Counsel, Secretary and Senior Managing Director, Invesco N/A Vice President Ltd.; Director and Secretary, Invesco Holding Company Limited, IVZ, Inc. and INVESCO Group Services, Inc.; Director, INVESCO Funds Group, Inc.; Secretary, INVESCO North American Holdings, Inc.; and Vice President, The AIM Family of Funds--Registered Trademark-- Formerly: Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc. and Invesco Aim Advisors, Inc.; Senior Vice President, Invesco Aim Distributors, Inc.; Director, General Counsel and Vice President, Fund Management Company; Vice President, Invesco Aim Capital Management, Inc. and Invesco Aim Investment Services, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds--Registered Trademark--; Director and Vice President, INVESCO Distributors, Inc. and Chief Executive Officer and President, INVESCO Funds Group, Inc. -------------------------------------------------------------------------------------------------------------------------------- Sheri Morris -- 1964 1999 Vice President, Treasurer and Principal Financial Officer, The N/A Vice President, Treasurer AIM Family of Funds--Registered Trademark--; and Vice President, and Principal Financial Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. Officer and Invesco Aim Private Asset Management Inc. Formerly: Assistant Vice President and Assistant Treasurer, The AIM Family of Funds--Registered Trademark-- and Assistant Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. -------------------------------------------------------------------------------------------------------------------------------- Karen Dunn Kelley -- 1960 2004 Head of Invesco's World Wide Fixed Income and Cash Management N/A Vice President Group; Director of Cash Management and Senior Vice President, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc; Executive Vice President, Invesco Aim Distributors, Inc.; Senior Vice President, Invesco Aim Management Group, Inc.; Vice President, The AIM Family of Funds--Registered Trademark-- (other than AIM Treasurer's Series Trust and Short-Term Investments Trust); and President and Principal Executive Officer, The AIM Family of Funds--Registered Trademark-- (AIM Treasurer's Series Trust and Short-Term Investments Trust only) Formerly President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer and Managing Director, Invesco Aim Capital Management, Inc.; and Vice President, Invesco Aim 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 Officer, Invesco Aim Advisors, N/A Anti-Money Laundering Inc., Invesco Aim Capital Management, Inc., Invesco Aim Compliance Officer Distributors, Inc., Invesco Aim Investment Services, Inc., Invesco 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, Invesco Aim Investment Services, Inc. -------------------------------------------------------------------------------------------------------------------------------- Todd L. Spillane -- 1958 2006 Senior Vice President, Invesco Aim Management Group, Inc.; Senior N/A Chief Compliance Officer Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, 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, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc. Formerly: Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company; and Global Head of Product Development, AIG-Global Investment Group, Inc. --------------------------------------------------------------------------------------------------------------------------------
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. Please refer to the Fund's prospectus for information on the Fund's sub- advisors. OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS 11 Greenway Plaza Invesco Aim Advisors, Invesco Aim Distributors, PricewaterhouseCoopers Suite 100 Inc. Inc. LLP Houston, TX 77046-1173 11 Greenway Plaza 11 Greenway Plaza 1201 Louisiana Street Suite 100 Suite 100 Suite 2900 Houston, TX 77046-1173 Houston, TX 77046-1173 Houston, TX 77002-5678 COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN Stradley Ronon Stevens INDEPENDENT TRUSTEES Invesco Aim Investment State Street Bank and & Young, LLP Kramer, Levin, Naftalis & Services, Inc. Trust Company 2600 One Commerce Square Frankel LLP P.O. Box 4739 225 Franklin Street Philadelphia, PA 19103 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801 Americas New York, NY 10036-2714
29 AIM CONSTELLATION FUND [GO PAPERLESS GRAPHIC] ==================================================================================================================================== GO PAPERLESS WITH EDELIVERY Visit invescoaim.com/edelivery to receive quarterly statements, tax forms, fund reports and prospectuses with a service that's all about eeees: o ENVIRONMENTALLY FRIENDLY. Go green by reducing the number of o EFFICIENT. Stop waiting for regular mail. Your documents will trees used to produce paper. be sent via email as soon as they're available. o ECONOMICAL. Help reduce your fund's printing and delivery o EASY. Download, save and print files using your home computer expenses and put more capital back in your fund's returns. with a few clicks of your mouse. This service is provided by Invesco Aim Investment Services, Inc. ==================================================================================================================================== FUND HOLDINGS AND PROXY VOTING INFORMATION The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund's semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The most recent list of portfolio holdings is available at invescoaim.com. From our home page, click on Products & Performance, then Mutual Funds, then Fund Overview. Select your Fund from the drop-down menu and click on Complete Quarterly Holdings. Shareholders can also look up the Fund's Forms N-Q on the SEC website at sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 942 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-01424 and 002-25469. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or on the Invesco Aim website, invescoaim. com. On the home page, scroll down and click on Proxy Policy. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2008, is available at our website. Go to invescoaim.com, access the About Us tab, click on Required Notices and then click on Proxy Voting Activity. Next, select the Fund from the drop-down menu. The information is also available on the SEC website, sec.gov. If used after January 20, 2009, this report must be accompanied by a Fund fact sheet or Invesco Aim Quarterly Performance Review for the most recent quarter-end. Invesco Aim--SERVICE MARK--is a service mark of Invesco Aim Management Group, Inc. Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc., Invesco Aim Private Asset Management, Inc. and Invesco PowerShares Capital Management LLC are the [INVESCO AIM LOGO] investment advisors for the products and services represented by Invesco Aim; they each provide -- SERVICE MARK -- investment advisory services to individual and institutional clients and do not sell securities. Please refer to each fund's prospectus for information on the fund's subadvisors. Invesco Aim Distributors, Inc. is the U.S. distributor for the retail mutual funds, exchange-traded funds and institutional money market funds and the subdistributor for the STIC Global Funds represented by Invesco Aim. All entities are indirect, wholly owned subsidiaries of Invesco Ltd. invescoaim.com CST-AR-1 Invesco Aim Distributors, Inc.
[INVESCO AIM LOGO] AIM DIVERSIFIED DIVIDEND FUND -- SERVICE MARK -- Annual Report to Shareholders o October 31, 2008 [MOUNTAIN GRAPHIC] 2 Letters to Shareholders 4 Performance Summary 4 Management Discussion 6 Long-Term Fund Performance 8 Supplemental Information 9 Schedule of Investments 11 Financial Statements 14 Notes to Financial Statements 20 Financial Highlights 22 Auditor's Report 23 Fund Expenses 24 Approval of Investment Advisory Agreement 27 Tax Information 28 Trustees and Officers
Dear Shareholder: In previous reports, I've talked with you about short-term market volatility. I'd like to take this opportunity to update you on recent market developments and provide some perspective and encouragement to my fellow long-term investors. [TAYLOR PHOTO] MARKET OVERVIEW At the start of the fiscal year in November 2007, we saw warning signs of increasing economic ills -- a weakening housing market, rising inflation and slowing job growth, among others. In response, the U.S. Federal Reserve Board Philip Taylor (the Fed) repeatedly cut short-term interest rate targets to stimulate economic growth and expand market liquidity.(1) Also, Congress and the president worked together to enact an economic stimulus plan that included billions of dollars in rebates to taxpayers. These actions helped the economy and the U.S. stock market until the spring of 2008, when other factors came to the forefront -- triggering a severe correction that eventually drove major stock-market indexes to multi-year lows.(2) HOW WE GOT HERE The cause of this correction was years of lax lending associated with the recent housing boom. Mortgage loans of questionable quality were bundled into hard-to-value securities that were bought by, and traded among, financial institutions. As the value of those securities declined, financial institutions sought to unload them -- but there were few buyers. With the value of their assets falling and access to credit tightening, a number of well-established financial firms faced severe difficulties, and investor uncertainty and market volatility spiked. In October 2008, the administration and Congress enacted a plan, the Troubled Assets Relief Program, authorizing the U.S. Department of the Treasury to purchase up to $700 billion in troubled mortgage-related assets -- the largest and most direct effort to resolve a credit crisis in the last half century. The Fed, in concert with other central banks, cut short-term interest rate targets and undertook other initiatives intended to restore investor confidence, expand lending and mitigate the effects of the global credit crisis. The recent volatility in the stock, fixed-income and credit markets has driven home the importance of three timeless investing principles. INVESTING IN VOLATILE MARKETS Through up markets and down, we believe history shows investors should: o INVEST FOR THE LONG TERM. Short-term fluctuations have always been a reality of the markets. We urge you to stick to your investment plan and stay focused on your long-term goals. o DIVERSIFY. Although diversification doesn't eliminate the risk of loss or guarantee a profit, a careful selection of complementary asset classes may cushion your portfolio against excessive volatility. o STAY FULLY INVESTED. Trying to time the market is a gamble, not an investment strategy. A sound investment strategy includes viewing market volatility as a matter of course, not a reason to panic. A trusted financial advisor can explain more fully the potential value of following these principles. An experienced advisor who knows your individual investment goals, financial situation and risk tolerance can be your most valuable asset during times of market volatility. Your advisor can provide guidance and can monitor your investments to ensure they're on course. It's also helpful to remember that many of history's significant buying opportunities resulted from short-term economic crises that, in their time, were considered unprecedented. We believe current market uncertainty may represent a buying opportunity for patient, long-term investors. Rest assured that Invesco Aim's portfolio managers are working diligently on your behalf to capitalize on this situation. MANAGING MONEY IS OUR FOCUS As 2008 draws to a close, I believe Invesco Aim is uniquely positioned to navigate current uncertain markets. Our parent company, Invesco Ltd., is one of the world's largest and most diversified global investment managers. Invesco provides clients with diversified investment strategies from distinct management teams around the globe and a range of investment products. Invesco's single focus is asset management -- which means we focus on doing one thing well: managing your money. That can be reassuring in uncertain times. While market conditions change often, commitment to putting shareholders first, helping clients achieve their investment goals and providing excellent customer service remains constant. If you have questions about this report or your account, please contact one of our client service representatives at 800 959 4246. Thank you for your continued confidence, and we look forward to serving you.
Sincerely, /S/ PHILIP TAYLOR Philip Taylor Senior Managing Director, Invesco Ltd. CEO, Invesco Aim (1) U.S. Federal Reserve; (2) Lipper Inc. 2 AIM DIVERSIFIED DIVIDEND FUND Dear Fellow Shareholders: As I write this letter, turbulent financial markets are causing considerable investor anxiety, reminding us again that markets are cyclical and the correction of excess is often painful, at least in the short term. Your Board of Trustees [CROCKETT believes in the wisdom of a long-term perspective and consistent investment PHOTO] discipline. We continue to put your interests first in the effort to improve investment performance, contain shareholder costs and uphold the highest ethical standards. We remain enthusiastic about the global reach and investment expertise that Invesco, a leading independent global investment management company, brings to Bruce Crockett the management of AIM Funds as the parent company of the advisors. The diverse investment strategies deployed throughout the worldwide network of Invesco investment centers has helped strengthen the management of many AIM Funds. The rebranding of the Funds' management company as Invesco Aim was followed by the launch of an upgraded, investor-friendly website (invescoaim.com); a new mountain logo using a Himalayan peak to symbolize stability, endurance, strength and longevity; and a new ad campaign. Emphasizing Invesco Aim's focus and investment quality, the ads will appear in financial publications such as Barron's and Investment News through the end of 2008. At its June meeting, your Board reviewed and renewed the investment advisory contracts between the AIM Funds and Invesco Aim Advisors, Inc. You can find the results of this rigorous annual process at invescoaim.com. Go to "Products & Performance" and click on "Investment Advisory Agreement Renewals." We have recently completed another active proxy voting season during which we acted on your behalf to double the number of votes in favor of separating the roles of chairman and CEO at the companies whose shares your Funds hold. We also continued to support the movement for shareholders to have a bigger role in approving executive compensation, initiatives known as "say on pay." Like virtually all other mutual fund complexes, AIM Funds abstain from voting on social issues as a matter of policy, and I would be interested to hear your thoughts on this policy. As always, you are welcome to email your questions or comments to me at bruce@brucecrockett.com. The dialogue that has been established in this way has been instructive for your Board, and we want it to continue. Although the production schedule for Fund annual reports and prospectuses allows me to write these letters of general report and response just twice a year, please be assured that your comments are received, welcomed and heard in the interim. We look forward to hearing from you and to representing you.
Sincerely, /S/ BRUCE L. CROCKETT Bruce L. Crockett Independent Chair AIM Funds Board of Trustees 3 AIM DIVERSIFIED DIVIDEND FUND MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE ======================================================================================= PERFORMANCE SUMMARY We consider selling or trimming a stock when it no longer meets our investment For the fiscal year ended October 31, 2008, Class A shares of AIM Diversified Dividend criteria, including when: Fund, at net asset value, delivered a return of -27.56% for shareholders compared to -36.08% for the broad market S&P 500 Index and -36.80% for the Fund's style-specific o A stock reaches its target price. index, the Russell 1000 Index.(triangle) The negative returns were challenging, but the Fund's comparative results were a source of relative strength during these turbulent o The company's fundamental business times. All sectors were down for the period, but the Fund benefited from exposure to prospects deteriorate. consumer staples and high quality financials. Our holdings in the consumer discretionary sector were some of the hardest hit. o A more attractive opportunity presents itself. Your Fund's long-term performance appears later in this report. MARKET CONDITIONS AND YOUR FUND FUND VS. INDEXES These are extremely tough times but we Total returns, 10/31/07 to 10/31/08, at net asset value (NAV). Performance shown does should note that our equity markets have not include applicable contingent deferred sales charges (CDSC) or front-end sales gone through similarly difficult charges, which would have reduced performance. environments in the past. The markets have historically recovered, and we do not Class A Shares -27.56% believe now is the time to abandon your Class B Shares -28.05 long-term investment strategy. Class C Shares -28.02 Class R Shares -27.73 Our team has experienced volatile Class Y Shares* -27.56 credit cycles and lived through global Investor Class Shares -27.51 currency crises, but this is clearly one S&P 500 Index(triangle) (Broad Market Index) -36.08 of the hardest. The reason this crisis is Russell 1000 Index(triangle) (Style-Specific Index) -36.80 so difficult is because there is a great Lipper Large-Cap Core Funds Index(triangle) (Peer Group Index) -35.90 amount of financial leverage globally, which means individuals and institutions (triangle) Lipper Inc. have borrowed money to invest. The full extent of this leverage is unknown but its * Share class incepted during the fiscal year. See page 7 for a detailed effects are evident in the markets as explanation of Fund performance. assets are rapidly sold to repay debt and ======================================================================================= other borrowed obligations, creating massive selling pressure. In response, HOW WE INVEST risk through a valuation framework, governments around the world have taken careful stock selection and a rigorous unprecedented actions to stabilize the Our total return approach focuses on buy-and-sell discipline. financial system by focusing on the balancing long-term capital appreciation, pertinent issues of increasing monetary current income and capital preservation. We look for dividend-paying companies liquidity, stabilizing the credit markets The Fund can serve as a conservative with strong profitability, solid balance and stimulating economic growth. We are cornerstone within a well-diversified sheets and capital allocation policies seeing encouraging signs in the credit asset allocation strategy, complementing that support sustained or increasing markets that these actions are having a more aggressive and cyclical investments. dividends and share repurchases. We then positive impact. apply fundamental research, including The Fund seeks to invest at least 80% financial statement analysis and meetings In last year's annual report we of its assets in dividend paying equity with companies' management, to determine a reviewed our concerns about the securities. We seek undervalued companies fair valuation with an estimated two-year deterioration in market fundamentals that are returning capital to shareholders price target for each stock. Finally, we largely tied to weakening credit trends via dividends and share repurchases. All select companies we believe will provide and explained how we defensively stocks in the portfolio pay a dividend, the best combination of dividend income, positioned the Fund by reducing our and the Fund pays a quarterly dividend to price appreciation and the potential for exposure to economically shareholders. We manage lower risk. ========================================== ========================================== ========================================== PORTFOLIO COMPOSITION TOP FIVE INDUSTRIES* By sector, based on net assets TOP 10 EQUITY HOLDINGS* Consumer Staples 18.5% 1. Pharmaceuticals 9.7% Financials 16.7 2. Packaged Foods & Meats 4.9 1. Anheuser-Busch Cos., Inc. 4.7% Consumer Discretionary 13.8 3. Brewers 4.7 2. Kimberly-Clark Corp. 3.3 Health Care 12.8 4. Industrial Machinery 4.3 3. Marsh & McLennan Cos., Inc. 3.2 Information Technology 10.9 5. Regional Banks 4.1 4. SunTrust Banks, Inc. 2.7 Industrials 8.8 ========================================== 5. Capital One Financial Corp. 2.6 Utilities 6.5 6. Pentair, Inc. 2.5 Materials 4.6 7. Automatic Data Processing, Inc. 2.5 Energy 3.3 ========================================== 8. General Mills, Inc. 2.5 Telecommunication Services 0.8 Total Net Assets $1.2 billion 9. Sysco Corp. 2.4 Money Market Funds 10. Novartis AG 2.3 Plus Other Assets Less Liabilities 3.3 Total Number of Holdings* 75 ========================================== ========================================== ========================================== 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 DIVERSIFIED DIVIDEND FUND sensitive companies. This stance helped Consumer discretionary was one of the MEGGAN WALSH the Fund's comparative results over the hardest hit areas of the market and a Chartered Financial Analyst, fiscal year as the global "deleveraging" primary detractor from the Fund's returns [WALSH senior portfolio manager, is began and evidence of credit contagion with holdings such as BRUNSWICK. Brunswick PHOTO] lead manager of AIM broadened across sectors and the world, is a global manufacturer of recreational Diversified Dividend Fund. weighing on financial markets. products with the largest part of revenues Ms. Walsh has been in the coming from its marine division. The investment industry since 1987, and joined While all sectors were down for the company has been under tremendous pressure Invesco Aim in 1991. She earned a B.S. in fiscal year, the Fund's exposure to as discretionary spending has waned. finance from the University of Maryland consumer staples was a source of strength. Though management undertook aggressive and an M.B.A. from Loyola College. We invested in this period's top measures to manage costs and inventories contributor to Fund performance, in this cyclical downturn, there was no JONATHAN HARRINGTON ANHEUSER-BUSCH COMPANIES, several years evidence of a turn in the company's end [HARRINGTON Chartered Financial Analyst, ago when we believed the street had overly markets. We sold the stock for more PHOTO] portfolio manager, is manager discounted the value of Anheuser-Busch's compelling investment opportunities with of AIM Diversified Dividend core business, its free cash flow yield fewer headwinds. Fund. Mr. Harrington joined Invesco in and its consistent use of cash for 2001 in its corporate associate rotation increased stock buybacks. The stock At the end of the fiscal year, we were program, working with fund managers rallied after the world's second-largest taking a "barbell" approach to the throughout Invesco before joining Invesco beer company, InBev (not a Fund holding), portfolio's positioning. We found Aim in 2003. He earned a B.A. in history mode an unsolicited $65 per-share all-cash opportunities to become incrementally more and philosophy from Dartmouth College and offer for all of Anheuser-Busch's offensive in select sub-sectors within the an M.B.A. from the Kellogg Graduate School outstanding shares.(1) Since the initial financials and consumer discretionary of Management at Northwestern University. offer, InBev increased the offering price sectors that offer compelling risk/reward to $70 per share.(1) The acquisition was tradeoffs. At the same time, we maintained Assisted by the Diversified Dividend Team approved by shareholders of both companies a defensive exposure with larger positions and the U.S. Department of Justice. Since within consumer staples. the acquisition announcement, the company's underlying fundamentals have At the close of the fiscal year, we see improved and they continue to gain market some very early signs of thawing in the share. credit markets, particularly in the most plain-vanilla and short-dated maturities. The Fund also benefited from its This is encouraging and a necessary first exposure to high quality financials. Many step in ultimately restoring confidence may be surprised by this given the for investors to participate in a broader controversy surrounding financial firms spectrum of investment quality. We do not and their inherent cyclicality. However, believe this is the time to abandon your our research identified HUDSON CITY long-term investment strategy. Our team BANCORP as a bank with conservative remains committed to focusing on capital underwriting standards, attractive margins appreciation, current income and capital and a high quality borrower base. This preservation over the full market cycle. resulted in a relatively clean loan Thank you for investing in AIM Diversified portfolio unscathed by the subprime Dividend Fund. turmoil. In 2007, we added to the position on broad weakness for the sector and the (1) Reuters company has done well as an old-fashioned "spread banking" business. This business The views and opinions expressed in model increases margins by capitalizing on management's discussion of Fund lower short-term interest rates to borrow performance are those of Invesco Aim money and lend it to customers at higher Advisors, Inc. These views and opinions long-term rates. are subject to change at any time based on factors such as market and economic More recently, the Fund benefited from conditions. These views and opinions may our avoidance of global cyclicals such as not be relied upon as investment advice or energy versus the benchmark. We reduced recommendations, or as an offer for a our exposure over the years, since 2004, particular security. The information is because our analysis indicated that these not a complete analysis of every aspect of types of companies were over-earning and any market, country, industry, security or operating at peak margins. You may recall the Fund. Statements of fact are from we discussed this in last year's report as sources considered reliable, but Invesco a detractor from comparative results. Aim Advisors, Inc. makes no representation Since this summer, cyclicals have or warranty as to their completeness or corrected sharply with the global economic accuracy. Although historical performance slowdown and our avoidance of this area is no guarantee of future results, these helped shareholders. insights may help you understand our investment management philosophy. See important Fund and index disclosures later in this report.
5 AIM DIVERSIFIED DIVIDEND FUND YOUR FUND'S LONG-TERM PERFORMANCE Past performance cannot guarantee Performance of an index of funds reflects shown in the chart. The vertical axis, the comparable future results. fund expenses and management fees; one that indicates the dollar value of an performance of a market index does not. investment, is constructed with each The data shown in the chart include Performance shown in the chart and segment representing a percent change in reinvested distributions, applicable sales table(s) does not reflect deduction of the value of the investment. In this charges and Fund expenses including taxes a shareholder would pay on Fund chart, each segment represents a doubling, management fees. Results for Class B distributions or sale of Fund shares. or 100% change, in the value of the shares are calculated as if a hypothetical investment. In other words, the space shareholder had liquidated his entire This chart, which is a logarithmic between $5,000 and $10,000 is the same investment in the Fund at the close of the chart, presents the fluctuations in the size as the space between $10,000 and reporting period and paid the applicable value of the Fund and its indexes. We $20,000. contingent deferred sales charges. Index believe that a logarithmic chart is more results include reinvested dividends, but effective than other types of charts in they do not reflect sales charges. illustrating changes in value during the early years
6 AIM DIVERSIFIED DIVIDEND FUND ==================================================================================================================================== [MOUNTAIN CHART] RESULTS OF A $10,000 INVESTMENT -- CLASS A, B AND C SHARES (OLDEST SHARE CLASSES WITH SALES CHARGES) Fund and index data from 12/31/01 AIM Diversified AIM Diversified AIM Diversified Dividend Fund- Dividend Fund- Dividend Fund- Russell 1000 Lipper Large Cap- Date Class A Shares Class B Shares Class C Shares S&P 500 Index(1) Index(1) Core Funds Index(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 9596 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 ====================================================================================================================================
(1) Lipper Inc. ==================================================================================================================================== [MOUNTAIN CHART] 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 15394 15690 15676 14966 15469 14251 11/07 14898 15169 15154 14340 14810 13684 12/07 14619 14877 14875 14241 14713 13606 1/08 14166 14412 14408 13387 13831 12810 2/08 13666 13886 13881 12952 13409 12478 3/08 13766 13987 13982 12896 13318 12315 4/08 14340 14563 14547 13524 13993 12921 5/08 14503 14719 14716 13699 14250 13156 6/08 13218 13414 13411 12545 13066 12137 7/08 13559 13740 13736 12440 12914 11965 8/08 14030 14209 14206 12620 13092 12118 9/08 13327 13500 13485 11497 11845 10999 10/08 11153 11287 11278 9566 9777 9135 ====================================================================================================================================
========================================== ========================================== AVERAGE ANNUAL TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS SECTIONS OF THIS REPORT THAT ARE BASED ON EXPENSES INCURRED DURING THE PERIOD As of 10/31/08, including maximum As of 9/30/08, the most recent calendar COVERED BY THIS REPORT. applicable sales charges quarter-end, including maximum applicable sales charges CLASS A SHARE PERFORMANCE REFLECTS THE CLASS A SHARES MAXIMUM 5.50% SALES CHARGE, AND CLASS B Inception (12/31/01) 1.61% CLASS A SHARES AND CLASS C SHARE PERFORMANCE REFLECTS THE 5 Years 1.59 Inception (12/31/01) 4.35% APPLICABLE CONTINGENT DEFERRED SALES 1 Year -31.54 5 Years 6.40 CHARGE (CDSC) FOR THE PERIOD INVOLVED. THE 1 Year -17.80 CDSC ON CLASS B SHARES DECLINES FROM 5% CLASS B SHARES BEGINNING AT THE TIME OF PURCHASE TO 0% AT Inception (12/31/01) 1.79% CLASS B SHARES THE BEGINNING OF THE SEVENTH YEAR. THE 5 Years 1.75 Inception (12/31/01) 4.55% CDSC ON CLASS C SHARES IS 1% FOR THE FIRST 1 Year -31.36 5 Years 6.62 YEAR AFTER PURCHASE. CLASS R SHARES DO NOT 1 Year -17.50 HAVE A FRONT-END SALES CHARGE; RETURNS CLASS C SHARES SHOWN ARE AT NET ASSET VALUE AND DO NOT Inception 12/31/01) 1.78% CLASS C SHARES REFLECT A 0.75% CDSC THAT MAY BE IMPOSED 5 Years 2.09 Inception (12/31/01) 4.52% ON A TOTAL REDEMPTION OF RETIREMENT PLAN 1 Year -28.68 5 Years 6.91 ASSETS WITHIN THE FIRST YEAR. CLASS Y 1 Year -14.41 SHARES AND INVESTOR CLASS SHARES DO NOT CLASS R SHARES HAVE A FRONT-END SALES CHARGE OR A CDSC; Inception 2.27% CLASS R SHARES THEREFORE, PERFORMANCE IS AT NET ASSET 5 Years 2.56 Inception 5.03% VALUE. 1 Year -27.73 5 Years 7.41 1 Year -13.22 THE PERFORMANCE OF THE FUND'S SHARE CLASS Y SHARES CLASSES WILL DIFFER PRIMARILY DUE TO Inception 2.45% INVESTOR CLASS SHARES DIFFERENT SALES CHARGE STRUCTURES AND 5 Years 2.76 Inception 5.27% CLASS EXPENSES. 1 Year -27.56 5 Years 7.68 1 Year -12.92 HAD THE ADVISOR NOT WAIVED FEES AND/OR INVESTOR CLASS SHARES ========================================== REIMBURSED EXPENSES IN THE PAST, Inception 2.49% PERFORMANCE WOULD HAVE BEEN LOWER. 5 Years 2.81 INVESTOR CLASS SHARE PERFORMANCE AND 1 Year -27.51 RESTATED CLASS A SHARE PERFORMANCE (FOR ========================================== PERIODS PRIOR TO THE INCEPTION DATE OF INVESTOR CLASS SHARES) AT NET ASSET VALUE, CLASS R SHARES' INCEPTION DATE IS OCTOBER WHICH RESTATED PERFORMANCE WILL REFLECT 25, 2005. RETURNS SINCE THAT DATE ARE THE HIGHER RULE 12B-1 FEES APPLICABLE TO HISTORICAL RETURNS. ALL OTHER RETURNS ARE CLASS A SHARES FOR THE PERIOD USING BLENDED RETURNS OF HISTORICAL CLASS R BLENDED RETURNS. CLASS A SHARES' INCEPTION SHARE PERFORMANCE AND RESTATED CLASS A DATE IS DECEMBER 31, 2001. SHARE PERFORMANCE (FOR PERIODS PRIOR TO THE INCEPTION DATE OF CLASS R SHARES) AT THE PERFORMANCE DATA QUOTED REPRESENT NET ASSET VALUE, ADJUSTED TO REFLECT THE PAST PERFORMANCE AND CANNOT GUARANTEE HIGHER RULE 12B-1 FEES APPLICABLE TO CLASS COMPARABLE FUTURE RESULTS; CURRENT R SHARES. CLASS A SHARES' INCEPTION DATE PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE IS DECEMBER 31, 2001. VISIT INVESCOAIM.COM FOR THE MOST RECENT MONTH-END PERFORMANCE. PERFORMANCE FIGURES CLASS Y SHARES' INCEPTION DATE IS REFLECT REINVESTED DISTRIBUTIONS, CHANGES OCTOBER 3, 2008; RETURNS SINCE THAT DATE IN NET ASSET VALUE AND THE EFFECT OF THE ARE ACTUAL RETURNS. ALL OTHER RETURNS ARE MAXIMUM SALES CHARGE UNLESS OTHERWISE BLENDED RETURNS OF ACTUAL CLASS Y SHARE STATED. INVESTMENT RETURN AND PRINCIPAL PERFORMANCE AND RESTATED CLASS A SHARE VALUE WILL FLUCTUATE SO THAT YOU MAY HAVE PERFORMANCE (FOR PERIODS PRIOR TO THE A GAIN OR LOSS WHEN YOU SELL SHARES. INCEPTION DATE OF CLASS Y SHARES) AT NET ASSET VALUE. THE RESTATED CLASS A SHARE THE TOTAL ANNUAL FUND OPERATING EXPENSE PERFORMANCE REFLECTS THE RULE 12B-1 FEES RATIO SET FORTH IN THE MOST RECENT FUND APPLICABLE TO CLASS A SHARES AS WELL AS PROSPECTUS AS OF THE DATE OF THIS REPORT ANY FEE WAIVERS OR EXPENSE REIMBURSEMENTS FOR CLASS A, CLASS B, CLASS C, CLASS R, RECEIVED BY CLASS A SHARES. CLASS A CLASS Y AND INVESTOR CLASS SHARES WAS SHARES' INCEPTION DATE IS DECEMBER 31, 1.01%, 1.76%, 1.76%, 1.26%, 0.76% AND 2001. 0.92%, RESPECTIVELY. THE EXPENSE RATIOS PRESENTED ABOVE MAY VARY FROM THE EXPENSE INVESTOR CLASS SHARES' INCEPTION DATE RATIOS PRESENTED IN OTHER IS JULY 15, 2005. RETURNS SINCE THAT DATE ARE HISTORICAL RETURNS. ALL OTHER RETURNS ARE BLENDED RETURNS OF HISTORICAL
7 AIM DIVERSIFIED DIVIDEND FUND AIM DIVERSIFIED DIVIDEND FUND'S INVESTMENT OBJECTIVES ARE GROWTH OF CAPITAL AND, SECONDARILY, CURRENT INCOME. o Unless otherwise stated, information presented in this report is as of October 31, 2008, and is based on total net assets. o Unless otherwise noted, all data provided by Invesco Aim. ABOUT SHARE CLASSES ABOUT INDEXES USED IN THIS REPORT OTHER INFORMATION o Effective September 30, 2003, only o The S&P 500--REGISTERED TRADEMARK-- o The Chartered Financial Analyst--REGIS- previously established qualified plans INDEX is a market TERED TRADEMARK-- (CFA--REGISTERED are eligible to purchase Class B shares capitalization-weighted index covering TRADEMARK--) designation is a globally of any AIM fund. all major areas of the U.S. economy. It recognized standard for measuring the is not the 500 largest companies, but competence and integrity of investment o Class R shares are available only to rather the most widely held 500 professionals. certain retirement plans. Please see companies chosen with respect to market the prospectus for more information. size, liquidity, and their industry. o The returns shown in management's discussion of Fund performance are o Class Y shares are available only to o The RUSSELL 1000--REGISTERED based on net asset values calculated certain investors. Please see the TRADEMARK-- INDEX is comprised of for shareholder transactions. Generally prospectus for more information. 1000 of the largest capitalized U.S. accepted accounting principles require domiciled companies whose common stock adjustments to be made to the net o All Investor Class shares are closed to is traded in the United States. The assets of the Fund at period end for new investors. Contact your financial Russell 1000 Index is a financial reporting purposes, and as advisor about purchasing our other trademark/service mark of the Frank such, the net asset values for share classes. Russell Company. Russell--REGISTERED shareholder transactions and the TRADEMARK-- is a trademark of the Frank returns based on those net asset values PRINCIPAL RISKS OF INVESTING IN THE FUND Russell Company. may differ from the net asset values and returns reported in the Financial o The values of convertible securities in o The LIPPER LARGE-CAP CORE FUNDS INDEX Highlights. which the Fund invests may be affected is an equally weighted representation by market interest rates, the risk that of the largest funds in the Lipper o Industry classifications used in this the issuer may default on interest or Large-Cap Core Funds category. These report are generally according to the principal payments, and the value of funds typically have an average Global Industry Classification the underlying common stock into which price-to-earnings ratio, price-to-book Standard, which was developed by and is these securities may be converted. ratio, and three-year sales-per-share the exclusive property and a service growth value, compared to the S&P mark of MSCI Inc. and Standard & o The Fund may invest in debt securities, 500 Index. Poor's. such as notes and bonds, which carry interest rate and credit risk. o The Fund is not managed to track the performance of any particular index, o Prices of equity securities change in including the indexes defined here, and response to many factors, including the consequently, the performance of the historical and prospective earnings of Fund may deviate significantly from the the issuer, the value of its assets, performance of the indexes. general economic conditions, interest rates, investor perceptions and market o A direct investment cannot be made in liquidity. an index. Unless otherwise indicated, index results include reinvested o Foreign securities have additional dividends, and they do not reflect risks, including exchange rate changes, sales charges. Performance of an index political and economic upheaval, of funds reflects fund expenses; relative lack of information, performance of a market index does not. relatively low market liquidity, and the potential lack of strict financial and accounting controls and standards. o The prices of securities held by the Fund may decline in response to market risks. ======================================================================================= ========================================== THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND PROSPECTUS, FUND NASDAQ SYMBOLS WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING. Class A Shares LCEAX ======================================================================================= Class B Shares LCEDX Class C Shares LCEVX NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE Class R Shares DDFRX Class Y Shares LCEYX Investor Class Shares LCEIX ==========================================
8 AIM DIVERSIFIED DIVIDEND FUND SCHEDULE OF INVESTMENTS(A) October 31, 2008
SHARES VALUE --------------------------------------------------------------------------------- COMMON STOCKS-96.67% AEROSPACE & DEFENSE-1.64% Raytheon Co. 381,377 $ 19,492,178 --------------------------------------------------------------------------------- United Technologies Corp. 13,510 742,510 ================================================================================= 20,234,688 ================================================================================= APPAREL RETAIL-1.91% Limited Brands, Inc. 977,200 11,706,856 --------------------------------------------------------------------------------- TJX Cos., Inc. (The) 441,827 11,823,290 ================================================================================= 23,530,146 ================================================================================= APPAREL, ACCESSORIES & LUXURY GOODS-0.41% VF Corp. 92,547 5,099,340 ================================================================================= ASSET MANAGEMENT & CUSTODY BANKS-2.95% Bank of New York Mellon Corp. 176,397 5,750,542 --------------------------------------------------------------------------------- Blackstone Group L.P. (The) 604,573 5,525,797 --------------------------------------------------------------------------------- Federated Investors, Inc.-Class B 405,450 9,811,890 --------------------------------------------------------------------------------- State Street Corp. 352,391 15,276,150 ================================================================================= 36,364,379 ================================================================================= AUTO PARTS & EQUIPMENT-1.14% Johnson Controls, Inc. 789,300 13,994,289 ================================================================================= BREWERS-4.67% Anheuser-Busch Cos., Inc. 926,430 57,466,453 ================================================================================= BUILDING PRODUCTS-0.74% Masco Corp. 903,600 9,171,540 ================================================================================= CASINOS & GAMING-1.04% International Game Technology 918,458 12,858,412 ================================================================================= COMMUNICATIONS EQUIPMENT-0.46% Motorola, Inc. 1,043,353 5,602,806 ================================================================================= COMPUTER HARDWARE-2.42% Hewlett-Packard Co. 216,143 8,273,954 --------------------------------------------------------------------------------- International Business Machines Corp. 231,048 21,480,532 ================================================================================= 29,754,486 ================================================================================= CONSUMER FINANCE-2.57% Capital One Financial Corp. 808,506 31,628,755 ================================================================================= DATA PROCESSING & OUTSOURCED SERVICES-3.62% Automatic Data Processing, Inc. 893,314 31,221,324 --------------------------------------------------------------------------------- Western Union Co. 875,682 13,362,908 ================================================================================= 44,584,232 ================================================================================= DISTRIBUTORS-0.53% Genuine Parts Co. 166,322 6,544,771 ================================================================================= DIVERSIFIED BANKS-0.81% U.S. Bancorp 333,199 9,932,662 ================================================================================= DIVERSIFIED CHEMICALS-2.58% E. I. du Pont de Nemours and Co. 513,200 16,422,400 --------------------------------------------------------------------------------- PPG Industries, Inc. 309,200 15,330,136 ================================================================================= 31,752,536 ================================================================================= ELECTRIC UTILITIES-2.82% American Electric Power Co., Inc. 734,115 23,954,173 --------------------------------------------------------------------------------- Exelon Corp. 199,451 10,818,222 ================================================================================= 34,772,395 ================================================================================= ELECTRICAL COMPONENTS & EQUIPMENT-1.67% Emerson Electric Co. 627,045 20,523,183 ================================================================================= FOOD DISTRIBUTORS-2.44% Sysco Corp. 1,148,234 30,083,731 ================================================================================= FOREST PRODUCTS-0.91% Weyerhaeuser Co. 293,639 11,222,882 ================================================================================= GENERAL MERCHANDISE STORES-1.47% Target Corp. 449,900 18,049,988 ================================================================================= HEALTH CARE EQUIPMENT-3.15% Baxter International Inc. 97,372 5,890,032 --------------------------------------------------------------------------------- Medtronic, Inc. 542,832 21,892,415 --------------------------------------------------------------------------------- Stryker Corp. 207,100 11,071,566 ================================================================================= 38,854,013 ================================================================================= HOME IMPROVEMENT RETAIL-1.97% Home Depot, Inc. (The) 1,029,458 24,284,914 ================================================================================= HOTELS, RESORTS & CRUISE LINES-1.20% Marriott International, Inc.-Class A 708,700 14,790,569 ================================================================================= HOUSEHOLD APPLIANCES-0.96% Snap-on Inc. 318,676 11,775,078 ================================================================================= HOUSEHOLD PRODUCTS-3.61% Colgate-Palmolive Co. 56,300 3,533,388 --------------------------------------------------------------------------------- Kimberly-Clark Corp. 667,454 40,908,256 ================================================================================= 44,441,644 ================================================================================= HYPERMARKETS & SUPER CENTERS-0.53% Wal-Mart Stores, Inc. 117,142 6,537,695 ================================================================================= INDUSTRIAL CONGLOMERATES-0.44% General Electric Co. 279,061 5,444,480 =================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. 9 AIM DIVERSIFIED DIVIDEND FUND
SHARES VALUE --------------------------------------------------------------------------------- INDUSTRIAL MACHINERY-4.30% Illinois Tool Works Inc. 652,496 $ 21,786,841 --------------------------------------------------------------------------------- Pentair, Inc. 1,129,900 31,230,436 ================================================================================= 53,017,277 ================================================================================= INSURANCE BROKERS-3.23% Marsh & McLennan Cos., Inc. 1,358,113 39,819,873 ================================================================================= INTEGRATED OIL & GAS-3.34% Eni S.p.A. (Italy) 412,800 9,835,229 --------------------------------------------------------------------------------- Exxon Mobil Corp. 61,012 4,522,210 --------------------------------------------------------------------------------- Occidental Petroleum Corp. 242,537 13,470,505 --------------------------------------------------------------------------------- Total S.A. (France) 243,404 13,367,338 ================================================================================= 41,195,282 ================================================================================= INTEGRATED TELECOMMUNICATION SERVICES-0.83% AT&T Inc. 381,688 10,217,788 ================================================================================= LIFE & HEALTH INSURANCE-1.24% StanCorp Financial Group, Inc. 448,351 15,279,802 ================================================================================= MOVIES & ENTERTAINMENT-1.24% Time Warner Inc. 1,515,600 15,292,404 ================================================================================= MULTI-UTILITIES-3.64% Ameren Corp. 281,500 9,134,675 --------------------------------------------------------------------------------- Dominion Resources, Inc. 659,326 23,920,347 --------------------------------------------------------------------------------- Wisconsin Energy Corp. 271,701 11,818,994 ================================================================================= 44,874,016 ================================================================================= OTHER DIVERSIFIED FINANCIAL SERVICES-0.12% Citigroup Inc. 103,497 1,412,734 ================================================================================= PACKAGED FOODS & MEATS-4.89% General Mills, Inc. 447,681 30,325,911 --------------------------------------------------------------------------------- Kraft Foods Inc.-Class A 810,517 23,618,465 --------------------------------------------------------------------------------- Sara Lee Corp. 558,697 6,246,233 ================================================================================= 60,190,609 ================================================================================= PHARMACEUTICALS-9.69% Abbott Laboratories 92,517 5,102,313 --------------------------------------------------------------------------------- Bristol-Myers Squibb Co. 1,062,044 21,825,004 --------------------------------------------------------------------------------- Johnson & Johnson 447,401 27,443,577 --------------------------------------------------------------------------------- Lilly (Eli) and Co. 783,808 26,508,387 --------------------------------------------------------------------------------- Novartis A.G. (Switzerland) 551,429 27,887,050 --------------------------------------------------------------------------------- Pfizer Inc. 597,738 10,585,940 ================================================================================= 119,352,271 ================================================================================= PUBLISHING-0.16% Gannett Co., Inc. 179,690 1,976,590 ================================================================================= REGIONAL BANKS-4.07% Fifth Third Bancorp 1,579,509 17,137,673 --------------------------------------------------------------------------------- SunTrust Banks, Inc. 821,459 32,973,364 ================================================================================= 50,111,037 ================================================================================= RESTAURANTS-0.64% Brinker International, Inc. 845,520 7,863,336 ================================================================================= SEMICONDUCTORS-2.65% Linear Technology Corp. 444,724 10,086,340 --------------------------------------------------------------------------------- Texas Instruments Inc. 1,155,092 22,593,600 ================================================================================= 32,679,940 ================================================================================= SOFT DRINKS-0.41% Coca-Cola Co. (The) 113,625 5,006,317 ================================================================================= SPECIALIZED CONSUMER SERVICES-1.11% H&R Block, Inc. 694,212 13,689,861 ================================================================================= SPECIALTY CHEMICALS-1.07% Ecolab Inc. 352,377 13,129,567 ================================================================================= SYSTEMS SOFTWARE-1.77% Microsoft Corp. 978,121 21,841,442 ================================================================================= THRIFTS & MORTGAGE FINANCE-1.70% Hudson City Bancorp, Inc. 1,110,383 20,886,304 ================================================================================= TOBACCO-1.91% Altria Group, Inc. 376,349 7,222,137 --------------------------------------------------------------------------------- Philip Morris International Inc. 376,349 16,359,891 ================================================================================= 23,582,028 ================================================================================= Total Common Stocks & Other Equity Interests (Cost $1,372,301,824) 1,190,718,545 ================================================================================= MONEY MARKET FUNDS-3.20% Liquid Assets Portfolio-Institutional Class(b) 19,684,649 19,684,649 --------------------------------------------------------------------------------- Premier Portfolio-Institutional Class(b) 19,684,649 19,684,649 ================================================================================= Total Money Market Funds (Cost $39,369,298) 39,369,298 ================================================================================= TOTAL INVESTMENTS-99.87% (Cost $1,411,671,122) 1,230,087,843 ================================================================================= OTHER ASSETS LESS LIABILITIES-0.13% 1,627,172 ================================================================================= NET ASSETS-100.00% $1,231,715,015 _________________________________________________________________________________ =================================================================================
Notes to Schedule of Investments: (a) Industry and/or sector 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 MSCI Inc. and Standard & Poor's. (b) The money market fund and the Fund are affiliated by having the same investment advisor. See accompanying Notes to Financial Statements which are an integral part of the financial statements. 10 AIM DIVERSIFIED DIVIDEND FUND STATEMENT OF ASSETS AND LIABILITIES October 31, 2008 ASSETS: Investments, at value (Cost $1,372,301,824) $1,190,718,545 ------------------------------------------------------- Investments in affiliated money market funds, at value and cost 39,369,298 ======================================================= Total investments (Cost $1,411,671,122) 1,230,087,843 ======================================================= Receivables for: Investments sold 2,071,222 ------------------------------------------------------- Fund shares sold 1,578,904 ------------------------------------------------------- Dividends 1,738,893 ------------------------------------------------------- Investment for trustee deferred compensation and retirement plans 331,531 ------------------------------------------------------- Other assets 80,146 ======================================================= Total assets 1,235,888,539 _______________________________________________________ ======================================================= LIABILITIES: Payables for: Investments purchased 1,825,089 ------------------------------------------------------- Fund shares reacquired 1,328,970 ------------------------------------------------------- Accrued fees to affiliates 524,580 ------------------------------------------------------- Trustee deferred compensation and retirement plans 494,885 ======================================================= Total liabilities 4,173,524 ======================================================= Net assets applicable to shares outstanding $1,231,715,015 _______________________________________________________ ======================================================= NET ASSETS CONSIST OF: Shares of beneficial interest $1,443,879,105 ------------------------------------------------------- Undistributed net investment income 457,278 ------------------------------------------------------- Undistributed net realized gain (loss) (31,034,908) ------------------------------------------------------- Unrealized appreciation (depreciation) (181,586,460) ------------------------------------------------------- $1,231,715,015 _______________________________________________________ ======================================================= NET ASSETS: Class A $ 157,406,895 _______________________________________________________ ======================================================= Class B $ 36,934,230 _______________________________________________________ ======================================================= Class C $ 30,998,154 _______________________________________________________ ======================================================= Class R $ 902,184 _______________________________________________________ ======================================================= Class Y $ 2,212,892 _______________________________________________________ ======================================================= Investor Class $ 963,835,497 _______________________________________________________ ======================================================= Institutional Class $ 39,425,163 _______________________________________________________ ======================================================= SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Class A 16,692,446 _______________________________________________________ ======================================================= Class B 3,955,542 _______________________________________________________ ======================================================= Class C 3,323,533 _______________________________________________________ ======================================================= Class R 95,577 _______________________________________________________ ======================================================= Class Y 234,681 _______________________________________________________ ======================================================= Investor Class 102,286,447 _______________________________________________________ ======================================================= Institutional Class 4,182,933 _______________________________________________________ ======================================================= Class A: Net asset value per share $ 9.43 ------------------------------------------------------- Maximum offering price per share (Net asset value of $9.43 divided by 94.50%) $ 9.98 _______________________________________________________ ======================================================= Class B: Net asset value and offering price per share $ 9.34 _______________________________________________________ ======================================================= Class C: Net asset value and offering price per share $ 9.33 _______________________________________________________ ======================================================= Class R: Net asset value and offering price per share $ 9.44 _______________________________________________________ ======================================================= Class Y: Net asset value and offering price per share $ 9.43 _______________________________________________________ ======================================================= Investor Class: Net asset value and offering price per share $ 9.42 _______________________________________________________ ======================================================= Institutional Class: Net asset value and offering price per share $ 9.43 _______________________________________________________ =======================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. 11 AIM DIVERSIFIED DIVIDEND FUND STATEMENT OF OPERATIONS For the year ended October 31, 2008 INVESTMENT INCOME: Dividends (net of foreign withholding taxes of $340,766) $ 44,912,743 ------------------------------------------------------------------------------------------------ Dividends from affiliated money market funds (includes securities lending income of $317,768) 1,893,842 ------------------------------------------------------------------------------------------------ Interest 38,504 ================================================================================================ Total investment income 46,845,089 ================================================================================================ EXPENSES: Advisory fees 8,453,389 ------------------------------------------------------------------------------------------------ Administrative services fees 406,849 ------------------------------------------------------------------------------------------------ Custodian fees 19,555 ------------------------------------------------------------------------------------------------ Distribution fees: Class A 492,895 ------------------------------------------------------------------------------------------------ Class B 607,607 ------------------------------------------------------------------------------------------------ Class C 417,340 ------------------------------------------------------------------------------------------------ Class R 4,664 ------------------------------------------------------------------------------------------------ Investor Class 2,129,426 ------------------------------------------------------------------------------------------------ Transfer agent fees -- A, B, C, R, Y and Investor 2,677,860 ------------------------------------------------------------------------------------------------ Transfer agent fees -- Institutional 38,030 ------------------------------------------------------------------------------------------------ Trustees' and officers' fees and benefits 63,760 ------------------------------------------------------------------------------------------------ Other 479,170 ================================================================================================ Total expenses 15,790,545 ================================================================================================ Less: Fees waived, expenses reimbursed and expense offset arrangement(s) (209,347) ================================================================================================ Net expenses 15,581,198 ================================================================================================ Net investment income 31,263,891 ================================================================================================ REALIZED AND UNREALIZED GAIN (LOSS) FROM: Net realized gain (loss) from: Investment securities (includes net gains (losses) from securities sold to affiliates of $(5,724,720)) (30,099,133) ------------------------------------------------------------------------------------------------ Foreign currencies 85,909 ================================================================================================ (30,013,224) ================================================================================================ Change in net unrealized appreciation (depreciation) of: Investment securities (485,833,609) ------------------------------------------------------------------------------------------------ Foreign currencies (6,459) ================================================================================================ (485,840,068) ================================================================================================ Net realized and unrealized gain (loss) (515,853,292) ================================================================================================ Net increase (decrease) in net assets resulting from operations $(484,589,401) ________________________________________________________________________________________________ ================================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. 12 AIM DIVERSIFIED DIVIDEND FUND STATEMENT OF CHANGES IN NET ASSETS For the years ended October 31, 2008 and 2007
2008 2007 ----------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income $ 31,263,891 $ 29,251,525 ----------------------------------------------------------------------------------------------------------- Net realized gain (loss) (30,013,224) 123,730,765 ----------------------------------------------------------------------------------------------------------- Change in net unrealized appreciation (depreciation) (485,840,068) 15,099,552 =========================================================================================================== Net increase (decrease) in net assets resulting from operations (484,589,401) 168,081,842 =========================================================================================================== DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME: Class A (3,884,240) (3,848,307) ----------------------------------------------------------------------------------------------------------- Class B (758,571) (799,853) ----------------------------------------------------------------------------------------------------------- Class C (522,650) (461,202) ----------------------------------------------------------------------------------------------------------- Class R (16,190) (7,267) ----------------------------------------------------------------------------------------------------------- Investor Class (25,710,802) (23,901,863) ----------------------------------------------------------------------------------------------------------- Institutional Class (1,150,918) (780,352) =========================================================================================================== Total distributions from net investment income (32,043,371) (29,798,844) =========================================================================================================== DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED GAINS: Class A (15,388,268) (11,265,634) ----------------------------------------------------------------------------------------------------------- Class B (5,419,009) (4,262,466) ----------------------------------------------------------------------------------------------------------- Class C (3,383,918) (2,471,587) ----------------------------------------------------------------------------------------------------------- Class R (59,147) (19,904) ----------------------------------------------------------------------------------------------------------- Investor Class (95,870,433) (64,330,633) ----------------------------------------------------------------------------------------------------------- Institutional Class (3,540,253) (1,315,313) =========================================================================================================== Total distributions from net realized gains (123,661,028) (83,665,537) =========================================================================================================== SHARE TRANSACTIONS-NET: Class A 83,399 (31,418,682) ----------------------------------------------------------------------------------------------------------- Class B (24,060,281) (16,379,057) ----------------------------------------------------------------------------------------------------------- Class C (4,777,489) (5,241,605) ----------------------------------------------------------------------------------------------------------- Class R 553,267 289,956 ----------------------------------------------------------------------------------------------------------- Class Y 2,537,202 -- ----------------------------------------------------------------------------------------------------------- Investor Class (9,503,902) (92,692,635) ----------------------------------------------------------------------------------------------------------- Institutional Class 5,498,563 22,701,031 =========================================================================================================== Net increase (decrease) in net assets resulting from share transactions (29,669,241) (122,740,992) =========================================================================================================== Net increase (decrease) in net assets (669,963,041) (68,123,531) ___________________________________________________________________________________________________________ =========================================================================================================== NET ASSETS: Beginning of year 1,901,678,056 1,969,801,587 ----------------------------------------------------------------------------------------------------------- End of year (includes undistributed net investment income of $457,278 and $1,264,333, respectively) $1,231,715,015 $1,901,678,056 ___________________________________________________________________________________________________________ ===========================================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. 13 AIM DIVERSIFIED DIVIDEND FUND NOTES TO FINANCIAL STATEMENTS October 31, 2008 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 seven separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The Fund's primary investment objective is growth of capital and, secondarily, current income. The Fund currently consists of seven different classes of shares: Class A, Class B, Class C, Class R, Class Y, 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 contingent deferred sales charges ("CDSC"). Class B shares and Class C shares are sold with a CDSC. Class R, Class Y, 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. 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, American Depositary Receipts 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. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. 14 AIM DIVERSIFIED DIVIDEND FUND 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 related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds 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, the investment advisor may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer's securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America unless otherwise noted. D. DISTRIBUTIONS -- Distributions from income are declared and paid quarterly and are recorded on ex-dividend date. Distributions from net realized capital gain, if any, are generally paid annually and recorded on ex- dividend date. The Fund may elect to treat a portion of the proceeds from redemptions as distributions for federal income tax purposes. E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund's taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. 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 by a significant amount. 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. SECURITIES LENDING -- 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 by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. 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. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could 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. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in Dividends from affiliates on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities, if any. J. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated 15 AIM DIVERSIFIED DIVIDEND FUND 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. K. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a foreign currency contract to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. The Fund may also enter into a foreign currency contract for the purchase or sale of a security denominated in a foreign currency in order to "lock in" the U.S. dollar price of that security. Fluctuations in the value of these contracts are recorded as unrealized appreciation (depreciation) until the contracts are closed. When these contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains and losses on these contracts are included in the Statement of Operations. The Fund could be exposed to risk, which may be in excess of the amount reflected in the Statement of Assets and Liabilities, if counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES The Trust has entered into a master investment advisory agreement with Invesco Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Advisor 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% ___________________________________________________________________ ===================================================================
Under the terms of a master sub-advisory agreement approved by shareholders of the Fund, effective May 1, 2008, between the Advisor and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the "Affiliated Sub-Advisors") the Advisor, not the Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub-Advisor(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Advisor(s). Through June 30, the Advisor 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. In determining the Advisor's obligation to waive advisory fees and/or reimburse expenses, the following expenses were 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. 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. These credits are used to pay certain expenses incurred by the Fund. The Advisor has contractually agreed, through at least June 30, 2009, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Advisor receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds. For the year ended October 31, 2008, the Advisor waived advisory fees of $61,774 and reimbursed class level expenses of $38,745 and 26,595 for 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, 2008, Invesco reimbursed expenses of the Fund in the amount of $20,797. 16 AIM DIVERSIFIED DIVIDEND FUND The Trust has entered into a master administrative services agreement with Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim for certain administrative costs incurred in providing accounting services to the Fund. For the year ended October 31, 2008, 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 Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has agreed to pay IAIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the course of providing such services. IAIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. All fees payable by IAIS 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, 2008, 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 Invesco Aim Distributors, Inc. ("IADI") to serve as the distributor for the Class A, Class B, Class C, Class R, Class Y, 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 IADI 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 IADI 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. Rules of the Financial Industry Regulatory Authority ("FINRA") 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, 2008, expenses incurred under the Plans are shown in the Statement of Operations as distribution fees. Front-end sales commissions and 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, 2008, IADI advised the Fund that IADI retained $51,050 in front-end sales commissions from the sale of Class A shares and $1,725, $107,433 and $4,269 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 Invesco Aim, IAIS and/or IADI. NOTE 3--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, 2008, the Fund engaged in securities sales of $3,592,164, which resulted in net realized gains (losses) of $(5,724,720). NOTE 4--EXPENSE OFFSET ARRANGEMENTS The expense offset arrangements are comprised of (i) transfer agency credits which result from balances in Demand Deposit Accounts (DDA) used by the transfer agent for clearing shareholder transactions and (ii) custodian credits which result from periodic overnight cash balances at the custodian. For the year ended October 31, 2008, the Fund received credits from these arrangements, which resulted in the reduction of the Fund's total expenses of $61,436. NOTE 5--TRUSTEES' AND OFFICERS' FEES AND BENEFITS "Trustees' and Officers' 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 Officers' 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 Officers' 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, 2008, the Fund paid legal fees of $6,479 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust. NOTE 6--CASH BALANCES The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company, 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 Invesco Aim, not to exceed the contractually agreed upon rate. 17 AIM DIVERSIFIED DIVIDEND FUND NOTE 7--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS TAX CHARACTER OF DISTRIBUTIONS TO SHAREHOLDERS PAID DURING THE YEARS ENDED OCTOBER 31, 2008 AND 2007:
2008 2007 -------------------------------------------------------------------------------------------------------------- Ordinary income $ 34,184,765 $ 40,756,773 -------------------------------------------------------------------------------------------------------------- Long-term capital gain 121,519,634 72,707,608 -------------------------------------------------------------------------------------------------------------- Total distributions $155,704,399 $113,464,381 ______________________________________________________________________________________________________________ ==============================================================================================================
TAX COMPONENTS OF NET ASSETS AT PERIOD-END:
2008 ------------------------------------------------------------------------------------------------- Undistributed ordinary income $ 929,368 ------------------------------------------------------------------------------------------------- Net unrealized appreciation (depreciation) -- investments (181,846,526) ------------------------------------------------------------------------------------------------- Net unrealized appreciation (depreciation) -- Other investments (3,181) ------------------------------------------------------------------------------------------------- Temporary book/tax differences (389,703) ------------------------------------------------------------------------------------------------- Capital loss carryforward (30,854,048) ------------------------------------------------------------------------------------------------- Shares of beneficial interest 1,443,879,105 ================================================================================================= Total net assets $1,231,715,015 _________________________________________________________________________________________________ =================================================================================================
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 (depreciation) difference is attributable primarily to wash sales and partnership investments. The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund's temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits. Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions. The Fund has a capital loss carryforward as of October 31, 2008 which expires as follows:
CAPITAL LOSS EXPIRATION CARRYFORWARD* ----------------------------------------------------------------------------------------------- October 31, 2016 $30,854,048 _______________________________________________________________________________________________ ===============================================================================================
* Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. NOTE 8--INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended October 31, 2008 was $284,889,988 and $392,707,765, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS ------------------------------------------------------------------------------------------------ Aggregate unrealized appreciation of investment securities $ 105,169,773 ------------------------------------------------------------------------------------------------ Aggregate unrealized (depreciation) of investment securities (287,016,299) ================================================================================================ Net unrealized appreciation (depreciation) of investment securities $(181,846,526) ________________________________________________________________________________________________ ================================================================================================ Cost of investments for tax purposes is $1,411,934,369.
NOTE 9--RECLASSIFICATION OF PERMANENT DIFFERENCES Primarily as a result of differing book/tax treatment of partnership investments, proxy costs, foreign currency transactions and distributions, on October 31, 2008, undistributed net investment income was decreased by $27,575, undistributed net realized gain (loss) was increased by $117,185 and shares of beneficial interest decreased by $89,610. This reclassification had no effect on the net assets of the Fund. 18 AIM DIVERSIFIED DIVIDEND FUND NOTE 10--SHARE INFORMATION
SUMMARY OF SHARE ACTIVITY -------------------------------------------------------------------------------------------------------------------------- YEAR ENDED OCTOBER 31, --------------------------------------------------------------- 2008(a) 2007 ----------------------------- ----------------------------- SHARES AMOUNT SHARES AMOUNT -------------------------------------------------------------------------------------------------------------------------- Sold: Class A 4,184,236 $ 46,145,670 3,967,324 $ 55,511,347 -------------------------------------------------------------------------------------------------------------------------- Class B 745,226 8,479,829 1,270,117 17,549,749 -------------------------------------------------------------------------------------------------------------------------- Class C 595,439 6,705,937 1,005,035 13,897,674 -------------------------------------------------------------------------------------------------------------------------- Class R 62,448 751,581 22,058 307,279 -------------------------------------------------------------------------------------------------------------------------- Class Y(b) 235,051 2,540,521 -- -- -------------------------------------------------------------------------------------------------------------------------- Investor Class 4,157,238 46,165,678 1,935,746 27,081,953 -------------------------------------------------------------------------------------------------------------------------- Institutional Class 846,307 10,012,993 1,923,009 27,098,131 ========================================================================================================================== Issued as reinvestment of dividends: Class A 1,462,008 18,177,046 1,040,937 14,289,160 -------------------------------------------------------------------------------------------------------------------------- Class B 465,825 5,766,628 346,802 4,710,395 -------------------------------------------------------------------------------------------------------------------------- Class C 291,644 3,601,665 203,789 2,765,862 -------------------------------------------------------------------------------------------------------------------------- Class R 6,059 75,328 1,976 27,170 -------------------------------------------------------------------------------------------------------------------------- Investor Class 9,094,972 113,018,711 5,973,840 82,005,396 -------------------------------------------------------------------------------------------------------------------------- Institutional Class 378,697 4,691,171 151,943 2,093,669 ========================================================================================================================== Automatic conversion of Class B shares to Class A shares: Class A 1,286,524 15,143,975 869,865 12,156,875 -------------------------------------------------------------------------------------------------------------------------- Class B (1,298,965) (15,143,975) (877,954) (12,156,875) ========================================================================================================================== Reacquired: Class A(b) (6,881,504) (79,383,292) (8,132,612) (113,376,064) -------------------------------------------------------------------------------------------------------------------------- Class B (1,981,453) (23,162,763) (1,903,414) (26,482,326) -------------------------------------------------------------------------------------------------------------------------- Class C (1,283,084) (15,085,091) (1,590,221) (21,905,141) -------------------------------------------------------------------------------------------------------------------------- Class R (24,734) (273,642) (3,205) (44,493) -------------------------------------------------------------------------------------------------------------------------- Class Y(b) (370) (3,319) -- -- -------------------------------------------------------------------------------------------------------------------------- Investor Class(b) (14,181,333) (168,688,291) (14,378,813) (201,779,984) -------------------------------------------------------------------------------------------------------------------------- Institutional Class (790,149) (9,205,601) (460,313) (6,490,769) ========================================================================================================================== Net increase (decrease) in share activity (2,629,918) $ (29,669,241) (8,634,091) $(122,740,992) __________________________________________________________________________________________________________________________ ==========================================================================================================================
(a) There is an entity that is a record owner of more than 5% of the outstanding shares of the Fund that owns 9% of the outstanding shares of the Fund. The Fund and the Fund's principal underwriter or advisor, are parties to participation agreements with this entity whereby this entity sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco Aim and/or Invesco Aim affiliates may make payments to this entity, which are considered to be related to the Fund, for providing services to the Fund, Invesco Aim and or Invesco Aim affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by this entity are also owned beneficially. (b) Effective upon the commencement date of Class Y shares, October 3, 2008, the following shares were converted from Class A and Investor Class shares into Class Y shares of the Fund:
CLASS SHARES AMOUNT --------------------------------------------------------------------------------------------------- Class Y 226,201 $ 2,452,017 --------------------------------------------------------------------------------------------------- Class A (174,395) $(1,890,444) --------------------------------------------------------------------------------------------------- Investor Class (51,853) $ (561,573) ___________________________________________________________________________________________________ ===================================================================================================
19 AIM DIVERSIFIED DIVIDEND FUND NOTE 11--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
NET GAINS (LOSSES) ON NET ASSET SECURITIES TOTAL DIVIDENDS NET ASSET VALUE, NET (BOTH FROM FROM NET DISTRIBUTIONS VALUE, BEGINNING INVESTMENT REALIZED AND INVESTMENT INVESTMENT FROM NET TOTAL END OF OF PERIOD INCOME UNREALIZED) OPERATIONS INCOME REALIZED GAINS DISTRIBUTIONS PERIOD ------------------------------------------------------------------------------------------------------------------------------- CLASS A Year ended 10/31/08 $14.27 $0.23(c) $(3.89) $(3.66) $(0.24) $(0.94) $(1.18) $ 9.43 Year ended 10/31/07 13.88 0.20 0.99 1.19 (0.21) (0.59) (0.80) 14.27 Year ended 10/31/06 12.11 0.19(c) 1.92 2.11 (0.18) (0.16) (0.34) 13.88 Year ended 10/31/05 11.48 0.17(e) 0.85 1.02 (0.18) (0.21) (0.39) 12.11 Year ended 10/31/04 10.26 0.14 1.23 1.37 (0.15) -- (0.15) 11.48 ------------------------------------------------------------------------------------------------------------------------------- CLASS B Year ended 10/31/08 14.14 0.15(c) (3.86) (3.71) (0.15) (0.94) (1.09) 9.34 Year ended 10/31/07 13.76 0.11 0.98 1.09 (0.12) (0.59) (0.71) 14.14 Year ended 10/31/06 12.01 0.10(c) 1.90 2.00 (0.09) (0.16) (0.25) 13.76 Year ended 10/31/05 11.38 0.09(e) 0.85 0.94 (0.10) (0.21) (0.31) 12.01 Year ended 10/31/04 10.17 0.07 1.21 1.28 (0.07) -- (0.07) 11.38 ------------------------------------------------------------------------------------------------------------------------------- CLASS C Year ended 10/31/08 14.12 0.15(c) (3.85) (3.70) (0.15) (0.94) (1.09) 9.33 Year ended 10/31/07 13.74 0.11 0.98 1.09 (0.12) (0.59) (0.71) 14.12 Year ended 10/31/06 11.99 0.10(c) 1.90 2.00 (0.09) (0.16) (0.25) 13.74 Year ended 10/31/05 11.37 0.09(e) 0.84 0.93 (0.10) (0.21) (0.31) 11.99 Year ended 10/31/04 10.16 0.07 1.21 1.28 (0.07) -- (0.07) 11.37 ------------------------------------------------------------------------------------------------------------------------------- CLASS R Year ended 10/31/08 14.28 0.20(c) (3.89) (3.69) (0.21) (0.94) (1.15) 9.44 Year ended 10/31/07 13.88 0.17 1.00 1.17 (0.18) (0.59) (0.77) 14.28 Year ended 10/31/06 12.11 0.16(c) 1.92 2.08 (0.15) (0.16) (0.31) 13.88 Year ended 10/31/05(f) 11.99 0.00 0.12 0.12 -- -- -- 12.11 ------------------------------------------------------------------------------------------------------------------------------- CLASS Y Year ended 10/31/08(f) 10.84 0.01(c) (1.42) (1.41) -- -- -- 9.43 ------------------------------------------------------------------------------------------------------------------------------- INVESTOR CLASS Year ended 10/31/08 14.26 0.24(c) (3.89) (3.65) (0.25) (0.94) (1.19) 9.42 Year ended 10/31/07 13.88 0.22 0.98 1.20 (0.23) (0.59) (0.82) 14.26 Year ended 10/31/06 12.11 0.20(c) 1.92 2.12 (0.19) (0.16) (0.35) 13.88 Year ended 10/31/05(f) 12.36 0.05 (0.26) (0.21) (0.04) -- (0.04) 12.11 ------------------------------------------------------------------------------------------------------------------------------- INSTITUTIONAL CLASS Year ended 10/31/08 14.26 0.27(c) (3.88) (3.61) (0.28) (0.94) (1.22) 9.43 Year ended 10/31/07 13.88 0.25 0.98 1.23 (0.26) (0.59) (0.85) 14.26 Year ended 10/31/06 12.12 0.02(c) 2.12 2.14 (0.22) (0.16) (0.38) 13.88 Year ended 10/31/05(f) 11.99 0.00 0.13 0.13 -- -- -- 12.12 _______________________________________________________________________________________________________________________________ =============================================================================================================================== RATIO OF RATIO OF EXPENSES TO EXPENSES TO AVERAGE NET AVERAGE NET RATIO OF NET NET ASSETS, ASSETS WITH FEE ASSETS WITHOUT INVESTMENT END OF WAIVERS AND/OR FEE WAIVERS INCOME TOTAL PERIOD EXPENSES AND/OR EXPENSES TO AVERAGE PORTFOLIO RETURN(A) (000S OMITTED) ABSORBED ABSORBED NET ASSETS TURNOVER(b) ---------------------------------------------------------------------------------------------------------------- CLASS A Year ended 10/31/08 (27.56)% $ 157,407 1.01%(d) 1.02%(d) 1.93%(d) 18% Year ended 10/31/07 8.86 237,467 1.00 1.00 1.45 17 Year ended 10/31/06 17.66 262,276 1.00 1.03 1.43 9 Year ended 10/31/05 8.92 212,029 1.00 1.15 1.27(e) 22 Year ended 10/31/04 13.36 63,513 1.00 1.70 1.27 30 ---------------------------------------------------------------------------------------------------------------- CLASS B Year ended 10/31/08 (28.06) 36,934 1.69(d) 1.76(d) 1.25(d) 18 Year ended 10/31/07 8.15 85,172 1.65 1.75 0.80 17 Year ended 10/31/06 16.87 98,901 1.65 1.78 0.78 9 Year ended 10/31/05 8.28 92,394 1.65 1.85 0.62(e) 22 Year ended 10/31/04 12.63 45,700 1.65 2.35 0.62 30 ---------------------------------------------------------------------------------------------------------------- CLASS C Year ended 10/31/08 (28.02) 30,998 1.69(d) 1.76(d) 1.25(d) 18 Year ended 10/31/07 8.16 52,524 1.65 1.75 0.80 17 Year ended 10/31/06 16.90 56,354 1.65 1.78 0.78 9 Year ended 10/31/05 8.20 45,513 1.65 1.85 0.62(e) 22 Year ended 10/31/04 12.64 15,316 1.65 2.35 0.62 30 ---------------------------------------------------------------------------------------------------------------- CLASS R Year ended 10/31/08 (27.73) 902 1.26(d) 1.27(d) 1.68(d) 18 Year ended 10/31/07 8.67 740 1.25 1.25 1.20 17 Year ended 10/31/06 17.38 430 1.25 1.28 1.18 9 Year ended 10/31/05(f) 1.00 10 1.25(g) 1.39(g) 1.03(g) 22 ---------------------------------------------------------------------------------------------------------------- CLASS Y Year ended 10/31/08(f) (13.01) 2,213 0.82(d)(g) 0.82(d)(g) 2.12(d)(g) 18 ---------------------------------------------------------------------------------------------------------------- INVESTOR CLASS Year ended 10/31/08 (27.50) 963,835 0.93(d) 0.94(d) 2.01(d) 18 Year ended 10/31/07 8.91 1,472,311 0.91 0.91 1.54 17 Year ended 10/31/06 17.77 1,522,235 0.87 0.90 1.56 9 Year ended 10/31/05(f) (1.68) 1,546,221 0.97(g) 1.09(g) 1.30(g) 22 ---------------------------------------------------------------------------------------------------------------- INSTITUTIONAL CLASS Year ended 10/31/08 (27.25) 39,425 0.67(d) 0.68(d) 2.27(d) 18 Year ended 10/31/07 9.17 53,464 0.66 0.66 1.79 17 Year ended 10/31/06 17.96 29,606 0.59 0.59 1.84 9 Year ended 10/31/05(f) 1.08 48 0.68(g) 0.80(g) 1.59(g) 22 ________________________________________________________________________________________________________________ ================================================================================================================
(a) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. (b) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. (c) Calculated using average shares outstanding. (d) Ratios are based on average daily net assets (000's omitted) of $197,158, $60,761, $41,734, $933, $2,157, $1,235,953 and $48,986 for Class A, Class B, Class C, Class R, Class Y, Investor Class and Institutional Class shares, respectively. (e) 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 special dividend, remained the same and the ratio of net investment income to average net assets excluding the special dividend are 1.24%, 0.59% and 0.59% for Class A, Class B, and Class C shares, respectively. (f) Commencement date of Class R, Class Y, Investor Class and Institutional Class shares was October 25, 2005, October 3, 2008, July 15, 2005 and October 25, 2005 respectively. (g) Annualized. 20 AIM DIVERSIFIED DIVIDEND FUND NOTE 12--LEGAL PROCEEDINGS Terms used in the Legal Proceedings Note are defined terms solely for the purpose of this note. SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING On May 23, 2008, the Securities and Exchange Commission ("SEC") publicly posted its final approval of the 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"), Invesco Aim Advisors, Inc. ("Invesco Aim") and Invesco Aim Distributors, Inc. ("IADI") 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 Invesco Aim who may have been harmed by market timing and related activity. The Distribution Plans provide for the distribution to all eligible investors 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 of the Fair Funds has not yet commenced, management of Invesco 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 Invesco 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 Invesco Aim and IADI (Order No. 05- 1318). The WVASC makes findings of fact that Invesco Aim and IADI 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 Invesco Aim and IADI violated the West Virginia securities laws. The WVASC orders Invesco Aim and IADI 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, Invesco 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, Invesco Aim, IADI 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 the Employee Retirement Income Security Act of 1974, as amended ("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. The case pending in Illinois State Court regarding fair value pricing was dismissed with prejudice on May 6, 2008. 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 Invesco 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 ERISA purportedly brought on behalf of participants in the Invesco 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. Plaintiff appealed this ruling. On June 16, 2008, the Fourth Circuit Court of Appeals reversed the dismissal and remanded this lawsuit back to the MDL Court for further proceedings. IFG, Invesco Aim, IADI 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, Invesco Aim and IADI 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, Invesco Aim and/or related entities and individuals in the future. At the present time, management of Invesco 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 Invesco Aim, IADI or the Fund. 21 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, 2008, 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 four 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, 2008 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights for the period ended 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 16, 2008 Houston, Texas 22 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. With the exception of the actual ending account value and expenses of the Class Y Shares, 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, 2008, through October 31, 2008. The actual ending account and expenses of the Class Y shares in the below example are based on an investment of $1,000 invested as of close of business October 3, 2008 (commencement date) and held through October 31, 2008. 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 (as of close of business October 3, 2008 through October 31, 2008 for the Class Y shares). Because the actual ending account value and expense information in the example is not based upon a six month period for the Class Y shares, the ending account value and expense information may not provide a meaningful comparison to mutual funds that provide such information for a full six month 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 CLASS (05/01/08) (10/31/08)(1) PERIOD(2) (10/31/08) PERIOD(2,3) RATIO --------------------------------------------------------------------------------------------------- A $1,000.00 $777.80 $4.65 $1,019.91 $5.28 1.04% --------------------------------------------------------------------------------------------------- B 1,000.00 775.10 7.81 1,016.34 8.87 1.75 --------------------------------------------------------------------------------------------------- C 1,000.00 775.60 7.81 1,016.34 8.87 1.75 --------------------------------------------------------------------------------------------------- R 1,000.00 776.90 5.76 1,018.65 6.55 1.29 --------------------------------------------------------------------------------------------------- Y 1,000.00 869.90 0.61 1,021.01 4.17 0.82 --------------------------------------------------------------------------------------------------- Investor 1,000.00 778.00 4.65 1,019.91 5.28 1.04 ---------------------------------------------------------------------------------------------------
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2008, through October 31, 2008 (as of close of business October 3, 2008, through October 31, 2008 for the Class Y shares), after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's expense ratio and a hypothetical annual return of 5% before expenses. (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 184/366 to reflect the most recent fiscal half year. For the Class Y shares actual expenses are equal to the annualized expense ratio indicated above multiplied by the average account value over the period, multiplied by 29 (as of close of business October 3, 2008, through October 31, 2008)/366. Because the Class Y shares have not been in existence for a full six month period, the actual ending account value and expense information shown may not provide a meaningful comparison to fund expense information of classes that show such data for a full six month period and, because the actual ending account value and expense information in the expense example covers a short time period, return and expense data may not be indicative of return and expense data for longer time periods. (3) Hypothetical expenses are equal to the annualized expense ratio indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect a one-half year period. The hypothetical ending account value and expenses may be used to compare ongoing costs of investing Class Y shares of the Fund and other funds because such data is based on a full six month period. 23 AIM DIVERSIFIED DIVIDEND FUND Supplement to Annual Report dated 10/31/08 AIM DIVERSIFIED DIVIDEND FUND ========================================== INSTITUTIONAL CLASS SHARES AVERAGE ANNUAL TOTAL RETURNS The total annual Fund operating expense For periods ended 10/31/08 ratio set forth in the most recent Fund The following information has been prospectus as of the date of this prepared to provide Institutional Class Inception 2.61% supplement for Institutional Class shares shareholders with a performance overview 5 Years 2.97 was 0.67%. The expense ratios presented specific to their holdings. Institutional 1 Year -27.25 above may vary from the expense ratios Class shares are offered exclusively to ========================================== presented in other sections of the actual institutional investors, including defined report that are based on expenses incurred contribution plans that meet certain ========================================== during the period covered by the report. criteria. AVERAGE ANNUAL TOTAL RETURNS For periods ended 9/30/08, most recent Had the advisor not waived fees and/or calendar quarter-end reimbursed expenses, performance would have been lower. Inception 5.38% 5 Years 7.83 Please note that past performance is 1 Year -12.70 not indicative of future results. More ========================================== recent returns may be more or less than those shown. All returns assume Institutional Class shares' inception date reinvestment of distributions at NAV. is October 25, 2005. Returns since that Investment return and principal value will date are historical returns. All other fluctuate so your shares, when redeemed, returns are blended returns of historical may be worth more or less than their Institutional Class share performance and original cost. See full report for restated Class A share performance (for information on comparative benchmarks. periods prior to the inception date of Please consult your Fund prospectus for Institutional Class shares) at net asset more information. For the most current value (NAV) and reflect the Rule 12b-1 month-end performance, please call 800 451 fees applicable to Class A shares. Class A 4246 or visit invescoaim.com. 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. ========================================== NASDAQ SYMBOL DDFIX ========================================== Over for information on your Fund's expenses. THIS SUPPLEMENT 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. [INVESCO AIM LOGO] invescoaim.com DDI-INS-1 Invesco Aim Distributors, Inc. -- SERVICE MARK --
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, 2008, through October 31, 2008. 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 CLASS (05/01/08) (10/31/08)(1) PERIOD(2) (10/31/08) PERIOD(2) RATIO ----------------------------------------------------------------------------------------------------------- Institutional $1,000.00 $779.80 $3.09 $1,021.67 $3.51 0.69% -----------------------------------------------------------------------------------------------------------
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2008, through October 31, 2008, 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 184/366 to reflect the most recent fiscal half year. AIM DIVERSIFIED DIVIDEND FUND APPROVAL OF INVESTMENT ADVISORY AGREEMENT The Board of Trustees (the Board) of AIM comparative performance and fee data ent weight to the various factors. The Equity Funds is required under the regarding the AIM Funds prepared by an Trustees recognized that the advisory Investment Company Act of 1940 to approve independent company, Lipper, Inc. arrangements and resulting advisory fees annually the renewal of the AIM (Lipper), under the direction and for the Fund and the other AIM Funds are Diversified Dividend Fund's (the Fund) supervision of the independent Senior the result of years of review and investment advisory agreement with Invesco Officer who also prepares a separate negotiation between the Trustees and Aim Advisors, Inc. (Invesco Aim). During analysis of this information for the Invesco Aim, that the Trustees may focus contract renewal meetings held on June Trustees. Each Sub-Committee then makes to a greater extent on certain aspects of 18-19, 2008, the Board as a whole and the recommendations to the Investments these arrangements in some years than in disinterested or "independent" Trustees, Committee regarding the performance, fees others, and that the Trustees' voting separately, approved the and expenses of their assigned funds. The deliberations and conclusions in a continuance of the Fund's investment Investments Committee considers each particular year may be based in part on advisory agreement for another year, Sub-Committee's recommendations and makes their deliberations and conclusions of effective July 1, 2008. In doing so, the its own recommendations regarding the these same arrangements throughout the Board determined that the Fund's performance, fees and expenses of the AIM year and in prior years. investment advisory agreement is in the Funds to the full Board. The Investments best interests of the Fund and its Committee also considers each FACTORS AND CONCLUSIONS AND SUMMARY OF shareholders and that the compensation to Sub-Committee's recommendations in making INDEPENDENT WRITTEN FEE EVALUATION Invesco Aim under the Fund's investment its annual recommendation to the Board advisory agreement is fair and reasonable. whether to approve the continuance of each The discussion below serves as a summary AIM Fund's investment advisory agreement of the Senior Officer's independent The independent Trustees met separately and sub-advisory agreements for another written evaluation with respect to the during their evaluation of the Fund's year. Fund's investment advisory agreement as investment advisory agreement with well as a discussion of the material independent legal counsel from whom they The independent Trustees are assisted factors and related conclusions that received independent legal advice, and the in their annual evaluation of the Fund's formed the basis for the Board's approval independent Trustees also received investment advisory agreement by the of the Fund's investment advisory assistance during their deliberations from independent Senior Officer. One agreement and sub-advisory agreements. the independent Senior Officer, a responsibility of the Senior Officer is to Unless otherwise stated, information set full-time officer of the AIM Funds who manage the process by which the AIM Funds' forth below is as of June 19, 2008 and reports directly to the independent proposed management fees are negotiated does not reflect any changes that may have Trustees. during the annual contract renewal process occurred since that date, including but to ensure that they are negotiated in a not limited to changes to the Fund's THE BOARD'S FUND EVALUATION PROCESS manner that is at arms' length and performance, advisory fees, expense reasonable. Accordingly, the Senior limitations and/or fee waivers. The Board's Investments Committee has Officer must either supervise a established three Sub-Committees that are competitive bidding process or prepare an I. Investment Advisory Agreement responsible for overseeing the management independent written evaluation. The Senior of a number of the series portfolios of Officer has recommended that an A. Nature, Extent and Quality of the AIM Funds. This Sub-Committee independent written evaluation be provided Services Provided by Invesco Aim structure permits the Trustees to focus on and, at the direction of the Board, has the performance of the AIM Funds that have prepared an independent written The Board reviewed the advisory services been assigned to them. The Sub-Committees evaluation. provided to the Fund by Invesco Aim under meet throughout the year to review the the Fund's investment advisory agreement, performance of their assigned funds, and During the annual contract renewal the performance of Invesco Aim in the Sub-Committees review monthly and process, the Board considered the factors providing these services, and the quarterly comparative performance discussed below under the heading "Factors credentials and experience of the officers information and periodic asset flow data and Conclusions and Summary of Independent and employees of Invesco Aim who provide for their assigned funds. These materials Written Fee Evaluation" in evaluating the these services. The Board's review of the are prepared under the direction and fairness and reasonableness of the Fund's qualifications of Invesco Aim to provide supervision of the independent Senior investment advisory agreement and these services included the Board's Officer. Over the course of each year, the sub-advisory agreements at the contract consideration of Invesco Aim's portfolio Sub-Committees meet with portfolio renewal meetings and at their meetings and product review process, various back managers for their assigned funds and throughout the year as part of their office support functions provided by other members of management and review ongoing oversight of the Fund. The Fund's Invesco Aim and its affiliates, and with these individuals the performance, investment advisory agreement and Invesco Aim's equity and fixed income investment objective(s), policies, sub-advisory agreements were considered trading operations. The Board concluded strategies and limitations of these funds. separately, although the Board also that the nature, extent and quality of the considered the common interests of all of advisory services provided to the Fund by In addition to their meetings the AIM Funds in their deliberations. The Invesco Aim were appropriate and that throughout the year, the Sub-Committees Board considered all of the information Invesco Aim currently is providing meet at designated contract renewal provided to them and did not identify any satisfactory advisory services in meetings each year to conduct an in-depth particular factor that was controlling. accordance with the terms of the Fund's review of the performance, fees and Each Trustee may have evaluated the investment advisory agreement. In expenses of their assigned funds. During information provided differently from one addition, based on their ongoing meetings the contract renewal process, the Trustees another and attributed differ- throughout the year with the Fund's receive portfolio manager or managers, the Board concluded that continued
24 AIM DIVERSIFIED DIVIDEND FUND these individuals are competent and able focus on fund performance. However, due to start-up phase of the Fund and believes to continue to carry out their the Fund's underperformance, the Board the Fund has reached a sufficient size to responsibilities under the Fund's also concluded that it would be be commercially viable without the expense investment advisory agreement. appropriate for the Board to continue to limitation. monitor more closely the performance of In determining whether to continue the the Fund. Although the independent written The Board concluded that it was not Fund's investment advisory agreement, the evaluation of the Fund's Senior Officer necessary at this time to discuss with Board considered the prior relationship only considered Fund performance through Invesco Aim whether to implement any fee between Invesco Aim and the Fund, as well the most recent calendar year, the Board waivers or continue expense limitations as the Board's knowledge of Invesco Aim's also reviewed more recent Fund performance because the Fund's total expenses for all operations, and concluded that it was and this review did not change their classes were at or below the median total ben-eficial to maintain the current conclusions. expenses of the funds in the Fund's Lipper relationship, in part, because of such expense group that are not managed by knowledge. The Board also considered the C. Advisory Fees and Fee Waivers Invesco Aim. steps that Invesco Aim and its affiliates have taken over the last several years to The Board compared the Fund's contractual After taking account of the Fund's improve the quality and efficiency of the advisory fee rate to the contractual contractual advisory fee rate, as well as services they provide to the AIM Funds in advisory fee rates of funds in the Fund's the comparative advisory fee information the areas of investment performance, Lipper expense group that are not managed and expiration of the expense limitation, product line diversification, by Invesco Aim, at a common asset level the Board concluded that the Fund's distribution, fund operations, shareholder and as of the end of the past calendar advisory fees were fair and reasonable. services and compliance. The Board year. The Board noted that the Fund's concluded that the quality and efficiency contractual advisory fee rate was below D. Economies of Scale and Breakpoints of the services Invesco Aim and its the median contractual advisory fee rate affiliates provide to the AIM Funds in of funds in its expense group. The Board The Board considered the extent to which each of these areas have generally also reviewed the methodology used by there are economies of scale in Invesco improved, and support the Board's approval Lipper in determining contractual fee Aim's provision of advisory services to of the continuance of the Fund's rates. the Fund. The Board also considered investment advisory agreement. whether the Fund benefits from such The Board also compared the Fund's economies of scale through contractual B. Fund Performance effective fee rate (the advisory fee after breakpoints in the Fund's advisory fee any advisory fee waivers and before any schedule or through advisory fee waivers The Board compared the Fund's performance expense limitations/waivers) to the or expense limitations. The Board noted during the past one, three and five advisory fee rates of other clients of that the Fund's contractual advisory fee calendar years to the performance of funds Invesco Aim and its affiliates with schedule includes six breakpoints and that in the Fund's performance group that are investment strategies comparable to those the level of the Fund's advisory fees, as not managed by Invesco Aim, and against of the Fund, including three mutual funds a percentage of the Fund's net assets, has the performance of all funds in the Lipper advised by Invesco Aim and one mutual fund decreased as net assets increased because Large-Cap Core Funds Index. The Board also sub-advised by an Invesco Aim affiliate. of the breakpoints. Based on this reviewed the criteria used by Invesco Aim The Board noted that the Fund's rate was: information, the Board concluded that the to identify the funds in the Fund's (i) below the rates for the three mutual Fund's advisory fees appropriately reflect performance group for inclusion in the funds and (ii) below the sub-advisory fee economies of scale at current asset Lipper reports. The Board noted that the rate for the sub-advised mutual fund. levels. The Board also noted that the Fund Fund's performance was in the fifth shares directly in economies of scale quintile of its performance group for the Additionally, the Board compared the through lower fees charged by third party one year period, the fourth quintile for Fund's effective fee rate to the total service providers based on the combined the three year period, and the third advisory fees paid by numerous separately size of all of the AIM Funds and quintile for the five year period (the managed accounts/wrap accounts advised by affiliates. first quintile being the best performing Invesco Aim affiliates. The Board noted funds and the fifth quintile being the that the Fund's rate was generally above E. Profitability and Financial worst performing funds). The Board noted the rates for the separately managed Resources of Invesco Aim that the Fund's performance was below the accounts/ wrap accounts. The Board performance of the Index for the one and considered that management of the The Board reviewed information from three year periods, and above the Index separately managed accounts/wrap accounts Invesco Aim concerning the costs of the for the five year period. The Board noted by the Invesco Aim affiliates involves advisory and other services that Invesco that Invesco Aim acknowledges the Fund's different levels of services and different Aim and its affiliates provide to the Fund underperformance because of shorter term operational and regulatory requirements and the profitability of Invesco Aim and performance results and continues to than Invesco Aim's management of the Fund. its affiliates in providing these monitor the Fund. The Board also The Board concluded that these differences services. The Board also reviewed considered the steps Invesco Aim has taken are appropriately reflected in the fee information concerning the financial over the last several years to improve the structure for the Fund. condition of Invesco Aim and its quality and efficiency of the services affiliates. The Board also reviewed with that Invesco Aim provides to the AIM The Board noted that Invesco Aim will Invesco Aim the methodology used to Funds. The Board concluded that Invesco allow the fee waivers and expense prepare the profitability information. The Aim continues to be responsive to the limitations of the Fund to expire on June Board considered the overall profitability Board's 30, 2008. Invesco Aim had instituted the of Invesco Aim, as well as the expense limitation in the profitability of Invesco Aim in connection with managing the Fund. The Board noted that Invesco Aim continues to operate at a net profit, although continued
24 AIM DIVERSIFIED DIVIDEND FUND increased expenses in recent years have age commissions paid by the Fund and/or tials and experience of the officers and reduced the profitability of Invesco Aim other funds advised by Invesco Aim are employees of the Affiliated Sub-Advisers and its affiliates. The Board concluded used to pay for research and execution who will provide these services. The Board that the Fund's fees were fair and services. The Board noted that soft dollar concluded that the nature, extent and reasonable, and that the level of profits arrangements shift the payment obligation quality of the services to be provided by realized by Invesco Aim and its affiliates for the research and execution services the Affiliated Sub-Advisers were from providing services to the Fund was from Invesco Aim to the funds and appropriate. The Board noted that the not excessive in light of the nature, therefore may reduce Invesco Aim's Affiliated Sub-Advisers, which have quality and extent of the services expenses. The Board also noted that offices and personnel that are provided. The Board considered whether research obtained through soft dollar geographically dispersed in financial Invesco Aim is financially sound and has arrangements may be used by Invesco Aim in centers around the world, have been formed the resources necessary to perform its making investment decisions for the Fund in part for the purpose of researching and obligations under the Fund's investment and may therefore benefit Fund compiling information and making advisory agreement, and concluded that shareholders. The Board concluded that recommendations on the markets and Invesco Aim has the financial resources Invesco Aim's soft dollar arrangements economies of various countries and necessary to fulfill these obligations. were appropriate. The Board also concluded securities of companies located in such that, based on their review and countries or on various types of F. Independent Written Evaluation of representations made by Invesco Aim, these investments and investment techniques, and the Fund's Senior Officer arrangements were consistent with providing investment advisory services. regulatory requirements. The Board concluded that the sub-advisory The Board noted that, at their direction, agreements will benefit the Fund and its the Senior Officer of the Fund, who is The Board considered the fact that the shareholders by permitting Invesco Aim to independent of Invesco Aim and Invesco Fund's uninvested cash and cash collateral utilize the additional resources and Aim's affiliates, had prepared an from any securities lending arrangements talent of the Affiliated Sub-Advisers in independent written evaluation to assist may be invested in money market funds managing the Fund. the Board in determining the advised by Invesco Aim pursuant to reasonableness of the proposed management procedures approved by the Board. The B. Fund Performance fees of the AIM Funds, including the Fund. Board noted that Invesco Aim will receive The Board noted that they had relied upon advisory fees from these affiliated money The Board did not view Fund performance as the Senior Officer's written evaluation market funds attributable to such a relevant factor in considering whether instead of a competitive bidding process. investments, although Invesco Aim has to approve the sub-advisory agreements for In determining whether to continue the contractually agreed to waive through at the Fund, as no Affiliated Sub-Adviser Fund's investment advisory agreement, the least June 30, 2009, the advisory fees currently manages any portion of the Board considered the Senior Officer's payable by the Fund in an amount equal to Fund's assets. written evaluation. 100% of the net advisory fees Invesco Aim receives from the affiliated money market C. Sub-Advisory Fees G. Collateral Benefits to Invesco Aim funds with respect to the Fund's and its Affiliates investment of uninvested cash, but not The Board considered the services to be cash collateral. The Board considered the provided by the Affiliated Sub-Advisers The Board considered various other contractual nature of this fee waiver and pursuant to the sub-advisory agreements benefits received by Invesco Aim and its noted that it remains in effect until at and the services to be provided by Invesco affiliates resulting from Invesco Aim's least June 30, 2009. The Board concluded Aim pursuant to the Fund's investment relationship with the Fund, including the that the Fund's investment of uninvested advisory agreement, as well as the fees received by Invesco Aim and its cash and cash collateral from any allocation of fees between Invesco Aim and affiliates for their provision of securities lending arrangements in the the Affiliated Sub-Advisers pursuant to administrative, transfer agency and affiliated money market funds is in the the sub-advisory agreements. The Board distribution services to the Fund. The best interests of the Fund and its noted that the sub-advisory fees have no Board considered the performance of shareholders. direct effect on the Fund or its Invesco Aim and its affiliates in shareholders, as they are paid by Invesco providing these services and the II. Sub-Advisory Agreements Aim to the Affiliated Sub-Advisers, and organizational structure employed by that Invesco Aim and the Affiliated Invesco Aim and its affiliates to provide A. Nature, Extent and Quality of Sub-Advisers are affiliates. After taking these services. The Board also considered Services Provided by Affiliated account of the Fund's contractual that these services are provided to the Sub-Advisers sub-advisory fee rate, as well as other Fund pursuant to written contracts which relevant factors, the Board concluded that are reviewed and approved on an annual The Board reviewed the services to be the Fund's sub-advisory fees were fair and basis by the Board. The Board concluded provided by Invesco Trimark Ltd., Invesco reasonable. that Invesco Aim and its affiliates were Asset Management Deutschland, GmbH, providing these services in a satisfactory Invesco Asset Management Limited, Invesco D. Financial Resources of the manner and in accordance with the terms of Asset Management (Japan) Limited, Invesco Affiliated Sub-Advisers their contracts, and were qualified to Australia Limited, Invesco Global Asset continue to provide these services to the Management (N.A.), Inc., Invesco Hong Kong The Board considered whether each Fund. Limited, Invesco Institutional (N.A.), Affiliated Sub-Adviser is financially Inc. and Invesco Senior Secured sound and has the resources necessary to The Board considered the benefits Management, Inc. (collectively, the perform its obligations under its realized by Invesco Aim as a result of "Affiliated Sub-Advisers") under the respective sub-advisory agreement, and portfolio brokerage transactions executed sub-advisory agreements and the creden- concluded that each Affiliated Sub-Adviser through "soft dollar" arrangements. Under has the financial resources necessary to these arrangements, portfolio broker- fulfill these obligations.
26 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, 2008:
FEDERAL AND STATE INCOME TAX ---------------------------- Long-Term Capital Gain Dividends $121,519,634 Qualified Dividend Income* 100% Corporate Dividends Received Deduction* 100% U.S. Treasury Obligations* 0.06%
* The above percentages are based on ordinary 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, 2008, April 30, 2008, July 31, 2008 and October 31, 2008 were 5.76%, 5.97%, 5.62%, and 7.33%, respectively. 27 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 103 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.
NAME, YEAR OF BIRTH AND TRUSTEE AND/ OTHER POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) DIRECTORSHIP(S) TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE -------------------------------------------------------------------------------------------------------------------------------- INTERESTED PERSONS -------------------------------------------------------------------------------------------------------------------------------- Martin L. 2007 Executive Director, Chief Executive Officer and President, None Flanagan(1) -- 1960 Invesco Ltd. (ultimate parent of Invesco Aim and a global Trustee investment management firm); Chairman, Invesco Aim Advisors, Inc. (registered investment advisor); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company); INVESCO North American Holdings, Inc. (holding company); and, INVESCO Group Services, Inc. (service provider); Trustee, The AIM Family of Funds--Registered Trademark--; Vice Chairman, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business Formerly: Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco Aim and a global investment management firm); 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 Head of North American Retail and Senior Managing Director, None Trustee, President and Invesco Ltd.; Director, Chief Executive Officer and Principal President, Invesco Trimark Dealer Inc. (formerly AIM Mutual Executive Officer Fund Dealer Inc.) (registered broker dealer), Invesco Aim Advisors, Inc., and 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Aim Management Group, Inc. (financial services holding company) and Invesco Aim 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, Invesco Aim Distributors, Inc. (registered broker dealer); Director and Chairman, Invesco 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 Invesco Canada Holdings Inc. (formerly AIM Canada Holdings Inc.) (holding company); 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); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltee (formerly AIM Funds Management Inc. d/b/a INVESCO Enterprise Services) (registered investment advisor and registered transfer agent) and Invesco Trimark Dealer Inc. (formerly AIM Mutual Fund Dealer Inc.) (registered broker dealer); Trustee, President and Principal Executive Officer of The AIM Family of Funds--Registered Trademark-- (other than AIM Treasurer's Series Trust and Short-Term Investments Trust); Trustee and Executive Vice President, The AIM Family of Funds--Registered Trademark-- (AIM Treasurer's Series Trust and Short-Term Investments Trust only); and Manager, Invesco PowerShares Capital Management LLC Formerly: President, Invesco Trimark Dealer Inc.; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Director and President, Invesco Trimark Ltd./Invesco Trimark Ltee (formerly AIM Funds Management Inc. d/b/a INVESCO Enterprise Services); Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; 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); 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 (technology ACE Limited Trustee and Chair consulting company) (insurance company); Captaris, Inc. (unified messaging provider); and Investment Company Institute -------------------------------------------------------------------------------------------------------------------------------- Bob R. Baker -- 1936 2003 Retired None Trustee -------------------------------------------------------------------------------------------------------------------------------- Frank S. Bayley -- 1939 2001 Retired Trustee Formerly: Partner, law firm of Baker & McKenzie; and None Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) -------------------------------------------------------------------------------------------------------------------------------- James T. Bunch -- 1942 2003 Founder, Green, Manning & Bunch Ltd., (investment banking Director, Policy Trustee firm) Studies, Inc. and Van Gilder Insurance Corporation -------------------------------------------------------------------------------------------------------------------------------- Albert R. Dowden -- 1941 2000 Director of a number of public and private business None Trustee corporations, including the Boss Group Ltd. (private investment and management); Continental Energy Services, LLC (oil and gas pipeline service); Reich & Tang Funds (registered investment company); Annuity and Life Re (Holdings), Ltd. (reinsurance company), and Homeowners of America Holding Corporation/Homeowners of America Insurance Company (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 public and private corporations -------------------------------------------------------------------------------------------------------------------------------- Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Century Group, Inc. Administaff Trustee (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); and Discovery Global Education Fund (non-profit) -------------------------------------------------------------------------------------------------------------------------------- Carl Frischling -- 1937 1998 Partner, law firm of Kramer Levin Naftalis and Frankel LLP Director, Reich & Trustee Tang Funds) (15 portfolios) -------------------------------------------------------------------------------------------------------------------------------- Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the USA None Trustee -------------------------------------------------------------------------------------------------------------------------------- Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper None Trustee -------------------------------------------------------------------------------------------------------------------------------- Larry Soll -- 1942 2003 Retired None Trustee -------------------------------------------------------------------------------------------------------------------------------- Raymond Stickel, Jr. -- 1944 2005 Retired Trustee Formerly: Partner, Deloitte & Touche; and Director, Mainstay None VP Series Funds, Inc. (25 portfolios) --------------------------------------------------------------------------------------------------------------------------------
(1) 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 Ltd., ultimate 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. 28 AIM DIVERSIFIED DIVIDEND FUND TRUSTEES AND OFFICERS--(CONTINUED)
NAME, YEAR OF BIRTH AND TRUSTEE AND/ OTHER POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) DIRECTORSHIP(S) TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE -------------------------------------------------------------------------------------------------------------------------------- OTHER OFFICERS -------------------------------------------------------------------------------------------------------------------------------- Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer of The AIM Family of N/A Senior Vice President and Funds--Registered Trademark-- Senior Officer 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, Secretary and General Counsel, N/A Senior Vice President, Chief Invesco Aim Management Group, Inc., Invesco Aim Advisors, Inc. Legal Officer and Secretary and Invesco Aim Capital Management, Inc.; Director, Senior Vice President and Secretary, Invesco Aim Distributors, Inc.; Director, Vice President and Secretary, Invesco Aim Investment Services, Inc. and INVESCO Distributors, Inc.; Director and Vice President, INVESCO Funds Group Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds--Registered Trademark--; and Manager, Invesco PowerShares Capital Management LLC Formerly: Director, Vice President and Secretary, Fund Management Company; Vice President, Invesco Aim 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); 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 Ltd.; and Vice President, The N/A Vice President AIM Family of Funds--Registered Trademark-- Formerly: Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and The AIM Family of Funds--Registered Trademark--; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Aim Distributors, Inc.; Vice President, Invesco Aim Investment Services, Inc. and Fund Management Company; and Senior Vice President and Compliance Director, Delaware Investments Family of Funds -------------------------------------------------------------------------------------------------------------------------------- Kevin M. Carome -- 1956 2003 General Counsel, Secretary and Senior Managing Director, Invesco N/A Vice President Ltd.; Director and Secretary, Invesco Holding Company Limited, IVZ, Inc. and INVESCO Group Services, Inc.; Director, INVESCO Funds Group, Inc.; Secretary, INVESCO North American Holdings, Inc.; and Vice President, The AIM Family of Funds--Registered Trademark-- Formerly: Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc. and Invesco Aim Advisors, Inc.; Senior Vice President, Invesco Aim Distributors, Inc.; Director, General Counsel and Vice President, Fund Management Company; Vice President, Invesco Aim Capital Management, Inc. and Invesco Aim Investment Services, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds--Registered Trademark--; Director and Vice President, INVESCO Distributors, Inc. and Chief Executive Officer and President, INVESCO Funds Group, Inc. -------------------------------------------------------------------------------------------------------------------------------- Sheri Morris -- 1964 1999 Vice President, Treasurer and Principal Financial Officer, The N/A Vice President, Treasurer AIM Family of Funds--Registered Trademark--; and Vice President, and Principal Financial Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. Officer and Invesco Aim Private Asset Management Inc. Formerly: Assistant Vice President and Assistant Treasurer, The AIM Family of Funds--Registered Trademark-- and Assistant Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. -------------------------------------------------------------------------------------------------------------------------------- Karen Dunn Kelley -- 1960 2004 Head of Invesco's World Wide Fixed Income and Cash Management N/A Vice President Group; Director of Cash Management and Senior Vice President, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc; Executive Vice President, Invesco Aim Distributors, Inc.; Senior Vice President, Invesco Aim Management Group, Inc.; Vice President, The AIM Family of Funds--Registered Trademark-- (other than AIM Treasurer's Series Trust and Short-Term Investments Trust); and President and Principal Executive Officer, The AIM Family of Funds--Registered Trademark-- (AIM Treasurer's Series Trust and Short-Term Investments Trust only) Formerly President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer and Managing Director, Invesco Aim Capital Management, Inc.; and Vice President, Invesco Aim 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 Officer, Invesco Aim Advisors, N/A Anti-Money Laundering Inc., Invesco Aim Capital Management, Inc., Invesco Aim Compliance Officer Distributors, Inc., Invesco Aim Investment Services, Inc., Invesco 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, Invesco Aim Investment Services, Inc. -------------------------------------------------------------------------------------------------------------------------------- Todd L. Spillane -- 1958 2006 Senior Vice President, Invesco Aim Management Group, Inc.; Senior N/A Chief Compliance Officer Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, 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, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc. Formerly: Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company; and Global Head of Product Development, AIG-Global Investment Group, Inc. --------------------------------------------------------------------------------------------------------------------------------
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. Please refer to the Fund's prospectus for information on the Fund's sub- advisors. OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS 11 Greenway Plaza Invesco Aim Advisors, Invesco Aim Distributors, PricewaterhouseCoopers Suite 100 Inc. Inc. LLP Houston, TX 77046-1173 11 Greenway Plaza 11 Greenway Plaza 1201 Louisiana Street Suite 100 Suite 100 Suite 2900 Houston, TX 77046-1173 Houston, TX 77046-1173 Houston, TX 77002-5678 COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN Stradley Ronon Stevens INDEPENDENT TRUSTEES Invesco Aim Investment State Street Bank and & Young, LLP Kramer, Levin, Naftalis & Services, Inc. Trust Company 2600 One Commerce Square Frankel LLP P.O. Box 4739 225 Franklin Street Philadelphia, PA 19103 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801 Americas New York, NY 10036-2714
29 AIM DIVERSIFIED DIVIDEND FUND [GO PAPERLESS GRAPHIC] ==================================================================================================================================== GO PAPERLESS WITH EDELIVERY Visit invescoaim.com/edelivery to receive quarterly statements, tax forms, fund reports and prospectuses with a service that's all about eeees: o ENVIRONMENTALLY FRIENDLY. Go green by reducing the number of o EFFICIENT. Stop waiting for regular mail. Your documents will trees used to produce paper. be sent via email as soon as they're available. o ECONOMICAL. Help reduce your fund's printing and delivery o EASY. Download, save and print files using your home computer expenses and put more capital back in your fund's returns. with a few clicks of your mouse. This service is provided by Invesco Aim Investment Services, Inc. ==================================================================================================================================== FUND HOLDINGS AND PROXY VOTING INFORMATION The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund's semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The most recent list of portfolio holdings is available at invescoaim.com. From our home page, click on Products & Performance, then Mutual Funds, then Fund Overview. Select your Fund from the drop-down menu and click on Complete Quarterly Holdings. Shareholders can also look up the Fund's Forms N-Q on the SEC website at sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 942 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-01424 and 002-25469. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or on the Invesco Aim website, invescoaim.com. On the home page, scroll down and click on Proxy Policy. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2008, is available at our website. Go to invescoaim.com, access the About Us tab, click on Required Notices and then click on Proxy Voting Activity. Next, select the Fund from the drop-down menu. The information is also available on the SEC website, sec.gov. If used after January 20, 2009, this report must be accompanied by a Fund fact sheet or Invesco Aim Quarterly Performance Review for the most recent quarter-end. Invesco Aim--SERVICE MARK-- is a service mark of Invesco Aim Management Group, Inc. Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc., Invesco Aim Private Asset Management, Inc. and Invesco PowerShares Capital Management LLC are the investment advisors for the products and services represented by Invesco Aim; they each provide [INVESCO AIM LOGO] investment advisory services to individual and institutional clients and do not sell securities. Please -- SERVICE MARK -- refer to each fund's prospectus for information on the fund's subadvisors. Invesco Aim Distributors, Inc. is the U.S. distributor for the retail mutual funds, exchange-traded funds and institutional money market funds and the subdistributor for the STIC Global Funds represented by Invesco Aim. All entities are indirect, wholly owned subsidiaries of Invesco Ltd. invescoaim.com DDI-AR-1 Invesco Aim Distributors, Inc.
[INVESCO AIM LOGO] AIM LARGE CAP BASIC VALUE FUND -- SERVICE MARK -- Annual Report to Shareholders o October 31, 2008 [MOUNTAIN GRAPHIC] 2 Letters to Shareholders 4 Performance Summary 4 Management Discussion 6 Long-Term Fund Performance 8 Supplemental Information 9 Schedule of Investments 11 Financial Statements 14 Notes to Financial Statements 20 Financial Highlights 22 Auditor's Report 23 Fund Expenses 24 Approval of Investment Advisory Agreement 27 Tax Information 28 Trustees and Officers
Dear Shareholder: In previous reports, I've talked with you about short-term market volatility. I'd like to take this opportunity to update you on recent market developments and provide some perspective and encouragement to my fellow long-term investors. [TAYLOR PHOTO] MARKET OVERVIEW At the start of the fiscal year in November 2007, we saw warning signs of increasing economic ills -- a weakening housing market, rising inflation and slowing job growth, among others. In response, the U.S. Federal Reserve Board Philip Taylor (the Fed) repeatedly cut short-term interest rate targets to stimulate economic growth and expand market liquidity.(1) Also, Congress and the president worked together to enact an economic stimulus plan that included billions of dollars in rebates to taxpayers. These actions helped the economy and the U.S. stock market until the spring of 2008, when other factors came to the forefront -- triggering a severe correction that eventually drove major stock-market indexes to multi-year lows.(2) HOW WE GOT HERE The cause of this correction was years of lax lending associated with the recent housing boom. Mortgage loans of questionable quality were bundled into hard-to-value securities that were bought by, and traded among, financial institutions. As the value of those securities declined, financial institutions sought to unload them -- but there were few buyers. With the value of their assets falling and access to credit tightening, a number of well-established financial firms faced severe difficulties, and investor uncertainty and market volatility spiked. In October 2008, the administration and Congress enacted a plan, the Troubled Assets Relief Program, authorizing the U.S. Department of the Treasury to purchase up to $700 billion in troubled mortgage-related assets -- the largest and most direct effort to resolve a credit crisis in the last half century. The Fed, in concert with other central banks, cut short-term interest rate targets and undertook other initiatives intended to restore investor confidence, expand lending and mitigate the effects of the global credit crisis. The recent volatility in the stock, fixed-income and credit markets has driven home the importance of three timeless investing principles. INVESTING IN VOLATILE MARKETS Through up markets and down, we believe history shows investors should: o INVEST FOR THE LONG TERM. Short-term fluctuations have always been a reality of the markets. We urge you to stick to your investment plan and stay focused on your long-term goals. o DIVERSIFY. Although diversification doesn't eliminate the risk of loss or guarantee a profit, a careful selection of complementary asset classes may cushion your portfolio against excessive volatility. o STAY FULLY INVESTED. Trying to time the market is a gamble, not an investment strategy. A sound investment strategy includes viewing market volatility as a matter of course, not a reason to panic. A trusted financial advisor can explain more fully the potential value of following these principles. An experienced advisor who knows your individual investment goals, financial situation and risk tolerance can be your most valuable asset during times of market volatility. Your advisor can provide guidance and can monitor your investments to ensure they're on course. It's also helpful to remember that many of history's significant buying opportunities resulted from short-term economic crises that, in their time, were considered unprecedented. We believe current market uncertainty may represent a buying opportunity for patient, long-term investors. Rest assured that Invesco Aim's portfolio managers are working diligently on your behalf to capitalize on this situation. MANAGING MONEY IS OUR FOCUS As 2008 draws to a close, I believe Invesco Aim is uniquely positioned to navigate current uncertain markets. Our parent company, Invesco Ltd., is one of the world's largest and most diversified global investment managers. Invesco provides clients with diversified investment strategies from distinct management teams around the globe and a range of investment products. Invesco's single focus is asset management -- which means we focus on doing one thing well: managing your money. That can be reassuring in uncertain times. While market conditions change often, commitment to putting shareholders first, helping clients achieve their investment goals and providing excellent customer service remains constant. If you have questions about this report or your account, please contact one of our client service representatives at 800 959 4246. Thank you for your continued confidence, and we look forward to serving you.
Sincerely, /S/ PHILIP TAYLOR Philip Taylor Senior Managing Director, Invesco Ltd. CEO, Invesco Aim (1) U.S. Federal Reserve; (2) Lipper Inc. 2 AIM LARGE CAP BASIC VALUE FUND Dear Fellow Shareholders: As I write this letter, turbulent financial markets are causing considerable investor anxiety, reminding us again that markets are cyclical and the correction of excess is often painful, at least in the short term. Your Board of Trustees [CROCKETT believes in the wisdom of a long-term perspective and consistent investment PHOTO] discipline. We continue to put your interests first in the effort to improve investment performance, contain shareholder costs and uphold the highest ethical standards. We remain enthusiastic about the global reach and investment expertise that Invesco, a leading independent global investment management company, brings to Bruce Crockett the management of AIM Funds as the parent company of the advisors. The diverse investment strategies deployed throughout the worldwide network of Invesco investment centers has helped strengthen the management of many AIM Funds. The rebranding of the Funds' management company as Invesco Aim was followed by the launch of an upgraded, investor-friendly website (invescoaim.com); a new mountain logo using a Himalayan peak to symbolize stability, endurance, strength and longevity; and a new ad campaign. Emphasizing Invesco Aim's focus and investment quality, the ads will appear in financial publications such as Barron's and Investment News through the end of 2008. At its June meeting, your Board reviewed and renewed the investment advisory contracts between the AIM Funds and Invesco Aim Advisors, Inc. You can find the results of this rigorous annual process at invescoaim.com. Go to "Products & Performance" and click on "Investment Advisory Agreement Renewals." We have recently completed another active proxy voting season during which we acted on your behalf to double the number of votes in favor of separating the roles of chairman and CEO at the companies whose shares your Funds hold. We also continued to support the movement for shareholders to have a bigger role in approving executive compensation, initiatives known as "say on pay." Like virtually all other mutual fund complexes, AIM Funds abstain from voting on social issues as a matter of policy, and I would be interested to hear your thoughts on this policy. As always, you are welcome to email your questions or comments to me at bruce@brucecrockett.com. The dialogue that has been established in this way has been instructive for your Board, and we want it to continue. Although the production schedule for Fund annual reports and prospectuses allows me to write these letters of general report and response just twice a year, please be assured that your comments are received, welcomed and heard in the interim. We look forward to hearing from you and to representing you.
Sincerely, /S/ BRUCE L. CROCKETT Bruce L. Crockett Independent Chair AIM Funds Board of Trustees 3 AIM LARGE CAP BASIC VALUE FUND MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE ======================================================================================= PERFORMANCE SUMMARY MARKET CONDITIONS AND YOUR FUND For the fiscal year ended October 31, 2008, Class A shares of AIM Large Cap Basic Value Equity markets declined sharply during the Fund, at net asset value, underperformed the Russell 1000 Value Index, the S&P 500 fiscal year as the financial crisis Index and the Lipper Large-Cap Value Funds Index.(triangle) intensified and the global economy weakened. As painful as bear markets like Drivers of performance were stock specific with the largest contributors and this are to live through, we believe they detractors coming from the volatile financials sector. We attribute the Fund's can actually improve long term results underperformance versus its indexes mainly to below-market returns from selected because of the extraordinary investment investments in financials and materials. Selected investments in the financials and opportunities they produce. energy sectors made positive contributions to Fund performance during the year. Financials was the worst performing Your Fund's long-term performance appears later in this report. sector of the equity market during the fiscal year as the credit crisis FUND VS. INDEXES intensified and a liquidity crisis emerged.(1) FANNIE MAE and AIG were among Total returns, 10/31/07 to 10/31/08, at net asset value (NAV). Performance shown does the Fund's largest detractors during the not include applicable contingent deferred sales charges (CDSC) or front-end sales year. We understood the negative impact of charges, which would have reduced performance. credit losses on both companies and believed they had adequate financial Class A Shares -50.30% wherewithal to absorb the credit losses Class B Shares -50.65 that will persist for years. Ironically, Class C Shares -50.65 the credit losses remained within the Class R Shares -50.43 range of our expectations. However, the Class Y Shares* -50.30 rapid loss of investor confidence and the Investor Class Shares -50.33 related liquidity crisis and public policy S&P 500 Index(triangle) (Broad Market Index) -36.08 response surprised us. In the end, the Russell 1000 Value Index(triangle) (Style-Specific Index) -36.80 valuation opportunity that was created by Lipper Large-Cap Value Funds Index(triangle) (Peer Group Index) -37.16 credit losses was trumped by a liquidity crisis that is inherently unpredictable (triangle)Lipper Inc. but lethal. We sold our positions in these * Share class incepted during the fiscal year. See page 7 for a detailed explanation investments at substantial losses. of Fund performance. ======================================================================================= The Fund experienced higher than normal turnover during the fiscal year given high HOW WE INVEST o Long-term investment results are a price volatility and record-low valuation function of the level and growth of opportunities in many companies. These We seek to create wealth by maintaining a business value in the portfolio. opportunistic investments enabled us to long-term investment horizon and investing offset the permanent losses experienced in in companies that are selling at a Since our application of this strategy some of our financials holdings and significant discount to their estimated is highly disciplined and relatively actually grow estimated portfolio intrinsic value -- a value that is based unique, it is important to understand the intrinsic value from 2007 levels. Stable on the estimated future cash flows benefits and limitations of our process. growth in estimated portfolio intrinsic generated by the business. The Fund's First, the investment strategy is intended value combined with a dramatic decline in philosophy is based on key elements that to preserve your capital while growing it market prices produced the most favorable we believe have extensive empirical at above-market rates over the long term. capital appreciation opportunity in the evidence: Second, our investments have little in Fund's history, in our opinion. common with popular stock market indexes o Company intrinsic values can be and most of our peers. And third, the reasonably estimated. Importantly, this Fund's short-term relative performance estimated fair business value is will naturally be different than the stock independent of the company's stock market and peers and have little price. information value since we simply don't own the same stocks. o Market prices are more volatile than business values, partly because investors regularly overreact to negative news. ========================================== ========================================== ========================================== PORTFOLIO COMPOSITION TOP FIVE INDUSTRIES TOP 10 EQUITY HOLDINGS* By sector Financials 30.0% 1. Other Diversified Financial 1. UnitedHealth Group Inc. 4.8% Consumer Discretionary 21.8 Services 9.1% 2. Moody's Corp. 4.5 Information Technology 18.1 2. Managed Health Care 7.5 3. ASML Holding N.V. 4.5 Health Care 13.4 3. Semiconductor Equipment 7.1 4. JPMorgan Chase & Co. 4.1 Industrials 10.4 4. Consumer Finance 5.8 5. Citigroup Inc. 3.7 Energy 4.3 5. Advertising 5.3 6. Home Depot, Inc. (The) 3.7 Consumer Staples 3.5 ========================================== 7. Robert Half International, Inc. 3.5 Materials 1.4 8. Omnicom Group Inc. 3.2 Money Market Funds ========================================== 9. American Express Co. 3.1 Plus Other Assets Less Liabilities -2.9 Total Net Assets $166.4 million 10. Dell Inc. 3.0 Total Number of Holdings* 45 ========================================== ========================================== ========================================== 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 CONTEXT FOR RESULTS our estimate of the portfolio's intrinsic BRET STANLEY value, we believe the large gap between Chartered Financial It's important to remember that what many price and estimated intrinsic value may [STANLEY Analyst, senior portfolio now consider to be great historic buying stack the odds in favor of above-average PHOTO] manager, is lead manager of opportunities were, at the time, quite capital appreciation once capital markets AIM Large Cap Basic Value frightening events and in economic terms, normalize. Fund. He began his investment many of those episodes seemed far more career in 1988 and joined Invesco Aim in threatening than our current situation. IN CLOSING 1998. He earned a B.B.A. in finance from History and common sense indicate this The University of Texas at Austin and an crisis will pass, and we believe it will As we have pointed out many times, the M.S. in finance from the University of prove to be a historic buying opportunity distinctive nature of our strategy will Houston. for U.S. stocks. The timing and level of naturally produce results that are either any market bottom is uncertain, but we above or below the market in the short R. CANON COLEMAN II believe the absolute return opportunity term. We understand it can be distressing Chartered Financial from recent year-end levels will prove to shareholders when results lag the [COLEMAN Analyst, portfolio manager, compelling. market as they have in this fiscal year. PHOTO] is manager of AIM Large Cap Basic Value Fund. He began The current bear market represents one We are among the largest shareholders his investment career in 1996 and joined of the three greatest declines in the past of the Fund, and we too are disappointed Invesco Aim in 2000. He earned a B.S. and 60 years. Following the 2000 to 2002 with our results during the fiscal year -- an M.S. in accounting from the University Nasdaq decline, investors learned what a but are excited about the opportunities of Florida. He also earned an M.B.A. from permanent loss of capital looks and feels the current crisis has created. We do not the Wharton School at the University of like. While the Nasdaq remains about 65% have any special insight into the Pennsylvania. below its 2000 peak,(1) our losses during magnitude or duration of this bear market, the 2000 to 2002 bear market proved but historically, valuation opportunities MATTHEW SEINSHEIMER temporary as the Fund's net asset value of this magnitude have not lasted for very Chartered Financial reached a new high in 2004. long. Analyst, senior portfolio [SEINSHEIMER manager, is manager of AIM What's the reason for the different Regardless of duration, we believe the PHOTO] Large Cap Basic Value experience? Our strategy emphasizes magnitude of the current valuation Fund. He began his investment fundamental business value and this value opportunity suggests favorable odds for career in 1992 and joined grew from 2000 to 2002 despite a recession capital growth once market fear moderates Invesco Aim in 1998. He earned a B.B.A. and the bear market. Once the market and prices revert to fundamental business from Southern Methodist University and an environment improved, prices reverted to value. Our process was designed to exploit M.B.A. from The University of Texas at fundamental value. We see a similar just such a period. Austin. situation unfolding in this bear market. Our estimate of portfolio intrinsic value We thank you for your investment in AIM MICHAEL SIMON is marginally higher today than in 2007, Large Cap Basic Value Fund and for sharing Chartered Financial yet the market price of the portfolio has our long-term investment horizon. Analyst, senior portfolio declined by about 50%. [SIMON manager, is manager of AIM (1) Lipper Inc. PHOTO] Large Cap Basic Value PORTFOLIO ASSESSMENT Fund. He began his investment The views and opinions expressed in career in 1989 and joined Invesco Aim in We believe the single most important management's discussion of Fund 2001. He earned a B.B.A. in finance from indicator of the way AIM Large Cap Basic performance are those of Invesco Aim Texas Christian University and an M.B.A. Value Fund is positioned for potential Advisors, Inc. These views and opinions from the University of Chicago. future success is not our historical are subject to change at any time based on investment results or popular statistical factors such as market and economic Assisted by the Basic Value Team measures, but rather the difference conditions. These views and opinions may between current market prices and the not be relied upon as investment advice or portfolio's estimated intrinsic value -- recommendations, or as an offer for a the aggregate business value of the particular security. The information is portfolio based on our estimate of not a complete analysis of every aspect of intrinsic value for each individual any market, country, industry, security or holding. During the year, we believe the the Fund. Statements of fact are from estimated intrinsic value of the portfolio sources considered reliable, but Invesco grew despite permanent losses in some of Aim Advisors, Inc. makes no representation our financials investments. or warranty as to their completeness or accuracy. Although historical performance At the close of the fiscal year, and in is no guarantee of future results, these our opinion, the difference between the insights may help you understand our market price and the estimated intrinsic investment management philosophy. value of the portfolio was at record levels based on historical standards, and See important Fund and index disclosures we believe this value content was much later in this report. greater than what was available in the broad market. While there is no assurance that market value will ever reflect
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 and Fund expenses including illustrating changes in value during the management fees. Index results include early years shown in the chart. The reinvested dividends, but they do not vertical axis, the one that indicates the reflect sales charges. Performance of an dollar value of an investment, is index of funds reflects fund expenses and constructed with each segment representing management fees; performance of a market a percent change in the value of the index does not. Performance shown in the investment. In this chart, each segment chart and table does not reflect deduction represents a doubling, or 100% change, in of 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 between $10,000 and $20,000. continued from page 8 OTHER INFORMATION financial reporting purposes, and as such, the net asset values for o The Chartered Financial Analyst shareholder transactions and the --REGISTERED TRADEMARK-- returns based on those net asset values (CFA--REGISTERED TRADEMARK--) may differ from the net asset values designation is a globally recognized and returns reported in the Financial standard for measuring the competence Highlights. and integrity of investment professionals. o Industry classifications used in this report are generally according to the o The returns shown in management's Global Industry Classification discussion of Fund performance are Standard, which was developed by and is based on net asset values calculated the exclusive property and a service for shareholder transactions. Generally mark of MSCI Inc. and Standard & accepted accounting principles require Poor's. adjustments to be made to the net assets of the Fund at period end for
6 AIM LARGE CAP BASIC VALUE FUND ==================================================================================================================================== [MOUNTAIN CHART] RESULTS OF A $10,000 INVESTMENT -- CLASS A SHARES (OLDEST SHARE CLASS WITH SALES CHARGE) Fund and index data from 6/30/99 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) 6/30/99 $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 9626 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 ====================================================================================================================================
(1) Lipper Inc. ==================================================================================================================================== [MOUNTAIN CHART] 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 8657 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 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 11722 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 17171 12913 17054 14555 11/07 16292 12373 16220 13928 12/07 16005 12287 16063 13766 1/08 15134 11550 15420 13069 2/08 14558 11175 14774 12629 3/08 13993 11127 14663 12453 4/08 14819 11669 15378 13070 5/08 14887 11820 15353 13181 6/08 13146 10824 13884 12029 7/08 13056 10733 13833 11866 8/08 13225 10889 14068 12001 9/08 11055 9920 13035 10990 10/08 8537 8254 10778 9147 ====================================================================================================================================
========================================== ========================================== CLASS C, CLASS R, CLASS Y AND INVESTOR AVERAGE ANNUAL TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS CLASS SHARES WAS 1.23%, 1.98%, 1.98%, 1.48%, 0.98% AND 1.23%, RESPECTIVELY.(1) As of 10/31/08, including maximum As of 9/30/08, the most recent calendar THE TOTAL ANNUAL FUND OPERATING EXPENSE applicable sales charges quarter-end, including maximum applicable RATIO SET FORTH IN THE MOST RECENT FUND sales charges PROSPECTUS AS OF THE DATE OF THIS REPORT CLASS A SHARES FOR CLASS A, CLASS B, CLASS C, CLASS R, Inception (6/30/99) -1.68% CLASS A SHARES CLASS Y AND INVESTOR CLASS SHARES WAS 5 Years -6.28 Inception (6/30/99) 1.09% 1.24%, 1.99%, 1.99%, 1.49%, 0.99% AND 1 Year -53.04 5 Years 0.58 1.24%, RESPECTIVELY. THE EXPENSE RATIOS 1 Year -37.50 PRESENTED ABOVE MAY VARY FROM THE EXPENSE CLASS B SHARES RATIOS PRESENTED IN OTHER SECTIONS OF THIS Inception (8/1/00) -3.24% CLASS B SHARES REPORT THAT ARE BASED ON EXPENSES INCURRED 5 Years -6.22 Inception (8/1/00) -0.16% DURING THE PERIOD COVERED BY THIS REPORT. 1 Year -52.91 5 Years -0.53 1 Year -37.35 CLASS A SHARE PERFORMANCE REFLECTS THE CLASS C SHARES MAXIMUM 5.50% SALES CHARGE, AND CLASS B Inception (8/1/00) -3.24% CLASS C SHARES AND CLASS C SHARE PERFORMANCE REFLECTS THE 5 Years -5.89 Inception (8/1/00) -0.16% APPLICABLE CONTINGENT DEFERRED SALES 1 Year -51.10 5 Years -0.18 CHARGE (CDSC) FOR THE PERIOD INVOLVED. THE 1 Year -34.95 CDSC ON CLASS B SHARES DECLINES FROM 5% CLASS R SHARES BEGINNING AT THE TIME OF PURCHASE TO 0% AT Inception -1.28% CLASS R SHARES THE BEGINNING OF THE SEVENTH YEAR. THE 5 Years -5.43 Inception 1.51% CDSC ON CLASS C SHARES IS 1% FOR THE FIRST 1 Year -50.43 5 Years 0.31 YEAR AFTER PURCHASE. CLASS R SHARES DO NOT 1 Year -34.04 HAVE A FRONT-END SALES CHARGE; RETURNS CLASS Y SHARES SHOWN ARE AT NET ASSET VALUE AND DO NOT Inception -1.08% INVESTOR CLASS SHARES REFLECT A 0.75% CDSC THAT MAY BE IMPOSED 5 Years -5.22 Inception 1.73% ON A TOTAL REDEMPTION OF RETIREMENT PLAN 1 Year -50.30 5 Years 0.59 ASSETS WITHIN THE FIRST YEAR. CLASS Y AND 1 Year -33.87 INVESTOR CLASS SHARES DO NOT HAVE A INVESTOR CLASS SHARES ========================================== FRONT-END SALES CHARGE OR A CDSC; Inception -1.07% THEREFORE, PERFORMANCE IS AT NET ASSET 5 Years -5.20 INVESTOR CLASS SHARES' INCEPTION DATE VALUE. 1 Year -50.33 IS SEPTEMBER 30, 2003. RETURNS SINCE THAT ========================================== DATE ARE HISTORICAL RETURNS. ALL OTHER THE PERFORMANCE OF THE FUND'S SHARE RETURNS ARE BLENDED RETURNS OF HISTORICAL CLASSES WILL DIFFER PRIMARILY DUE TO CLASS R SHARES' INCEPTION DATE IS JUNE 3, INVESTOR CLASS SHARE PERFORMANCE AND DIFFERENT SALES CHARGE STRUCTURES AND 2002. RETURNS SINCE THAT DATE ARE RESTATED CLASS A SHARE PERFORMANCE (FOR CLASS EXPENSES. HISTORICAL RETURNS. ALL OTHER RETURNS ARE PERIODS PRIOR TO THE INCEPTION DATE OF BLENDED RETURNS OF HISTORICAL CLASS R INVESTOR CLASS SHARES) AT NET ASSET VALUE, (1) Total annual operating expenses less SHARE PERFORMANCE AND RESTATED CLASS A WHICH RESTATED PERFORMANCE WILL REFLECT any contractual fee waivers and/or SHARE PERFORMANCE (FOR PERIODS PRIOR TO THE RULE 12B-1 FEES APPLICABLE TO CLASS A expense reimbursements by the advisor THE INCEPTION DATE OF CLASS R SHARES) AT SHARES FOR THE PERIOD USING BLENDED in effect through at least June 30, NET ASSET VALUE, ADJUSTED TO REFLECT THE RETURNS. CLASS A SHARES' INCEPTION DATE IS 2009. See current prospectus for more HIGHER RULE 12B-1 FEES APPLICABLE TO CLASS JUNE 30, 1999. information. R SHARES. CLASS A SHARES' INCEPTION DATE IS JUNE 30, 1999. THE PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE AND CANNOT GUARANTEE CLASS Y SHARES' INCEPTION DATE IS COMPARABLE FUTURE RESULTS; CURRENT OCTOBER 3, 2008; RETURNS SINCE THAT DATE PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE ARE ACTUAL RETURNS. ALL OTHER RETURNS ARE VISIT INVESCOAIM.COM FOR THE MOST RECENT BLENDED RETURNS OF ACTUAL CLASS Y SHARE MONTH-END PERFORMANCE. PERFORMANCE FIGURES PERFORMANCE AND RESTATED CLASS A SHARE REFLECT REINVESTED DISTRIBUTIONS, CHANGES PERFORMANCE (FOR PERIODS PRIOR TO THE IN NET ASSET VALUE AND THE EFFECT OF THE INCEPTION DATE OF CLASS Y SHARES) AT NET MAXIMUM SALES CHARGE UNLESS OTHERWISE ASSET VALUE. THE RESTATED CLASS A SHARE STATED. INVESTMENT RETURN AND PRINCIPAL PERFORMANCE REFLECTS THE RULE 12B-1 FEES VALUE WILL FLUCTUATE SO THAT YOU MAY HAVE APPLICABLE TO CLASS A SHARES AS WELL AS A GAIN OR LOSS WHEN YOU SELL SHARES. ANY FEE WAIVERS OR EXPENSE REIMBURSEMENTS RECEIVED BY CLASS A SHARES. CLASS A SHARES THE NET ANNUAL FUND OPERATING EXPENSE INCEPTION DATE IS JUNE 30, 1999. RATIO SET FORTH IN THE MOST RECENT FUND PROSPECTUS AS OF THE DATE OF THIS REPORT FOR CLASS A, CLASS B,
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, 2008, and is based on total net assets. o Unless otherwise noted, all data provided by Invesco Aim. ABOUT SHARE CLASSES o Interest rate risk refers to the risk ABOUT INDEXES USED IN THIS REPORT that bond prices generally fall as o Effective September 30, 2003, only interest rates rise and vice versa. o The S&P 500--REGISTERED TRADEMARK-- previously established qualified plans INDEX is a market are eligible to purchase Class B shares o The Fund may use enhanced investment capitalization-weighted index covering of any AIM fund. techniques such as leveraging and all major areas of the U.S. economy. It derivatives. Leveraging entails risks is not the 500 largest companies, but o Class R shares are available only to such as magnifying changes in the value rather the most widely held 500 certain retirement plans. Please see of the portfolio's securities. companies chosen with respect to market the prospectus for more information. Derivatives are subject to counterparty size, liquidity, and their industry. risk -- the risk that the other party o Class Y shares are available only to will not complete the transaction with o THE RUSSELL 1000--REGISTERED certain investors. Please see the the Fund. TRADEMARK-- VALUE INDEX measures the prospectus for more information. performance of those Russell 1000 o There is no guarantee that the companies with lower price-to-book o All Investor Class shares are closed to investment techniques and risk analysis ratios and lower forecasted growth new investors. Contact your financial used by the Fund's portfolio managers values. The Russell 1000 Value Index is advisor about purchasing our other share will produce the desired results. a trademark/service mark of the Frank classes. Russell Company. o The prices of securities held by the Russell--REGISTERED TRADEMARK-- is a PRINCIPAL RISKS OF INVESTING IN THE FUND Fund may decline in response to market trade-mark of the Frank Russell risks. Company. o Since a large percentage of the Fund's assets may be invested in securities of o The Fund may invest in obligations o The LIPPER LARGE-CAP VALUE FUNDS INDEX a limited number of companies, each issued by agencies and is an equally weighted representation investment has a greater effect on the instrumentalities of the U.S. of the largest funds in the Lipper Fund's overall performance and any government that may vary in the level Large-Cap Value Funds category. These change in the value of those securities of support they receive from the U.S. funds typically have a below-average could significantly affect the value of government. The U.S. government may price-to-earnings ratio, price-to-book your investment in the Fund. choose not to provide financial support ratio, and three-year sales-per-share to U.S.-government-sponsored agencies growth value, compared to the S&P 500 o Credit risk is the risk of loss on an or instrumentalities if it is not Index. investment due to the deterioration of legally obligated to do so. In this an issuer's financial health. Such a case, if the issuer defaulted, the fund o The NATIONAL ASSOCIATION OF SECURITIES deterioration of financial health may holding securities of such an issuer DEALERS AUTOMATED QUOTATION SYSTEM result in a reduction of the credit might not be able to recover its COMPOSITE INDEX (THE NASDAQ) is a rating of the issuer's securities and investment from the U.S. government. price-only, market-value-weighted index may lead to the issuer's inability to comprising all domestic and honor its contractual obligations, o The Fund invests in "value" stocks, non-U.S.-based common stocks listed on including making timely payment of which can continue to be inexpensive the Nasdaq system. interest and principal. for long periods of time and may never realize their full value. o The Fund is not managed to track the o Prices of equity securities change in performance of any particular index, response to many factors, including the o Although the Fund's returns during including the indexes defined here, and historical and prospective earnings of certain periods were positively consequently, the performance of the the issuer, the value of its assets, affected by its investments in initial Fund may deviate significantly from the general economic conditions, interest public offerings (IPOs), there can be performance of the indexes. rates, investor perceptions and market no assurance that the Fund will have liquidity. favorable IPO investment opportunities o A direct investment cannot be made in in the future. an index. Unless otherwise indicated, o Foreign securities have additional index results include reinvested risks, including exchange rate changes, dividends, and they do not reflect political and economic upheaval, sales charges. Performance of an index relative lack of information, of funds reflects fund expenses; relatively low market liquidity, and performance of a market index does not. the potential lack of strict financial and accounting controls and standards. continued on page 6 ======================================================================================= ========================================== THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND PROSPECTUS, FUND NASDAQ SYMBOLS WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING. Class A Shares LCBAX ======================================================================================= Class B Shares LCBBX Class C Shares LCBCX NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE Class R Shares LCBRX Class Y Shares LCBYX Investor Class Shares LCINX ==========================================
8 AIM LARGE CAP BASIC VALUE FUND SCHEDULE OF INVESTMENTS(a) October 31, 2008
SHARES VALUE ------------------------------------------------------------------------------- COMMON STOCKS & OTHER EQUITY INTERESTS-102.92% ADVERTISING-5.30% Interpublic Group of Cos., Inc. (The)(b)(c) 679,003 $ 3,524,025 ------------------------------------------------------------------------------- Omnicom Group Inc. 179,335 5,297,556 =============================================================================== 8,821,581 =============================================================================== AEROSPACE & DEFENSE-0.53% Honeywell International Inc. 28,977 882,350 =============================================================================== APPAREL RETAIL-1.11% Gap, Inc. (The) 143,317 1,854,522 =============================================================================== ASSET MANAGEMENT & CUSTODY BANKS-1.41% State Street Corp. 54,200 2,349,570 =============================================================================== BREWERS-2.11% Molson Coors Brewing Co.-Class B 94,017 3,512,475 =============================================================================== COMMUNICATIONS EQUIPMENT-1.16% Nokia Oyj-ADR (Finland) 126,757 1,924,171 =============================================================================== COMPUTER HARDWARE-3.00% Dell Inc.(c) 411,132 4,995,254 =============================================================================== CONSTRUCTION MATERIALS-1.41% Cemex SAB de C.V.-ADR (Mexico)(b)(c) 310,826 2,349,845 =============================================================================== CONSUMER FINANCE-5.75% American Express Co. 186,200 5,120,500 ------------------------------------------------------------------------------- SLM Corp.(b)(c) 417,219 4,451,727 =============================================================================== 9,572,227 =============================================================================== DATA PROCESSING & OUTSOURCED SERVICES-1.45% Western Union Co. 157,618 2,405,251 =============================================================================== DEPARTMENT STORES-2.42% Kohl's Corp.(c) 114,400 4,018,872 =============================================================================== DIVERSIFIED CAPITAL MARKETS-2.12% UBS AG-(Switzerland)(b)(c) 208,400 3,521,960 =============================================================================== ELECTRONIC MANUFACTURING SERVICES-0.84% Tyco Electronics Ltd. 72,309 1,405,687 =============================================================================== GENERAL MERCHANDISE STORES-2.98% Target Corp. 123,459 4,953,175 =============================================================================== HEALTH CARE DISTRIBUTORS-1.38% Cardinal Health, Inc. 59,985 2,291,427 =============================================================================== HEALTH CARE EQUIPMENT-1.93% Baxter International Inc. 53,160 3,215,648 =============================================================================== HOME IMPROVEMENT RETAIL-3.68% Home Depot, Inc. (The) 259,483 6,121,204 =============================================================================== HOUSEHOLD APPLIANCES-1.77% Whirlpool Corp.(b) 63,000 2,938,950 =============================================================================== HUMAN RESOURCE & EMPLOYMENT SERVICES-3.47% Robert Half International, Inc.(b) 305,715 5,768,842 =============================================================================== INDUSTRIAL CONGLOMERATES-3.70% General Electric Co. 152,051 2,966,515 ------------------------------------------------------------------------------- Tyco International Ltd. 126,240 3,191,347 =============================================================================== 6,157,862 =============================================================================== INDUSTRIAL MACHINERY-2.68% Illinois Tool Works Inc. 133,580 4,460,236 =============================================================================== INVESTMENT BANKING & BROKERAGE-3.55% Merrill Lynch & Co., Inc. 128,863 2,395,563 ------------------------------------------------------------------------------- Morgan Stanley 201,371 3,517,952 =============================================================================== 5,913,515 =============================================================================== MANAGED HEALTH CARE-7.50% Aetna Inc. 179,900 4,474,113 ------------------------------------------------------------------------------- UnitedHealth Group Inc. 337,706 8,013,763 =============================================================================== 12,487,876 =============================================================================== MOVIES & ENTERTAINMENT-2.14% Walt Disney Co. (The) 137,590 3,563,581 =============================================================================== OIL & GAS DRILLING-0.79% Transocean Inc. 15,912 1,310,035 =============================================================================== OIL & GAS EQUIPMENT & SERVICES-3.49% Halliburton Co. 130,291 2,578,459 ------------------------------------------------------------------------------- Schlumberger Ltd. 62,530 3,229,674 =============================================================================== 5,808,133 =============================================================================== OTHER DIVERSIFIED FINANCIAL SERVICES-9.10% Bank of America Corp. 87,800 2,122,126 ------------------------------------------------------------------------------- Citigroup Inc. 456,537 6,231,730 ------------------------------------------------------------------------------- JPMorgan Chase & Co. 164,413 6,782,036 =============================================================================== 15,135,892 =============================================================================== PACKAGED FOODS & MEATS-1.41% Unilever N.V. (Netherlands) 97,372 2,347,151 =============================================================================== PHARMACEUTICALS-2.56% Sanofi-Aventis (France) 67,728 4,266,430 =============================================================================== PROPERTY & CASUALTY INSURANCE-2.59% XL Capital Ltd.-Class A(b) 444,898 4,315,511 ===============================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. 9 AIM LARGE CAP BASIC VALUE FUND
SHARES VALUE ------------------------------------------------------------------------------- PUBLISHING-2.36% McGraw-Hill Cos., Inc. (The)(b) 146,300 $ 3,926,692 =============================================================================== REGIONAL BANKS-1.10% Fifth Third Bancorp(b) 168,200 1,824,970 =============================================================================== SEMICONDUCTOR EQUIPMENT-7.07% ASML Holding N.V. (Netherlands) 424,827 7,413,021 ------------------------------------------------------------------------------- KLA-Tencor Corp.(b) 186,866 4,344,635 =============================================================================== 11,757,656 =============================================================================== SPECIALIZED FINANCE-4.47% Moody's Corp.(b) 290,551 7,438,106 =============================================================================== SYSTEMS SOFTWARE-4.59% CA Inc. 213,001 3,791,418 ------------------------------------------------------------------------------- Microsoft Corp. 172,186 3,844,913 =============================================================================== 7,636,331 =============================================================================== Total Common Stocks & Other Equity Interests (Cost $225,313,549) 171,252,988 =============================================================================== MONEY MARKET FUNDS-1.03% Liquid Assets Portfolio-Institutional Class(d) 853,771 853,771 ------------------------------------------------------------------------------- Premier Portfolio-Institutional Class(d) 853,771 853,771 =============================================================================== Total Money Market Funds (Cost $1,707,542) 1,707,542 =============================================================================== TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)-103.95% (Cost $227,021,091) 172,960,530 =============================================================================== INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES ON LOAN MONEY MARKET FUNDS-15.50% Liquid Assets Portfolio-Institutional Class (Cost $25,788,768)(d)(e) 25,788,768 25,788,768 =============================================================================== TOTAL INVESTMENTS-119.45% (Cost $252,809,859) 198,749,298 =============================================================================== OTHER ASSETS LESS LIABILITIES-(19.45)% (32,360,659) =============================================================================== NET ASSETS-100.00% $166,388,639 _______________________________________________________________________________ ===============================================================================
Investment Abbreviations: ADR - American Depositary Receipt
Notes to Schedule of Investments: (a) Industry and/or sector 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 MSCI Inc. and Standard & Poor's. (b) All or a portion of this security was out on loan at October 31, 2008. (c) Non-income producing security. (d) The money market fund and the Fund are affiliated by having the same investment advisor. (e) The security has been segregated to satisfy the commitment to return the cash collateral received in securities lending transactions upon the borrower's return of the securities loaned. See Note 1I. 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, 2008 ASSETS: Investments, at value (Cost $225,313,549)* $171,252,988 ------------------------------------------------------ Investments in affiliated money market funds, at value and cost 27,496,310 ====================================================== Total investments (Cost $252,809,859) 198,749,298 ====================================================== Receivables for: Investments sold 465,784 ------------------------------------------------------ Fund shares sold 202,910 ------------------------------------------------------ Dividends 145,760 ------------------------------------------------------ Fund expenses absorbed 10,807 ------------------------------------------------------ Investment for trustee deferred compensation and retirement plans 39,335 ------------------------------------------------------ Other assets 29,913 ====================================================== Total assets 199,643,807 ______________________________________________________ ====================================================== LIABILITIES: Payables for: Fund shares reacquired 7,230,947 ------------------------------------------------------ Collateral upon return of securities loaned 25,788,768 ------------------------------------------------------ Accrued fees to affiliates 107,203 ------------------------------------------------------ Accrued other operating expenses 56,700 ------------------------------------------------------ Trustee deferred compensation and retirement plans 71,550 ====================================================== Total liabilities 33,255,168 ====================================================== Net assets applicable to shares outstanding $166,388,639 ______________________________________________________ ====================================================== NET ASSETS CONSIST OF: Shares of beneficial interest $248,417,209 ------------------------------------------------------ Undistributed net investment income 2,325,661 ------------------------------------------------------ Undistributed net realized gain (loss) (30,293,670) ------------------------------------------------------ Unrealized appreciation (depreciation) (54,060,561) ====================================================== $166,388,639 ______________________________________________________ ====================================================== NET ASSETS: Class A $ 48,068,346 ______________________________________________________ ====================================================== Class B $ 14,838,773 ______________________________________________________ ====================================================== Class C $ 10,042,125 ______________________________________________________ ====================================================== Class R $ 1,352,177 ______________________________________________________ ====================================================== Class Y $ 1,028,143 ______________________________________________________ ====================================================== Investor Class $ 15,589,797 ______________________________________________________ ====================================================== Institutional Class $ 75,469,278 ______________________________________________________ ====================================================== SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Class A 6,367,836 ______________________________________________________ ====================================================== Class B 2,082,044 ______________________________________________________ ====================================================== Class C 1,408,876 ______________________________________________________ ====================================================== Class R 181,099 ______________________________________________________ ====================================================== Class Y 136,134 ______________________________________________________ ====================================================== Investor Class 2,060,891 ______________________________________________________ ====================================================== Institutional Class 9,886,743 ______________________________________________________ ====================================================== Class A: Net asset value per share $ 7.55 ------------------------------------------------------ Maximum offering price per share (Net asset value of $7.55 divided by 94.50%) $ 7.99 ______________________________________________________ ====================================================== Class B: Net asset value and offering price per share $ 7.13 ______________________________________________________ ====================================================== Class C: Net asset value and offering price per share $ 7.13 ______________________________________________________ ====================================================== Class R: Net asset value and offering price per share $ 7.47 ______________________________________________________ ====================================================== Class Y: Net asset value and offering price per share $ 7.55 ______________________________________________________ ====================================================== Investor Class: Net asset value and offering price per share $ 7.56 ______________________________________________________ ====================================================== Institutional Class: Net asset value and offering price per share $ 7.63 ______________________________________________________ ======================================================
* At October 31, 2008, securities with an aggregate value of $26,073,709 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, 2008 INVESTMENT INCOME: Dividends (net of foreign withholding taxes of $69,192) $ 5,353,417 ------------------------------------------------------------------------------------------------ Dividends from affiliated money market funds (includes securities lending income of $163,765) 367,230 ================================================================================================ Total investment income 5,720,647 ================================================================================================ EXPENSES: Advisory fees 1,777,711 ------------------------------------------------------------------------------------------------ Administrative services fees 118,856 ------------------------------------------------------------------------------------------------ Custodian fees 16,024 ------------------------------------------------------------------------------------------------ Distribution fees: Class A 224,329 ------------------------------------------------------------------------------------------------ Class B 317,878 ------------------------------------------------------------------------------------------------ Class C 184,908 ------------------------------------------------------------------------------------------------ Class R 9,872 ------------------------------------------------------------------------------------------------ Investor Class 66,382 ------------------------------------------------------------------------------------------------ Transfer agent fees -- A, B, C, R, Y and Investor 570,418 ------------------------------------------------------------------------------------------------ Transfer agent fees -- Institutional 1,279 ------------------------------------------------------------------------------------------------ Trustees' and officers' fees and benefits 24,682 ------------------------------------------------------------------------------------------------ Other 174,032 ================================================================================================ Total expenses 3,486,371 ================================================================================================ Less: Fees waived, expenses reimbursed and expense offset arrangement(s) (148,038) ================================================================================================ Net expenses 3,338,333 ================================================================================================ Net investment income 2,382,314 ================================================================================================ REALIZED AND UNREALIZED GAIN (LOSS) FROM: Net realized gain (loss) from: Investment securities (includes net gains (losses) from securities sold to affiliates of $(55,271)) (28,705,690) ------------------------------------------------------------------------------------------------ Foreign currencies 23,649 ================================================================================================ (28,682,041) ================================================================================================ Change in net unrealized appreciation (depreciation) of: Investment securities (156,303,777) ------------------------------------------------------------------------------------------------ Foreign currencies (5) ================================================================================================ (156,303,782) ================================================================================================ Net realized and unrealized gain (loss) (184,985,823) ================================================================================================ Net increase (decrease) in net assets resulting from operations $(182,603,509) ________________________________________________________________________________________________ ================================================================================================
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, 2008 and 2007
2008 2007 --------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income $ 2,382,314 $ 1,464,628 --------------------------------------------------------------------------------------------------------- Net realized gain (loss) (28,682,041) 29,361,150 --------------------------------------------------------------------------------------------------------- Change in net unrealized appreciation (depreciation) (156,303,782) 11,232,306 ========================================================================================================= Net increase (decrease) in net assets resulting from operations (182,603,509) 42,058,084 ========================================================================================================= Distributions to shareholders from net investment income: Class A (257,135) (498,576) --------------------------------------------------------------------------------------------------------- Class R -- (3,479) --------------------------------------------------------------------------------------------------------- Investor Class (74,279) (176,357) --------------------------------------------------------------------------------------------------------- Institutional Class (1,131,473) (807,963) ========================================================================================================= Total distributions from net investment income (1,462,887) (1,486,375) ========================================================================================================= Distributions to shareholders from net realized gains: Class A (9,225,360) (6,267,491) --------------------------------------------------------------------------------------------------------- Class B (3,781,042) (3,114,044) --------------------------------------------------------------------------------------------------------- Class C (2,059,162) (1,409,975) --------------------------------------------------------------------------------------------------------- Class R (181,802) (91,691) --------------------------------------------------------------------------------------------------------- Investor Class (2,664,534) (2,216,943) --------------------------------------------------------------------------------------------------------- Institutional Class (11,312,968) (4,273,286) ========================================================================================================= Total distributions from net realized gains (29,224,868) (17,373,430) ========================================================================================================= Share transactions-net: Class A (9,941,085) (13,104,751) --------------------------------------------------------------------------------------------------------- Class B (10,997,389) (15,493,611) --------------------------------------------------------------------------------------------------------- Class C (2,887,545) (2,511,429) --------------------------------------------------------------------------------------------------------- Class R 551,247 453,935 --------------------------------------------------------------------------------------------------------- Class Y 1,237,421 -- --------------------------------------------------------------------------------------------------------- Investor Class (668,370) (11,883,870) --------------------------------------------------------------------------------------------------------- Institutional Class 23,436,839 52,942,693 ========================================================================================================= Net increase in net assets resulting from share transactions 731,118 10,402,967 ========================================================================================================= Net increase (decrease) in net assets (212,560,146) 33,601,246 ========================================================================================================= NET ASSETS: Beginning of year 378,948,785 345,347,539 ========================================================================================================= End of year (includes undistributed net investment income of $2,325,661 and $1,389,802, respectively) $ 166,388,639 $378,948,785 _________________________________________________________________________________________________________ =========================================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. 13 AIM LARGE CAP BASIC VALUE FUND NOTES TO FINANCIAL STATEMENTS October 31, 2008 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 seven separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The Fund's investment objective is long-term growth of capital. The Fund currently consists of seven different classes of shares: Class A, Class B, Class C, Class R, Class Y, 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 contingent deferred sales charges ("CDSC"). Class B shares and Class C shares are sold with a CDSC. Class R, Class Y, 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. 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, American Depositary Receipts 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. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. 14 AIM LARGE CAP BASIC VALUE FUND 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 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, the investment advisor 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. The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. 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 by a significant amount. 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. SECURITIES LENDING -- 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 by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. 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. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could 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. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in Dividends from affiliates on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities, if any. J. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations 15 AIM LARGE CAP BASIC VALUE FUND 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. K. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a foreign currency contract to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. The Fund may also enter into a foreign currency contract for the purchase or sale of a security denominated in a foreign currency in order to "lock in" the U.S. dollar price of that security. Fluctuations in the value of these contracts are recorded as unrealized appreciation (depreciation) until the contracts are closed. When these contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains and losses on these contracts are included in the Statement of Operations. The Fund could be exposed to risk, which may be in excess of the amount reflected in the Statement of Assets and Liabilities, if counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES The Trust has entered into a master investment advisory agreement with Invesco Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Advisor 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% ___________________________________________________________________ ===================================================================
Under the terms of a master sub-advisory agreement approved by shareholders of the Fund, effective May 1, 2008, between the Advisor and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the "Affiliated Sub-Advisors") the Advisor, not the Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub-Advisor(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Advisor(s). The Advisor 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, Class Y, Investor Class and Institutional Class shares to 1.22%, 1.97%, 1.97%, 1.47%, 0.97%, 1.22% and 0.97% of average daily net assets, respectively, through at least June 30, 2009. 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. These credits are used to pay certain expenses incurred by the Fund. Further, the Advisor has contractually agreed, through at least June 30, 2009, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Advisor receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds. For the year ended October 31, 2008, the Advisor waived advisory fees of $8,163 and reimbursed class level expenses of $119,502 for Class A, Class B, Class C and Investor Class shares in proportion to the relative net assets of such classes. 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, 2008, Invesco reimbursed expenses of the Fund in the amount of $7,182. The Trust has entered into a master administrative services agreement with Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim for certain administrative costs incurred in providing accounting services to the Fund. For the year ended October 31, 2008, 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 Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has agreed to pay IAIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the course of providing such services. IAIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. All fees payable by IAIS 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, 2008, expenses incurred under the agreement are shown in the Statement of Operations as transfer agent fees. 16 AIM LARGE CAP BASIC VALUE FUND The Trust has entered into master distribution agreements with Invesco Aim Distributors, Inc. ("IADI") to serve as the distributor for the Class A, Class B, Class C, Class R, Class Y, 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 IADI 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. Rules of the Financial Industry Regulatory Authority ("FINRA") 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, 2008, expenses incurred under the Plans are shown in the Statement of Operations as distribution fees. Front-end sales commissions and 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, 2008, IADI advised the Fund that IADI retained $21,634 in front-end sales commissions from the sale of Class A shares and $516, $31,639, $1,718 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 Invesco Aim, IAIS and/or IADI. NOTE 3--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, 2008, the Fund engaged in securities purchases of $447,397 and securities sales of $355,664, which resulted in net realized gains (losses) of $(55,271). NOTE 4--EXPENSE OFFSET ARRANGEMENTS The expense offset arrangements are comprised of (i) transfer agency credits which result from balances in Demand Deposit Accounts (DDA) used by the transfer agent for clearing shareholder transactions and (ii) custodian credits which result from periodic overnight cash balances at the custodian. For the year ended October 31, 2008, the Fund received credits from these arrangements, which resulted in the reduction of the Fund's total expenses of $13,191. NOTE 5--TRUSTEES' AND OFFICERS' FEES AND BENEFITS "Trustees' and Officers' 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 Officers' 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 Officers' 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, 2008, the Fund paid legal fees of $3,470 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust. NOTE 6--CASH BALANCES The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company, 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 Invesco Aim, not to exceed the contractually agreed upon rate. 17 AIM LARGE CAP BASIC VALUE FUND NOTE 7--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS TAX CHARACTER OF DISTRIBUTIONS TO SHAREHOLDERS PAID DURING THE YEARS ENDED OCTOBER 31, 2008 AND 2007:
2008 2007 ------------------------------------------------------------------------------------- Ordinary income $ 3,645,846 $ 1,486,375 ------------------------------------------------------------------------------------- Long-term capital gain 27,041,909 17,373,430 ===================================================================================== Total distributions $30,687,755 $18,859,805 _____________________________________________________________________________________ =====================================================================================
TAX COMPONENTS OF NET ASSETS AT PERIOD-END:
2008 -------------------------------------------------------------------------------- Undistributed ordinary income $ 2,399,808 -------------------------------------------------------------------------------- Net appreciation (depreciation) -- investments (58,603,242) -------------------------------------------------------------------------------- Temporary book/tax differences (74,147) -------------------------------------------------------------------------------- Capital loss carryforward (25,750,989) -------------------------------------------------------------------------------- Shares of beneficial interest 248,417,209 ================================================================================ Total net assets $166,388,639 ________________________________________________________________________________ ================================================================================
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 (depreciation) difference is attributable primarily to wash sales. The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund's temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits. Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions. The Fund has a capital loss carryforward as of October 31, 2008 which expires as follows:
CAPITAL LOSS EXPIRATION CARRYFORWARD* --------------------------------------------------------------------------------- October 31, 2016 $25,750,989 _________________________________________________________________________________ =================================================================================
* Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. NOTE 8--RECLASSIFICATION OF PERMANENT DIFFERENCES Primarily as a result of differing book/tax treatment of foreign currency transactions, on October 31, 2008, undistributed net investment income was increased by $16,432 and undistributed net realized gain (loss) was decreased by $16,432. This reclassification had no effect on the net assets of the Fund. NOTE 9--INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended October 31, 2008 was $158,141,070 and $176,526,054, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS ------------------------------------------------------------------------------------------------ Aggregate unrealized appreciation of investment securities $ 12,979,360 ------------------------------------------------------------------------------------------------ Aggregate unrealized (depreciation) of investment securities (71,582,602) ================================================================================================ Net unrealized appreciation (depreciation) of investment securities $(58,603,242) ________________________________________________________________________________________________ ================================================================================================ Cost of investments for tax purposes is $257,352,540.
18 AIM LARGE CAP BASIC VALUE FUND NOTE 10--SHARE INFORMATION
SUMMARY OF SHARE ACTIVITY ----------------------------------------------------------- YEAR ENDED OCTOBER 31, 2008(a) 2007 --------------------------- --------------------------- SHARES AMOUNT SHARES AMOUNT ------------------------------------------------------------------------------------------------------------------------ Sold: Class A 799,992 $ 8,938,323 814,000 $ 13,271,412 ------------------------------------------------------------------------------------------------------------------------ Class B 215,082 2,213,557 238,390 3,644,754 ------------------------------------------------------------------------------------------------------------------------ Class C 271,805 2,752,066 205,417 3,148,678 ------------------------------------------------------------------------------------------------------------------------ Class R 112,033 1,274,565 58,586 936,624 ------------------------------------------------------------------------------------------------------------------------ Class Y(b) 136,134 1,237,421 -- -- ------------------------------------------------------------------------------------------------------------------------ Investor Class 203,797 2,241,011 237,113 3,818,992 ------------------------------------------------------------------------------------------------------------------------ Institutional Class 1,956,712 25,923,662 3,476,446 55,679,328 ======================================================================================================================== Issued as reinvestment of dividends: Class A 622,968 8,808,762 411,557 6,346,212 ------------------------------------------------------------------------------------------------------------------------ Class B 261,282 3,511,629 193,242 2,859,978 ------------------------------------------------------------------------------------------------------------------------ Class C 143,836 1,933,154 89,508 1,324,724 ------------------------------------------------------------------------------------------------------------------------ Class R 12,967 181,802 6,216 95,170 ------------------------------------------------------------------------------------------------------------------------ Investor Class 189,266 2,681,953 152,527 2,356,544 ------------------------------------------------------------------------------------------------------------------------ Institutional Class 874,522 12,444,441 327,087 5,079,666 ======================================================================================================================== Automatic conversion of Class B shares to Class A shares: Class A 489,070 6,011,784 385,674 5,915,234 ------------------------------------------------------------------------------------------------------------------------ Class B (516,074) (6,011,784) (402,412) (5,915,234) ======================================================================================================================== Reacquired: Class A(b) (2,846,551) (33,699,954) (2,409,982) (38,637,609) ------------------------------------------------------------------------------------------------------------------------ Class B (916,365) (10,710,791) (1,034,166) (16,083,109) ------------------------------------------------------------------------------------------------------------------------ Class C (656,585) (7,572,765) (456,071) (6,984,831) ------------------------------------------------------------------------------------------------------------------------ Class R (84,537) (905,120) (36,164) (577,859) ------------------------------------------------------------------------------------------------------------------------ Investor Class(b) (449,357) (5,591,334) (1,109,674) (18,059,406) ------------------------------------------------------------------------------------------------------------------------ Institutional Class (1,628,328) (14,931,264) (472,752) (7,816,301) ------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in share activity (808,331) $ 731,118 674,542 $ 10,402,967 ________________________________________________________________________________________________________________________ ========================================================================================================================
(a) There is one entity that is a record owner of more than 5% of the outstanding shares of the Fund that owns 5% of the outstanding shares of the Fund. IADI has an agreement with this entity to sell Fund shares. The Fund, Invesco Aim and/or Invesco Aim affiliates may make payments to this entity, which is considered to be related to the Fund, for providing services to the Fund, Invesco Aim and/or Invesco Aim affiliates including but not limited to services such as securities brokerage, distribution, third party record keeping and account servicing. The Trust has no knowledge as to whether all or any portion of the shares owned of record by this entity is also owned beneficially. In addition, 45% of the outstanding shares of the Fund are owned by affiliated mutual funds. Affiliated mutual funds are other mutual that are also advised by Invesco Aim. (b) Effective upon the commencement date of Class Y shares, October 3, 2008, the following shares were converted from Class A and Investor Class shares into Class Y shares of the Fund:
CLASS SHARES AMOUNT ---------------------------------------------------------------------------------- Class Y 135,004 $ 1,227,188 ---------------------------------------------------------------------------------- Class A (120,764) (1,097,749) ---------------------------------------------------------------------------------- Investor Class (14,208) (129,439) __________________________________________________________________________________ ==================================================================================
19 AIM LARGE CAP BASIC VALUE FUND NOTE 11--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
NET GAINS (LOSSES) NET ASSET NET ON SECURITIES DIVIDENDS DISTRIBUTIONS VALUE, INVESTMENT (BOTH TOTAL FROM FROM NET FROM NET NET ASSET BEGINNING INCOME REALIZED AND INVESTMENT INVESTMENT REALIZED TOTAL VALUE, END OF PERIOD (LOSS)(A) UNREALIZED) OPERATIONS INCOME GAINS DISTRIBUTIONS OF PERIOD ------------------------------------------------------------------------------------------------------------------------------ CLASS A Year ended 10/31/08 $16.61 $ 0.09 $(7.83) $(7.74) $(0.04) $(1.28) $(1.32) $ 7.55 Year ended 10/31/07 15.64 0.06 1.76 1.82 (0.06) (0.79) (0.85) 16.61 Year ended 10/31/06 13.52 0.06 2.06 2.12 -- -- -- 15.64 Year ended 10/31/05 12.36 0.02 1.14 1.16 -- -- -- 13.52 Year ended 10/31/04 11.39 0.01 0.96 0.97 -- -- -- 12.36 CLASS B Year ended 10/31/08 15.83 (0.01) (7.41) (7.42) -- (1.28) (1.28) 7.13 Year ended 10/31/07 15.00 (0.06) 1.68 1.62 -- (0.79) (0.79) 15.83 Year ended 10/31/06 13.06 (0.05) 1.99 1.94 -- -- -- 15.00 Year ended 10/31/05 12.02 (0.07) 1.11 1.04 -- -- -- 13.06 Year ended 10/31/04 11.15 (0.07) 0.94 0.87 -- -- -- 12.02 CLASS C Year ended 10/31/08 15.83 (0.01) (7.41) (7.42) -- (1.28) (1.28) 7.13 Year ended 10/31/07 14.99 (0.06) 1.69 1.63 -- (0.79) (0.79) 15.83 Year ended 10/31/06 13.06 (0.05) 1.98 1.93 -- -- -- 14.99 Year ended 10/31/05 12.02 (0.07) 1.11 1.04 -- -- -- 13.06 Year ended 10/31/04 11.15 (0.07) 0.94 0.87 -- -- -- 12.02 CLASS R Year ended 10/31/08 16.45 0.06 (7.76) (7.70) -- (1.28) (1.28) 7.47 Year ended 10/31/07 15.50 0.02 1.75 1.77 (0.03) (0.79) (0.82) 16.45 Year ended 10/31/06 13.44 0.02 2.04 2.06 -- -- -- 15.50 Year ended 10/31/05 12.31 0.00 1.13 1.13 -- -- -- 13.44 Year ended 10/31/04 11.36 (0.01) 0.96 0.95 -- -- -- 12.31 CLASS Y Year ended 10/31/08(e) 9.09 0.01 (1.55) (1.54) -- -- -- 7.55 INVESTOR CLASS Year ended 10/31/08 16.64 0.09 (7.85) (7.76) (0.04) (1.28) (1.32) 7.56 Year ended 10/31/07 15.67 0.06 1.76 1.82 (0.06) (0.79) (0.85) 16.64 Year ended 10/31/06 13.55 0.06 2.06 2.12 -- -- -- 15.67 Year ended 10/31/05 12.37 0.03 1.15 1.18 -- -- -- 13.55 Year ended 10/31/04 11.39 0.03 0.95 0.98 -- -- -- 12.37 INSTITUTIONAL CLASS Year ended 10/31/08 16.80 0.15 (7.91) (7.76) (0.13) (1.28) (1.41) 7.63 Year ended 10/31/07 15.82 0.15 1.77 1.92 (0.15) (0.79) (0.94) 16.80 Year ended 10/31/06 13.63 0.13 2.09 2.22 (0.03) -- (0.03) 15.82 Year ended 10/31/05 12.38 0.10 1.15 1.25 -- -- -- 13.63 Year ended 10/31/04(e) 12.62 0.04 (0.28) (0.24) -- -- -- 12.38 ______________________________________________________________________________________________________________________________ ============================================================================================================================== RATIO OF RATIO OF EXPENSES EXPENSES TO AVERAGE TO AVERAGE NET RATIO OF NET NET ASSETS ASSETS WITHOUT INVESTMENT NET ASSETS, WITH FEE WAIVERS FEE WAIVERS INCOME (LOSS) TOTAL END OF PERIOD AND/OR EXPENSES AND/OR EXPENSES TO AVERAGE PORTFOLIO RETURN(B) (000S OMITTED) ABSORBED ABSORBED NET ASSETS TURNOVER(C) ----------------------------------------------------------------------------------------------------------------- CLASS A Year ended 10/31/08 (50.30)% $ 48,068 1.23%(d) 1.31%(d) 0.70%(d) 54% Year ended 10/31/07 12.08 121,287 1.23 1.24 0.39 29 Year ended 10/31/06 15.68 126,700 1.22 1.28 0.40 26 Year ended 10/31/05 9.38 129,410 1.35 1.37 0.15 9 Year ended 10/31/04 8.52 150,190 1.33 1.35 0.11 32 CLASS B Year ended 10/31/08 (50.65) 14,839 1.98(d) 2.06(d) (0.05)(d) 54 Year ended 10/31/07 11.17 48,108 1.98 1.99 (0.36) 29 Year ended 10/31/06 14.86 60,627 1.97 2.03 (0.35) 26 Year ended 10/31/05 8.65 69,040 2.03 2.05 (0.53) 9 Year ended 10/31/04 7.80 84,896 1.98 2.00 (0.54) 32 CLASS C Year ended 10/31/08 (50.65) 10,042 1.98(d) 2.06(d) (0.05)(d) 54 Year ended 10/31/07 11.25 26,123 1.98 1.99 (0.36) 29 Year ended 10/31/06 14.78 27,153 1.97 2.03 (0.35) 26 Year ended 10/31/05 8.65 26,593 2.03 2.05 (0.53) 9 Year ended 10/31/04 7.80 30,835 1.98 2.00 (0.54) 32 CLASS R Year ended 10/31/08 (50.43) 1,352 1.48(d) 1.56(d) 0.45(d) 54 Year ended 10/31/07 11.82 2,314 1.48 1.49 0.14 29 Year ended 10/31/06 15.33 1,736 1.47 1.53 0.15 26 Year ended 10/31/05 9.18 1,306 1.53 1.55 (0.03) 9 Year ended 10/31/04 8.36 991 1.48 1.50 (0.04) 32 CLASS Y Year ended 10/31/08(e) (16.94) 1,028 0.98(d)(f) 1.26(d)(f) 0.95(d)(f) 54 INVESTOR CLASS Year ended 10/31/08 (50.33) 15,590 1.23(d) 1.31(d) 0.70(d) 54 Year ended 10/31/07 12.06 35,232 1.23 1.24 0.39 29 Year ended 10/31/06 15.65 44,452 1.22 1.28 0.40 26 Year ended 10/31/05 9.54 62,838 1.28 1.30 0.22 9 Year ended 10/31/04 8.60 70,548 1.24 1.25 0.20 32 INSTITUTIONAL CLASS Year ended 10/31/08 (50.07) 75,469 0.71(d) 0.72(d) 1.22(d) 54 Year ended 10/31/07 12.62 145,886 0.72 0.72 0.90 29 Year ended 10/31/06 16.28 84,679 0.73 0.73 0.89 26 Year ended 10/31/05 10.10 92,214 0.76 0.77 0.74 9 Year ended 10/31/04(e) (1.90) 18,745 0.80(f) 0.81(f) 0.64(f) 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. Does not include sales charges and is not annualized for periods less than one year, if applicable. (c) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable (d) Ratios are based on average daily net assets (000's omitted) of $89,732, $31,788, $18,491, $1,974, $1,004, $26,553, and $127,676, for Class A, Class B, Class C, Class R, Class Y, Investor Class and Institutional Class shares, respectively. (e) Commencement of Class Y and Institutional Class shares was October 3, 2008, and April 30, 2004, respectively. (f) Annualized. 20 AIM LARGE CAP BASIC VALUE FUND NOTE 12--LEGAL PROCEEDINGS Terms used in the Legal Proceedings Note are defined terms solely for the purpose of this note. SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING On May 23, 2008, the Securities and Exchange Commission ("SEC") publicly posted its final approval of the 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"), Invesco Aim Advisors, Inc. ("Invesco Aim") and Invesco Aim Distributors, Inc. ("IADI") 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 Invesco Aim who may have been harmed by market timing and related activity. The Distribution Plans provide for the distribution to all eligible investors 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 of the Fair Funds has not yet commenced, management of Invesco 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 Invesco 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 Invesco Aim and IADI (Order No. 05- 1318). The WVASC makes findings of fact that Invesco Aim and IADI 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 Invesco Aim and IADI violated the West Virginia securities laws. The WVASC orders Invesco Aim and IADI 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, Invesco 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, Invesco Aim, IADI 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 the Employee Retirement Income Security Act of 1974, as amended ("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. The case pending in Illinois State Court regarding fair value pricing was dismissed with prejudice on May 6, 2008. 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 Invesco 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 ERISA purportedly brought on behalf of participants in the Invesco 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. Plaintiff appealed this ruling. On June 16, 2008, the Fourth Circuit Court of Appeals reversed the dismissal and remanded this lawsuit back to the MDL Court for further proceedings. IFG, Invesco Aim, IADI 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, Invesco Aim and IADI 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, Invesco Aim and/or related entities and individuals in the future. At the present time, management of Invesco 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 Invesco Aim, IADI or the Fund. 21 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, 2008, 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 four 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, 2008 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights for the period ended 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 16, 2008 Houston, Texas 22 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, 2008, through October 31, 2008. The actual ending account and expenses of the Class Y shares in the below example are based on an investment of $1,000 invested as of close of business October 3, 2008 (the date the share class commenced operations) and held through October 31, 2008. 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 (as of close of business October 3, 2008 through October 31, 2008 for the Class Y shares). Because the actual ending account value and expense information in the example is not based upon a six month period for the Class Y shares, the ending account value and expense information may not provide a meaningful comparison to mutual funds that provide such information for a full six month 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 CLASS (05/01/08) (10/31/08)(1) PERIOD(2) (10/31/08) PERIOD(2,3) RATIO --------------------------------------------------------------------------------------------------- A $1,000.00 $575.90 $4.83 $1,019.00 $6.19 1.22% --------------------------------------------------------------------------------------------------- B 1,000.00 573.60 7.79 1,015.23 9.98 1.97 --------------------------------------------------------------------------------------------------- C 1,000.00 573.60 7.79 1,015.23 9.98 1.97 --------------------------------------------------------------------------------------------------- R 1,000.00 575.10 5.82 1,017.75 7.46 1.47 --------------------------------------------------------------------------------------------------- Y 1,000.00 830.60 0.71 1,020.21 4.98 0.98 --------------------------------------------------------------------------------------------------- Investor 1,000.00 575.30 4.83 1,019.00 6.19 1.22 ---------------------------------------------------------------------------------------------------
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2008, through October 31, 2008, 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 184/366 to reflect the most recent fiscal half year. For the Class Y shares actual expenses are equal to the annualized expense ratio indicated above multiplied by the average account value over the period, multiplied by 29 (as of close of business October 3, 2008, through October 31, 2008)/366. Because the Class Y shares have not been in existence for a full six month period, the actual ending account value and expense information shown may not provide a meaningful comparison to fund expense information of classes that show such data for a full six month period and, because the actual ending account value and expense information in the expense example covers a short time period, return and expense data may not be indicative of return and expense data for longer time periods. (3) Hypothetical expenses are equal to the annualized expense ratio indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect a one-half year period. The hypothetical ending account value and expenses may be used to compare ongoing costs of investing in Class Y shares of the Fund and other funds because such data is based on a full six month period. 23 AIM LARGE CAP BASIC VALUE FUND Supplement to Annual Report dated 10/31/08 AIM LARGE CAP BASIC VALUE FUND ========================================== INSTITUTIONAL CLASS SHARES AVERAGE ANNUAL TOTAL RETURNS The total annual Fund operating expense For periods ended 10/31/08 ratio set forth in the most recent Fund The following information has been prospectus as of the date of this prepared to provide Institutional Class Inception -0.84% supplement for Institutional Class shares shareholders with a performance overview 5 Years -4.79 was 0.72%. The expense ratios presented specific to their holdings. Institutional 1 Year -50.07 above may vary from the expense ratios Class shares are offered exclusively to ========================================== presented in other sections of the actual institutional investors, including defined report that are based on expenses incurred contribution plans that meet certain ========================================== during the period covered by the report. criteria. AVERAGE ANNUAL TOTAL RETURNS For periods ended 9/30/08, most recent Please note that past performance is calendar quarter-end not indicative of future results. More recent returns may be more or less than Inception 1.97% those shown. All returns assume 5 Years 1.02 reinvestment of distributions at NAV. 1 Year -33.50 Investment return and principal value will ========================================== fluctuate so your shares, when redeemed, may be worth more or less than their Institutional Class shares' inception date original cost. See full report for is April 30, 2004. Returns since that date information on comparative benchmarks. are historical returns. All other returns Please consult your Fund prospectus for are blended returns of historical more information. For the most current Institutional Class share performance and month-end performance, please call 800 451 restated Class A share performance (for 4246 or visit invescoaim.com. periods prior to the inception date of Institutional Class shares) at net asset value (NAV) and reflect the 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 differing sales charges and class expenses. ========================================== NASDAQ SYMBOL LCBIX ========================================== Over for information on your Fund's expenses. THIS SUPPLEMENT 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. [INVESCO AIM LOGO] invescoaim.com LCBV-INS-1 Invesco Aim Distributors, Inc. -- SERVICE MARK --
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, 2008, through October 31, 2008. 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 CLASS (05/01/08) (10/31/08)(1) PERIOD(2) (10/31/08) PERIOD(2) RATIO ----------------------------------------------------------------------------------------------------------- Institutional $1,000.00 $576.70 $2.81 $1,021.57 $3.61 0.71% -----------------------------------------------------------------------------------------------------------
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2008, through October 31, 2008, 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 184/366 to reflect the most recent fiscal half year. AIM LARGE CAP BASIC VALUE FUND APPROVAL OF INVESTMENT ADVISORY AGREEMENT The Board of Trustees (the Board) of AIM comparative performance and fee data Trustees recognized that the advisory Equity Funds is required under the regarding the AIM Funds prepared by an arrangements and resulting advisory fees Investment Company Act of 1940 to approve independent company, Lipper, Inc. for the Fund and the other AIM Funds are annually the renewal of the AIM Large Cap (Lipper), under the direction and the result of years of review and Basic Value Fund's (the Fund) investment supervision of the independent Senior negotiation between the Trustees and advisory agreement with Invesco Aim Officer who also prepares a separate Invesco Aim, that the Trustees may focus Advisors, Inc. (Invesco Aim). During analysis of this information for the to a greater extent on certain aspects of contract renewal meetings held on June Trustees. Each Sub-Committee then makes these arrangements in some years than in 18-19, 2008, the Board as a whole and the recommendations to the Investments others, and that the Trustees' disinterested or "independent" Trustees, Committee regarding the performance, fees deliberations and conclusions in a voting separately, approved the and expenses of their assigned funds. The particular year may be based in part on continuance of the Fund's investment Investments Committee considers each their deliberations and conclusions of advisory agreement for another year, Sub-Committee's recommendations and makes these same arrangements throughout the effective July 1, 2008. In doing so, the its own recommendations regarding the year and in prior years. Board determined that the Fund's performance, fees and expenses of the AIM investment advisory agreement is in the Funds to the full Board. The Investments FACTORS AND CONCLUSIONS AND SUMMARY OF best interests of the Fund and its Committee also considers each INDEPENDENT WRITTEN FEE EVALUATION shareholders and that the compensation to Sub-Committee's recommendations in making Invesco Aim under the Fund's investment its annual recommendation to the Board The discussion below serves as a summary advisory agreement is fair and reasonable. whether to approve the continuance of each of the Senior Officer's independent AIM Fund's investment advisory agreement written evaluation with respect to the The independent Trustees met separately and sub-advisory agreements for another Fund's investment advisory agreement as during their evaluation of the Fund's year. well as a discussion of the material investment advisory agreement with factors and related conclusions that independent legal counsel from whom they The independent Trustees are assisted formed the basis for the Board's approval received independent legal advice, and the in their annual evaluation of the Fund's of the Fund's investment advisory independent Trustees also received investment advisory agreement by the agreement and sub-advisory agreements. assistance during their deliberations from independent Senior Officer. One Unless otherwise stated, information set the independent Senior Officer, a responsibility of the Senior Officer is to forth below is as of June 19, 2008 and full-time officer of the AIM Funds who manage the process by which the AIM Funds' does not reflect any changes that may have reports directly to the independent proposed management fees are negotiated occurred since that date, including but Trustees. during the annual contract renewal process not limited to changes to the Fund's to ensure that they are negotiated in a performance, advisory fees, expense THE BOARD'S FUND EVALUATION PROCESS manner that is at arms' length and limitations and/or fee waivers. reasonable. Accordingly, the Senior The Board's Investments Committee has Officer must either supervise a I. Investment Advisory Agreement established three Sub-Committees that are competitive bidding process or prepare an responsible for overseeing the management independent written evaluation. The Senior A. Nature, Extent and Quality of of a number of the series portfolios of Officer has recommended that an Services Provided by Invesco Aim the AIM Funds. This Sub-Committee independent written evaluation be provided structure permits the Trustees to focus on and, at the direction of the Board, has The Board reviewed the advisory services the performance of the AIM Funds that have prepared an independent written provided to the Fund by Invesco Aim under been assigned to them. The Sub-Committees evaluation. the Fund's investment advisory agreement, meet throughout the year to review the the performance of Invesco Aim in performance of their assigned funds, and During the annual contract renewal providing these services, and the the Sub-Committees review monthly and process, the Board considered the factors credentials and experience of the officers quarterly comparative performance discussed below under the heading "Factors and employees of Invesco Aim who provide information and periodic asset flow data and Conclusions and Summary of Independent these services. The Board's review of the for their assigned funds. These materials Written Fee Evaluation" in evaluating the qualifications of Invesco Aim to provide are prepared under the direction and fairness and reasonableness of the Fund's these services included the Board's supervision of the independent Senior investment advisory agreement and consideration of Invesco Aim's portfolio Officer. Over the course of each year, the sub-advisory agreements at the contract and product review process, various back Sub-Committees meet with portfolio renewal meetings and at their meetings office support functions provided by managers for their assigned funds and throughout the year as part of their Invesco Aim and its affiliates, and other members of management and review ongoing oversight of the Fund. The Fund's Invesco Aim's equity and fixed income with these individuals the performance, investment advisory agreement and trading operations. The Board concluded investment objective(s), policies, sub-advisory agreements were considered that the nature, extent and quality of the strategies and limitations of these funds. separately, although the Board also advisory services provided to the Fund by considered the common interests of all of Invesco Aim were appropriate and that In addition to their meetings the AIM Funds in their deliberations. The Invesco Aim currently is providing throughout the year, the Sub-Committees Board considered all of the information satisfactory advisory services in meet at designated contract renewal provided to them and did not identify any accordance with the terms of the Fund's meetings each year to conduct an in-depth particular factor that was controlling. investment advisory agreement. In review of the performance, fees and Each Trustee may have evaluated the addition, based on their ongoing meetings expenses of their assigned funds. During information provided differently from one throughout the year with the Fund's the contract renewal process, the Trustees another and attributed different weight to portfolio manager or managers, the Board receive the various factors. The concluded that these individuals are competent and able to continue to carry out their responsibili- continued
24 AIM LARGE CAP BASIC VALUE FUND ties under the Fund's investment advisory ate for the Board to continue to monitor at least June 30, 2009. The Board also agreement. more closely the performance of the Fund. considered the effect this fee waiver Although the independent written would have on the Fund's total estimated In determining whether to continue the evaluation of the Fund's Senior Officer expenses. Fund's investment advisory agreement, the only considered Fund performance through Board considered the prior relationship the most recent calendar year, the Board After taking account of the Fund's between Invesco Aim and the Fund, as well also reviewed more recent Fund performance contractual advisory fee rate, as well as as the Board's knowledge of Invesco Aim's and this review did not change their the comparative advisory fee information operations, and concluded that it was conclusions. and the expense limitation discussed beneficial to maintain the current above, the Board concluded that the Fund's relationship, in part, because of such C. Advisory Fees and Fee Waivers advisory fees were fair and reasonable. knowledge. The Board also considered the steps that Invesco Aim and its affiliates The Board compared the Fund's contractual D. Economies of Scale and Breakpoints have taken over the last several years to advisory fee rate to the contractual improve the quality and efficiency of the advisory fee rates of funds in the Fund's The Board considered the extent to which services they provide to the AIM Funds in Lipper expense group that are not managed there are economies of scale in Invesco the areas of investment performance, by Invesco Aim, at a common asset level Aim's provision of advisory services to product line diversification, and as of the end of the past calendar the Fund. The Board also considered distribution, fund operations, shareholder year. The Board noted that the Fund's whether the Fund benefits from such services and compliance. The Board contractual advisory fee rate was below economies of scale through contractual concluded that the quality and efficiency the median contractual advisory fee rate breakpoints in the Fund's advisory fee of the services Invesco Aim and its of funds in its expense group. The Board schedule or through advisory fee waivers affiliates provide to the AIM Funds in also reviewed the methodology used by or expense limitations. The Board noted each of these areas have generally Lipper in determining contractual fee that the Fund's contractual advisory fee improved, and support the Board's approval rates. schedule includes two breakpoints but of the continuance of the Fund's that, due to the Fund's asset level at the investment advisory agreement. The Board also compared the Fund's end of the past calendar year and the way effective fee rate (the advisory fee after in which the breakpoints have been B. Fund Performance any advisory fee waivers and before any structured, the Fund has yet to benefit expense limitations/waivers) to the from the breakpoints. Based on this The Board compared the Fund's performance advisory fee rates of other clients of information, the Board concluded that the during the past one, three and five Invesco Aim and its affiliates with Fund's advisory fees would reflect calendar years to the performance of funds investment strategies comparable to those economies of scale at higher asset levels. in the Fund's performance group that are of the Fund, including three mutual funds The Board also noted that the Fund shares not managed by Invesco Aim, and against advised by Invesco Aim. The Board noted directly in economies of scale through the performance of all funds in the Lipper that the Fund's rate was below the rates lower fees charged by third party service Large-Cap Value Funds Index. The Board for two of the mutual funds and the same providers based on the combined size of also reviewed the criteria used by Invesco as the rate for the other mutual fund. all of the AIM Funds and affiliates. Aim to identify the funds in the Fund's performance group for inclusion in the Additionally, the Board compared the E. Profitability and Financial Lipper reports. The Board noted that the Fund's effective fee rate to the total Resources of Invesco Aim Fund's performance was in the fourth advisory fees paid by numerous separately quintile of its performance group for the managed accounts/wrap accounts advised by The Board reviewed information from one and three year periods, and in the Invesco Aim affiliates. The Board noted Invesco Aim concerning the costs of the fifth quintile for the five year period that the Fund's rate was generally above advisory and other services that Invesco (the first quintile being the best the rates for the separately managed Aim and its affiliates provide to the Fund performing funds and the fifth quintile accounts/ wrap accounts. The Board and the profitability of Invesco Aim and being the worst performing funds). The considered that management of the its affiliates in providing these Board noted that the Fund's performance separately managed accounts/wrap accounts services. The Board also reviewed was below the performance of the Index for by the Invesco Aim affiliates involves information concerning the financial the one, three and five year periods. The different levels of services and different condition of Invesco Aim and its Board also noted that Invesco Aim operational and regulatory requirements affiliates. The Board also reviewed with acknowledges the Fund's underperformance than Invesco Aim's management of the Fund. Invesco Aim the methodology used to and is focused on the longer term and The Board concluded that these differences prepare the profitability information. The business issues that affect the Fund's are appropriately reflected in the fee Board considered the overall profitability performance. structure for the Fund. of Invesco Aim, as well as the profitability of Invesco Aim in connection The Board also considered the steps The Board noted that Invesco Aim has with managing the Fund. The Board noted Invesco Aim has taken over the last contractually agreed to waive fees and/or that Invesco Aim continues to operate at a several years to improve the quality and limit expenses of the Fund through at net profit, although increased expenses in efficiency of the services that Invesco least June 30, 2009 in an amount necessary recent years have reduced the Aim provides to the AIM Funds. The Board to limit total annual operating expenses profitability of Invesco Aim and its concluded that Invesco Aim continues to be to a specified percentage of average daily affiliates. The Board concluded that the responsive to the Board's focus on fund net assets for each class of the Fund. The Fund's fees were fair and reasonable, and performance. However, due to the Fund's Board considered the contractual nature of that the level of profits realized by underperformance, the Board also this fee waiver and noted that it remains Invesco Aim and its affiliates from concluded that it would be appropri- in effect until providing services to the Fund was not excessive in light of the nature, quality continued
25 AIM LARGE CAP BASIC VALUE FUND and extent of the services provided. The and therefore may reduce Invesco Aim's appropriate. The Board noted that the Board considered whether Invesco Aim is expenses. The Board also noted that Affiliated Sub-Advisers, which have financially sound and has the resources research obtained through soft dollar offices and personnel that are necessary to perform its obligations under arrangements may be used by Invesco Aim in geographically dispersed in financial the Fund's investment advisory agreement, making investment decisions for the Fund centers around the world, have been formed and concluded that Invesco Aim has the and may therefore benefit Fund in part for the purpose of researching and financial resources necessary to fulfill shareholders. The Board concluded that compiling information and making these obligations. Invesco Aim's soft dollar arrangements recommendations on the markets and were appropriate. The Board also concluded economies of various countries and F. Independent Written Evaluation of that, based on their review and securities of companies located in such the Fund's Senior Officer representations made by Invesco Aim, these countries or on various types of arrangements were consistent with investments and investment techniques, and The Board noted that, at their direction, regulatory requirements. providing investment advisory services. the Senior Officer of the Fund, who is The Board concluded that the sub-advisory independent of Invesco Aim and Invesco The Board considered the fact that the agreements will benefit the Fund and its Aim's affiliates, had prepared an Fund's uninvested cash and cash collateral shareholders by permitting Invesco Aim to independent written evaluation to assist from any securities lending arrangements utilize the additional resources and the Board in determining the may be invested in money market funds talent of the Affiliated Sub-Advisers in reasonableness of the proposed management advised by Invesco Aim pursuant to managing the Fund. fees of the AIM Funds, including the Fund. procedures approved by the Board. The The Board noted that they had relied upon Board noted that Invesco Aim will receive B. Fund Performance the Senior Officer's written evaluation advisory fees from these affiliated money instead of a competitive bidding process. market funds attributable to such The Board did not view Fund performance as In determining whether to continue the investments, although Invesco Aim has a relevant factor in considering whether Fund's investment advisory agreement, the contractually agreed to waive through at to approve the sub-advisory agreements for Board considered the Senior Officer's least June 30, 2009, the advisory fees the Fund, as no Affiliated Sub-Adviser written evaluation. payable by the Fund in an amount equal to currently manages any portion of the 100% of the net advisory fees Invesco Aim Fund's assets. G. Collateral Benefits to Invesco Aim receives from the affiliated money market and its Affiliates funds with respect to the Fund's C. Sub-Advisory Fees investment of uninvested cash, but not The Board considered various other cash collateral. The Board considered the The Board considered the services to be benefits received by Invesco Aim and its contractual nature of this fee waiver and provided by the Affiliated Sub-Advisers affiliates resulting from Invesco Aim's noted that it remains in effect until at pursuant to the sub-advisory agreements relationship with the Fund, including the least June 30, 2009. The Board concluded and the services to be provided by Invesco fees received by Invesco Aim and its that the Fund's investment of uninvested Aim pursuant to the Fund's investment affiliates for their provision of cash and cash collateral from any advisory agreement, as well as the administrative, transfer agency and securities lending arrangements in the allocation of fees between Invesco Aim and distribution services to the Fund. The affiliated money market funds is in the the Affiliated Sub-Advisers pursuant to Board considered the performance of best interests of the Fund and its the sub-advisory agreements. The Board Invesco Aim and its affiliates in shareholders. noted that the sub-advisory fees have no providing these services and the direct effect on the Fund or its organizational structure employed by II. Sub-Advisory Agreements shareholders, as they are paid by Invesco Invesco Aim and its affiliates to provide Aim to the Affiliated Sub-Advisers, and these services. The Board also considered A. Nature, Extent and Quality of that Invesco Aim and the Affiliated that these services are provided to the Services Provided by Affiliated Sub-Advisers are affiliates. After taking Fund pursuant to written contracts which Sub-Advisers account of the Fund's contractual are reviewed and approved on an annual sub-advisory fee rate, as well as other basis by the Board. The Board concluded The Board reviewed the services to be relevant factors, the Board concluded that that Invesco Aim and its affiliates were provided by Invesco Trimark Ltd., Invesco the Fund's sub-advisory fees were fair and providing these services in a satisfactory Asset Management Deutschland, GmbH, reasonable. manner and in accordance with the terms of Invesco Asset Management Limited, Invesco their contracts, and were qualified to Asset Management (Japan) Limited, Invesco D. Financial Resources of the continue to provide these services to the Australia Limited, Invesco Global Asset Affiliated Sub-Advisers Fund. Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco Institutional (N.A.), The Board considered whether each The Board considered the benefits Inc. and Invesco Senior Secured Affiliated Sub-Adviser is financially realized by Invesco Aim as a result of Management, Inc. (collectively, the sound and has the resources necessary to portfolio brokerage transactions executed "Affiliated Sub-Advisers") under the perform its obligations under its through "soft dollar" arrangements. Under sub-advisory agreements and the respective sub-advisory agreement, and these arrangements, portfolio brokerage credentials and experience of the officers concluded that each Affiliated Sub-Adviser commissions paid by the Fund and/or other and employees of the Affiliated has the financial resources necessary to funds advised by Invesco Aim are used to Sub-Advisers who will provide these fulfill these obligations. pay for research and execution services. services. The Board concluded that the The Board noted that soft dollar nature, extent and quality of the services arrangements shift the payment obligation to be provided by the Affiliated for the research and execution services Sub-Advisers were from Invesco Aim to the funds
26 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 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, 2008:
FEDERAL AND STATE INCOME TAX ---------------------------- Long-Term Capital Gain Dividends $27,041,909 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. ADDITIONAL NON-RESIDENT ALIEN SHAREHOLDER INFORMATION The percentage of qualifying assets not subject to the U.S. estate tax for the fiscal quarters ended January 31, 2008, April 30, 2008, July 31, 2008, and October 31, 2008 were 9.37%, 9.39%, 11.22%, and 13.55%, respectively. 27 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 103 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.
NAME, YEAR OF BIRTH AND TRUSTEE AND/ OTHER POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) DIRECTORSHIP(S) TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE -------------------------------------------------------------------------------------------------------------------------------- INTERESTED PERSONS -------------------------------------------------------------------------------------------------------------------------------- Martin L. 2007 Executive Director, Chief Executive Officer and President, None Flanagan(1) -- 1960 Invesco Ltd. (ultimate parent of Invesco Aim and a global Trustee investment management firm); Chairman, Invesco Aim Advisors, Inc. (registered investment advisor); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company); INVESCO North American Holdings, Inc. (holding company); and, INVESCO Group Services, Inc. (service provider); Trustee, The AIM Family of Funds--Registered Trademark--; Vice Chairman, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business Formerly: Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco Aim and a global investment management firm); 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 Head of North American Retail and Senior Managing Director, None Trustee, President and Invesco Ltd.; Director, Chief Executive Officer and Principal President, Invesco Trimark Dealer Inc. (formerly AIM Mutual Executive Officer Fund Dealer Inc.) (registered broker dealer), Invesco Aim Advisors, Inc., and 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Aim Management Group, Inc. (financial services holding company) and Invesco Aim 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, Invesco Aim Distributors, Inc. (registered broker dealer); Director and Chairman, Invesco 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 Invesco Canada Holdings Inc. (formerly AIM Canada Holdings Inc.) (holding company); 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); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltee (formerly AIM Funds Management Inc. d/b/a INVESCO Enterprise Services) (registered investment advisor and registered transfer agent) and Invesco Trimark Dealer Inc. (formerly AIM Mutual Fund Dealer Inc.) (registered broker dealer); Trustee, President and Principal Executive Officer of The AIM Family of Funds--Registered Trademark-- (other than AIM Treasurer's Series Trust and Short-Term Investments Trust); Trustee and Executive Vice President, The AIM Family of Funds--Registered Trademark-- (AIM Treasurer's Series Trust and Short-Term Investments Trust only); and Manager, Invesco PowerShares Capital Management LLC Formerly: President, Invesco Trimark Dealer Inc.; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Director and President, Invesco Trimark Ltd./Invesco Trimark Ltee (formerly AIM Funds Management Inc. d/b/a INVESCO Enterprise Services); Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; 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); 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 (technology ACE Limited Trustee and Chair consulting company) (insurance company); Captaris, Inc. (unified messaging provider); and Investment Company Institute -------------------------------------------------------------------------------------------------------------------------------- Bob R. Baker -- 1936 2003 Retired None Trustee -------------------------------------------------------------------------------------------------------------------------------- Frank S. Bayley -- 1939 2001 Retired Trustee Formerly: Partner, law firm of Baker & McKenzie; and None Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) -------------------------------------------------------------------------------------------------------------------------------- James T. Bunch -- 1942 2003 Founder, Green, Manning & Bunch Ltd., (investment banking Director, Policy Trustee firm) Studies, Inc. and Van Gilder Insurance Corporation -------------------------------------------------------------------------------------------------------------------------------- Albert R. Dowden -- 1941 2000 Director of a number of public and private business None Trustee corporations, including the Boss Group Ltd. (private investment and management); Continental Energy Services, LLC (oil and gas pipeline service); Reich & Tang Funds (registered investment company); Annuity and Life Re (Holdings), Ltd. (reinsurance company), and Homeowners of America Holding Corporation/Homeowners of America Insurance Company (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 public and private corporations -------------------------------------------------------------------------------------------------------------------------------- Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Century Group, Inc. Administaff Trustee (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); and Discovery Global Education Fund (non-profit) -------------------------------------------------------------------------------------------------------------------------------- Carl Frischling -- 1937 1998 Partner, law firm of Kramer Levin Naftalis and Frankel LLP Director, Reich & Trustee Tang Funds) (15 portfolios) -------------------------------------------------------------------------------------------------------------------------------- Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the USA None Trustee -------------------------------------------------------------------------------------------------------------------------------- Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper None Trustee -------------------------------------------------------------------------------------------------------------------------------- Larry Soll -- 1942 2003 Retired None Trustee -------------------------------------------------------------------------------------------------------------------------------- Raymond Stickel, Jr. -- 1944 2005 Retired Trustee Formerly: Partner, Deloitte & Touche; and Director, Mainstay None VP Series Funds, Inc. (25 portfolios) --------------------------------------------------------------------------------------------------------------------------------
(1) 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 Ltd., ultimate 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. 28 AIM LARGE CAP BASIC VALUE FUND TRUSTEES AND OFFICERS--(CONTINUED)
NAME, YEAR OF BIRTH AND TRUSTEE AND/ OTHER POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) DIRECTORSHIP(S) TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE -------------------------------------------------------------------------------------------------------------------------------- OTHER OFFICERS -------------------------------------------------------------------------------------------------------------------------------- Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer of The AIM Family of N/A Senior Vice President and Funds--Registered Trademark-- Senior Officer 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, Secretary and General Counsel, N/A Senior Vice President, Chief Invesco Aim Management Group, Inc., Invesco Aim Advisors, Inc. Legal Officer and Secretary and Invesco Aim Capital Management, Inc.; Director, Senior Vice President and Secretary, Invesco Aim Distributors, Inc.; Director, Vice President and Secretary, Invesco Aim Investment Services, Inc. and INVESCO Distributors, Inc.; Director and Vice President, INVESCO Funds Group Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds--Registered Trademark--; and Manager, Invesco PowerShares Capital Management LLC Formerly: Director, Vice President and Secretary, Fund Management Company; Vice President, Invesco Aim 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); 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 Ltd.; and Vice President, The N/A Vice President AIM Family of Funds--Registered Trademark-- Formerly: Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and The AIM Family of Funds--Registered Trademark--; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Aim Distributors, Inc.; Vice President, Invesco Aim Investment Services, Inc. and Fund Management Company; and Senior Vice President and Compliance Director, Delaware Investments Family of Funds -------------------------------------------------------------------------------------------------------------------------------- Kevin M. Carome -- 1956 2003 General Counsel, Secretary and Senior Managing Director, Invesco N/A Vice President Ltd.; Director and Secretary, Invesco Holding Company Limited, IVZ, Inc. and INVESCO Group Services, Inc.; Director, INVESCO Funds Group, Inc.; Secretary, INVESCO North American Holdings, Inc.; and Vice President, The AIM Family of Funds--Registered Trademark-- Formerly: Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc. and Invesco Aim Advisors, Inc.; Senior Vice President, Invesco Aim Distributors, Inc.; Director, General Counsel and Vice President, Fund Management Company; Vice President, Invesco Aim Capital Management, Inc. and Invesco Aim Investment Services, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds--Registered Trademark--; Director and Vice President, INVESCO Distributors, Inc. and Chief Executive Officer and President, INVESCO Funds Group, Inc. -------------------------------------------------------------------------------------------------------------------------------- Sheri Morris -- 1964 1999 Vice President, Treasurer and Principal Financial Officer, The N/A Vice President, Treasurer AIM Family of Funds--Registered Trademark--; and Vice President, and Principal Financial Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. Officer and Invesco Aim Private Asset Management Inc. Formerly: Assistant Vice President and Assistant Treasurer, The AIM Family of Funds--Registered Trademark-- and Assistant Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. -------------------------------------------------------------------------------------------------------------------------------- Karen Dunn Kelley -- 1960 2004 Head of Invesco's World Wide Fixed Income and Cash Management N/A Vice President Group; Director of Cash Management and Senior Vice President, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc; Executive Vice President, Invesco Aim Distributors, Inc.; Senior Vice President, Invesco Aim Management Group, Inc.; Vice President, The AIM Family of Funds--Registered Trademark-- (other than AIM Treasurer's Series Trust and Short-Term Investments Trust); and President and Principal Executive Officer, The AIM Family of Funds--Registered Trademark-- (AIM Treasurer's Series Trust and Short-Term Investments Trust only) Formerly President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer and Managing Director, Invesco Aim Capital Management, Inc.; and Vice President, Invesco Aim 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 Officer, Invesco Aim Advisors, N/A Anti-Money Laundering Inc., Invesco Aim Capital Management, Inc., Invesco Aim Compliance Officer Distributors, Inc., Invesco Aim Investment Services, Inc., Invesco 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, Invesco Aim Investment Services, Inc. -------------------------------------------------------------------------------------------------------------------------------- Todd L. Spillane -- 1958 2006 Senior Vice President, Invesco Aim Management Group, Inc.; Senior N/A Chief Compliance Officer Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, 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, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc. Formerly: Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company; and Global Head of Product Development, AIG-Global Investment Group, Inc. --------------------------------------------------------------------------------------------------------------------------------
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. Please refer to the Fund's prospectus for information on the Fund's sub- advisors. OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS 11 Greenway Plaza Invesco Aim Advisors, Invesco Aim Distributors, PricewaterhouseCoopers Suite 100 Inc. Inc. LLP Houston, TX 77046-1173 11 Greenway Plaza 11 Greenway Plaza 1201 Louisiana Street Suite 100 Suite 100 Suite 2900 Houston, TX 77046-1173 Houston, TX 77046-1173 Houston, TX 77002-5678 COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN Stradley Ronon Stevens INDEPENDENT TRUSTEES Invesco Aim Investment State Street Bank and & Young, LLP Kramer, Levin, Naftalis & Services, Inc. Trust Company 2600 One Commerce Square Frankel LLP P.O. Box 4739 225 Franklin Street Philadelphia, PA 19103 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801 Americas New York, NY 10036-2714
29 AIM LARGE CAP BASIC VALUE FUND [GO PAPERLESS GRAPHIC] ==================================================================================================================================== GO PAPERLESS WITH EDELIVERY Visit invescoaim.com/edelivery to receive quarterly statements, tax forms, fund reports and prospectuses with a service that's all about eeees: o ENVIRONMENTALLY FRIENDLY. Go green by reducing the number of o EFFICIENT. Stop waiting for regular mail. Your documents will trees used to produce paper. be sent via email as soon as they're available. o ECONOMICAL. Help reduce your fund's printing and delivery o EASY. Download, save and print files using your home computer expenses and put more capital back in your fund's returns. with a few clicks of your mouse. This service is provided by Invesco Aim Investment Services, Inc. ==================================================================================================================================== FUND HOLDINGS AND PROXY VOTING INFORMATION The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund's semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The most recent list of portfolio holdings is available at invescoaim.com. From our home page, click on Products & Performance, then Mutual Funds, then Fund Overview. Select your Fund from the drop-down menu and click on Complete Quarterly Holdings. Shareholders can also look up the Fund's Forms N-Q on the SEC website at sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 942 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-01424 and 002-25469. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or on the Invesco Aim website, invescoaim. com. On the home page, scroll down and click on Proxy Policy. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2008, is available at our website. Go to invescoaim.com, access the About Us tab, click on Required Notices and then click on Proxy Voting Activity. Next, select the Fund from the drop-down menu. The information is also available on the SEC website, sec.gov. If used after January 20, 2009, this report must be accompanied by a Fund fact sheet or Invesco Aim Quarterly Performance Review for the most recent quarter-end. Invesco Aim--SERVICE MARK-- is a service mark of Invesco Aim Manage- ment Group, Inc. Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc., Invesco Aim Private Asset Management, Inc. and Invesco PowerShares Capital Management LLC are the investment advisors for the products and services represented by Invesco Aim; they each provide [INVESCO AIM LOGO] investment advisory services to individual and institutional clients and do not sell securities. Please -- SERVICE MARK -- refer to each fund's prospectus for information on the fund's subadvisors. Invesco Aim Distributors, Inc. is the U.S. distributor for the retail mutual funds, exchange-traded funds and institutional money market funds and the subdistributor for the STIC Global Funds represented by Invesco Aim. All entities are indirect, wholly owned subsidiaries of Invesco Ltd. invescoaim.com LCBV-AR-1 Invesco Aim Distributors, Inc.
[INVESCO AIM LOGO] AIM LARGE CAP GROWTH FUND -- SERVICE MARK -- Annual Report to Shareholders o October 31, 2008 [MOUNTAIN GRAPHIC] 2 Letters to Shareholders 4 Performance Summary 4 Management Discussion 6 Long-Term Fund Performance 8 Supplemental Information 9 Schedule of Investments 11 Financial Statements 14 Notes to Financial Statements 20 Financial Highlights 22 Auditor's Report 23 Fund Expenses 24 Approval of Investment Advisory Agreement 27 Tax Information 28 Trustees and Officers
Dear Shareholder: In previous reports, I've talked with you about short-term market volatility. I'd like to take this opportunity to update you on recent market developments and provide some perspective and encouragement to my fellow long-term investors. [TAYLOR PHOTO] MARKET OVERVIEW At the start of the fiscal year in November 2007, we saw warning signs of increasing economic ills -- a weakening housing market, rising inflation and slowing job growth, among others. In response, the U.S. Federal Reserve Board Philip Taylor (the Fed) repeatedly cut short-term interest rate targets to stimulate economic growth and expand market liquidity.(1) Also, Congress and the president worked together to enact an economic stimulus plan that included billions of dollars in rebates to taxpayers. These actions helped the economy and the U.S. stock market until the spring of 2008, when other factors came to the forefront -- triggering a severe correction that eventually drove major stock-market indexes to multi-year lows.(2) HOW WE GOT HERE The cause of this correction was years of lax lending associated with the recent housing boom. Mortgage loans of questionable quality were bundled into hard-to-value securities that were bought by, and traded among, financial institutions. As the value of those securities declined, financial institutions sought to unload them -- but there were few buyers. With the value of their assets falling and access to credit tightening, a number of well-established financial firms faced severe difficulties, and investor uncertainty and market volatility spiked. In October 2008, the administration and Congress enacted a plan, the Troubled Assets Relief Program, authorizing the U.S. Department of the Treasury to purchase up to $700 billion in troubled mortgage-related assets -- the largest and most direct effort to resolve a credit crisis in the last half century. The Fed, in concert with other central banks, cut short-term interest rate targets and undertook other initiatives intended to restore investor confidence, expand lending and mitigate the effects of the global credit crisis. The recent volatility in the stock, fixed-income and credit markets has driven home the importance of three timeless investing principles. INVESTING IN VOLATILE MARKETS Through up markets and down, we believe history shows investors should: o INVEST FOR THE LONG TERM. Short-term fluctuations have always been a reality of the markets. We urge you to stick to your investment plan and stay focused on your long-term goals. o DIVERSIFY. Although diversification doesn't eliminate the risk of loss or guarantee a profit, a careful selection of complementary asset classes may cushion your portfolio against excessive volatility. o STAY FULLY INVESTED. Trying to time the market is a gamble, not an investment strategy. A sound investment strategy includes viewing market volatility as a matter of course, not a reason to panic. A trusted financial advisor can explain more fully the potential value of following these principles. An experienced advisor who knows your individual investment goals, financial situation and risk tolerance can be your most valuable asset during times of market volatility. Your advisor can provide guidance and can monitor your investments to ensure they're on course. It's also helpful to remember that many of history's significant buying opportunities resulted from short-term economic crises that, in their time, were considered unprecedented. We believe current market uncertainty may represent a buying opportunity for patient, long-term investors. Rest assured that Invesco Aim's portfolio managers are working diligently on your behalf to capitalize on this situation. MANAGING MONEY IS OUR FOCUS As 2008 draws to a close, I believe Invesco Aim is uniquely positioned to navigate current uncertain markets. Our parent company, Invesco Ltd., is one of the world's largest and most diversified global investment managers. Invesco provides clients with diversified investment strategies from distinct management teams around the globe and a range of investment products. Invesco's single focus is asset management -- which means we focus on doing one thing well: managing your money. That can be reassuring in uncertain times. While market conditions change often, commitment to putting shareholders first, helping clients achieve their investment goals and providing excellent customer service remains constant. If you have questions about this report or your account, please contact one of our client service representatives at 800 959 4246. Thank you for your continued confidence, and we look forward to serving you.
Sincerely, /S/ PHILIP TAYLOR Philip Taylor Senior Managing Director, Invesco Ltd. CEO, Invesco Aim (1) U.S. Federal Reserve; (2) Lipper Inc. 2 AIM LARGE CAP GROWTH FUND Dear Fellow Shareholders: As I write this letter, turbulent financial markets are causing considerable investor anxiety, reminding us again that markets are cyclical and the correction of excess is often painful, at least in the short term. Your Board of [CROCKETT Trustees believes in the wisdom of a long-term perspective and consistent PHOTO] investment discipline. We continue to put your interests first in the effort to improve investment performance, contain shareholder costs and uphold the highest ethical standards. We remain enthusiastic about the global reach and investment expertise that Invesco, a leading independent global investment management company, brings to Bruce Crockett the management of AIM Funds as the parent company of the advisors. The diverse investment strategies deployed throughout the worldwide network of Invesco investment centers has helped strengthen the management of many AIM Funds. The rebranding of the Funds' management company as Invesco Aim was followed by the launch of an upgraded, investor-friendly website (invescoaim.com); a new mountain logo using a Himalayan peak to symbolize stability, endurance, strength and longevity; and a new ad campaign. Emphasizing Invesco Aim's focus and investment quality, the ads will appear in financial publications such as Barron's and Investment News through the end of 2008. At its June meeting, your Board reviewed and renewed the investment advisory contracts between the AIM Funds and Invesco Aim Advisors, Inc. You can find the results of this rigorous annual process at invescoaim.com. Go to "Products & Performance" and click on "Investment Advisory Agreement Renewals." We have recently completed another active proxy voting season during which we acted on your behalf to double the number of votes in favor of separating the roles of chairman and CEO at the companies whose shares your Funds hold. We also continued to support the movement for shareholders to have a bigger role in approving executive compensation, initiatives known as "say on pay." Like virtually all other mutual fund complexes, AIM Funds abstain from voting on social issues as a matter of policy, and I would be interested to hear your thoughts on this policy. As always, you are welcome to email your questions or comments to me at bruce@brucecrockett.com. The dialogue that has been established in this way has been instructive for your Board, and we want it to continue. Although the production schedule for Fund annual reports and prospectuses allows me to write these letters of general report and response just twice a year, please be assured that your comments are received, welcomed and heard in the interim. We look forward to hearing from you and to representing you.
Sincerely, /S/ BRUCE L. CROCKETT Bruce L. Crockett Independent Chair AIM Funds Board of Trustees 3 AIM LARGE CAP GROWTH FUND MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE ======================================================================================= PERFORMANCE SUMMARY the Fund's maximum sector overweight at 1,000 basis points versus Russell 1000 For the 12 months ended October 31, 2008, Class A shares of AIM Large Cap Growth Fund, Growth Index sectors. We seek to manage at net asset value, produced double-digit negative returns but performed in line with stock specific risk by building a the Fund's style-specific index, the Russell 1000 Growth Index.(triangle) diversified portfolio of typically 50 to 80 stocks. The Fund narrowly underperformed its broad market index, the S&P 500 Index.(triangle) Our sell process is designed to avoid Your Fund's long-term performance appears later in this report. "high risk" situations we believe lead to underperformance. Examples of "high risk" FUND VS. INDEXES situations include: Total returns, 10/31/07 to 10/31/08, at net asset value (NAV). Performance shown does not include applicable contingent deferred sales charges (CDSC) or front-end sales o Deteriorating business prospects charges, which would have reduced performance. o Negative changes to investment thesis Class A Shares -37.45% Class B Shares -37.89 o Sell model signals Class C Shares -37.89 Class R Shares -37.62 MARKET CONDITIONS AND YOUR FUND Class Y Shares* -37.45 Investor Class Shares -37.43 Many factors contributed to the negative S&P 500 Index(triangle) (Broad Market Index) -36.08 performance of most major market indexes Russell 1000 Growth Index(triangle) (Style-Specific Index) -36.95 for the fiscal year ended October 31, Lipper Large-Cap Growth Funds Index(triangle) (Peer Group Index) -39.10 2008.(1) The chief catalyst was the ongoing subprime loan crisis and its (triangle) Lipper Inc. far-reaching effects on overall credit availability. Additionally, record high * Share class incepted during the fiscal year. See page 7 for a detailed explanation crude oil prices, falling home values and of Fund performance. the weak U.S. dollar placed significant ======================================================================================= pressure on the purchasing power of consumers. Later in the fiscal year, HOW WE INVEST consumer confidence fell and market volatility increased dramatically due to We believe a growth investment strategy is on the top 20% of the quantitative model. growing fears of a global recession. an essential component of a diversified portfolio. Our fundamental analysis seeks to To ensure the orderly functioning of determine the company's drivers of the credit markets and prevent a more We seek to identify large-cap companies earnings. To accomplish this goal, we severe economic downturn, in early October with the potential to meet or exceed examine financial statements to gain a Congress enacted a $700 billion rescue consensus earnings estimates and that can critical understanding of growth drivers, plan -- the Troubled Assets Relief generate sustainable growth allowing us to quantify earnings power. We Program. In addition, the U.S. Federal characteristics. To accomplish this goal, analyze industry trends, growth rates and Reserve (the Fed), in concert with other we use a rules-based approach that the competitive landscape, and we talk or central banks, lowered short-term interest balances proprietary quantitative analysis meet with company management to evaluate rates. In early October, the Fed cut its with rigorous fundamental analysis. We proprietary products and the quality of short term interest rate target from 2.0% also incorporate a proprietary sell model management. We also closely analyze to 1.5%; later in the month, it cut that that seeks to identify and eliminate valuation levels to help reduce the risk target rate from 1.5% to 1.0%.(2) stocks at high risk of underperformance. of holding highly priced stocks and to determine the potential for capital In this environment, the Fund had Our quantitative model ranks companies appreciation. double-digit negative performance and based on a set of fundamental, valuation performed in line with the Russell 1000 and timeliness factors. This model Portfolio construction plays an Growth Index for the fiscal year.(1) provides an objective approach to important role in risk management. While Outperformance versus the index in the identifying new investment opportunities. sector overweights and underweights are con- We focus our fundamental analysis driven by our investment process, we cap ========================================== ========================================== ========================================== PORTFOLIO COMPOSITION TOP FIVE INDUSTRIES* TOP 10 EQUITY HOLDINGS* By sector Information Technology 31.1% 1. Computer Hardware 9.9% 1. Hewlett-Packard Co. 5.5% Health Care 17.5 2. Aerospace & Defense 9.4 2. Lockheed Martin Corp. 4.7 Industrials 14.5 3. Systems Software 8.8 3. Baxter International Inc. 3.8 Consumer Staples 8.6 4. Health Care Equipment 6.6 4. Accenture Ltd.-Class A 3.8 Consumer Discretionary 7.6 5. Biotechnology 5.5 5. Amgen Inc. 3.4 Energy 7.0 ========================================== 6. Johnson & Johnson 3.3 Materials 3.7 7. Microsoft Corp. 3.3 Financials 3.5 ========================================== 8. Wal-Mart Stores, Inc. 3.0 Telecommunication Services 0.6 Total Net Assets $1.3 billion 9. Oracle Corp. 2.5 Money Market Funds Plus 10. Apple Inc. 2.4 Other Assets Less Liabilities 5.9 Total Number of Holdings* 55 ========================================== ========================================== ========================================== 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 sumer discretionary, energy and health A third area of weakness for the Fund GEOFFREY KEELING care sectors was offset by was the IT sector. Many IT holdings were Chartered Financial Analyst, underperformance in the consumer staples, hurt by the economic slowdown, as both [KEELING senior portfolio manager, is information technology (IT) and consumers and companies spent less on PHOTO] co-manager of AIM Large Cap industrials sectors. technology products and services. Examples Growth Fund. He joined of Fund holdings that detracted from Invesco Aim in 1995. Mr. Keeling earned a The Fund outperformed its performance included HEWLETT-PACKARD, B.B.A. degree in finance from The style-specific index by the widest margin CISCO SYSTEMS and APPLE. We reduced the University of Texas at Austin. in the consumer discretionary sector, Fund's exposure to the IT sector in this driven by both stock selection and an environment. ROBERT SHOSS underweight position. The Fund's Senior portfolio manager, is underweight position was a benefit during Our investment process also led us to [SHOSS co-manager of AIM Large Cap the year as many consumer discretionary reduce exposure to other sectors during PHOTO] Growth Fund. He joined stocks had weak performance due to the fiscal year, including Invesco Aim in 1995. significant reductions in consumer telecommunication services, industrials Mr. Shoss earned a B.A. from The spending. One holding that held up well in and financials. Proceeds from these sales University of Texas at Austin and an this difficult environment was AUTOZONE, were primarily invested in the more M.B.A. and a J.D. from the University of the largest auto parts retailer in the defensive consumer staples sector. Houston. U.S. We thank you for your commitment to AIM Assisted by the Large/Multi-Cap Growth The Fund also outperformed its Large Cap Growth Fund. Team style-specific index in the energy sector, due to both stock selection and an (1) Lipper Inc. underweight position. After reaching highs earlier in the fiscal year, the price of (2) U.S. Federal Reserve oil fell sharply due to weakening demand caused by the global economic slowdown. As The views and opinions expressed in a result, the Fund's underweight position management's discussion of Fund in the energy sector benefited performance are those of Invesco Aim performance. Advisors, Inc. These views and opinions are subject to change at any time based on Outperformance in the health care factors such as market and economic sector was driven primarily by stock conditions. These views and opinions may selection. Examples of stocks that were not be relied upon as investment advice or key drivers of performance included recommendations, or as an offer for a biotechnology holding AMGEN and pharmacy particular security. The information is benefit manager EXPRESS SCRIPTS. Both not a complete analysis of every aspect of holdings benefited from the macroeconomic any market, country, industry, security or environment that generally favored more the Fund. Statements of fact are from defensive sectors such as health care, as sources considered reliable, but Invesco well as company-specific drivers such as Aim Advisors, Inc. makes no representation higher-than-expected growth in revenues or warranty as to their completeness or and earnings. accuracy. Although historical performance is no guarantee of future results, these The Fund underperformed the Russell insights may help you understand our 1000 Growth Index by the widest margin in investment management philosophy. the consumer staples sector, primarily driven by an underweight position. While See important Fund and index disclosures the consumer staples sector had negative later in this report. returns, its more defensive nature made it a refuge in the volatile market environment, and it held up better than all other sectors in the index. As a result, the Fund's underweight position detracted from performance. Underperformance in the industrials sector was due to both stock selection and an overweight position. Many holdings in the industrials sector were hurt by fears that the slowdown in the U.S. economy would lead to a global recession. Fund holdings in the sector that performed poorly included power and automation technology provider ABB. Several aerospace and defense holdings also had weak performance, including LOCKHEED MARTIN.
5 AIM LARGE CAP GROWTH 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 and Fund expenses including illustrating changes in value during the management fees. Index results include early years shown in the chart. The reinvested dividends, but they do not vertical axis, the one that indicates the reflect sales charges. Performance of an dollar value of an investment, is index of funds reflects fund expenses and constructed with each segment representing management fees; performance of a market a percent change in the value of the index does not. Performance shown in the investment. In this chart, each segment chart and table does not reflect deduction represents a doubling, or 100% change, in of 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 between $10,000 and $20,000.
6 AIM LARGE CAP GROWTH FUND ==================================================================================================================================== [MOUNTAIN CHART] RESULTS OF A $10,000 INVESTMENT -- CLASS A SHARES (OLDEST SHARE CLASS WITH SALES CHARGE) Index data from 2/28/99, Fund data from 3/1/99 AIM Large Cap Growth Fund-Class Russell 1000 Lipper Large-Cap Date A Shares S&P 500 Index(1) Growth Index(1) Growth Funds Index(1) 2/28/99 $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 9082 6/01 9954 10169 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 9464 7992 7890 2/02 8517 9282 7661 7564 3/02 8984 9631 7925 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 ====================================================================================================================================
(1) Lipper Inc. ==================================================================================================================================== [MOUNTAIN CHART] 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 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 13015 14374 10825 10681 11/07 12501 13773 10426 10246 12/07 12634 13678 10389 10255 1/08 11434 12857 9579 9377 2/08 11263 12440 9388 9182 3/08 10901 12386 9331 9104 4/08 11567 12989 9821 9665 5/08 11995 13157 10181 9928 6/08 11214 12049 9448 9198 7/08 10985 11948 9268 9017 8/08 10900 12121 9368 9041 9/08 9691 11042 8283 7882 10/08 8135 9188 6825 6505 ====================================================================================================================================
========================================== ========================================== AVERAGE ANNUAL TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS CLASS SHARES WAS 1.34%, 2.09%, 2.09%, 1.59%, 1.09% AND 1.25%, RESPECTIVELY. THE As of 10/31/08, including maximum As of 9/30/08, the most recent calendar EXPENSE RATIOS PRESENTED ABOVE MAY VARY applicable sales charges quarter-end, including maximum applicable FROM THE EXPENSE RATIOS PRESENTED IN OTHER sales charges SECTIONS OF THIS REPORT THAT ARE BASED ON EXPENSES INCURRED DURING THE PERIOD CLASS A SHARES CLASS A SHARES COVERED BY THIS REPORT. Inception (3/1/99) -2.11% Inception (3/1/99) -0.33% 5 Years -1.88 5 Years 3.14 CLASS A SHARE PERFORMANCE REFLECTS THE 1 Year -40.91 1 Year -25.37 MAXIMUM 5.50% SALES CHARGE, AND CLASS B AND CLASS C SHARE PERFORMANCE REFLECTS THE CLASS B SHARES CLASS B SHARES APPLICABLE CONTINGENT DEFERRED SALES Inception (4/5/99) -3.18% Inception (4/5/99) -1.41% CHARGE (CDSC) FOR THE PERIOD INVOLVED. THE 5 Years -1.86 5 Years 3.24 CDSC ON CLASS B SHARES DECLINES FROM 5% 1 Year -40.99 1 Year -25.55 BEGINNING AT THE TIME OF PURCHASE TO 0% AT THE BEGINNING OF THE SEVENTH YEAR. THE CLASS C SHARES CLASS C SHARES CDSC ON CLASS C SHARES IS 1% FOR THE FIRST Inception (4/5/99) -3.29% Inception (4/5/99) -1.52% YEAR AFTER PURCHASE. CLASS R SHARES DO NOT 5 Years -1.48 5 Years 3.56 HAVE A FRONT-END SALES CHARGE; RETURNS 1 Year -38.51 1 Year -22.41 SHOWN ARE AT NET ASSET VALUE AND DO NOT REFLECT A 0.75% CDSC THAT MAY BE IMPOSED CLASS R SHARES CLASS R SHARES ON A TOTAL REDEMPTION OF RETIREMENT PLAN Inception -1.72% Inception 0.07% ASSETS WITHIN THE FIRST YEAR. CLASS Y AND 5 Years -0.99 5 Years -4.08 INVESTOR CLASS SHARES DO NOT HAVE A 1 Year -37.62 1 Year -21.24 FRONT-END SALES CHARGE OR A CDSC; THEREFORE, PERFORMANCE IS AT NET ASSET CLASS Y SHARES INVESTOR CLASS SHARES VALUE. Inception -1.54% Inception 0.33% 5 Years -0.75 5 Years 4.46 THE PERFORMANCE OF THE FUND'S SHARE 1 Year -37.45 1 Year -21.03 CLASSES WILL DIFFER PRIMARILY DUE TO ========================================== DIFFERENT SALES CHARGE STRUCTURES AND INVESTOR CLASS SHARES CLASS EXPENSES. Inception -1.46% FORMANCE AND RESTATED CLASS A SHARE 5 Years -0.62 PERFORMANCE (FOR PERIODS PRIOR TO THE (1) Total annual operating expenses less 1 Year -37.43 INCEPTION DATE OF INVESTOR CLASS SHARES) any contractual fee waivers and/or ========================================== AT NET ASSET VALUE, WHICH RESTATED expense reimbursements by the advisor PERFORMANCE WILL REFLECT THE HIGHER RULE in effect through at least June CLASS R SHARES' INCEPTION DATE IS JUNE 3, 12B-1 FEES APPLICABLE TO CLASS A SHARES 30, 2009. See current prospectus for 2002. RETURNS SINCE THAT DATE ARE FOR THE PERIOD USING BLENDED RETURNS. more information. HISTORICAL RETURNS. ALL OTHER RETURNS ARE CLASS A SHARES' INCEPTION DATE IS MARCH BLENDED RETURNS OF HISTORICAL CLASS R 1,1999. SHARE PERFORMANCE AND RESTATED CLASS A SHARE PERFORMANCE (FOR PERIODS PRIOR TO THE PERFORMANCE DATA QUOTED REPRESENT THE INCEPTION DATE OF CLASS R SHARES) AT PAST PERFORMANCE AND CANNOT GUARANTEE NET ASSET VALUE, ADJUSTED TO REFLECT THE COMPARABLE FUTURE RESULTS; CURRENT HIGHER RULE 12B-1 FEES APPLICABLE TO CLASS PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE R SHARES. CLASS A SHARES' INCEPTION DATE VISIT INVESCOAIM.COM FOR THE MOST RECENT IS MARCH 1,1999. MONTH-END PERFORMANCE. PERFORMANCE FIGURES REFLECT REINVESTED DISTRIBUTIONS, CHANGES CLASS Y SHARES' INCEPTION DATE IS IN NET ASSET VALUE AND THE EFFECT OF THE OCTOBER 3,2008; RETURNS SINCE THAT DATE MAXIMUM SALES CHARGE UNLESS OTHERWISE ARE ACTUAL RETURNS. ALL OTHER RETURNS ARE STATED. INVESTMENT RETURN AND PRINCIPAL BLENDED RETURNS OF ACTUAL CLASS Y SHARE VALUE WILL FLUCTUATE SO THAT YOU MAY HAVE PERFORMANCE AND RESTATED CLASS A SHARE A GAIN OR LOSS WHEN YOU SELL SHARES. PERFORMANCE (FOR PERIODS PRIOR TO THE INCEPTION DATE OF CLASS Y SHARES) AT NET THE NET ANNUAL FUND OPERATING EXPENSE ASSET VALUE. THE RESTATED CLASS A SHARE RATIO SET FORTH IN THE MOST RECENT FUND PERFORMANCE REFLECTS THE RULE 12B-1 FEES PROSPECTUS AS OF THE DATE OF THIS REPORT APPLICABLE TO CLASS A SHARES AS WELL AS FOR CLASS A, CLASS B, CLASS C, CLASS R, ANY FEE WAIVERS OR EXPENSE REIMBURSEMENTS CLASS Y AND INVESTOR CLASS SHARES WAS RECEIVED BY CLASS A SHARES. CLASS A 1.33%, 2.08%, 2.08%, 1.58%, 1.08% AND SHARES' INCEPTION DATE IS MARCH 1,1999. 1.24%, RESPECTIVELY.(1) THE TOTAL ANNUAL FUND OPERATING EXPENSE RATIO SET FORTH IN INVESTOR CLASS SHARES' INCEPTION DATE THE MOST RECENT FUND PROSPECTUS AS OF THE IS SEPTEMBER 30,2003. RETURNS SINCE THAT DATE OF THIS REPORT FOR CLASS A, CLASS B, DATE ARE HISTORICAL RETURNS. ALL OTHER CLASS C, CLASS R, CLASS Y AND INVESTOR RETURNS ARE BLENDED RETURNS OF HISTORICAL INVESTOR CLASS SHARE PER-
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 31,2008, and is based on total net assets. o Unless otherwise noted, all data provided by Invesco Aim. ABOUT SHARE CLASSES ABOUT INDEXES USED IN THIS REPORT OTHER INFORMATION o Effective September 30, 2003, only o THE S&P 500--REGISTERED TRADEMARK-- o The Chartered Financial previously established qualified plans INDEX is a market Analyst--REGISTERED TRADEMARK-- are eligible to purchase Class B shares capitalization-weighted index covering (CFA--REGISTERED TRADEMARK--) of any AIM fund. all major areas of the U.S. economy. It designation is a globally recognized is not the 500 largest companies, but standard for measuring the competence o Class R shares are available only to rather the most widely held 500 and integrity of investment certain retirement plans. Please see companies chosen with respect to market professionals. the prospectus for more information. size, liquidity, and their industry. o The returns shown in management's o Class Y shares are available only to o The RUSSELL 1000--REGISTERED discussion of Fund performance are certain investors. Please see the TRADEMARK-- GROWTH INDEX measures the based on net asset values calculated prospectus for more information. performance of those Russell 1000 for shareholder transactions. Generally companies with higher price-to-book accepted accounting principles require o All Investor Class shares are closed to ratios and higher forecasted growth adjustments to be made to the net new investors. Contact your financial values. The Russell 1000 Growth Index assets of the Fund at period end for advisor about purchasing our other is a trademark/service mark of the financial reporting purposes, and as share classes. Frank Russell Company. such, the net asset values for Russell--REGISTERED TRADEMARK-- is a shareholder transactions and the PRINCIPAL RISKS OF INVESTING IN THE FUND trademark of the Frank Russell Company. returns based on those net asset values may differ from the net asset values o Prices of equity securities change in o The LIPPER LARGE-CAP GROWTH FUNDS INDEX and returns reported in the Financial response to many factors, including the is an equally weighted representation Highlights. historical and prospective earnings of of the largest funds in the Lipper the issuer, the value of its assets, Large-Cap Growth Funds category. These o Industry classifications used in this general economic conditions, interest funds typically have an above-average report are generally according to the rates, investor perceptions and market price-to-earnings ratio, price-to-book Global Industry Classification liquidity. ratio, and three-year sales-per-share Standard, which was developed by and is growth value, compared to the S&P 500 the exclusive property and a service o Foreign securities have additional Index. mark of MSCI Inc. and Standard & risks, including exchange rate changes, Poor's. political and economic upheaval, o The Fund is not managed to track the relative lack of information, performance of any particular index, relatively low market liquidity, and including the indexes defined here, and the potential lack of strict financial consequently, the performance of the and accounting controls and standards. Fund may deviate significantly from the performance of the indexes. o Although the Fund's returns during certain periods were positively o A direct investment cannot be made in affected by its investments in initial an index. Unless otherwise indicated, public offerings (IPOs), there can be index results include reinvested no assurance that the Fund will have dividends, and they do not reflect favorable IPO investment opportunities sales charges. Performance of an index in the future. of funds reflects fund expenses; performance of a market index does not. o The prices of securities held by the Fund may decline in response to market risks. ======================================================================================= ========================================== THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND PROSPECTUS, FUND NASDAQ SYMBOLS WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING. Class A Shares LCGAX ======================================================================================= Class B Shares LCGBX NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE Class C Shares LCGCX Class R Shares LCRGX Class Y Shares LCGYX Investor Class Shares LCGIX ==========================================
8 AIM LARGE CAP GROWTH FUND SCHEDULE OF INVESTMENTS(a) October 31, 2008
SHARES VALUE --------------------------------------------------------------------------------- COMMON STOCKS & OTHER EQUITY INTERESTS-94.10% AEROSPACE & DEFENSE-9.39% General Dynamics Corp. 283,296 $ 17,088,415 --------------------------------------------------------------------------------- Lockheed Martin Corp. 707,279 60,154,079 --------------------------------------------------------------------------------- Raytheon Co. 572,802 29,275,910 --------------------------------------------------------------------------------- United Technologies Corp. 231,392 12,717,304 ================================================================================= 119,235,708 ================================================================================= APPAREL RETAIL-0.77% Ross Stores, Inc.(b) 300,000 9,807,000 ================================================================================= APPLICATION SOFTWARE-2.92% Adobe Systems Inc.(c) 882,300 23,504,472 --------------------------------------------------------------------------------- Intuit Inc.(c) 538,300 13,489,798 ================================================================================= 36,994,270 ================================================================================= ASSET MANAGEMENT & CUSTODY BANKS-0.22% Janus Capital Group Inc.(b) 235,097 2,760,039 ================================================================================= AUTOMOTIVE RETAIL-1.55% AutoZone, Inc.(c) 155,000 19,729,950 ================================================================================= BIOTECHNOLOGY-5.49% Amgen Inc.(c) 728,300 43,617,887 --------------------------------------------------------------------------------- Gilead Sciences, Inc.(c) 569,200 26,097,820 ================================================================================= 69,715,707 ================================================================================= COMMUNICATIONS EQUIPMENT-1.78% Cisco Systems, Inc.(c) 1,064,247 18,911,669 --------------------------------------------------------------------------------- Research In Motion Ltd. (Canada)(c) 72,058 3,633,885 ================================================================================= 22,545,554 ================================================================================= COMPUTER HARDWARE-9.94% Apple Inc.(c) 286,923 30,870,046 --------------------------------------------------------------------------------- Hewlett-Packard Co. 1,827,997 69,975,725 --------------------------------------------------------------------------------- International Business Machines Corp. 272,927 25,374,023 ================================================================================= 126,219,794 ================================================================================= CONSTRUCTION & ENGINEERING-1.46% Fluor Corp. 465,606 18,591,648 ================================================================================= CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS-0.58% Joy Global Inc. 252,809 7,326,405 ================================================================================= DATA PROCESSING & OUTSOURCED SERVICES-0.78% MasterCard, Inc.-Class A(b) 67,011 9,905,566 ================================================================================= DISTILLERS & VINTNERS-2.00% Diageo PLC (United Kingdom) 1,660,000 25,396,677 ================================================================================= DIVERSIFIED BANKS-0.63% Unibanco-Uniao de Bancos Brasileiros S.A.-GDR (Brazil) 126,667 7,990,154 ================================================================================= DIVERSIFIED METALS & MINING-0.59% Rio Tinto plc-ADR (United Kingdom)(b) 40,066 7,447,067 ================================================================================= EDUCATION SERVICES-1.45% Apollo Group Inc.-Class A(c) 265,000 18,420,150 ================================================================================= ENVIRONMENTAL & FACILITIES SERVICES-0.83% Waste Management, Inc. 337,200 10,530,756 ================================================================================= FERTILIZERS & AGRICULTURAL CHEMICALS-3.10% CF Industries Holdings, Inc. 195,400 12,542,726 --------------------------------------------------------------------------------- Mosaic Co. (The) 98,688 3,889,294 --------------------------------------------------------------------------------- Syngenta AG (Switzerland) 123,000 22,901,987 ================================================================================= 39,334,007 ================================================================================= FOOTWEAR-2.19% NIKE, Inc.-Class B 481,696 27,760,141 ================================================================================= HEALTH CARE EQUIPMENT-6.55% Bard (C.R.), Inc. 241,291 21,293,931 --------------------------------------------------------------------------------- Baxter International Inc. 793,408 47,993,250 --------------------------------------------------------------------------------- St. Jude Medical, Inc.(c) 365,800 13,911,374 ================================================================================= 83,198,555 ================================================================================= HEALTH CARE SERVICES-0.96% Express Scripts, Inc.(c) 201,798 12,230,977 ================================================================================= HEAVY ELECTRICAL EQUIPMENT-2.19% ABB Ltd. (Switzerland)(c) 2,107,807 27,861,071 ================================================================================= HOUSEHOLD PRODUCTS-1.48% Procter & Gamble Co. (The) 291,800 18,832,772 ================================================================================= HYPERMARKETS & SUPER CENTERS-3.03% Wal-Mart Stores, Inc. 688,900 38,447,509 ================================================================================= INTEGRATED OIL & GAS-4.47% Exxon Mobil Corp. 227,718 16,878,458 --------------------------------------------------------------------------------- Marathon Oil Corp. 363,221 10,569,731 --------------------------------------------------------------------------------- Occidental Petroleum Corp. 527,797 29,313,846 ================================================================================= 56,762,035 ================================================================================= INTERNET SOFTWARE & SERVICES-1.19% Google Inc.-Class A(c) 41,865 15,044,606 ================================================================================= IT CONSULTING & OTHER SERVICES-3.77% Accenture Ltd.-Class A 1,447,938 47,854,351 =================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. 9 AIM LARGE CAP GROWTH FUND
SHARES VALUE --------------------------------------------------------------------------------- LIFE & HEALTH INSURANCE-0.83% Unum Group 668,300 $ 10,525,725 ================================================================================= LIFE SCIENCES TOOLS & SERVICES-1.14% Invitrogen Corp.(b)(c) 504,170 14,515,054 ================================================================================= OIL & GAS DRILLING-1.64% ENSCO International Inc.(b) 548,651 20,854,225 ================================================================================= OIL & GAS EQUIPMENT & SERVICES-0.91% National-Oilwell Varco Inc.(c) 384,824 11,502,389 ================================================================================= PHARMACEUTICALS-3.35% Johnson & Johnson 693,205 42,521,195 ================================================================================= PROPERTY & CASUALTY INSURANCE-1.86% Chubb Corp. (The) 453,794 23,642,667 ================================================================================= RESTAURANTS-1.65% McDonald's Corp. 361,400 20,935,902 ================================================================================= SEMICONDUCTORS-1.91% Intel Corp. 667,741 10,683,856 --------------------------------------------------------------------------------- Xilinx, Inc.(b) 738,400 13,601,328 ================================================================================= 24,285,184 ================================================================================= SOFT DRINKS-2.11% PepsiCo, Inc. 469,407 26,760,893 ================================================================================= SYSTEMS SOFTWARE-8.77% BMC Software, Inc.(c) 749,969 19,364,199 --------------------------------------------------------------------------------- Microsoft Corp. 1,903,623 42,507,902 --------------------------------------------------------------------------------- Oracle Corp.(c) 1,749,613 32,000,422 --------------------------------------------------------------------------------- Symantec Corp.(c) 1,383,806 17,408,279 ================================================================================= 111,280,802 ================================================================================= WIRELESS TELECOMMUNICATION SERVICES-0.62% America Movil SAB de C.V.-Series L-ADR (Mexico) 253,848 7,854,057 ================================================================================= Total Common Stocks & Other Equity Interests (Cost $1,291,939,839) 1,194,620,562 ================================================================================= MONEY MARKET FUNDS-5.01% Liquid Assets Portfolio-Institutional Class(d) 31,818,777 31,818,777 --------------------------------------------------------------------------------- Premier Portfolio-Institutional Class(d) 31,818,777 31,818,777 ================================================================================= Total Money Market Funds (Cost $63,637,554) 63,637,554 ================================================================================= TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)-99.11% (Cost $1,355,577,393) 1,258,258,116 ================================================================================= INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES ON LOAN MONEY MARKET FUNDS-3.47% Liquid Assets Portfolio-Institutional Class (Cost $44,013,089)(d)(e) 44,013,089 44,013,089 ================================================================================= TOTAL INVESTMENTS-102.58% (Cost $1,399,590,482) 1,302,271,205 ================================================================================= OTHER ASSETS LESS LIABILITIES-(2.58)% (32,794,119) ================================================================================= NET ASSETS-100.00% $1,269,477,086 _________________________________________________________________________________ =================================================================================
Investment Abbreviations: ADR - American Depositary Receipt GDR - Global Depositary Receipt
Notes to Schedule of Investments: (a) Industry and/or sector 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 MSCI Inc. and Standard & Poor's. (b) All or a portion of this security was out on loan at October 31, 2008. (c) Non-income producing security. (d) The money market fund and the Fund are affiliated by having the same investment advisor. (e) The security has been segregated to satisfy the commitment to return the cash collateral received in securities lending transactions upon the borrower's return of the securities loaned. See Note 1I. See accompanying Notes to Financial Statements which are an integral part of the financial statements. 10 AIM LARGE CAP GROWTH FUND STATEMENT OF ASSETS AND LIABILITIES October 31, 2008 ASSETS: Investments, at value (Cost $1,291,939,839)* $ 1,194,620,562 -------------------------------------------------------- Investments in affiliated money market funds, at value and cost 107,650,643 ======================================================== Total investments (Cost $1,399,590,482) 1,302,271,205 ======================================================== Receivables for: Investments sold 21,193,878 -------------------------------------------------------- Fund shares sold 1,211,014 -------------------------------------------------------- Dividends 1,559,844 -------------------------------------------------------- Fund expenses absorbed 109,643 -------------------------------------------------------- Investment for trustee deferred compensation and retirement plans 164,568 -------------------------------------------------------- Other assets 36,761 ======================================================== Total assets 1,326,546,913 ________________________________________________________ ======================================================== LIABILITIES: Payables for: Fund shares reacquired 11,050,671 -------------------------------------------------------- Collateral upon return of securities loaned 44,013,089 -------------------------------------------------------- Accrued fees to affiliates 1,269,179 -------------------------------------------------------- Accrued other operating expenses 303,499 -------------------------------------------------------- Trustee deferred compensation and retirement plans 433,389 ======================================================== Total liabilities 57,069,827 ======================================================== Net assets applicable to shares outstanding $ 1,269,477,086 ________________________________________________________ ======================================================== NET ASSETS CONSIST OF: Shares of beneficial interest $ 2,468,510,674 -------------------------------------------------------- Undistributed net investment income (loss) (434,839) -------------------------------------------------------- Undistributed net realized gain (loss) (1,101,267,289) -------------------------------------------------------- Unrealized appreciation (depreciation) (97,331,460) ======================================================== $ 1,269,477,086 ________________________________________________________ ======================================================== NET ASSETS: Class A $ 633,595,290 ________________________________________________________ ======================================================== Class B $ 184,572,585 ________________________________________________________ ======================================================== Class C $ 98,284,361 ________________________________________________________ ======================================================== Class R $ 7,473,704 ________________________________________________________ ======================================================== Class Y $ 5,405,726 ________________________________________________________ ======================================================== Investor Class $ 203,881,946 ________________________________________________________ ======================================================== Institutional Class $ 136,263,474 ________________________________________________________ ======================================================== SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Class A 74,111,378 ________________________________________________________ ======================================================== Class B 23,083,060 ________________________________________________________ ======================================================== Class C 12,289,553 ________________________________________________________ ======================================================== Class R 885,625 ________________________________________________________ ======================================================== Class Y 632,471 ________________________________________________________ ======================================================== Investor Class 23,682,192 ________________________________________________________ ======================================================== Institutional Class 15,535,824 ________________________________________________________ ======================================================== Class A: Net asset value per share $ 8.55 -------------------------------------------------------- Maximum offering price per share (Net asset value of $8.55 / 94.50%) $ 9.05 ________________________________________________________ ======================================================== Class B: Net asset value and offering price per share $ 8.00 ________________________________________________________ ======================================================== Class C: Net asset value and offering price per share $ 8.00 ________________________________________________________ ======================================================== Class R: Net asset value and offering price per share $ 8.44 ________________________________________________________ ======================================================== Class Y: Net asset value and offering price per share $ 8.55 ________________________________________________________ ======================================================== Investor Class: Net asset value and offering price per share $ 8.61 ________________________________________________________ ======================================================== Institutional Class: Net asset value and offering price per share $ 8.77 ________________________________________________________ ========================================================
* At October 31, 2008, securities with an aggregate value of $43,761,738 were on loan to brokers. See accompanying Notes to Financial Statements which are an integral part of the financial statements. 11 AIM LARGE CAP GROWTH FUND STATEMENT OF OPERATIONS For the years ended October 31, 2008 INVESTMENT INCOME: Dividends (net of foreign withholding taxes of $397,434) $ 22,051,533 ------------------------------------------------------------------------------------------------ Dividends from affiliated money market funds (includes securities lending income of $190,585) 1,685,949 ================================================================================================ Total investment income 23,737,482 ================================================================================================ EXPENSES: Advisory fees 12,340,389 ------------------------------------------------------------------------------------------------ Administrative services fees 450,287 ------------------------------------------------------------------------------------------------ Custodian fees 135,498 ------------------------------------------------------------------------------------------------ Distribution fees: Class A 2,253,257 ------------------------------------------------------------------------------------------------ Class B 3,503,636 ------------------------------------------------------------------------------------------------ Class C 1,478,485 ------------------------------------------------------------------------------------------------ Class R 51,069 ------------------------------------------------------------------------------------------------ Investor Class 578,040 ------------------------------------------------------------------------------------------------ Transfer agent fees -- A, B, C, R, Y and Investor 6,804,251 ------------------------------------------------------------------------------------------------ Transfer agent fees -- Institutional 45,676 ------------------------------------------------------------------------------------------------ Trustees' and officers' fees and benefits 71,020 ------------------------------------------------------------------------------------------------ Other 631,755 ================================================================================================ Total expenses 28,343,363 ================================================================================================ Less: Fees waived, expenses reimbursed and expense offset arrangement(s) (727,399) ================================================================================================ Net expenses 27,615,964 ================================================================================================ Net investment income (loss) (3,878,482) ================================================================================================ REALIZED AND UNREALIZED GAIN (LOSS) FROM: Net realized gain (loss) from: Investment securities (includes net gains from securities sold to affiliates of $509,188) (8,406,102) ------------------------------------------------------------------------------------------------ Foreign currencies 107,066 ================================================================================================ (8,299,036) ================================================================================================ Change in net unrealized appreciation (depreciation) of: Investment securities (810,357,123) ------------------------------------------------------------------------------------------------ Foreign currencies (22,118) ================================================================================================ (810,379,241) ================================================================================================ Net realized and unrealized gain (loss) (818,678,277) ------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets resulting from operations $(822,556,759) ________________________________________________________________________________________________ ================================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. 12 AIM LARGE CAP GROWTH FUND STATEMENT OF CHANGES IN NET ASSETS For the years ended October 31, 2008 and 2007
2008 2007 ----------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ (3,878,482) $ (10,547,743) ----------------------------------------------------------------------------------------------------------- Net realized gain (loss) (8,299,036) 92,059,612 ----------------------------------------------------------------------------------------------------------- Change in net unrealized appreciation (depreciation) (810,379,241) 366,180,724 =========================================================================================================== Net increase (decrease) in net assets resulting from operations (822,556,759) 447,692,593 =========================================================================================================== Share transactions-net: Class A (39,483,656) (116,424,142) ----------------------------------------------------------------------------------------------------------- Class B (168,470,883) (240,673,085) ----------------------------------------------------------------------------------------------------------- Class C (20,314,860) (30,338,732) ----------------------------------------------------------------------------------------------------------- Class R 445,943 (1,882,749) ----------------------------------------------------------------------------------------------------------- Class Y 5,981,922 -- ----------------------------------------------------------------------------------------------------------- Investor Class (28,879,171) (56,295,760) ----------------------------------------------------------------------------------------------------------- Institutional Class (23,417,366) 70,700,909 =========================================================================================================== Net increase (decrease) in net assets resulting from share transactions (274,138,071) (374,913,559) =========================================================================================================== Net increase (decrease) in net assets (1,096,694,830) 72,779,034 =========================================================================================================== NET ASSETS: Beginning of year 2,366,171,916 2,293,392,882 =========================================================================================================== End of year (includes undistributed net investment income (loss) $(434,839) and $(418,922), respectively) $ 1,269,477,086 $2,366,171,916 ___________________________________________________________________________________________________________ ===========================================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. 13 AIM LARGE CAP GROWTH FUND NOTES TO FINANCIAL STATEMENTS October 31, 2008 (Unaudited) 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 seven separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The Fund's investment objective is long-term growth of capital. The Fund currently consists of seven different classes of shares: Class A, Class B, Class C, Class R, Class Y, 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 contingent deferred sales charges ("CDSC"). Class B shares and Class C shares are sold with a CDSC. Class R, Class Y, 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. 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, American Depositary Receipts 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. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. 14 AIM LARGE CAP GROWTH FUND 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 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, the investment advisor 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. The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. 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 by a significant amount. 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. SECURITIES LENDING -- 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 by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. 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. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could 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. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in Dividends from affiliates on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities, if any. 15 AIM LARGE CAP GROWTH FUND J. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (i) sales of foreign currencies, (ii) currency gains or losses realized between the trade and settlement dates on securities transactions, and (iii) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. K. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a foreign currency contract to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. The Fund may also enter into a foreign currency contract for the purchase or sale of a security denominated in a foreign currency in order to "lock in" the U.S. dollar price of that security. Fluctuations in the value of these contracts are recorded as unrealized appreciation (depreciation) until the contracts are closed. When these contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains and losses on these contracts are included in the Statement of Operations. The Fund could be exposed to risk, which may be in excess of the amount reflected in the Statement of Assets and Liabilities, if counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES The Trust has entered into a master investment advisory agreement with Invesco Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Advisor based on the annual rate of the Fund's average daily net assets as follows:
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% ___________________________________________________________________ ===================================================================
Under the terms of a master sub-advisory agreement approved by shareholders of the Fund, effective May 1, 2008, between the Advisor and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the "Affiliated Sub-Advisors") the Advisor, not the Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub-Advisor(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Advisor(s). The Advisor 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, Class Y, Investor Class and Institutional Class shares to 1.32%, 2.07%, 2.07%, 1.57%, 1.07%, 1.32% and 1.07% of average daily net assets, respectively, through at least June 30, 2009. 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. These credits are used to pay certain expenses incurred by the Fund. Further, the Advisor has contractually agreed, through at least June 30, 2009, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Advisor receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds. For the year ended October 31, 2008, the Advisor waived advisory fees of $60,719 and reimbursed class level expenses of $251,980, $97,952, $41,334, $2,856, $640 and $82,759 for Class A, Class B, Class C, Class R, Class Y and Investor Class 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 16 AIM LARGE CAP GROWTH FUND reimbursement are included in the Statement of Operations. For the year ended October 31, 2008, Invesco reimbursed expenses of the Fund in the amount of $41,563. The Trust has entered into a master administrative services agreement with Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim for certain administrative costs incurred in providing accounting services to the Fund. For the year ended October 31, 2008, 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 Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has agreed to pay IAIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the course of providing such services. IAIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. All fees payable by IAIS 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, 2008, 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 Invesco Aim Distributors, Inc. ("IADI") to serve as the distributor for the Class A, Class B, Class C, Class R, Class Y, 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 IADI 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 IADI 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. Rules of the Financial Industry Regulatory Authority ("FINRA") 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, 2008, expenses incurred under the Plans are shown in the Statement of Operations as distribution fees. Front-end sales commissions and 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, 2008, IADI advised the Fund that IADI retained $139,361 in front-end sales commissions from the sale of Class A shares and $1,846, $358,545, $8,086 and $0 from Class A, Class B and 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 Invesco Aim, IAIS and/or IADI. NOTE 3--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, 2008, the Fund engaged in securities purchases of $2,804,651 and securities sales of $5,631,007, which resulted in net realized gains of $509,188. NOTE 4--EXPENSE OFFSET ARRANGEMENTS The expense offset arrangements are comprised of (i) transfer agency credits which result from balances in Demand Deposit Accounts (DDA) used by the transfer agent for clearing shareholder transactions and (ii) custodian credits which result from periodic overnight cash balances at the custodian. For the year ended October 31, 2008, the Fund received credits from these arrangements, which resulted in the reduction of the Fund's total expenses of $147,596. NOTE 5--TRUSTEES' AND OFFICERS' FEES AND BENEFITS "Trustees' and Officers' 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 Officers' 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 Officers' 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, 2008, the Fund paid legal fees of $7,291 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. 17 AIM LARGE CAP GROWTH FUND NOTE 6--CASH BALANCES The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company, 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 Invesco Aim, not to exceed the contractually agreed upon rate. NOTE 7--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, 2008 and 2007. TAX COMPONENTS OF NET ASSETS AT PERIOD-END:
2008 -------------------------------------------------------------------------------------------------- Net unrealized appreciation (depreciation) -- investments $ (109,864,004) -------------------------------------------------------------------------------------------------- Net unrealized appreciation (depreciation) -- other investments (12,183) -------------------------------------------------------------------------------------------------- Temporary book/tax differences (434,839) -------------------------------------------------------------------------------------------------- Capital loss carryforward (1,088,722,562) -------------------------------------------------------------------------------------------------- Shares of beneficial interest 2,468,510,674 ================================================================================================== Total net assets $ 1,269,477,086 __________________________________________________________________________________________________ ==================================================================================================
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 (depreciation) difference is attributable primarily to wash sales. The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund's temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits. Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions. Under these limitation rules, the Fund is limited to utilizing $993,937,939 of capital loss carryforward in the fiscal year ended October 31, 2009. The Fund has a capital loss carryforward as of October 31, 2008 which expires as follows:
CAPITAL LOSS EXPIRATION CARRYFORWARD* ------------------------------------------------------------------------------------------------ October 31, 2009 $ 626,953,135 ------------------------------------------------------------------------------------------------ October 31, 2010 418,237,943 ------------------------------------------------------------------------------------------------ October 31, 2011 35,095,604 ------------------------------------------------------------------------------------------------ October 31, 2016 8,435,880 ================================================================================================ Total capital loss carryforward $1,088,722,562 ________________________________________________________________________________________________ ================================================================================================
* 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 8--INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended October 31, 2008 was $763,935,559 and $1,100,390,863, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS ------------------------------------------------------------------------------------------------ Aggregate unrealized appreciation of investment securities $ 80,468,421 ------------------------------------------------------------------------------------------------ Aggregate unrealized (depreciation) of investment securities (190,332,425) ================================================================================================ Net unrealized appreciation (depreciation) of investment securities $(109,864,004) ________________________________________________________________________________________________ ================================================================================================ Cost of investments for tax purposes is $1,412,135,209.
18 AIM LARGE CAP GROWTH FUND NOTE 9--RECLASSIFICATION OF PERMANENT DIFFERENCES Primarily as a result of differing book/tax treatment of expired capital loss carryforward, net operating losses and foreign currency transactions, on October 31, 2008, undistributed net investment income (loss) was increased by $3,862,565, undistributed net realized gain (loss) was increased by $203,452,129 and shares of beneficial interest decreased by $207,314,694. This reclassification had no effect on the net assets of the Fund. NOTE 10--SHARE INFORMATION
SUMMARY OF SHARE ACTIVITY --------------------------------------------------------------- YEAR ENDED OCTOBER 31, 2008(a) 2007 ----------------------------- ----------------------------- SHARES AMOUNT SHARES AMOUNT -------------------------------------------------------------------------------------------------------------------------- Sold: Class A 7,664,271 $ 91,037,443 7,618,152 $ 91,863,662 -------------------------------------------------------------------------------------------------------------------------- Class B 2,217,806 24,541,960 2,356,792 26,741,612 -------------------------------------------------------------------------------------------------------------------------- Class C 1,848,176 20,731,391 1,578,033 17,980,439 -------------------------------------------------------------------------------------------------------------------------- Class R 350,523 4,043,656 361,342 4,194,311 -------------------------------------------------------------------------------------------------------------------------- Class Y(b) 634,153 5,995,392 -- -- -------------------------------------------------------------------------------------------------------------------------- Investor Class 1,779,026 20,922,946 1,656,255 20,005,885 -------------------------------------------------------------------------------------------------------------------------- Institutional Class 2,157,808 26,339,770 7,234,808 87,008,177 ========================================================================================================================== Automatic conversion of Class B shares to Class A shares: Class A 9,753,821 111,629,605 9,931,414 118,653,844 -------------------------------------------------------------------------------------------------------------------------- Class B (10,394,624) (111,629,605) (10,498,260) (118,653,844) ========================================================================================================================== Reacquired: Class A(b) (21,220,031) (242,150,704) (27,346,381) (326,941,648) -------------------------------------------------------------------------------------------------------------------------- Class B (7,407,571) (81,383,238) (13,185,360) (148,760,853) -------------------------------------------------------------------------------------------------------------------------- Class C (3,764,156) (41,046,251) (4,282,431) (48,319,171) -------------------------------------------------------------------------------------------------------------------------- Class R (312,503) (3,597,713) (525,094) (6,077,060) -------------------------------------------------------------------------------------------------------------------------- Class Y(b) (1,682) (13,470) -- -- -------------------------------------------------------------------------------------------------------------------------- Investor Class(b) (4,273,164) (49,802,117) (6,365,957) (76,301,645) -------------------------------------------------------------------------------------------------------------------------- Institutional Class (4,475,993) (49,757,136) (1,318,036) (16,307,268) -------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in share activity (25,444,140) $(274,138,071) (32,784,723) $(374,913,559) __________________________________________________________________________________________________________________________ ==========================================================================================================================
(a) There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 6% of the outstanding shares of the Fund. IADI has an agreement with these entities to sell Fund shares. The Fund, Invesco Aim and/or Invesco Aim affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco Aim and/or Invesco Aim affiliates including but not limited to services such as securities brokerage, distribution, third party record keeping and account servicing. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. In addition, 8% 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 Invesco Aim. (b) Effective upon the commencement date of Class Y shares, October 3, 2008, the following shares were converted from Class A and Investor Class shares into Class Y shares of the Fund:
CLASS SHARES AMOUNT ------------------------------------------------------------------------------------------------- Class Y 630,344 $ 5,963,052 ------------------------------------------------------------------------------------------------- Class A (593,682) (5,616,232) ------------------------------------------------------------------------------------------------- Investor Class (36,392) (346,820) _________________________________________________________________________________________________ =================================================================================================
19 AIM LARGE CAP GROWTH FUND NOTE 11--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
NET GAINS (LOSSES) NET ASSET NET ON SECURITIES VALUE, INVESTMENT (BOTH TOTAL FROM NET ASSET NET ASSETS, BEGINNING INCOME REALIZED AND INVESTMENT VALUE, END TOTAL END OF PERIOD OF PERIOD (LOSS) UNREALIZED) OPERATIONS OF PERIOD RETURN(a) (000S OMITTED) ----------------------------------------------------------------------------------------------------------------------- CLASS A Year ended 10/31/08 $13.67 $(0.01)(c) $(5.11) $(5.12) $ 8.55 (37.45)% $ 633,595 Year ended 10/31/07 11.19 (0.04)(c) 2.52 2.48 13.67 22.16 1,064,817 Year ended 10/31/06 10.12 (0.01) 1.08 1.07 11.19 10.57 981,750 Year ended 10/31/05 9.16 (0.02)(e) 0.98 0.96 10.12 10.48 166,860 Year ended 10/31/04 8.88 (0.08)(c) 0.36 0.28 9.16 3.15 177,498 ----------------------------------------------------------------------------------------------------------------------- CLASS B Year ended 10/31/08 12.88 (0.09)(c) (4.79) (4.88) 8.00 (37.89) 184,573 Year ended 10/31/07 10.63 (0.12)(c) 2.37 2.25 12.88 21.17 497,990 Year ended 10/31/06 9.69 (0.07) 1.01 0.94 10.63 9.70 637,594 Year ended 10/31/05 8.82 (0.09)(e) 0.96 0.87 9.69 9.86 103,688 Year ended 10/31/04 8.61 (0.14)(c) 0.35 0.21 8.82 2.44 112,931 ----------------------------------------------------------------------------------------------------------------------- CLASS C Year ended 10/31/08 12.88 (0.09)(c) (4.79) (4.88) 8.00 (37.89) 98,284 Year ended 10/31/07 10.63 (0.12)(c) 2.37 2.25 12.88 21.17 182,975 Year ended 10/31/06 9.69 (0.07) 1.01 0.94 10.63 9.70 179,730 Year ended 10/31/05 8.83 (0.09)(e) 0.95 0.86 9.69 9.74 48,293 Year ended 10/31/04 8.62 (0.14)(c) 0.35 0.21 8.83 2.44 48,420 CLASS R Year ended 10/31/08 13.53 (0.04)(c) (5.05) (5.09) 8.44 (37.62) 7,474 Year ended 10/31/07 11.10 (0.07)(c) 2.50 2.43 13.53 21.89 11,465 Year ended 10/31/06 10.07 (0.03) 1.06 1.03 11.10 10.23 11,231 Year ended 10/31/05 9.13 (0.04)(e) 0.98 0.94 10.07 10.30 2,330 Year ended 10/31/04 8.87 (0.10)(c) 0.36 0.26 9.13 2.93 2,761 ----------------------------------------------------------------------------------------------------------------------- CLASS Y Year ended 10/31/08(f) 9.46 0.00(c) (0.91) (0.91) 8.55 (9.62) 5,406 ----------------------------------------------------------------------------------------------------------------------- INVESTOR CLASS Year ended 10/31/08 13.76 (0.00)(c) (5.15) (5.15) 8.61 (37.43) 203,882 Year ended 10/31/07 11.25 (0.03)(c) 2.54 2.51 13.76 22.31 360,073 Year ended 10/31/06 10.18 (0.01) 1.08 1.07 11.25 10.51 347,621 Year ended 10/31/05 9.20 (0.01)(e) 0.99 0.98 10.18 10.65 358,498 Year ended 10/31/04 8.88 (0.05)(c)(h) 0.37 0.32 9.20 3.60(h) 376,905 ----------------------------------------------------------------------------------------------------------------------- INSTITUTIONAL CLASS Year ended 10/31/08 13.94 0.06(c) (5.23) (5.17) 8.77 (37.09) 136,263 Year ended 10/31/07 11.35 0.04(c) 2.55 2.59 13.94 22.82 248,852 Year ended 10/31/06 10.21 0.05 1.09 1.14 11.35 11.17 135,466 Year ended 10/31/05 9.18 0.03(e) 1.00 1.03 10.21 11.22 123,368 Year ended 10/31/04(f) 9.13 (0.01)(c) 0.06 0.05 9.18 0.55 22,190 _______________________________________________________________________________________________________________________ ======================================================================================================================= RATIO OF RATIO OF EXPENSES EXPENSES TO AVERAGE TO AVERAGE NET NET ASSETS ASSETS WITHOUT RATIO OF NET WITH FEE WAIVERS FEE WAIVERS INVESTMENT INCOME AND/OR EXPENSES AND/OR EXPENSES (LOSS) TO AVERAGE PORTFOLIO ABSORBED ABSORBED NET ASSETS TURNOVER(b) ------------------------------------------------------------------------------------------- CLASS A Year ended 10/31/08 1.33%(d) 1.36%(d) (0.09)%(d) 41% Year ended 10/31/07 1.33 1.34 (0.30) 55 Year ended 10/31/06 1.32 1.42 (0.17) 70 Year ended 10/31/05 1.47 1.56 (0.20)(e) 103 Year ended 10/31/04 1.54 1.55 (0.92) 111 ------------------------------------------------------------------------------------------- CLASS B Year ended 10/31/08 2.08(d) 2.11(d) (0.84)(d) 41 Year ended 10/31/07 2.08 2.09 (1.05) 55 Year ended 10/31/06 2.07 2.17 (0.92) 70 Year ended 10/31/05 2.15 2.24 (0.88)(e) 103 Year ended 10/31/04 2.19 2.20 (1.57) 111 ------------------------------------------------------------------------------------------- CLASS C Year ended 10/31/08 2.08(d) 2.11(d) (0.84)(d) 41 Year ended 10/31/07 2.08 2.09 (1.05) 55 Year ended 10/31/06 2.07 2.17 (0.92) 70 Year ended 10/31/05 2.15 2.24 (0.88)(e) 103 Year ended 10/31/04 2.19 2.20 (1.57) 111 CLASS R Year ended 10/31/08 1.58(d) 1.61(d) (0.34)(d) 41 Year ended 10/31/07 1.58 1.59 (0.55) 55 Year ended 10/31/06 1.57 1.67 (0.42) 70 Year ended 10/31/05 1.65 1.74 (0.38)(e) 103 Year ended 10/31/04 1.69 1.70 (1.07) 111 ------------------------------------------------------------------------------------------- CLASS Y Year ended 10/31/08(f) 1.08(d)(g) 1.27(d)(g) 0.16(d)(g) 41 ------------------------------------------------------------------------------------------- INVESTOR CLASS Year ended 10/31/08 1.27(d) 1.30(d) (0.03)(d) 41 Year ended 10/31/07 1.24 1.25 (0.21) 55 Year ended 10/31/06 1.27 1.37 (0.12) 70 Year ended 10/31/05 1.34 1.43 (0.07)(e) 103 Year ended 10/31/04 1.19(h) 1.42 (0.57)(h) 111 ------------------------------------------------------------------------------------------- INSTITUTIONAL CLASS Year ended 10/31/08 0.73(d) 0.74(d) 0.51(d) 41 Year ended 10/31/07 0.72 0.72 0.30 55 Year ended 10/31/06 0.74 0.76 0.41 70 Year ended 10/31/05 0.81 0.88 0.46(e) 103 Year ended 10/31/04(f) 0.92(g) 0.93(g) (0.30)(g) 111 ___________________________________________________________________________________________ ===========================================================================================
(a) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. (b) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. (c) Calculated using average shares outstanding. (d) Ratios are based on average daily net assets (000's omitted) of $901,303, $350,364, $147,849, $10,214, $5,186, $296,018 and $213,705 for Class A, Class B, Class C, Class R, Class Y, Investor Class and Institutional Class shares, respectively. (e) 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)%; $(0.11) and (1.04)%; $(0.11) and (1.04)%; $(0.06) and (0.54)%; $(0.03) and (0.23)% and $0.01 and 0.30% for Class A, Class B, Class C, Class R, Investor Class and Institutional Class shares, respectively. (f) Commencement date of Class Y and Institutional Class shares was October 3, 2008 and April 30, 2004, respectively. (g) Annualized. (h) 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 reimbursed 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%, respectively. 20 AIM LARGE CAP GROWTH FUND NOTE 12--LEGAL PROCEEDINGS Terms used in the Legal Proceedings Note are defined terms solely for the purpose of this note. SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING On May 23, 2008, the Securities and Exchange Commission ("SEC") publicly posted its final approval of the 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"), Invesco Aim Advisors, Inc. ("Invesco Aim") and Invesco Aim Distributors, Inc. ("IADI") 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 Invesco Aim who may have been harmed by market timing and related activity. The Distribution Plans provide for the distribution to all eligible investors 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 of the Fair Funds has not yet commenced, management of Invesco 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 Invesco 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 Invesco Aim and IADI (Order No. 05- 1318). The WVASC makes findings of fact that Invesco Aim and IADI 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 Invesco Aim and IADI violated the West Virginia securities laws. The WVASC orders Invesco Aim and IADI 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, Invesco 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, Invesco Aim, IADI 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 the Employee Retirement Income Security Act of 1974, as amended ("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. The case pending in Illinois State Court regarding fair value pricing was dismissed with prejudice on May 6, 2008. 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 Invesco 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 ERISA purportedly brought on behalf of participants in the Invesco 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. Plaintiff appealed this ruling. On June 16, 2008, the Fourth Circuit Court of Appeals reversed the dismissal and remanded this lawsuit back to the MDL Court for further proceedings. IFG, Invesco Aim, IADI 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, Invesco Aim and IADI 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, Invesco Aim and/or related entities and individuals in the future. At the present time, management of Invesco 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 Invesco Aim, IADI or the Fund. 21 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, 2008, 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 four 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, 2008 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights for the period ended 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 16, 2008 Houston, Texas 22 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. With the exception of the actual ending account value and expenses of the Class Y Shares, 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, 2008, through October 31, 2008. The actual ending account and expenses of the Class Y shares in the below example are based on an investment of $1,000 invested as of close of business October 3, 2008 (commencement date) and held through October 31, 2008. 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 (as of close of business October 3, 2008 through October 31, 2008 for the Class Y shares). Because the actual ending account value and expense information in the example is not based upon a six month period for the Class Y shares, the ending account value and expense information may not provide a meaningful comparison to mutual funds that provide such information for a full six month 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 CLASS (05/01/08) (10/31/08)(1) PERIOD(2) (10/31/08) PERIOD(2,3) RATIO --------------------------------------------------------------------------------------------------- Class A $1,000.00 $703.70 $5.65 $1,018.50 $ 6.70 1.32% --------------------------------------------------------------------------------------------------- Class B 1,000.00 701.10 8.85 1,014.73 10.48 2.07 --------------------------------------------------------------------------------------------------- Class C 1,000.00 701.10 8.85 1,014.73 10.48 2.07 --------------------------------------------------------------------------------------------------- Class R 1,000.00 702.70 6.72 1,017.24 7.96 1.57 --------------------------------------------------------------------------------------------------- Class Y 1,000.00 903.80 0.81 1,019.71 5.48 1.08 --------------------------------------------------------------------------------------------------- Investor Class 1,000.00 704.00 5.48 1,018.70 6.50 1.28 ---------------------------------------------------------------------------------------------------
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2008, through October 31, 2008 (as of close of business October 3, 2008, through October 31, 2008 for the Class Y shares), after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's expense ratio and a hypothetical annual return of 5% before expenses. (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 184/366 to reflect the most recent fiscal half year. For the Class Y shares actual expenses are equal to the annualized expense ratio indicated above multiplied by the average account value over the period, multiplied by 29 (as of close of business October 3, 2008, through October 31, 2008)/366. Because the Class Y shares have not been in existence for a full six month period, the actual ending account value and expense information shown may not provide a meaningful comparison to fund expense information of classes that show such data for a full six month period and, because the actual ending account value and expense information in the expense example covers a short time period, return and expense data may not be indicative of return and expense data for longer time periods. (3) Hypothetical expenses are equal to the annualized expense ratio indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect a one-half year period. The hypothetical ending account value and expenses may be used to compare ongoing costs of investing in Class Y shares of the Fund and other funds because such data is based on a full six month period. 23 AIM LARGE CAP GROWTH FUND Supplement to Annual Report dated 10/31/08 AIM LARGE CAP GROWTH FUND ========================================== INSTITUTIONAL CLASS SHARES AVERAGE ANNUAL TOTAL RETURNS The total annual Fund operating expense For periods ended 10/31/08 ratio set forth in the most recent Fund The following information has been prospectus as of the date of this prepared to provide Institutional Class Inception -1.28% supplement for Institutional Class shares shareholders with a performance overview 5 Years -0.25 was 0.72%. The expense ratios presented specific to their holdings. Institutional 1 Year -37.09 above may vary from the expense ratios Class shares are offered exclusively to ========================================== presented in other sections of the actual institutional investors, including defined report that are based on expenses incurred contribution plans that meet certain ========================================== during the period covered by the report. criteria. AVERAGE ANNUAL TOTAL RETURNS For periods ended 9/30/08, most recent Please note that past performance is calendar quarter-end not indicative of future results. More recent returns may be more or less than Inception 0.52% those shown. All returns assume 5 Years 4.85 reinvestment of distributions at NAV. 1 Year -20.55 Investment return and principal value will ========================================== fluctuate so your shares, when redeemed, may be worth more or less than their Institutional Class shares' inception date original cost. See full report for is April 30, 2004. Returns since that date information on comparative benchmarks. are historical returns. All other returns Please consult your Fund prospectus for are blended returns of historical more information. For the most current Institutional Class share performance and month-end performance, please call 800 451 restated Class A share performance (for 4246 or visit invescoaim.com. periods prior to the inception date of Institutional Class shares) at net asset value (NAV) and reflect the 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 differing sales charges and class expenses. ========================================== NASDAQ SYMBOL LCIGX ========================================== Over for information on your Fund's expenses. THIS SUPPLEMENT 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. [INVESCO AIM LOGO] invescoaim.com LCG-INS-1 Invesco Aim Distributors, Inc. -- SERVICE MARK --
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, 2008, through October 31, 2008. 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 CLASS (05/01/08) (10/31/08)(1) PERIOD(2) (10/31/08) PERIOD(2) RATIO ----------------------------------------------------------------------------------------------------------- Institutional $1,000.00 $705.60 $3.13 $1,021.47 $3.71 0.73% -----------------------------------------------------------------------------------------------------------
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2008, through October 31, 2008, 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 184/366 to reflect the most recent fiscal half year. AIM LARGE CAP GROWTH FUND APPROVAL OF INVESTMENT ADVISORY AGREEMENT The Board of Trustees (the Board) of AIM renewal process, the Trustees from one another and attributed different Equity Funds is required under the receive comparative performance and fee weight to the various factors. The Investment Company Act of 1940 to approve data regarding the AIM Funds prepared by Trustees recognized that the advisory annually the renewal of the AIM Large Cap an independent company, Lipper, Inc. arrangements and resulting advisory fees Growth Fund's (the Fund) investment (Lipper), under the direction and for the Fund and the other AIM Funds are advisory agreement with Invesco Aim supervision of the independent Senior the result of years of review and Advisors, Inc. (Invesco Aim). During Officer who also prepares a separate negotiation between the Trustees and contract renewal meetings held on June analysis of this information for the Invesco Aim, that the Trustees may focus 18-19, 2008, the Board as a whole and the Trustees. Each Sub-Committee then makes to a greater extent on certain aspects of disinterested or "independent" Trustees, recommendations to the Investments these arrangements in some years than in voting separately, approved the Committee regarding the performance, fees others, and that the Trustees' continuance of the Fund's investment and expenses of their assigned funds. The deliberations and conclusions in a advisory agreement for another year, Investments Committee considers each particular year may be based in part on effective July 1, 2008. In doing so, the Sub-Committee's recommendations and makes their deliberations and conclusions of Board determined that the Fund's its own recommendations regarding the these same arrangements throughout the investment advisory agreement is in the performance, fees and expenses of the AIM year and in prior years. best interests of the Fund and its Funds to the full Board. The Investments shareholders and that the compensation to Committee also considers each FACTORS AND CONCLUSIONS AND SUMMARY OF Invesco Aim under the Fund's investment Sub-Committee's recommendations in making INDEPENDENT WRITTEN FEE EVALUATION advisory agreement is fair and reasonable. its annual recommendation to the Board whether to approve the continuance of each The discussion below serves as a summary The independent Trustees met separately AIM Fund's investment advisory agreement of the Senior Officer's independent during their evaluation of the Fund's and sub-advisory agreements for another written evaluation with respect to the investment advisory agreement with year. Fund's investment advisory agreement as independent legal counsel from whom they well as a discussion of the material received independent legal advice, and the The independent Trustees are assisted factors and related conclusions that independent Trustees also received in their annual evaluation of the Fund's formed the basis for the Board's approval assistance during their deliberations from investment advisory agreement by the of the Fund's investment advisory the independent Senior Officer, a independent Senior Officer. One agreement and sub-advisory agreements. full-time officer of the AIM Funds who responsibility of the Senior Officer is to Unless otherwise stated, information set reports directly to the independent manage the process by which the AIM Funds' forth below is as of June 19, 2008 and Trustees. proposed management fees are negotiated does not reflect any changes that may have during the annual contract renewal process occurred since that date, including but THE BOARD'S FUND EVALUATION PROCESS to ensure that they are negotiated in a not limited to changes to the Fund's manner that is at arms' length and performance, advisory fees, expense The Board's Investments Committee has reasonable. Accordingly, the Senior limitations and/or fee waivers. established three Sub-Committees that are Officer must either supervise a responsible for overseeing the management competitive bidding process or prepare an I. Investment Advisory Agreement of a number of the series portfolios of independent written evaluation. The Senior the AIM Funds. This Sub-Committee Officer has recommended that an A. Nature, Extent and Quality of structure permits the Trustees to focus on independent written evaluation be provided Services Provided by Invesco Aim the performance of the AIM Funds that have and, at the direction of the Board, has been assigned to them. The Sub-Committees prepared an independent written The Board reviewed the advisory services meet throughout the year to review the evaluation. provided to the Fund by Invesco Aim under performance of their assigned funds, and the Fund's investment advisory agreement, the Sub-Committees review monthly and During the annual contract renewal the performance of Invesco Aim in quarterly comparative performance process, the Board considered the factors providing these services, and the information and periodic asset flow data discussed below under the heading "Factors credentials and experience of the officers for their assigned funds. These materials and Conclusions and Summary of Independent and employees of Invesco Aim who provide are prepared under the direction and Written Fee Evaluation" in evaluating the these services. The Board's review of the supervision of the independent Senior fairness and reasonableness of the Fund's qualifications of Invesco Aim to provide Officer. Over the course of each year, the investment advisory agreement and these services included the Board's Sub-Committees meet with portfolio sub-advisory agreements at the contract consideration of Invesco Aim's portfolio managers for their assigned funds and renewal meetings and at their meetings and product review process, various back other members of management and review throughout the year as part of their office support functions provided by with these individuals the performance, ongoing oversight of the Fund. The Fund's Invesco Aim, and Invesco Aim's equity and investment objective(s), policies, investment advisory agreement and fixed income trading operations. The Board strategies and limitations of these funds. sub-advisory agreements were considered concluded that the nature, extent and separately, although the Board also quality of the advisory services provided In addition to their meetings considered the common interests of all of to the Fund by Invesco Aim were throughout the year, the Sub-Committees the AIM Funds in their deliberations. The appropriate and that Invesco Aim currently meet at designated contract renewal Board considered all of the information is providing satisfactory advisory meetings each year to conduct an in-depth provided to them and did not identify any services in accordance with the terms of review of the performance, fees and particular factor that was controlling. the Fund's investment advisory agreement. expenses of their assigned funds. During Each Trustee may have evaluated the In addition, based on their ongoing the contract information provided differently meetings throughout the year with the Fund's portfolio manager or managers, continued
24 AIM LARGE CAP GROWTH FUND the Board concluded that these individuals C. Advisory Fees and Fee Waivers tion would have on the Fund's estimated are competent and able to continue to total expenses. carry out their responsibilities under the The Board compared the Fund's contractual Fund's investment advisory agreement. advisory fee rate to the contractual After taking account of the Fund's advisory fee rates of funds in the Fund's contractual advisory fee rate, as well as In determining whether to continue the expense group that are not managed by the comparative advisory fee information Fund's investment advisory agreement, the Invesco Aim, at a common asset level and and the expense limitation discussed Board considered the prior relationship as of the end of the past calendar year. above, the Board concluded that the Fund's between Invesco Aim and the Fund, as well The Board noted that the Fund's advisory fees were fair and reasonable. as the Board's knowledge of Invesco Aim's contractual advisory fee rate was above operations, and concluded that it was the median contractual advisory fee rate D. Economies of Scale and Breakpoints beneficial to maintain the current of funds in its expense group. The Board relationship, in part, because of such also reviewed the methodology used by The Board considered the extent to which knowledge. The Board also considered the Lipper in determining contractual fee there are economies of scale in Invesco steps that Invesco Aim and its affiliates rates. Aim's provision of advisory services to have taken over the last several years to the Fund. The Board also considered improve the quality and efficiency of the The Board also compared the Fund's whether the Fund benefits from such services they provide to the AIM Funds in effective fee rate (the advisory fee after economies of scale through contractual the areas of investment performance, any advisory fee waivers and before any breakpoints in the Fund's advisory fee product line diversification, expense limitations/waivers) to the schedule or through advisory fee waivers distribution, fund operations, shareholder advisory fee rates of other clients of or expense limitations. The Board noted services and compliance. The Board Invesco Aim and its affiliates with that the Fund's contractual advisory fee concluded that the quality and efficiency investment strategies comparable to those schedule includes seven breakpoints and of the services Invesco Aim and its of the Fund, including two mutual funds that the level of the Fund's advisory affiliates provide to the AIM Funds in advised by Invesco Aim and two mutual fees, as a percentage of the Fund's net each of these areas have generally funds sub-advised by an Invesco Aim assets, has decreased as net assets improved, and support the Board's approval affiliate. The Board noted that the Fund's increased because of the breakpoints. of the continuance of the Fund's rate was: (i) above the rate for one Based on this information, the Board investment advisory agreement. mutual fund and below the rate for the concluded that the Fund's advisory fees second mutual fund; and (ii) above the appropriately reflect economies of scale B. Fund Performance sub-advisory fee rates for the two at current asset levels. The Board also sub-advised funds. noted that the Fund shares directly in The Board compared the Fund's performance economies of scale through lower fees during the past one, three and five Additionally, the Board compared the charged by third party service providers calendar years to the performance of funds Fund's effective fee rate to the total based on the combined size of all of the in the Fund's performance group that are advisory fees paid by numerous separately AIM Funds and affiliates. not managed by Invesco Aim, and against managed accounts/wrap accounts advised by the performance of all funds in the Lipper Invesco Aim affiliates. The Board noted E. Profitability and Financial Large-Cap Growth Funds Index. The Board that the Fund's rate generally was above Resources of Invesco Aim also reviewed the criteria used by Invesco the rates for the separately managed Aim to identify the funds in the Fund's accounts/wrap accounts. The Board The Board reviewed information from performance group for inclusion in the considered that management of the Invesco Aim concerning the costs of the Lipper reports. The Board noted that the separately managed accounts/wrap accounts advisory and other services that Invesco Fund's performance was in the second by the Invesco Aim affiliates involves Aim and its affiliates provide to the Fund quintile of its performance group for the different levels of services and different and the profitability of Invesco Aim and one, three and five year periods (the operational and regulatory requirements its affiliates in providing these first quintile being the best performing than Invesco Aim's management of the Fund. services. The Board also reviewed funds and the fifth quintile being the The Board concluded that these differences information concerning the financial worst performing funds). The Board noted are appropriately reflected in the fee condition of Invesco Aim and its that the Fund's performance was above the structure for the Fund. affiliates. The Board also reviewed with performance of the Index for the one, Invesco Aim the methodology used to three and five year periods. The Board The Board noted that Invesco Aim has prepare the profitability information. The also considered the steps Invesco Aim has contractually agreed to waive fees and/or Board considered the overall profitability taken over the last several years to limit expenses of the Fund through at of Invesco Aim, as well as the improve the quality and efficiency of the least June 30, 2009 in an amount necessary profitability of Invesco Aim in connection services that Invesco Aim provides to the to limit total annual operating expenses with managing the Fund. The Board noted AIM Funds. The Board concluded that to a specified percentage of average daily that Invesco Aim continues to operate at a Invesco Aim continues to be responsive to net assets for each class of the Fund. The net profit, although increased expenses in the Board's focus on fund performance. Board considered the contractual nature of recent years have reduced the Although the independent written this fee waiver and noted that it remains profitability of Invesco Aim and its evaluation of the Fund's Senior Officer in effect until at least June 30, 2009. affiliates. The Board concluded that the only considered Fund performance through Invesco Aim informed the Board that it had Fund's fees were fair and reasonable, and the most recent calendar year, the Board analyzed the total expenses of the Fund, that the level of profits realized by also reviewed more recent Fund performance which are impacted by transfer agent fees, Invesco Aim and its affiliates from and this review did not change their and determined that the total expenses are providing services to the Fund was not conclusions. currently appropriate. The Board also excessive in light of the nature, quality considered the effect this expense and extent of the services provided. The limita- Board considered whether Invesco Aim is continued
25 AIM LARGE CAP GROWTH FUND financially sound and has the resources research obtained through soft dollar and personnel that are geographically necessary to perform its obligations under arrangements may be used by Invesco Aim in dispersed in financial centers around the the Fund's investment advisory agreement, making investment decisions for the Fund world, have been formed in part for the and concluded that Invesco Aim has the and may therefore benefit Fund purpose of researching and compiling financial resources necessary to fulfill shareholders. The Board concluded that information and making recommendations on these obligations. Invesco Aim's soft dollar arrangements the markets and economies of various were appropriate. The Board also concluded countries and securities of companies F. Independent Written Evaluation of that, based on their review and located in such countries or on various the Fund's Senior Officer representations made by Invesco Aim, these types of investments and investment arrangements were consistent with techniques, and providing investment The Board noted that, at their direction, regulatory requirements. advisory services. The Board concluded the Senior Officer of the Fund, who is that the sub-advisory agreements will independent of Invesco Aim and Invesco The Board considered the fact that the benefit the Fund and its shareholders by Aim's affiliates, had prepared an Fund's uninvested cash and cash collateral permitting Invesco Aim to utilize the independent written evaluation to assist from any securities lending arrangements additional resources and talent of the the Board in determining the may be invested in money market funds Affiliated Sub-Advisers in managing the reasonableness of the proposed management advised by Invesco Aim pursuant to Fund. fees of the AIM Funds, including the Fund. procedures approved by the Board. The The Board noted that they had relied upon Board noted that Invesco Aim will receive B. Fund Performance the Senior Officer's written evaluation advisory fees from these affiliated money instead of a competitive bidding process. market funds attributable to such The Board did not view Fund performance as In determining whether to continue the investments, although Invesco Aim has a relevant factor in considering whether Fund's investment advisory agreement, the contractually agreed to waive through at to approve the sub-advisory agreements for Board considered the Senior Officer's least June 30, 2009, the advisory fees the Fund, as no Affiliated Sub-Adviser written evaluation. payable by the Fund in an amount equal to currently manages any portion of the 100% of the net advisory fees Invesco Aim Fund's assets. G. Collateral Benefits to Invesco Aim receives from the affiliated money market and its Affiliates funds with respect to the Fund's C. Sub-Advisory Fees investment of uninvested cash, but not The Board considered various other cash collateral. The Board considered the The Board considered the services to be benefits received by Invesco Aim and its contractual nature of this fee waiver and provided by the Affiliated Sub-Advisers affiliates resulting from Invesco Aim's noted that it remains in effect until at pursuant to the sub-advisory agreements relationship with the Fund, including the least June 30, 2009. The Board concluded and the services to be provided by Invesco fees received by Invesco Aim and its that the Fund's investment of uninvested Aim pursuant to the Fund's investment affiliates for their provision of cash and cash collateral from any advisory agreement, as well as the administrative, transfer agency and securities lending arrangements in the allocation of fees between Invesco Aim and distribution services to the Fund. The affiliated money market funds is in the the Affiliated Sub-Advisers pursuant to Board considered the performance of best interests of the Fund and its the sub-advisory agreements. The Board Invesco Aim and its affiliates in shareholders. noted that the sub-advisory fees have no providing these services and the direct effect on the Fund or its organizational structure employed by II. Sub-Advisory Agreements shareholders, as they are paid by Invesco Invesco Aim and its affiliates to provide Aim to the Affiliated Sub-Advisers, and these services. The Board also considered A. Nature, Extent and Quality of that Invesco Aim and the Affiliated that these services are provided to the Services Provided by Affiliated Sub-Advisers are affiliates. After taking Fund pursuant to written contracts which Sub-Advisers account of the Fund's contractual are reviewed and approved on an annual sub-advisory fee rate, as well as other basis by the Board. The Board concluded The Board reviewed the services to be relevant factors, the Board concluded that that Invesco Aim and its affiliates were provided by Invesco Trimark Ltd., Invesco the Fund's sub-advisory fees were fair and providing these services in a satisfactory Asset Management Deutschland, GmbH, reasonable. manner and in accordance with the terms of Invesco Asset Management Limited, Invesco their contracts, and were qualified to Asset Management (Japan) Limited, Invesco D. Financial Resources of the continue to provide these services to the Australia Limited, Invesco Global Asset Affiliated Sub-Advisers Fund. Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco Institutional (N.A.), The Board considered whether each The Board considered the benefits Inc. and Invesco Senior Secured Affiliated Sub-Adviser is financially realized by Invesco Aim as a result of Management, Inc. (collectively, the sound and has the resources necessary to portfolio brokerage transactions executed "Affiliated Sub-Advisers") under the perform its obligations under its through "soft dollar" arrangements. Under sub-advisory agreements and the respective sub-advisory agreement, and these arrangements, portfolio brokerage credentials and experience of the officers concluded that each Affiliated Sub-Adviser commissions paid by the Fund and/or other and employees of the Affiliated has the financial resources necessary to funds advised by Invesco Aim are used to Sub-Advisers who will provide these fulfill these obligations. pay for research and execution services. services. The Board concluded that the The Board noted that soft dollar nature, extent and quality of the services arrangements shift the payment obligation to be provided by the Affiliated for the research and execution services Sub-Advisers were appropriate. The Board from Invesco Aim to the funds and noted that the Affiliated Sub-Advisers, therefore may reduce Invesco Aim's which have offices expenses. The Board also noted that
26 AIM LARGE CAP GROWTH FUND TAX INFORMATION 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, 2008, April 30, 2008, July 31, 2008 and October 31, 2008 were 18.32%, 20.72%, 18.84%, and 13.02%, respectively. 27 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 103 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.
NAME, YEAR OF BIRTH AND TRUSTEE AND/ OTHER POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) DIRECTORSHIP(S) TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE -------------------------------------------------------------------------------------------------------------------------------- INTERESTED PERSONS -------------------------------------------------------------------------------------------------------------------------------- Martin L. 2007 Executive Director, Chief Executive Officer and President, None Flanagan(1) -- 1960 Invesco Ltd. (ultimate parent of Invesco Aim and a global Trustee investment management firm); Chairman, Invesco Aim Advisors, Inc. (registered investment advisor); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company); INVESCO North American Holdings, Inc. (holding company); and, INVESCO Group Services, Inc. (service provider); Trustee, The AIM Family of Funds--Registered Trademark--; Vice Chairman, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business Formerly: Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco Aim and a global investment management firm); 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 Head of North American Retail and Senior Managing Director, None Trustee, President and Invesco Ltd.; Director, Chief Executive Officer and Principal President, Invesco Trimark Dealer Inc. (formerly AIM Mutual Executive Officer Fund Dealer Inc.) (registered broker dealer), Invesco Aim Advisors, Inc., and 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Aim Management Group, Inc. (financial services holding company) and Invesco Aim 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, Invesco Aim Distributors, Inc. (registered broker dealer); Director and Chairman, Invesco 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 Invesco Canada Holdings Inc. (formerly AIM Canada Holdings Inc.) (holding company); 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); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltee (formerly AIM Funds Management Inc. d/b/a INVESCO Enterprise Services) (registered investment advisor and registered transfer agent) and Invesco Trimark Dealer Inc. (formerly AIM Mutual Fund Dealer Inc.) (registered broker dealer); Trustee, President and Principal Executive Officer of The AIM Family of Funds--Registered Trademark-- (other than AIM Treasurer's Series Trust and Short-Term Investments Trust); Trustee and Executive Vice President, The AIM Family of Funds--Registered Trademark-- (AIM Treasurer's Series Trust and Short-Term Investments Trust only); and Manager, Invesco PowerShares Capital Management LLC Formerly: President, Invesco Trimark Dealer Inc.; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Director and President, Invesco Trimark Ltd./Invesco Trimark Ltee (formerly AIM Funds Management Inc. d/b/a INVESCO Enterprise Services); Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; 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); 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 (technology ACE Limited Trustee and Chair consulting company) (insurance company); Captaris, Inc. (unified messaging provider); and Investment Company Institute -------------------------------------------------------------------------------------------------------------------------------- Bob R. Baker -- 1936 2003 Retired None Trustee -------------------------------------------------------------------------------------------------------------------------------- Frank S. Bayley -- 1939 2001 Retired Trustee Formerly: Partner, law firm of Baker & McKenzie; and None Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) -------------------------------------------------------------------------------------------------------------------------------- James T. Bunch -- 1942 2003 Founder, Green, Manning & Bunch Ltd., (investment banking Director, Policy Trustee firm) Studies, Inc. and Van Gilder Insurance Corporation -------------------------------------------------------------------------------------------------------------------------------- Albert R. Dowden -- 1941 2000 Director of a number of public and private business None Trustee corporations, including the Boss Group Ltd. (private investment and management); Continental Energy Services, LLC (oil and gas pipeline service); Reich & Tang Funds (registered investment company); Annuity and Life Re (Holdings), Ltd. (reinsurance company), and Homeowners of America Holding Corporation/Homeowners of America Insurance Company (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 public and private corporations -------------------------------------------------------------------------------------------------------------------------------- Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Century Group, Inc. Administaff Trustee (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); and Discovery Global Education Fund (non-profit) -------------------------------------------------------------------------------------------------------------------------------- Carl Frischling -- 1937 1998 Partner, law firm of Kramer Levin Naftalis and Frankel LLP Director, Reich & Trustee Tang Funds) (15 portfolios) -------------------------------------------------------------------------------------------------------------------------------- Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the USA None Trustee -------------------------------------------------------------------------------------------------------------------------------- Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper None Trustee -------------------------------------------------------------------------------------------------------------------------------- Larry Soll -- 1942 2003 Retired None Trustee -------------------------------------------------------------------------------------------------------------------------------- Raymond Stickel, Jr. -- 1944 2005 Retired Trustee Formerly: Partner, Deloitte & Touche; and Director, Mainstay None VP Series Funds, Inc. (25 portfolios) --------------------------------------------------------------------------------------------------------------------------------
(1) 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 Ltd., ultimate 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. 28 AIM LARGE CAP GROWTH FUND TRUSTEES AND OFFICERS--(CONTINUED)
NAME, YEAR OF BIRTH AND TRUSTEE AND/ OTHER POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) DIRECTORSHIP(S) TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE -------------------------------------------------------------------------------------------------------------------------------- OTHER OFFICERS -------------------------------------------------------------------------------------------------------------------------------- Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer of The AIM Family of N/A Senior Vice President and Funds--Registered Trademark-- Senior Officer 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, Secretary and General Counsel, N/A Senior Vice President, Chief Invesco Aim Management Group, Inc., Invesco Aim Advisors, Inc. Legal Officer and Secretary and Invesco Aim Capital Management, Inc.; Director, Senior Vice President and Secretary, Invesco Aim Distributors, Inc.; Director, Vice President and Secretary, Invesco Aim Investment Services, Inc. and INVESCO Distributors, Inc.; Director and Vice President, INVESCO Funds Group Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds--Registered Trademark--; and Manager, Invesco PowerShares Capital Management LLC Formerly: Director, Vice President and Secretary, Fund Management Company; Vice President, Invesco Aim 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); 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 Ltd.; and Vice President, The N/A Vice President AIM Family of Funds--Registered Trademark-- Formerly: Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and The AIM Family of Funds--Registered Trademark--; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Aim Distributors, Inc.; Vice President, Invesco Aim Investment Services, Inc. and Fund Management Company; and Senior Vice President and Compliance Director, Delaware Investments Family of Funds -------------------------------------------------------------------------------------------------------------------------------- Kevin M. Carome -- 1956 2003 General Counsel, Secretary and Senior Managing Director, Invesco N/A Vice President Ltd.; Director and Secretary, Invesco Holding Company Limited, IVZ, Inc. and INVESCO Group Services, Inc.; Director, INVESCO Funds Group, Inc.; Secretary, INVESCO North American Holdings, Inc.; and Vice President, The AIM Family of Funds--Registered Trademark-- Formerly: Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc. and Invesco Aim Advisors, Inc.; Senior Vice President, Invesco Aim Distributors, Inc.; Director, General Counsel and Vice President, Fund Management Company; Vice President, Invesco Aim Capital Management, Inc. and Invesco Aim Investment Services, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds--Registered Trademark--; Director and Vice President, INVESCO Distributors, Inc. and Chief Executive Officer and President, INVESCO Funds Group, Inc. -------------------------------------------------------------------------------------------------------------------------------- Sheri Morris -- 1964 1999 Vice President, Treasurer and Principal Financial Officer, The N/A Vice President, Treasurer AIM Family of Funds--Registered Trademark--; and Vice President, and Principal Financial Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. Officer and Invesco Aim Private Asset Management Inc. Formerly: Assistant Vice President and Assistant Treasurer, The AIM Family of Funds--Registered Trademark-- and Assistant Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. -------------------------------------------------------------------------------------------------------------------------------- Karen Dunn Kelley -- 1960 2004 Head of Invesco's World Wide Fixed Income and Cash Management N/A Vice President Group; Director of Cash Management and Senior Vice President, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc; Executive Vice President, Invesco Aim Distributors, Inc.; Senior Vice President, Invesco Aim Management Group, Inc.; Vice President, The AIM Family of Funds--Registered Trademark-- (other than AIM Treasurer's Series Trust and Short-Term Investments Trust); and President and Principal Executive Officer, The AIM Family of Funds--Registered Trademark-- (AIM Treasurer's Series Trust and Short-Term Investments Trust only) Formerly President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer and Managing Director, Invesco Aim Capital Management, Inc.; and Vice President, Invesco Aim 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 Officer, Invesco Aim Advisors, N/A Anti-Money Laundering Inc., Invesco Aim Capital Management, Inc., Invesco Aim Compliance Officer Distributors, Inc., Invesco Aim Investment Services, Inc., Invesco 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, Invesco Aim Investment Services, Inc. -------------------------------------------------------------------------------------------------------------------------------- Todd L. Spillane -- 1958 2006 Senior Vice President, Invesco Aim Management Group, Inc.; Senior N/A Chief Compliance Officer Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, 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, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc. Formerly: Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company; and Global Head of Product Development, AIG-Global Investment Group, Inc. --------------------------------------------------------------------------------------------------------------------------------
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. Please refer to the Fund's prospectus for information on the Fund's sub- advisors. OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS 11 Greenway Plaza Invesco Aim Advisors, Invesco Aim Distributors, PricewaterhouseCoopers Suite 100 Inc. Inc. LLP Houston, TX 77046-1173 11 Greenway Plaza 11 Greenway Plaza 1201 Louisiana Street Suite 100 Suite 100 Suite 2900 Houston, TX 77046-1173 Houston, TX 77046-1173 Houston, TX 77002-5678 COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN Stradley Ronon Stevens INDEPENDENT TRUSTEES Invesco Aim Investment State Street Bank and & Young, LLP Kramer, Levin, Naftalis & Services, Inc. Trust Company 2600 One Commerce Square Frankel LLP P.O. Box 4739 225 Franklin Street Philadelphia, PA 19103 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801 Americas New York, NY 10036-2714
29 AIM LARGE CAP GROWTH FUND [GO PAPERLESS GRAPHIC] ==================================================================================================================================== GO PAPERLESS WITH EDELIVERY Visit invescoaim.com/edelivery to receive quarterly statements, tax forms, fund reports and prospectuses with a service that's all about eeees: o ENVIRONMENTALLY FRIENDLY. Go green by reducing the number of o EFFICIENT. Stop waiting for regular mail. Your documents will trees used to produce paper. be sent via email as soon as they're available. o ECONOMICAL. Help reduce your fund's printing and delivery o EASY. Download, save and print files using your home computer expenses and put more capital back in your fund's returns. with a few clicks of your mouse. This service is provided by Invesco Aim Investment Services, Inc. ==================================================================================================================================== FUND HOLDINGS AND PROXY VOTING INFORMATION The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund's semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The most recent list of portfolio holdings is available at invescoaim.com. From our home page, click on Products & Performance, then Mutual Funds, then Fund Overview. Select your Fund from the drop-down menu and click on Complete Quarterly Holdings. Shareholders can also look up the Fund's Forms N-Q on the SEC website at sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 942 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-01424 and 002-25469. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or on the Invesco Aim website, invescoaim. com. On the home page, scroll down and click on Proxy Policy. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2008, is available at our website. Go to invescoaim.com, access the About Us tab, click on Required Notices and then click on Proxy Voting Activity. Next, select the Fund from the drop-down menu. The information is also available on the SEC website, sec.gov. If used after January 20, 2009, this report must be accompanied by a Fund fact sheet or Invesco Aim Quarterly Performance Review for the most recent quarter-end. Invesco Aim--SERVICE MARK-- is a service mark of Invesco Aim Management Group, Inc. Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc., Invesco Aim Private Asset Management, Inc. and Invesco PowerShares Capital Management LLC are the [INVESCO AIM LOGO] investment advisors for the products and services represented by Invesco Aim; they each provide -- SERVICE MARK -- investment advisory services to individual and institutional clients and do not sell securities. Please refer to each fund's prospectus for information on the fund's subadvisors. Invesco Aim Distributors, Inc. is the U.S. distributor for the retail mutual funds, exchange-traded funds and institutional money market funds and the subdistributor for the STIC Global Funds represented by Invesco Aim. All entities are indirect, wholly owned subsidiaries of Invesco Ltd. invescoaim.com LCG-AR-1 Invesco Aim Distributors, Inc.
[INVESCO AIM LOGO] AIM SUMMIT FUND -- SERVICE MARK -- Annual Report to Shareholders o October 31, 2008 [MOUNTAIN GRAPHIC] 2 Letters to Shareholders 4 Performance Summary 4 Management Discussion 6 Long-Term Fund Performance 8 Supplemental Information 9 Schedule of Investments 12 Financial Statements 15 Notes to Financial Statements 20 Financial Highlights 22 Auditor's Report 23 Fund Expenses 24 Approval of Investment Advisory Agreement 27 Tax Information 28 Trustees and Officers
Dear Shareholder: In previous reports, I've talked with you about short-term market volatility. I'd like to take this opportunity to update you on recent market developments and provide some perspective and encouragement to my fellow long-term investors. [TAYLOR PHOTO] MARKET OVERVIEW At the start of the fiscal year in November 2007, we saw warning signs of increasing economic ills -- a weakening housing market, rising inflation and slowing job growth, among others. In response, the U.S. Federal Reserve Board Philip Taylor (the Fed) repeatedly cut short-term interest rate targets to stimulate economic growth and expand market liquidity.(1) Also, Congress and the president worked together to enact an economic stimulus plan that included billions of dollars in rebates to taxpayers. These actions helped the economy and the U.S. stock market until the spring of 2008, when other factors came to the forefront -- triggering a severe correction that eventually drove major stock-market indexes to multi-year lows.(2) HOW WE GOT HERE The cause of this correction was years of lax lending associated with the recent housing boom. Mortgage loans of questionable quality were bundled into hard-to-value securities that were bought by, and traded among, financial institutions. As the value of those securities declined, financial institutions sought to unload them -- but there were few buyers. With the value of their assets falling and access to credit tightening, a number of well-established financial firms faced severe difficulties, and investor uncertainty and market volatility spiked. In October 2008, the administration and Congress enacted a plan, the Troubled Assets Relief Program, authorizing the U.S. Department of the Treasury to purchase up to $700 billion in troubled mortgage-related assets -- the largest and most direct effort to resolve a credit crisis in the last half century. The Fed, in concert with other central banks, cut short-term interest rate targets and undertook other initiatives intended to restore investor confidence, expand lending and mitigate the effects of the global credit crisis. The recent volatility in the stock, fixed-income and credit markets has driven home the importance of three timeless investing principles. INVESTING IN VOLATILE MARKETS Through up markets and down, we believe history shows investors should: o INVEST FOR THE LONG TERM. Short-term fluctuations have always been a reality of the markets. We urge you to stick to your investment plan and stay focused on your long-term goals. o DIVERSIFY. Although diversification doesn't eliminate the risk of loss or guarantee a profit, a careful selection of complementary asset classes may cushion your portfolio against excessive volatility. o STAY FULLY INVESTED. Trying to time the market is a gamble, not an investment strategy. A sound investment strategy includes viewing market volatility as a matter of course, not a reason to panic. A trusted financial advisor can explain more fully the potential value of following these principles. An experienced advisor who knows your individual investment goals, financial situation and risk tolerance can be your most valuable asset during times of market volatility. Your advisor can provide guidance and can monitor your investments to ensure they're on course. It's also helpful to remember that many of history's significant buying opportunities resulted from short-term economic crises that, in their time, were considered unprecedented. We believe current market uncertainty may represent a buying opportunity for patient, long-term investors. Rest assured that Invesco Aim's portfolio managers are working diligently on your behalf to capitalize on this situation. MANAGING MONEY IS OUR FOCUS As 2008 draws to a close, I believe Invesco Aim is uniquely positioned to navigate current uncertain markets. Our parent company, Invesco Ltd., is one of the world's largest and most diversified global investment managers. Invesco provides clients with diversified investment strategies from distinct management teams around the globe and a range of investment products. Invesco's single focus is asset management -- which means we focus on doing one thing well: managing your money. That can be reassuring in uncertain times. While market conditions change often, commitment to putting shareholders first, helping clients achieve their investment goals and providing excellent customer service remains constant. If you have questions about this report or your account, please contact one of our client service representatives at 800 959 4246. Thank you for your continued confidence, and we look forward to serving you.
Sincerely, /S/ PHILIP TAYLOR Philip Taylor Senior Managing Director, Invesco Ltd. CEO, Invesco Aim (1) U.S. Federal Reserve; (2) Lipper Inc. 2 AIM SUMMIT FUND Dear Fellow Shareholders: As I write this letter, turbulent financial markets are causing considerable investor anxiety, reminding us again that markets are cyclical and the correction of excess is often painful, at least in the short term. Your Board of Trustees [CROCKETT believes in the wisdom of a long-term perspective and consistent investment PHOTO] discipline. We continue to put your interests first in the effort to improve investment performance, contain shareholder costs and uphold the highest ethical standards. We remain enthusiastic about the global reach and investment expertise that Invesco, a leading independent global investment management company, brings to Bruce Crockett the management of AIM Funds as the parent company of the advisors. The diverse investment strategies deployed throughout the worldwide network of Invesco investment centers has helped strengthen the management of many AIM Funds. The rebranding of the Funds' management company as Invesco Aim was followed by the launch of an upgraded, investor-friendly website (invescoaim.com); a new mountain logo using a Himalayan peak to symbolize stability, endurance, strength and longevity; and a new ad campaign. Emphasizing Invesco Aim's focus and investment quality, the ads will appear in financial publications such as Barron's and Investment News through the end of 2008. At its June meeting, your Board reviewed and renewed the investment advisory contracts between the AIM Funds and Invesco Aim Advisors, Inc. You can find the results of this rigorous annual process at invescoaim.com. Go to "Products & Performance" and click on "Investment Advisory Agreement Renewals." We have recently completed another active proxy voting season during which we acted on your behalf to double the number of votes in favor of separating the roles of chairman and CEO at the companies whose shares your Funds hold. We also continued to support the movement for shareholders to have a bigger role in approving executive compensation, initiatives known as "say on pay." Like virtually all other mutual fund complexes, AIM Funds abstain from voting on social issues as a matter of policy, and I would be interested to hear your thoughts on this policy. As always, you are welcome to email your questions or comments to me at bruce@brucecrockett.com. The dialogue that has been established in this way has been instructive for your Board, and we want it to continue. Although the production schedule for Fund annual reports and prospectuses allows me to write these letters of general report and response just twice a year, please be assured that your comments are received, welcomed and heard in the interim. We look forward to hearing from you and to representing you.
Sincerely, /S/ BRUCE L. CROCKETT Bruce L. Crockett Independent Chair AIM Funds Board of Trustees 3 AIM SUMMIT FUND MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE ======================================================================================= timeliness analysis employs moving average PERFORMANCE SUMMARY analysis and other selected factors to identify the timeliness of a stock For the fiscal year ended October 31, 2008, Class A shares of AIM Summit Fund, at net transaction. asset value, had negative returns but held up slightly better than their style-specific index, the Russell 1000 Growth Index.(triangle) The Fund's performance was due We carefully construct the portfolio primarily to stock selection and sector allocation. The Fund's cash position also with a goal to minimize unnecessary risk. contributed to performance. We seek to accomplish this goal by diversifying portfolio holdings across The Fund also held up slightly better than the broad market, represented by the S&P countries, sectors, industries and market 500 Index.(triangle) Fund performance versus the S&P 500 Index was due largely to stock capitalizations. Additionally, we avoid selection and an underweight position in the financials sector, stock selection in the building concentrated position sizes and health care and information technology sectors, and an overweight position in the expect to hold numerous stocks in the consumer staples sector. portfolio. Our target holding period is two to three years for each stock. Your Fund's long-term performance appears later in this report. We consider selling a stock when it no FUND VS. INDEXES longer meets our investment criteria, based on: Total returns, 10/31/07 to 10/31/08, at net asset value (NAV). Performance shown does not include applicable contingent deferred sales charges (CDSC) or front-end sales o Deteriorating fundamental business charges, which would have reduced performance. prospects Class A Shares -35.26% o Declining quantitative rank Class B Shares -35.70 Class C Shares -35.77 o Negative changes to the investment Class P Shares -35.17 thesis Class Y Shares* -35.26 S&P 500 Index(triangle) (Broad Market Index) -36.08 o Finding a more attractive opportunity Russell 1000 Growth Index(triangle) (Style-Specific Index) -36.95 Lipper Mutli-Cap Growth Funds Index(triangle) (Peer Group Index) -41.64 MARKET CONDITIONS AND YOUR FUND (triangle) Lipper Inc. Many factors contributed to the negative performance of most major market indexes * Share class incepted during the fiscal year. See page 7 for a detailed explanation for the fiscal year ended October 31, of Fund performance. 2008.(1)The chief catalyst was the ongoing ======================================================================================= subprime loan crisis and its far-reaching HOW WE INVEST Our stock selection process is based on effects on overall credit availability. a rigorous three-step process that Additionally, record high crude oil We believe a growth investment strategy is includes fundamental, valuation and prices, falling home values and the weak an essential component of a diversified timeliness analysis. Importantly, we U.S. dollar placed significant pressure on portfolio. search for compelling growth companies in the purchasing power of consumers. Later all areas of the market, including many in the fiscal year, consumer confidence Our investment process seeks to sectors that are not traditionally fell and market volatility increased identify companies that generate identified as growth sectors. dramatically due to growing fears of a sustainable revenue, earnings and cash global recession. flow growth that is not fully reflected in Our fundamental analysis focuses on investor expectations or equity identifying industries and companies with To ensure the orderly functioning of valuations. strong fundamental drivers of high-quality the credit markets and prevent a more growth in revenues, earnings and cash severe economic downturn, in early October We begin with a quantitative model that flow. Our valuation analysis focuses on Congress enacted a $700 billion rescue ranks companies based on a set of growth, identifying attractively valued stocks plan -- the Troubled Assets Relief quality and timeliness factors. This based on their growth potential over a two Program. In addition, the U.S. Federal proprietary model provides an objective to three-year time horizon. Our approach to identifying new investment opportunities. ========================================== ========================================== ========================================== PORTFOLIO COMPOSITION TOP FIVE INDUSTRIES TOP 10 EQUITY HOLDINGS* By sector 1. Health Care Equipment 8.9% 1. Johnson & Johnson 3.7% Consumer Staples 19.5% 2. Aerospace & Defense 7.8 2. Procter & Gamble Co. (The) 3.7 Health Care 16.4 3. Household Products 7.2 3. Colgate-Palmolive Co. 3.5 Industrials 15.4 4. Soft Drinks 6.4 4. Coca-Cola Co. (The) 3.4 Energy 15.0 5. Integrated Oil & Gas 5.1 5. Microsoft Corp. 3.2 Information Technology 11.6 ========================================== 6. Baxter International Inc. 3.0 Materials 6.3 7. Kellogg Co. 2.9 Financials 4.3 8. KDDI Corp. 2.8 Telecommunication Services 3.2 ========================================== 9. Raytheon Co. 2.8 Consumer Discretionary 1.5 Total Net Assets $1.6 billion 10. PepsiCo, Inc. 2.6 Money Market Funds Plus Other Total Number of Holdings* 90 Assets Less Liabilities 6.8 ========================================== ========================================== ========================================== The Fund's holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security. * Excluding money market fund holdings.
4 AIM SUMMIT FUND Reserve (the Fed), in concert with other The Fund's underperformance versus the ROBERT LLOYD central banks, lowered short-term interest Russell 1000 Growth Index was concentrated Chartered Financial Analyst, rates. In early October, the Fed cut its in four sectors: materials, industrials, [LLOYD senior portfolio manager, is short term interest rate target from 2.0% energy and consumer discretionary. The PHOTO] lead manager of AIM Summit to 1.5%; later in the month, it cut that Fund underperformed by the widest margins Fund. He joined Invesco Aim target rate from 1.5% to 1.0%.(1) in the materials and industrials sectors, in 2000. Mr. Lloyd earned a B.B.A. from driven by an overweight position and stock the University of Notre Dame and an M.B.A. In this environment, the Fund had selection. Many holdings in these two from the University of Chicago. negative performance but outperformed the sectors were hurt by fears that the Russell 1000 Growth Index for the fiscal slowdown in the U.S. economy would lead to RYAN AMERMAN year.(2) Outperformance versus the index a global recession. Examples of holdings Chartered Financial Analyst, was driven by solid stock selection and an in these two sectors that detracted from [AMERMAN portfolio manager, is manager underweight position in the financials Fund performance included materials PHOTO] of AIM Summit Fund. He joined sector, stock selection in the health care holdings XSTRATA and THE MOSAIC COMPANY, Invesco Aim in 1996. Mr. sector and an overweight position in the as well as industrials holding MCDERMOTT Amerman earned a B.B.A. degree from more defensive consumer staples sector. INTERNATIONAL. Stephen F. Austin State University and an M.B.A. degree with an emphasis in finance The Fund outperformed its The Fund also underperformed its from the University of St. Thomas. style-specific index by the widest margin style-specific index in the energy and in the financials sector. The financials consumer discretionary sectors. Assisted by the Large/Multi-Cap Growth sector was the weakest performing sector Underperformance in the energy sector was Team in the Russell 1000 Growth Index for the driven largely by an overweight position. fiscal year, as the credit crisis After reaching all-time highs in the intensified and a liquidity crunch fiscal year, the price of oil fell sharply emerged. Outperformance versus the index due to weakening demand caused by the in this sector was driven by stock global economic slowdown. Key detractors selection and an underweight position. Key from performance included CONSOL ENERGY contributors to Fund performance included and VALERO. Underperformance in the insurance holdings CHUBB and ACE. The consumer discretionary sector was due to Fund's underweight positions in the stock selection. capital markets, consumer finance, diversified financials and real estate During the fiscal year, our investment industries were also key drivers of process led us to reduce our exposure to outperformance versus the index, as many the more economically sensitive consumer companies in these industries had steep discretionary and information technology declines in their stock prices when sectors and the troubled financials investor confidence faltered. sector. Proceeds from these sales were primarily invested in the more defensive Outperformance in the health care consumer staples sector and the sector was driven largely by stock industrials sector where many companies selection. One of the leading contributors have benefited from economic development to Fund performance was biotechnology and expansion. holding GENENTECH, which benefited from strong sales of its flagship products We thank you for your commitment to AIM Herceptin and Rituxan. We sold our Summit Fund. Genentech holdings after the company received a takeover bid from its largest (1) U.S. Federal Reserve shareholder, a European pharmaceutical company. (2) Lipper Inc. The Fund also outperformed the Russell The views and opinions expressed in 1000 Growth Index in the consumer staples management's discussion of Fund sector, due to both an overweight position performance are those of Invesco Aim and stock selection. While the consumer Advisors, Inc. These views and opinions staples sector had negative returns, its are subject to change at any time based on more defensive nature made it a refuge in factors such as market and economic the volatile market environment, and it conditions. These views and opinions may held up better than all other sectors in not be relied upon as investment advice or the index. Examples of holdings that made recommendations, or as an offer for a key contributions to Fund performance particular security. The information is included food and staples retailing not a complete analysis of every aspect of holdings KROGER and WAL-MART. We sold our any market, country, industry, security or Wal-Mart holdings before the close of the the Fund. Statements of fact are from fiscal year. sources considered reliable, but Invesco Aim Advisors, Inc. makes no representation The Fund's cash position was also a or warranty as to their completeness or driver of outperformance versus the accuracy. Although historical performance Russell 1000 Growth Index given the weak is no guarantee of future results, these market environment. insights may help you understand our investment management philosophy. See important Fund and index disclosures later in this report.
5 AIM SUMMIT FUND YOUR FUND'S LONG-TERM PERFORMANCE Past performance cannot guarantee Performance of an index of funds the value of the Fund's Class P shares and comparable future results. reflects fund expenses and management the Fund's indexes. We believe a fees; performance of a market index does logarithmic chart is more effective than The performance data shown in the first not. Performance shown in the charts and other types of charts in illustrating chart above is that of the Fund's Class P table does not reflect deduction of taxes changes in value during the early years shares. The data shown in this chart a shareholder would pay on Fund shown in the chart. The vertical axis, the includes reinvested distributions and Fund distributions or sale of Fund shares. The one that indicates the dollar value of an expenses including management fees. Index performance of the Fund's share classes investment, is constructed with each results include reinvested dividends. will differ primarily due to different segment represents a doubling, or 100% sales charge structures and class change, in the value of the investment. The performance data shown in the expenses. The second chart above is a linear chart. second chart is that of the Fund's Class A, B and C shares. The data shown in this Invesco Aim's policy is to plot funds chart includes reinvested distributions, with more than five years of history on a applicable sales charges and Fund expenses logarithmic chart, and to plot funds with including management fees. Index results less than five years of history on a include reinvested dividends, but they do linear chart. The first chart is a not reflect sales charges. logarithmic chart, which presents the fluctuation in
6 AIM SUMMIT FUND ==================================================================================================================================== [MOUNTAIN CHART] RESULTS OF A $10,000 INVESTMENT - CLASS P SHARES (OLDEST SHARE CLASS) Index data from 10/31/82, Fund data from 11/1/82 AIM Summit Fund- Russell 1000 Lipper Multi-Cap Date Class P Shares S&P 500 Index(1) Growth Index(1) Growth Funds Index(1) 10/31/82 $ 10000 $ 10000 $ 10000 11/82 $ 9920 10404 10689 10716 12/82 9860 10605 10817 10808 1/83 10160 10999 11092 11116 2/83 10460 11251 11498 11800 3/83 10820 11666 11841 12016 4/83 11539 12586 12606 12762 5/83 11959 12476 12633 13140 6/83 12420 12961 13362 13770 7/83 11680 12579 12737 13162 8/83 11460 12768 12660 12908 9/83 11600 12944 12895 13227 10/83 10879 12794 12412 12593 11/83 11159 13064 12700 13006 12/83 10839 12996 12545 12868 1/84 10079 12923 11896 12223 2/84 9667 12468 11327 11557 3/84 9790 12684 11537 11704 4/84 9769 12804 11602 11677 5/84 9361 12095 10979 11106 6/84 9728 12357 11401 11450 7/84 9564 12204 11208 11160 8/84 10604 13552 12486 12453 9/84 10502 13554 12280 12168 10/84 10482 13607 12367 12148 11/84 10176 13455 12117 11858 12/84 10257 13809 12426 12194 1/85 11419 14884 13571 13395 2/85 11663 15067 13774 13584 3/85 11498 15076 13675 13391 4/85 11375 15063 13469 13205 5/85 11951 15934 14282 13937 6/85 12321 16184 14553 14266 7/85 12260 16161 14492 14261 8/85 12136 16004 14359 14054 9/85 11580 15521 13852 13420 10/85 11888 16238 14451 13962 11/85 12793 17352 15696 14924 12/85 13348 18192 16509 15535 1/86 13615 18294 16643 15881 2/86 14745 19660 17966 17255 3/86 15457 20757 19084 18200 4/86 15349 20525 19108 18080 5/86 16126 21617 20211 19105 6/86 16406 21982 20647 19403 7/86 15392 20753 19231 17965 8/86 16105 22291 20118 18884 9/86 14615 20448 18126 17243 10/86 15435 21627 19168 18210 11/86 15694 22153 19517 18448 12/86 15222 21588 19047 18059 ====================================================================================================================================
(1) Lipper Inc. ==================================================================================================================================== [MOUNTAIN CHART] 1/87 17272 24496 21778 20297 2/87 19074 25463 23259 21768 3/87 19028 26199 23633 21971 4/87 18777 25966 23180 21597 5/87 18937 26190 23430 21796 6/87 19349 27512 24538 22585 7/87 19990 28907 25709 23710 8/87 20724 29985 26894 24487 9/87 20243 29328 26195 24051 10/87 14678 23014 20110 18387 11/87 13281 21118 18374 17098 12/87 14512 22725 20055 18892 1/88 14970 23679 20290 19122 2/88 16294 24778 21396 20356 3/88 16116 24015 20677 20128 4/88 16345 24281 20710 20273 5/88 16497 24488 20635 20015 6/88 17363 25612 21789 21252 7/88 17031 25514 21432 20783 8/88 16294 24649 20647 20016 9/88 17008 25700 21696 20898 10/88 17135 26414 22119 20907 11/88 16830 26036 21701 20443 12/88 17074 26489 22315 21185 1/89 18374 28428 23875 22670 2/89 18166 27720 23319 22336 3/89 18478 28366 23867 22991 4/89 19596 29839 25304 24437 5/89 20351 31041 26452 25862 6/89 19883 30867 26272 25407 7/89 21676 33651 28929 27383 8/89 21988 34308 29406 28344 9/89 22065 34167 29541 28665 10/89 21417 33374 29021 27518 11/89 22014 34052 29779 27914 12/89 22355 34869 30336 28110 1/90 20719 32529 27897 25628 2/90 21005 32949 28095 26117 3/90 21780 33822 29213 27107 4/90 21349 32980 28833 26408 5/90 23731 36189 31829 29225 6/90 23817 35946 32173 29333 7/90 23845 35831 31880 28659 8/90 21866 32596 28823 25813 9/90 20633 31012 27269 24274 10/90 20546 30881 27378 23740 11/90 21952 32873 29223 25533 12/90 22562 33787 30258 26447 1/91 23785 35253 31819 28602 2/91 25576 37771 34352 30653 3/91 26619 38685 35705 31751 4/91 26470 38777 35541 31547 5/91 27603 40445 37130 33068 6/91 26289 38592 35363 31107 7/91 28019 40391 37262 33126 8/91 28885 41344 38510 34315 9/91 28498 40654 37840 34191 10/91 29125 41198 38438 35005 11/91 28408 39542 37454 33745 12/91 32405 44058 42746 38081 1/92 31025 43239 41716 38074 2/92 31248 43796 41787 38656 3/92 30317 42947 40642 37083 4/92 30444 44205 40938 36501 5/92 30669 44422 41233 36811 6/92 29866 43760 40194 35593 7/92 30989 45545 41991 36902 ====================================================================================================================================
==================================================================================================================================== [MOUNTAIN CHART] 8/92 30056 44616 41478 36050 9/92 30441 45142 41951 36756 10/92 31598 45296 42585 37870 11/92 33234 46836 44433 40101 12/92 33859 47412 44877 41079 1/93 33998 47810 44361 41720 2/93 33505 48461 43651 40610 3/93 34490 49483 44494 41983 4/93 33121 48286 42710 40551 5/93 34492 49575 44204 42757 6/93 34737 49719 43802 43168 7/93 34841 49520 43018 43181 8/93 36176 51396 44786 45353 9/93 36668 51001 44455 46314 10/93 36737 52056 45691 46856 11/93 35506 51562 45384 45441 12/93 36657 52186 46165 46972 1/94 38508 53960 47236 48532 2/94 37753 52498 46372 47750 3/94 35560 50214 44132 45186 4/94 35748 50857 44335 45227 5/94 35219 51686 45009 45087 6/94 33670 50420 43676 43216 7/94 34575 52073 45170 44456 8/94 36729 54203 47686 46919 9/94 36123 52881 47042 46196 10/94 36954 54065 48148 47102 11/94 35406 52097 46602 45265 12/94 35622 52868 47385 45649 1/95 35023 54237 48399 45636 2/95 37016 56347 50427 47479 3/95 38612 58010 51900 49027 4/95 39770 59715 53036 50027 5/95 40927 62098 54882 51333 6/95 43960 63538 57000 54459 7/95 47631 65641 59372 57939 8/95 47912 65806 59437 58420 9/95 49507 68583 62177 60027 10/95 48428 68336 62221 59264 11/95 49503 71329 64641 61238 12/95 48141 72705 65009 61048 1/96 48873 75177 67181 61976 2/96 50941 75876 68410 63798 3/96 51114 76605 68499 64174 4/96 53485 77731 70301 67024 5/96 54694 79729 72754 68867 6/96 53529 80032 72856 67386 7/96 49434 76494 68587 62501 8/96 52064 78108 70356 65238 9/96 55985 82498 75478 69472 10/96 55985 84775 75931 69313 11/96 59047 91175 81633 73263 12/96 57712 89370 80033 71937 1/97 60754 94947 85644 75390 2/97 59089 95697 85061 73310 3/97 55952 91773 80459 69527 4/97 57994 97243 85802 71731 5/97 63126 103185 91997 77814 6/97 65645 107776 95677 80732 7/97 73148 116345 104135 88167 8/97 71056 109829 98043 85751 9/97 75426 115837 102866 91179 10/97 71957 111968 99060 87149 11/97 72007 117152 103270 87698 12/97 71683 119167 104427 88444 1/98 71368 120478 107549 88833 2/98 77783 129164 115637 96224 ====================================================================================================================================
==================================================================================================================================== [MOUNTAIN CHART] 3/98 80833 135778 120251 100919 4/98 82829 137163 121911 102090 5/98 80411 134803 118448 98211 6/98 84568 140276 125697 103259 7/98 83460 138789 124868 100739 8/98 68471 118734 106125 82092 9/98 74202 126345 114275 88011 10/98 78780 136604 123463 92957 11/98 84885 144883 132859 99427 12/98 96370 153228 144843 110384 1/99 103232 159633 153345 117173 2/99 97430 154668 146337 111068 3/99 104620 160855 154049 117388 4/99 107131 167080 154249 120240 5/99 104507 163137 149514 117920 6/99 111812 172158 159980 126162 7/99 107183 166804 154892 123324 8/99 107408 165970 157417 122090 9/99 105958 161423 154111 121394 10/99 112485 171641 165747 129953 11/99 122968 175125 174697 140375 12/99 145287 185422 192866 161571 1/00 139345 176114 183820 159940 2/00 159898 172786 192809 185514 3/00 158603 189684 206614 184790 4/00 144836 183975 196779 169305 5/00 135335 180203 186862 157894 6/00 151101 184636 201026 173557 7/00 149031 181756 192643 168107 8/00 168227 193043 210077 186313 9/00 160724 182850 190204 174985 10/00 147480 182082 181207 164819 11/00 120786 167734 154497 137821 12/00 123866 168556 149615 142108 1/01 123866 174540 159954 144992 2/01 98152 158639 132793 123766 3/01 86295 148597 118346 110498 4/01 95054 160128 133316 123990 5/01 93942 161201 131356 123320 6/01 90757 157284 128309 121125 7/01 87172 155743 125101 114584 8/01 81122 146009 114868 104696 9/01 70536 134226 103404 89138 10/01 74437 136790 108833 95520 11/01 80726 147281 119292 104719 12/01 82002 148578 119065 106352 1/02 79132 146408 116958 103343 2/02 74273 143583 112104 96925 3/02 79606 148981 115983 102702 4/02 76342 139953 106519 96468 5/02 74747 138931 103941 93670 6/02 68460 129039 94326 84940 7/02 61614 118987 89138 76964 8/02 61454 119761 89406 76379 9/02 56440 106755 80134 70452 10/02 58748 116138 87483 75835 11/02 61615 122967 92233 80582 12/02 57314 115749 85860 74635 1/03 56758 112728 83773 73404 2/03 55805 111037 83388 72905 3/03 56681 112114 84939 74064 4/03 60263 121341 91216 79478 5/03 65042 127724 95768 85319 6/03 65835 129359 97089 86309 7/03 67745 131635 99507 88985 8/03 70055 134202 101984 92544 9/03 69102 132780 100893 90758 ====================================================================================================================================
==================================================================================================================================== [MOUNTAIN CHART] 10/03 73165 140282 106563 97184 11/03 74914 141516 107682 98962 12/03 77783 148932 111408 101050 1/04 79533 151672 113681 103566 2/04 80726 153780 114408 104933 3/04 80484 151458 112280 104619 4/04 78174 149080 110978 101114 5/04 79683 151123 113042 103500 6/04 81037 154055 114455 105715 7/04 76418 148955 107988 98252 8/04 75539 149551 107459 96866 9/04 78010 151166 108480 100605 10/04 79047 153479 110172 102768 11/04 83663 159680 113962 108297 12/04 86131 165112 118431 112428 1/05 85253 161087 114481 108372 2/05 88041 164475 115700 109596 3/05 85813 161566 113592 107283 4/05 82784 158503 111428 103345 5/05 86211 163542 116820 109703 6/05 86849 163776 116389 110294 7/05 91235 169864 122077 116813 8/05 90998 168315 120505 116257 9/05 92909 169678 121060 118130 10/05 90679 166848 119883 115979 11/05 94188 173152 125056 122181 12/05 96016 173214 124664 122689 1/06 101604 177800 126852 129022 2/06 98810 178281 126651 126877 3/06 101369 180500 128521 129758 4/06 103204 182922 128346 130778 5/06 99364 177664 123996 123130 6/06 98728 177900 123506 122854 7/06 96408 178996 121154 119124 8/06 97045 183248 124934 122084 9/06 97928 187968 128367 124887 10/06 102002 194089 132879 130022 11/06 103919 197775 135516 134016 12/06 103722 200549 135975 133985 1/07 104769 203579 139471 137111 2/07 104130 199609 136849 134848 3/07 106140 201837 137591 136000 4/07 110481 210774 144069 141637 5/07 114657 218122 149252 147778 6/07 114095 214501 147024 146477 7/07 112726 207859 144745 143436 8/07 114496 210970 147051 144856 9/07 121160 218851 153211 152607 10/07 124298 222332 158426 159026 11/07 121812 213034 152590 151305 12/07 121824 211559 152038 151118 1/08 112663 198871 140182 138685 2/08 112742 192416 137398 135280 3/08 111186 191584 136562 132734 4/08 117490 200912 143731 141130 5/08 122730 203514 148999 145805 6/08 115943 186373 138268 136263 7/08 110876 184806 135639 131968 8/08 109491 187480 137100 131702 9/08 96888 170794 121223 114534 10/08 80652 142140 99857 92788 ====================================================================================================================================
==================================================================================================================================== [MOUNTAIN CHART] RESULTS OF A $10,000 INVESTMENT -- CLASS A, B AND C SHARES (OLDEST SHARE CLASSES WITH SALES CHARGES) Index data and Fund data from 10/31/05 Lipper Multi-Cap AIM Summit Fund- AIM Summit Fund- AIM Summit Fund- S&P 500 Russell 1000 Growth Funds Date Class A Shares Class B Shares Class C Shares Index(1) Growth Index(1) Index(1) 10/31/05 $ 9450 $10000 $10000 $10000 $10000 $10000 11/05 9816 10378 10378 10378 10431 10535 12/05 9998 10562 10571 10382 10399 10579 1/06 10581 11170 11179 10656 10581 11125 2/06 10290 10862 10861 10685 10564 10940 3/06 10557 11126 11134 10818 10720 11188 4/06 10748 11319 11319 10963 10706 11276 5/06 10339 10888 10888 10648 10343 10617 6/06 10273 10809 10817 10662 10302 10593 7/06 10032 10553 10553 10728 10106 10271 8/06 10098 10615 10614 10983 10421 10526 9/06 10190 10703 10702 11266 10708 10768 10/06 10606 11134 11133 11633 11084 11211 11/06 10805 11328 11336 11854 11304 11555 12/06 10776 11303 11302 12020 11342 11552 1/07 10885 11409 11408 12202 11634 11822 2/07 10826 11338 11338 11964 11415 11627 3/07 11035 11541 11550 12097 11477 11726 4/07 11478 12001 12001 12633 12017 12212 5/07 11913 12452 12452 13073 12450 12742 6/07 11855 12372 12381 12856 12264 12630 7/07 11713 12223 12222 12458 12074 12367 8/07 11880 12400 12399 12644 12266 12490 9/07 12575 13116 13116 13117 12780 13158 10/07 12902 13444 13444 13325 13215 13712 11/07 12643 13161 13160 12768 12728 13046 12/07 12643 13155 13155 12680 12682 13030 1/08 11690 12160 12159 11919 11693 11958 2/08 11698 12160 12150 11532 11461 11664 3/08 11527 11980 11980 11483 11391 11445 4/08 12191 12661 12652 12042 11989 12169 5/08 12727 13208 13208 12198 12429 12572 6/08 12021 12465 12464 11170 11534 11749 7/08 11493 11909 11908 11076 11314 11379 8/08 11349 11756 11756 11237 11436 11356 9/08 10046 10402 10393 10237 10112 9875 10/08 8353 8390 8635 8518 8331 8002 ====================================================================================================================================
(1) Lipper Inc. ========================================== ========================================== AVERAGE ANNUAL TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS As of 10/31/08, including maximum As of 9/30/08, the most recent calendar applicable sales charges quarter-end, including maximum applicable sales charges CLASS A SHARES Inception (10/31/05) -5.82% CLASS A SHARES 1 Year -38.83 Inception (10/31/05) 0.16% 1 Year -24.48 CLASS B SHARES Inception (10/31/05) -5.68% CLASS B SHARES 1 Year -38.87 Inception (10/31/05) 0.35% 1 Year -24.61 CLASS C SHARES Inception (10/31/05) -4.77% CLASS C SHARES 1 Year -36.40 Inception (10/31/05) 1.33% 1 Year -21.55 CLASS P SHARES Inception (11/1/82) 8.36% CLASS P SHARES 10 Years 0.23 Inception (11/1/82) 9.16% 5 Years 1.95 10 Years 2.70 1 Year -35.17 5 Years 6.99 1 Year -20.05 CLASS Y SHARES ========================================== Inception -4.03% 1 Year -35.26 ========================================== CLASS Y SHARES' INCEPTION DATE IS OCTOBER SECTIONS OF THIS REPORT THAT ARE BASED ON 3, 2008; RETURNS SINCE THAT DATE ARE EXPENSES INCURRED DURING THE PERIOD ACTUAL RETURNS. ALL OTHER RETURNS ARE COVERED BY THIS REPORT. BLENDED RETURNS OF ACTUAL CLASS Y SHARE PERFORMANCE AND RESTATED CLASS A SHARE CLASS A SHARE PERFORMANCE REFLECTS THE PERFORMANCE (FOR PERIODS PRIOR TO THE MAXIMUM 5.50% SALES CHARGE, AND CLASS B INCEPTION DATE OF CLASS Y SHARES) AT NET AND CLASS C SHARE PERFORMANCE REFLECTS THE ASSET VALUE. THE RESTATED CLASS A SHARE APPLICABLE CONTINGENT DEFERRED SALES PERFORMANCE REFLECTS THE RULE 12B-1 FEES CHARGE (CDSC) FOR THE PERIOD INVOLVED. THE APPLICABLE TO CLASS A SHARES AS WELL AS CDSC ON CLASS B SHARES DECLINES FROM 5% ANY FEE WAIVERS OR EXPENSE REIMBURSEMENTS BEGINNING AT THE TIME OF PURCHASE TO 0% AT RECEIVED BY CLASS A SHARES. CLASS A THE BEGINNING OF THE SEVENTH YEAR. THE SHARES' INCEPTION DATE IS OCTOBER 31, CDSC ON CLASS C SHARES IS 1% FOR THE FIRST 2005. YEAR AFTER PURCHASE. CLASS P SHARES DO NOT HAVE A FRONT-END SALES CHARGE OR THE PERFORMANCE DATA QUOTED REPRESENT CONTINGENT DEFERRED SALES CHARGE (CDSC); PAST PERFORMANCE AND CANNOT GUARANTEE THEREFORE, RETURNS SHOWN ARE AT NET ASSET COMPARABLE FUTURE RESULTS; CURRENT VALUE. CLASS Y SHARES DO NOT HAVE A PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE FRONT-END SALES CHARGE OR A CDSC; VISIT INVESCOAIM.COM FOR THE MOST RECENT THEREFORE, PERFORMANCE IS AT NET ASSET MONTH-END PERFORMANCE. PERFORMANCE FIGURES VALUE. THE PERFORMANCE NUMBERS SHOWN DO REFLECT REINVESTED DISTRIBUTIONS, CHANGES NOT REFLECT THE CREATION AND SALES CHARGES IN NET ASSET VALUE AND THE EFFECT OF THE AND OTHER FEES ASSESSED BY THE AIM SUMMIT MAXIMUM SALES CHARGE UNLESS OTHERWISE INVESTORS PLANS, WHICH WERE DISSOLVED STATED. INVESTMENT RETURN AND PRINCIPAL EFFECTIVE DECEMBER 8, 2006. VALUE WILL FLUCTUATE SO THAT YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL SHARES. THE PERFORMANCE OF THE FUND'S SHARE CLASSES WILL DIFFER PRIMARILY DUE TO THE TOTAL ANNUAL FUND OPERATING EXPENSE DIFFERENT SALES CHARGE STRUCTURES AND RATIO SET FORTH IN THE MOST RECENT FUND CLASS EXPENSES. PROSPECTUS AS OF THE DATE OF THIS REPORT FOR CLASS A, CLASS B, CLASS C, CLASS P AND CLASS Y SHARES WAS 1.09%, 1.84%, 1.84%, 0.94% AND 0.84%, RESPECTIVELY. THE EXPENSE RATIOS PRESENTED ABOVE MAY VARY FROM THE EXPENSE RATIOS PRESENTED IN OTHER
7 AIM SUMMIT FUND AIM SUMMIT FUND'S INVESTMENT OBJECTIVE IS GROWTH OF CAPITAL. o Unless otherwise stated, information presented in this report is as of October 31, 2008, and is based on total net assets. o Unless otherwise noted, all data provided by Invesco Aim. ABOUT SHARE CLASSES ABOUT INDEXES USED IN THIS REPORT OTHER INFORMATION o Effective September 30, 2003, only o The S&P 500--REGISTERED TRADEMARK-- o The Chartered Financial Analyst--REGIS- previously established qualified plans INDEX is a market TERED TRADEMARK-- (CFA--REGISTERED are eligible to purchase Class B shares capitalization-weighted index covering TRADEMARK--) designation is a globally of any AIM fund. all major areas of the U.S. economy. It recognized standard for measuring the is not the 500 largest companies, but competence and integrity of investment o Class P shares are closed to most rather the most widely held 500 professionals. investors. For more information on who companies chosen with respect to market may continue to invest in Class P size, liquidity, and their industry. o The returns shown in management's shares, please see the Fund's discussion of Fund performance are prospectus. o The RUSSELL 1000--REGISTERED based on net asset values calculated TRADEMARK-- GROWTH INDEX measures the for shareholder transactions. Generally o Class Y shares are available only to performance of those Russell 1000 accepted accounting principles require certain investors. Please see the companies with higher price-to-book adjustments to be made to the net prospectus for more information. ratios and higher forecasted growth assets of the Fund at period end for values. The Russell 1000 Growth Index financial reporting purposes, and as PRINCIPAL RISKS OF INVESTING IN THE FUND is a trademark/service mark of the such, the net asset values for Frank Russell Company. shareholder transactions and the o Investing in developing countries can Russell--REGISTERED TRADEMARK-- is a returns based on those net asset values add additional risk, such as high rates trade- mark of the Frank Russell may differ from the net asset values of inflation or sharply devalued Company. and returns reported in the Financial currencies against the U.S. dollar. Highlights. Transaction costs are often higher, and o The LIPPER MULTI-CAP GROWTH FUNDS INDEX there may be delays in settlement is an equally weighted representation o Industry classifications used in this procedures. of the largest funds in the Lipper report are generally according to the Multi-Cap Growth Funds category. These Global Industry Classification o Prices of equity securities change in funds typically have an above-average Standard, which was developed by and is response to many factors, including the price-to-earnings ratio, price-to-book the exclusive property and a service historical and prospective earnings of ratio, and three-year sales-per-share mark of MSCI Inc. and Standard & the issuer, the value of its assets, growth value, compared to the S&P Poor's. general economic conditions, interest Composite 1500 Index. rates, investor perceptions and market liquidity. o The Fund is not managed to track the performance of any particular index, o Foreign securities have additional including the indexes defined here, and risks, including exchange rate changes, consequently, the performance of the political and economic upheaval, Fund may deviate significantly from the relative lack of information, performance of the indexes. relatively low market liquidity, and the potential lack of strict financial o A direct investment cannot be made in and accounting controls and standards. an index. Unless otherwise indicated, index results include reinvested o The Fund invests in "growth" stocks, dividends, and they do not reflect which may be more volatile than other sales charges. Performance of an index investment styles because growth stocks of funds reflects fund expenses; are more sensitive to investor performance of a market index does not. perceptions of an issuing company's growth potential. o There is no guarantee that the investment techniques and risk analysis used by the Fund's portfolio managers will produce the desired results. o The prices of securities held by the Fund may decline in response to market risks. ======================================================================================= ========================================== THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND PROSPECTUS, FUND NASDAQ SYMBOLS WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING. Class A Shares ASMMX ======================================================================================= Class B Shares BSMMX Class C Shares CSMMX NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE Class P Shares SMMIX Class Y Shares ASMYX ==========================================
8 AIM SUMMIT FUND SCHEDULE OF INVESTMENTS(a) October 31, 2008
SHARES VALUE --------------------------------------------------------------------------------- COMMON STOCKS & OTHER EQUITY INTERESTS-93.17% AEROSPACE & DEFENSE-7.75% General Dynamics Corp. 99,533 $ 6,003,831 --------------------------------------------------------------------------------- Honeywell International Inc. 411,261 12,522,897 --------------------------------------------------------------------------------- Lockheed Martin Corp. 143,082 12,169,124 --------------------------------------------------------------------------------- Precision Castparts Corp. 60,451 3,917,829 --------------------------------------------------------------------------------- Raytheon Co. 870,295 44,480,777 --------------------------------------------------------------------------------- Rockwell Collins, Inc. 203,982 7,594,250 --------------------------------------------------------------------------------- Spirit AeroSystems Holdings Inc.-Class A(b) 260,889 4,208,140 --------------------------------------------------------------------------------- United Technologies Corp. 599,480 32,947,421 ================================================================================= 123,844,269 ================================================================================= APPLICATION SOFTWARE-1.98% Adobe Systems Inc.(b) 747,266 19,907,166 --------------------------------------------------------------------------------- Amdocs Ltd.(b) 212,851 4,801,919 --------------------------------------------------------------------------------- Autodesk, Inc.(b) 327,804 6,985,503 ================================================================================= 31,694,588 ================================================================================= AUTO PARTS & EQUIPMENT-0.20% BorgWarner, Inc. 144,629 3,249,814 ================================================================================= BIOTECHNOLOGY-1.89% Gilead Sciences, Inc.(b) 660,013 30,261,596 ================================================================================= COAL & CONSUMABLE FUELS-2.43% CONSOL Energy Inc. 574,423 18,031,138 --------------------------------------------------------------------------------- Peabody Energy Corp. 602,310 20,785,718 ================================================================================= 38,816,856 ================================================================================= COMMUNICATIONS EQUIPMENT-1.92% Cisco Systems, Inc.(b) 440,308 7,824,273 --------------------------------------------------------------------------------- Nokia Oyj-ADR (Finland) 1,000,041 15,180,622 --------------------------------------------------------------------------------- Research In Motion Ltd. (Canada)(b) 152,376 7,684,322 ================================================================================= 30,689,217 ================================================================================= COMPUTER HARDWARE-0.81% Apple Inc.(b) 60,404 6,498,866 --------------------------------------------------------------------------------- International Business Machines Corp. 68,976 6,412,699 ================================================================================= 12,911,565 ================================================================================= CONSTRUCTION & ENGINEERING-2.38% Chicago Bridge & Iron Co. N.V.-New York Shares 149,442 1,851,586 --------------------------------------------------------------------------------- Fluor Corp. 395,848 15,806,211 --------------------------------------------------------------------------------- Foster Wheeler Ltd.(b) 473,173 12,964,940 --------------------------------------------------------------------------------- Jacobs Engineering Group Inc.(b) 204,520 7,450,664 ================================================================================= 38,073,401 ================================================================================= CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS-1.19% Bucyrus International, Inc. 160,345 $ 3,869,125 --------------------------------------------------------------------------------- Deere & Co. 123,176 4,749,667 --------------------------------------------------------------------------------- Joy Global Inc. 229,053 6,637,956 --------------------------------------------------------------------------------- Komatsu Ltd. (Japan) 340,230 3,694,077 ================================================================================= 18,950,825 ================================================================================= DIVERSIFIED METALS & MINING-3.69% BHP Billiton Ltd. (Australia) 1,123,986 21,591,787 --------------------------------------------------------------------------------- Companhia Vale do Rio Doce-ADR (Brazil) 675,968 8,868,700 --------------------------------------------------------------------------------- Rio Tinto PLC (United Kingdom) 332,634 15,506,723 --------------------------------------------------------------------------------- Titanium Metals Corp. 203,497 1,894,557 --------------------------------------------------------------------------------- Xstrata PLC (United Kingdom) 651,066 11,050,089 ================================================================================= 58,911,856 ================================================================================= EDUCATION SERVICES-0.26% Apollo Group Inc.-Class A(b) 60,772 4,224,262 ================================================================================= ELECTRICAL COMPONENTS & EQUIPMENT-0.28% Emerson Electric Co. 135,958 4,449,905 ================================================================================= ENVIRONMENTAL & FACILITIES SERVICES-0.51% Waste Management, Inc. 261,375 8,162,741 ================================================================================= FERTILIZERS & AGRICULTURAL CHEMICALS-2.57% Monsanto Co. 94,944 8,448,117 --------------------------------------------------------------------------------- Mosaic Co. (The) 466,343 18,378,578 --------------------------------------------------------------------------------- Potash Corp. of Saskatchewan Inc. (Canada) 166,623 14,206,277 ================================================================================= 41,032,972 ================================================================================= FOOD RETAIL-1.80% Kroger Co. (The) 1,049,715 28,825,174 ================================================================================= FOOTWEAR-0.31% NIKE, Inc.-Class B 86,840 5,004,589 ================================================================================= HEALTH CARE EQUIPMENT-8.85% Baxter International Inc. 796,587 48,185,548 --------------------------------------------------------------------------------- Becton, Dickinson and Co. 581,289 40,341,457 --------------------------------------------------------------------------------- Medtronic, Inc. 502,880 20,281,150 --------------------------------------------------------------------------------- St. Jude Medical, Inc.(b) 858,586 32,652,025 ================================================================================= 141,460,180 ================================================================================= HEALTH CARE SERVICES-1.04% Express Scripts, Inc.(b) 132,002 8,000,641 --------------------------------------------------------------------------------- Quest Diagnostics Inc. 183,275 8,577,270 ================================================================================= 16,577,911 =================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. 9 AIM SUMMIT FUND
SHARES VALUE --------------------------------------------------------------------------------- HEAVY ELECTRICAL EQUIPMENT-0.65% ABB Ltd. (Switzerland)(b) 790,542 $ 10,449,413 ================================================================================= HOUSEHOLD PRODUCTS-7.19% Colgate-Palmolive Co. 884,214 55,493,271 --------------------------------------------------------------------------------- Procter & Gamble Co. (The) 920,499 59,409,005 ================================================================================= 114,902,276 ================================================================================= INDUSTRIAL CONGLOMERATES-0.78% McDermott International, Inc.(b) 728,114 12,472,593 ================================================================================= INDUSTRIAL MACHINERY-0.44% Fanuc Ltd. (Japan) 104,268 7,076,299 ================================================================================= INTEGRATED OIL & GAS-5.05% Exxon Mobil Corp. 352,337 26,115,218 --------------------------------------------------------------------------------- Marathon Oil Corp. 497,274 14,470,673 --------------------------------------------------------------------------------- Occidental Petroleum Corp. 658,840 36,591,974 --------------------------------------------------------------------------------- Suncor Energy, Inc. (Canada) 150,000 3,588,000 ================================================================================= 80,765,865 ================================================================================= INTERNET SOFTWARE & SERVICES-1.19% Google Inc.-Class A(b) 52,971 19,035,659 ================================================================================= IT CONSULTING & OTHER SERVICES-2.59% Accenture Ltd.-Class A 1,050,029 34,703,458 --------------------------------------------------------------------------------- Cognizant Technology Solutions Corp.-Class A(b) 348,163 6,684,730 ================================================================================= 41,388,188 ================================================================================= MARINE-1.42% Mitsui O.S.K. Lines, Ltd. (Japan) 1,834,362 9,712,599 --------------------------------------------------------------------------------- Nippon Yusen Kabushiki Kaisha (Japan) 2,703,942 12,961,150 ================================================================================= 22,673,749 ================================================================================= MULTI-LINE INSURANCE-0.33% Assurant, Inc. 207,882 5,296,833 ================================================================================= OIL & GAS DRILLING-1.87% ENSCO International Inc. 182,178 6,924,586 --------------------------------------------------------------------------------- Transocean Inc.(b) 278,768 22,950,969 ================================================================================= 29,875,555 ================================================================================= OIL & GAS EQUIPMENT & SERVICES-3.98% Baker Hughes Inc. 404,440 14,135,178 --------------------------------------------------------------------------------- Cameron International Corp.(b) 553,702 13,432,811 --------------------------------------------------------------------------------- Gulfmark Offshore, Inc.(b) 152,777 5,652,749 --------------------------------------------------------------------------------- Halliburton Co. 173,011 3,423,888 --------------------------------------------------------------------------------- National-Oilwell Varco Inc.(b) 312,779 9,348,964 --------------------------------------------------------------------------------- Schlumberger Ltd. 340,608 17,592,403 ================================================================================= 63,585,993 ================================================================================= OIL & GAS EXPLORATION & PRODUCTION-0.85% Apache Corp. 95,070 7,827,113 --------------------------------------------------------------------------------- Devon Energy Corp. 72,080 5,828,389 ================================================================================= 13,655,502 ================================================================================= OIL & GAS REFINING & MARKETING-0.79% Valero Energy Corp. 609,597 12,545,506 ================================================================================= PACKAGED FOODS & MEATS-3.31% General Mills, Inc. 91,166 6,175,585 --------------------------------------------------------------------------------- Kellogg Co. 927,345 46,756,735 ================================================================================= 52,932,320 ================================================================================= PERSONAL PRODUCTS-0.82% Avon Products, Inc. 235,404 5,845,081 --------------------------------------------------------------------------------- Chattem, Inc.(b) 96,226 7,281,422 ================================================================================= 13,126,503 ================================================================================= PHARMACEUTICALS-4.60% Abbott Laboratories 109,254 6,025,358 --------------------------------------------------------------------------------- Johnson & Johnson 968,605 59,414,231 --------------------------------------------------------------------------------- Shire PLC (United Kingdom) 606,467 8,014,044 ================================================================================= 73,453,633 ================================================================================= PROPERTY & CASUALTY INSURANCE-4.00% ACE Ltd. (Switzerland) 523,778 30,043,906 --------------------------------------------------------------------------------- Chubb Corp. (The) 651,404 33,938,148 ================================================================================= 63,982,054 ================================================================================= PUBLISHING-0.35% Morningstar, Inc.(b) 150,433 5,632,212 ================================================================================= RESTAURANTS-0.33% McDonald's Corp. 91,238 5,285,417 ================================================================================= SOFT DRINKS-6.37% Coca-Cola Co. (The) 1,243,485 54,787,949 --------------------------------------------------------------------------------- Hansen Natural Corp.(b) 187,528 4,748,209 --------------------------------------------------------------------------------- PepsiCo, Inc. 741,992 42,300,964 ================================================================================= 101,837,122 ================================================================================= SYSTEMS SOFTWARE-3.16% Microsoft Corp. 2,260,253 50,471,450 ================================================================================= WIRELESS TELECOMMUNICATION SERVICES-3.24% China Mobile Ltd. (China) 799,604 7,016,000 --------------------------------------------------------------------------------- KDDI Corp. (Japan) 7,483 44,702,770 ================================================================================= 51,718,770 ================================================================================= Total Common Stocks & Other Equity Interests (Cost $1,881,722,967) 1,489,304,633 =================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. 10 AIM SUMMIT FUND
SHARES VALUE --------------------------------------------------------------------------------- MONEY MARKET FUNDS-8.24% Liquid Assets Portfolio-Institutional Class(c) 65,835,826 $ 65,835,826 --------------------------------------------------------------------------------- Premier Portfolio-Institutional Class(c) 65,835,826 65,835,826 ================================================================================= Total Money Market Funds (Cost $131,671,652) 131,671,652 ================================================================================= TOTAL INVESTMENTS-101.41% (Cost $2,013,394,619) 1,620,976,285 ================================================================================= OTHER ASSETS LESS LIABILITIES-(1.41)% (22,557,224) ================================================================================= NET ASSETS-100.00% $1,598,419,061 _________________________________________________________________________________ =================================================================================
Investment Abbreviations: ADR - American Depositary Receipt
Notes to Schedule of Investments: (a) Industry and/or sector 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 MSCI Inc. and Standard & Poor's. (b) Non-income producing security. (c) The money market fund and the Fund are affiliated by having the same investment advisor. See accompanying Notes to Financial Statements which are an integral part of the financial statements. 11 AIM SUMMIT FUND STATEMENT OF ASSETS AND LIABILITIES October 31, 2008 ASSETS: Investments, at value (Cost $1,881,722,967) $1,489,304,633 ------------------------------------------------------- Investments in affiliated money market funds, at value and cost 131,671,652 ======================================================= Total investments (Cost $2,013,394,619) 1,620,976,285 ======================================================= Foreign currencies, at value (Cost $202) 163 ------------------------------------------------------- Receivables for: Investments sold 436,673 ------------------------------------------------------- Fund shares sold 820,629 ------------------------------------------------------- Dividends 3,280,955 ------------------------------------------------------- Investment for trustee deferred compensation and retirement plans 65,418 ------------------------------------------------------- Other assets 84,098 ======================================================= Total assets 1,625,664,221 _______________________________________________________ ======================================================= LIABILITIES: Payables for: Investments purchased 25,235,712 ------------------------------------------------------- Fund shares reacquired 936,728 ------------------------------------------------------- Accrued fees to affiliates 410,301 ------------------------------------------------------- Accrued other operating expenses 384,227 ------------------------------------------------------- Trustee deferred compensation and retirement plans 278,192 ======================================================= Total liabilities 27,245,160 ======================================================= Net assets applicable to shares outstanding $1,598,419,061 _______________________________________________________ ======================================================= NET ASSETS CONSIST OF: Shares of beneficial interest $1,884,575,513 ------------------------------------------------------- Undistributed net investment income 10,019,253 ------------------------------------------------------- Undistributed net realized gain 96,161,561 ------------------------------------------------------- Unrealized appreciation (depreciation) (392,337,266) ======================================================= $1,598,419,061 _______________________________________________________ ======================================================= NET ASSETS: Class A $ 25,528,665 _______________________________________________________ ======================================================= Class B $ 3,256,271 _______________________________________________________ ======================================================= Class C $ 4,408,361 _______________________________________________________ ======================================================= Class P $1,554,239,949 _______________________________________________________ ======================================================= Class Y $ 223,539 _______________________________________________________ ======================================================= Institutional Class $ 10,762,276 _______________________________________________________ ======================================================= SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Class A 2,603,531 _______________________________________________________ ======================================================= Class B 337,805 _______________________________________________________ ======================================================= Class C 457,711 _______________________________________________________ ======================================================= Class P 157,805,741 _______________________________________________________ ======================================================= Class Y 22,787 _______________________________________________________ ======================================================= Institutional Class 1,097,402 _______________________________________________________ ======================================================= Class A: Net asset value per share $ 9.81 ------------------------------------------------------- Maximum offering price per share (Net asset value of $9.81 divided by 94.50%) $ 10.38 _______________________________________________________ ======================================================= Class B: Net asset value and offering price per share $ 9.64 _______________________________________________________ ======================================================= Class C: Net asset value and offering price per share $ 9.63 _______________________________________________________ ======================================================= Class P: Net asset value and offering price per share $ 9.85 _______________________________________________________ ======================================================= Class Y: Net asset value and offering price per share $ 9.81 _______________________________________________________ ======================================================= Institutional Class: Net asset value and offering price per share $ 9.81 _______________________________________________________ =======================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. 12 AIM SUMMIT FUND STATEMENT OF OPERATIONS For the year ended October 31, 2008 INVESTMENT INCOME: Dividends (net of foreign withholding taxes of $383,986) $ 26,763,261 ------------------------------------------------------------------------------------------------ Dividends from affiliated money market funds (includes securities lending income of $312,016) 5,231,209 ================================================================================================ Total investment income 31,994,470 ================================================================================================ EXPENSES: Advisory fees 14,391,724 ------------------------------------------------------------------------------------------------ Administrative services fees 476,349 ------------------------------------------------------------------------------------------------ Custodian fees 191,825 ------------------------------------------------------------------------------------------------ Distribution fees: Class A 53,376 ------------------------------------------------------------------------------------------------ Class B 37,226 ------------------------------------------------------------------------------------------------ Class C 30,815 ------------------------------------------------------------------------------------------------ Class P 2,240,059 ------------------------------------------------------------------------------------------------ Transfer agent fees -- A, B, C, P and Y 2,946,014 ------------------------------------------------------------------------------------------------ Transfer agent fees -- Institutional 447 ------------------------------------------------------------------------------------------------ Trustees' and officers' fees and benefits 76,815 ------------------------------------------------------------------------------------------------ Other 627,299 ================================================================================================ Total expenses 21,071,949 ================================================================================================ Less: Fees waived, expenses reimbursed and expense offset arrangement(s) (307,864) ================================================================================================ Net expenses 20,764,085 ================================================================================================ Net investment income 11,230,385 ================================================================================================ REALIZED AND UNREALIZED GAIN (LOSS) FROM: Net realized gain (loss) from: Investment securities (includes net gains (losses) from securities sold to affiliates of $(1,314,898)) 104,791,693 ------------------------------------------------------------------------------------------------ Foreign currencies (1,030,436) ================================================================================================ 103,761,257 ================================================================================================ Change in net unrealized appreciation (depreciation) of: Investment securities (992,787,880) ================================================================================================ Foreign currencies 84,115 ================================================================================================ (992,703,765) ================================================================================================ Net realized and unrealized gain (loss) (888,942,508) ================================================================================================ Net increase (decrease) in net assets resulting from operations $(877,712,123) ________________________________________________________________________________________________ ================================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. 13 AIM SUMMIT FUND STATEMENT OF CHANGES IN NET ASSETS For the years ended October 31, 2008 and 2007
2008 2007 ------------------------------------------------------------------------------------------------------------ OPERATIONS: Net investment income $ 11,230,385 $ 13,022,934 ------------------------------------------------------------------------------------------------------------ Net realized gain 103,761,257 242,702,771 ------------------------------------------------------------------------------------------------------------ Change in net unrealized appreciation (depreciation) (992,703,765) 232,367,826 ============================================================================================================ Net increase (decrease) in net assets resulting from operations (877,712,123) 488,093,531 ============================================================================================================ Distributions to shareholders from net investment income: Class A (54,298) (22,943) ------------------------------------------------------------------------------------------------------------ Class B (1,045) (8,165) ------------------------------------------------------------------------------------------------------------ Class C (481) (783) ------------------------------------------------------------------------------------------------------------ Class P (12,056,742) (14,056,491) ============================================================================================================ Total distributions from net investment income (12,112,566) (14,088,382) ============================================================================================================ Distributions to shareholders from net realized gains: Class A (172,545) -- ------------------------------------------------------------------------------------------------------------ Class B (41,100) -- ------------------------------------------------------------------------------------------------------------ Class C (18,906) -- ------------------------------------------------------------------------------------------------------------ Class P (32,666,131) -- ============================================================================================================ Total distributions from net realized gains (32,898,682) -- ============================================================================================================ Share transactions-net: Class A 25,195,681 5,573,280 ------------------------------------------------------------------------------------------------------------ Class B 2,290,492 1,686,800 ------------------------------------------------------------------------------------------------------------ Class C 5,253,657 852,377 ------------------------------------------------------------------------------------------------------------ Class P (131,838,250) (251,273,210) ------------------------------------------------------------------------------------------------------------ Class Y 250,118 -- ------------------------------------------------------------------------------------------------------------ Institutional Class 10,010,000 -- ============================================================================================================ Net increase (decrease) in net assets resulting from share transactions (88,838,302) (243,160,753) ============================================================================================================ Net increase (decrease) in net assets (1,011,561,673) 230,844,396 ============================================================================================================ NET ASSETS: Beginning of year 2,609,980,734 2,379,136,338 ============================================================================================================ End of year (includes undistributed net investment income of $10,019,253 and $11,835,636, respectively) $ 1,598,419,061 $2,609,980,734 ____________________________________________________________________________________________________________ ============================================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. 14 AIM SUMMIT FUND NOTES TO FINANCIAL STATEMENTS October 31, 2008 NOTE 1--SIGNIFICANT ACCOUNTING POLICIES AIM Summit 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 seven separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. Prior to April 30, 2008, the Fund operated as AIM Summit Fund the sole series portfolio of AIM Summit Fund (the "Predecessor Fund"). The Predecessor Fund was reorganized on April 29, 2008, as a series Portfolio of the Trust. The Fund's investment objective is growth of capital. The Fund currently consists of six different classes of shares: Class A, Class B, Class C, Class P, Class Y and Institutional Class. Class P shares are not sold to members of the general public. Only shareholders who had accounts in the AIM Summit Investors Plans I and AIM Summit Investors Plans II at the close of business on December 8, 2006, may continue to purchase Class P shares. 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 contingent deferred sales charges ("CDSC"). Class B shares and Class C shares are sold with a CDSC. Class P, Class Y and Institutional Class shares are sold at net asset value. Generally, Class B shares will automatically convert to Class A shares on or about month-end which is at least eight years after the date of purchase. 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, American Depositary Receipts 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. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. 15 AIM SUMMIT FUND 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 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, the investment advisor 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. The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. 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 by a significant amount. 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. SECURITIES LENDING -- 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 by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. 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. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could 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. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in Dividends from affiliates on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities, if any. J. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations 16 AIM SUMMIT FUND 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. K. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a foreign currency contract to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. The Fund may also enter into a foreign currency contract for the purchase or sale of a security denominated in a foreign currency in order to "lock in" the U.S. dollar price of that security. Fluctuations in the value of these contracts are recorded as unrealized appreciation (depreciation) until the contracts are closed. When these contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains and losses on these contracts are included in the Statement of Operations. The Fund could be exposed to risk, which may be in excess of the amount reflected in the Statement of Assets and Liabilities, if counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES The Trust has entered into a master investment advisory agreement with Invesco Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Advisor based on the annual rate of the Fund's average daily net assets as follows:
AVERAGE NET ASSETS RATE ------------------------------------------------------------------- First $10 million 1.00% ------------------------------------------------------------------- Next $140 million 0.75% ------------------------------------------------------------------- Over $150 million 0.625% ___________________________________________________________________ ===================================================================
Under the terms of a master sub-advisory agreement approved by shareholders of the Fund, effective May 1, 2008, between the Advisor and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the "Affiliated Sub-Advisors") the Advisor, not the Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub-Advisor(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Advisor(s). The Advisor has contractually agreed, through at least June 30, 2009, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Advisor receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds. For the year ended October 31, 2008, the Advisor waived advisory fees of $192,063. 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, 2008, Invesco reimbursed expenses of the Fund in the amount of $27,052. The Trust has entered into a master administrative services agreement with Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim for certain administrative costs incurred in providing accounting services to the Fund. For the year ended October 31, 2008, 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 Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has agreed to pay IAIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the course of providing such services. IAIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. All fees payable by IAIS 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, 2008, expenses incurred under the agreement are shown in the Statement of Operations as transfer agent fees. The Fund has entered into master distribution agreements with Invesco Aim Distributors, Inc. ("IADI") to serve as the distributor for the Class A, Class B, Class C, Class P, Class Y and Institutional Class shares. The Fund has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A, Class B, Class C shares and Class P shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays IADI compensation at the annual rate of 0.25% of the Fund's average daily net assets of Class A shares and 1.00% of the average daily net assets of Class B and Class C shares and 0.10% of Class P 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. Rules of the Financial Industry Regulatory Authority ("FINRA") 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, 2008, expenses incurred under the Plans are shown in the Statement of Operations as distribution fees. 17 AIM SUMMIT FUND Front-end sales commissions and 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, 2008, IADI advised the Fund that IADI retained $21,285 in front-end sales commissions from the sale of Class A shares and $263, $1,221 and $481 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 Invesco Aim, IAIS and/or IADI. NOTE 3--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, 2008, the Fund engaged in securities purchases of $8,020,281 and securities sales of $6,668,105, which resulted in net realized gains (losses) of $(1,314,898). NOTE 4--EXPENSE OFFSET ARRANGEMENTS The expense offset arrangements are comprised of (i) transfer agency credits which result from balances in Demand Deposit Accounts (DDA) used by the transfer agent for clearing shareholder transactions and (ii) custodian credits which result from periodic overnight cash balances at the custodian. For the year ended October 31, 2008, the Fund received credits from these arrangements, which resulted in the reduction of the Fund's total expenses of $88,749. NOTE 5--TRUSTEES' AND OFFICERS' FEES AND BENEFITS "Trustees' and Officers' 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 Officers' 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 Officers' 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, 2008, the Fund paid legal fees of $7,982 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust. NOTE 6--CASH BALANCES The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company, 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 Invesco Aim, not to exceed the contractually agreed upon rate. NOTE 7--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS TAX CHARACTER OF DISTRIBUTIONS TO SHAREHOLDERS PAID DURING THE YEARS ENDED OCTOBER 31, 2008 AND 2007:
2008 2007 -------------------------------------------------------------------------------------------------------- Ordinary income $12,112,566 $14,088,382 -------------------------------------------------------------------------------------------------------- Long-term capital gain 32,898,682 -- ======================================================================================================== Total distributions $45,011,248 $14,088,382 ________________________________________________________________________________________________________ ========================================================================================================
TAX COMPONENTS OF NET ASSETS AT PERIOD-END:
2008 ------------------------------------------------------------------------------------------------- Undistributed ordinary income $ 10,323,010 ------------------------------------------------------------------------------------------------- Undistributed long-term gain 96,625,887 ------------------------------------------------------------------------------------------------- Net unrealized appreciation (depreciation) -- investments (392,882,660) ------------------------------------------------------------------------------------------------- Net unrealized appreciation -- other investments 81,068 ------------------------------------------------------------------------------------------------- Temporary book/tax differences (303,757) ------------------------------------------------------------------------------------------------- Shares of beneficial interest 1,884,575,513 ================================================================================================= Total net assets $1,598,419,061 _________________________________________________________________________________________________ =================================================================================================
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 (depreciation) difference is attributable primarily to wash sales. 18 AIM SUMMIT FUND The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund's temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits. The Fund does not have a capital loss carryforward at period-end. NOTE 8--INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended October 31, 2008 was $1,686,115,468 and $1,749,442,785, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS ------------------------------------------------------------------------------------------------ Aggregate unrealized appreciation of investment securities $ 69,490,469 ------------------------------------------------------------------------------------------------ Aggregate unrealized (depreciation) of investment securities (462,373,129) ================================================================================================ Net unrealized appreciation (depreciation) of investment securities $(392,882,660) ________________________________________________________________________________________________ ================================================================================================ Cost of investments for tax purposes is $2,013,858,945.
NOTE 9--RECLASSIFICATION OF PERMANENT DIFFERENCES Primarily as a result of differing book/tax treatment of foreign currency transactions and proxy costs, on October 31, 2008, undistributed net investment income was decreased by $934,202, undistributed net realized gain was decreased by $7,519,563 and shares of beneficial interest increased by $8,453,765 This reclassification had no effect on the net assets of the Fund. NOTE 10--SHARE INFORMATION
SUMMARY OF SHARE ACTIVITY --------------------------------------------------------------- YEAR ENDED OCTOBER 31, 2008 2007 ----------------------------- ----------------------------- SHARES AMOUNT SHARES AMOUNT -------------------------------------------------------------------------------------------------------------------------- Sold: Class A 2,679,401 $ 35,774,684 588,245 $ 8,272,526 -------------------------------------------------------------------------------------------------------------------------- Class B 370,004 5,018,172 160,779 2,153,255 -------------------------------------------------------------------------------------------------------------------------- Class C 477,619 6,293,364 66,606 933,942 -------------------------------------------------------------------------------------------------------------------------- Class P 8,007,696 110,158,101 8,990,173 122,364,910 -------------------------------------------------------------------------------------------------------------------------- Class Y(a) 22,820 250,419 -- -- -------------------------------------------------------------------------------------------------------------------------- Institutional Class(b) 1,097,402 10,010,000 -- -- ========================================================================================================================== Issued as reinvestment of dividends: Class A 15,026 221,181 1,756 22,911 -------------------------------------------------------------------------------------------------------------------------- Class B 2,832 41,197 620 8,039 -------------------------------------------------------------------------------------------------------------------------- Class C 1,257 18,289 59 768 -------------------------------------------------------------------------------------------------------------------------- Class P 2,980,553 43,992,954 1,057,604 13,822,887 ========================================================================================================================== Automatic conversion of Class B shares to Class A shares: Class A 136,065 1,806,992 8,545 110,806 -------------------------------------------------------------------------------------------------------------------------- Class B (138,026) (1,806,992) (8,625) (110,806) ========================================================================================================================== Reacquired: Class A(a) (978,638) (12,607,176) (206,707) (2,832,963) -------------------------------------------------------------------------------------------------------------------------- Class B (76,387) (961,885) (27,253) (363,688) -------------------------------------------------------------------------------------------------------------------------- Class C (86,627) (1,057,996) (6,151) (82,333) -------------------------------------------------------------------------------------------------------------------------- Class P (20,909,802) (285,989,305) (28,235,421) (387,461,007) -------------------------------------------------------------------------------------------------------------------------- Class Y(a) (33) (301) -- -- ========================================================================================================================== Net increase (decrease) in share activity (6,398,838) $ (88,838,302) (17,609,770) $(243,160,753) __________________________________________________________________________________________________________________________ ==========================================================================================================================
(a) Effective upon the commencement date of Class Y shares, October 3, 2008, the following shares were converted from Class A shares into Class Y shares of the Fund:
CLASS SHARES AMOUNT ------------------------------------------------------------------------------------------------ Class Y 21,805 $ 239,419 ------------------------------------------------------------------------------------------------ Class A (21,805) (239,419) ________________________________________________________________________________________________ ================================================================================================
(b) Commencement date of October 3, 2008. 19 AIM SUMMIT FUND NOTE 11--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
NET GAINS (LOSSES) NET ASSET NET ON SECURITIES DIVIDENDS DISTRIBUTIONS VALUE, INVESTMENT (BOTH TOTAL FROM FROM NET FROM NET NET ASSET BEGINNING OF INCOME REALIZED AND INVESTMENT INVESTMENT REALIZED TOTAL VALUE, END PERIOD (LOSS) UNREALIZED) OPERATIONS INCOME GAINS DISTRIBUTIONS OF PERIOD -------------------------------------------------------------------------------------------------------------------------------- CLASS A Year ended 10/31/08 $15.42 $ 0.05(c) $(5.40) $(5.35) $(0.06) $(0.20) $(0.26) $ 9.81 Year ended 10/31/07 12.74 0.05(c) 2.70 2.75 (0.07) -- (0.07) 15.42 Year ended 10/31/06 11.38 0.04(c) 1.35 1.39 (0.03) -- (0.03) 12.74 Year ended 10/31/05(e) 11.38 -- -- -- -- -- -- 11.38 -------------------------------------------------------------------------------------------------------------------------------- CLASS B Year ended 10/31/08 15.20 (0.05)(c) (5.30) (5.35) (0.01) (0.20) (0.21) 9.64 Year ended 10/31/07 12.64 (0.05)(c) 2.66 2.61 (0.05) -- (0.05) 15.20 Year ended 10/31/06 11.38 (0.05)(c) 1.34 1.29 (0.03) -- (0.03) 12.64 Year ended 10/31/05(e) 11.38 -- -- -- -- -- -- 11.38 -------------------------------------------------------------------------------------------------------------------------------- CLASS C Year ended 10/31/08 15.20 (0.05)(c) (5.31) (5.36) (0.01) (0.20) (0.21) 9.63 Year ended 10/31/07 12.64 (0.05)(c) 2.66 2.61 (0.05) -- (0.05) 15.20 Year ended 10/31/06 11.38 (0.05)(c) 1.34 1.29 (0.03) -- (0.03) 12.64 Year ended 10/31/05(e) 11.38 -- -- -- -- -- -- 11.38 -------------------------------------------------------------------------------------------------------------------------------- CLASS P Year ended 10/31/08 15.47 0.07(c) (5.42) (5.35) (0.07) (0.20) (0.27) 9.85 Year ended 10/31/07 12.77 0.07(c) 2.71 2.78 (0.08) -- (0.08) 15.47 Year ended 10/31/06 11.38 0.07(c) 1.35 1.42 (0.03) -- (0.03) 12.77 Year ended 10/31/05 9.93 0.04(f) 1.42 1.46 (0.01) -- (0.01) 11.38 Year ended 10/31/04 9.19 (0.01) 0.75 0.74 -- -- -- 9.93 -------------------------------------------------------------------------------------------------------------------------------- CLASS Y Year ended 10/31/08(e) 10.98 0.00(c) (1.17) (1.17) -- -- -- 9.81 -------------------------------------------------------------------------------------------------------------------------------- INSTITUTIONAL CLASS Year ended 10/31/08(e) 10.98 0.00(c) (1.17) (1.17) -- -- -- 9.81 ________________________________________________________________________________________________________________________________ ================================================================================================================================ RATIO OF RATIO OF EXPENSES EXPENSES TO AVERAGE TO AVERAGE NET RATIO OF NET NET ASSETS ASSETS WITHOUT INVESTMENT NET ASSETS, WITH FEE WAIVERS FEE WAIVERS INCOME (LOSS) TOTAL END OF PERIOD AND/OR EXPENSES AND/OR EXPENSES TO AVERAGE PORTFOLIO RETURN(a) (000S OMITTED) ABSORBED ABSORBED NET ASSETS TURNOVER(b) --------------------------------------------------------------------------------------------------------------- CLASS A Year ended 10/31/08 (35.26)% $ 25,529 1.06%(d) 1.07%(d) 0.34%(d) 79% Year ended 10/31/07 21.65 11,591 1.08 1.08 0.37 41 Year ended 10/31/06 12.23 4,584 1.19 1.19 0.32 76 Year ended 10/31/05(e) -- 10 -- -- -- 31 --------------------------------------------------------------------------------------------------------------- CLASS B Year ended 10/31/08 (35.70) 3,256 1.81(d) 1.82(d) (0.41)(d) 79 Year ended 10/31/07 20.74 2,727 1.83 1.83 (0.38) 41 Year ended 10/31/06 11.34 681 1.94 1.94 (0.43) 76 Year ended 10/31/05(e) -- 10 -- -- -- 31 --------------------------------------------------------------------------------------------------------------- CLASS C Year ended 10/31/08 (35.77) 4,408 1.81(d) 1.82(d) (0.41)(d) 79 Year ended 10/31/07 20.74 995 1.83 1.83 (0.38) 41 Year ended 10/31/06 11.34 63 1.94 1.94 (0.43) 76 Year ended 10/31/05(e) -- 10 -- -- -- 31 --------------------------------------------------------------------------------------------------------------- CLASS P Year ended 10/31/08 (35.17) 1,554,240 0.91(d) 0.92(d) 0.49(d) 79 Year ended 10/31/07 21.85 2,594,668 0.92 0.94 0.52 41 Year ended 10/31/06 12.49 2,373,809 0.91 1.05 0.60 76 Year ended 10/31/05 14.71 2,242,529 0.93 1.08 0.36(f) 31 Year ended 10/31/04 8.05 2,081,288 0.96 1.16 (0.15) 31 --------------------------------------------------------------------------------------------------------------- CLASS Y Year ended 10/31/08(e) (10.66) 224 0.85(d)(g) 0.86(d)(g) 0.55(d)(g) 79 --------------------------------------------------------------------------------------------------------------- INSTITUTIONAL CLASS Year ended 10/31/08(e) (10.66) 10,762 0.80(d)(g) 0.81(d)(g) 0.60(d)(g) 79 _______________________________________________________________________________________________________________ ===============================================================================================================
(a) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. (b) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. (c) Calculated using average shares outstanding. (d) Ratios are based on average daily net assets (000's omitted) of $21,351, $3,723, $3,082, $2,240,059, $215 and $6,294 for Class A, Class B, Class C, Class P, Class Y and Institutional Class shares, respectively. (e) Commencement date of Class A, Class B and Class C shares was October 31, 2005 and October 3, 2008 for Class Y and Institutional Class shares. (f) Net investment income per share and the ratio of net investment income (loss) to average net assets include a special cash dividend received of $3.00 per share owned of Microsoft Corp. on December 2, 2004. Net investment income per share and the ratio of net investment income (loss) to average net assets excluding the special dividend are $0.02 and 0.15%, respectively. (g) Annualized. 20 AIM SUMMIT FUND NOTE 12--LEGAL PROCEEDINGS Terms used in the Legal Proceedings Note are defined terms solely for the purpose of this note. 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 Invesco Aim and IADI (Order No. 05-1318). The WVASC makes findings of fact that Invesco Aim and IADI 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 Invesco Aim and IADI violated the West Virginia securities laws. The WVASC orders Invesco Aim and IADI 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, Invesco 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, Invesco Funds Group, Inc. ("IFG"), Invesco Aim, IADI 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 the Employee Retirement Income Security Act of 1974, as amended ("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. The case pending in Illinois State Court regarding fair value pricing was dismissed with prejudice on May 6, 2008. 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 Invesco 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 ERISA purportedly brought on behalf of participants in the Invesco 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. Plaintiff appealed this ruling. On June 16, 2008, the Fourth Circuit Court of Appeals reversed the dismissal and remanded this lawsuit back to the MDL Court for further proceedings. IFG, Invesco Aim, IADI 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, Invesco Aim and IADI 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, Invesco Aim and/or related entities and individuals in the future. At the present time, management of Invesco 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 Invesco Aim, IADI or the Fund. 21 AIM SUMMIT FUND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Trustees of AIM Equity Funds and Shareholders of AIM Summit 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 Summit Fund (one of the funds constituting AIM Equity Funds, formerly the sole portfolio constituting AIM Summit Fund, hereafter referred to as the "Fund") at October 31, 2008, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at October 31, 2008 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PRICEWATERHOUSECOOPERS LLP December 16, 2008 Houston, Texas 22 AIM SUMMIT 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. With the exception of the actual ending account value and expenses of the Class Y Shares, 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, 2008, through October 31, 2008. The actual ending account and expenses of the Class Y shares in the below example are based on an investment of $1,000 invested as of close of business October 3, 2008 (commencement date) and held through October 31, 2008. 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 (as of close of business October 3, 2008 through October 31, 2008 for the Class Y shares). Because the actual ending account value and expense information in the example is not based upon a six month period for the Class Y shares, the ending account value and expense information may not provide a meaningful comparison to mutual funds that provide such information for a full six month 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 CLASS (05/01/08) (10/31/08)(1) PERIOD(2) (10/31/08) PERIOD(2,3) RATIO --------------------------------------------------------------------------------------------------- Class A $1,000.00 $685.10 $4.57 $1,019.71 $5.48 1.08% --------------------------------------------------------------------------------------------------- Class B 1,000.00 682.70 7.74 1,015.94 9.27 1.83 --------------------------------------------------------------------------------------------------- Class C 1,000.00 682.50 7.74 1,015.94 9.27 1.83 --------------------------------------------------------------------------------------------------- Class P 1,000.00 685.90 3.94 1,020.46 4.72 0.93 --------------------------------------------------------------------------------------------------- Class Y 1,000.00 893.40 0.64 1,020.86 4.32 0.85 ---------------------------------------------------------------------------------------------------
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2008, through October 31, 2008 (as of close of business October 3, 2008, through October 31, 2008 for the Class Y shares), after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's expense ratio and a hypothetical annual return of 5% before expenses. (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 184/366 to reflect the most recent fiscal half year. For the Class Y shares actual expenses are equal to the annualized expense ratio indicated above multiplied by the average account value over the period, multiplied by 29 (as of close of business October 3, 2008, through October 31, 2008)/366. Because the Class Y shares have not been in existence for a full six month period, the actual ending account value and expense information shown may not provide a meaningful comparison to fund expense information of classes that show such data for a full six month period and, because the actual ending account value and expense information in the expense example covers a short time period, return and expense data may not be indicative of return and expense data for longer time periods. (3) Hypothetical expenses are equal to the annualized expense ratio indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect a one-half year period. The hypothetical ending account value and expenses may be used to compare ongoing costs of investing in Class Y shares of the Fund and other funds because such data is based on a full six month period. 23 AIM SUMMIT FUND Supplement to Annual Report dated 10/31/08 AIM SUMMIT FUND ========================================== INSTITUTIONAL CLASS SHARES AVERAGE ANNUAL TOTAL RETURNS Please note that past performance is For periods ended 10/31/08 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 -4.03% those shown. All returns assume shareholders with a performance overview 1 Year -35.26 reinvestment of distributions at NAV. specific to their holdings. Institutional ========================================== Investment return and principal value will Class shares are offered exclusively to fluctuate so your shares, when redeemed, institutional investors, including defined Institutional Class shares' inception date may be worth more or less than their contribution plans that meet certain is October 3, 2008. Returns since that original cost. See full report for criteria. date are historical returns. All other information on comparative benchmarks. returns are blended returns of historical Please consult your Fund prospectus for Institutional Class share performance and more information. For the most current restated Class A share performance (for month-end performance, please call 800 451 periods prior to the inception date of 4246 or visit invescoaim.com. Institutional Class shares) at net asset value (NAV) and reflect the Rule 12b-1 fees applicable to Class A shares. Class A shares' inception date is October 31, 2005. 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. The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this supplement for Institutional Class shares was 0.80%. The expense ratios presented above may vary from the expense ratios presented in other sections of the actual report that are based on expenses incurred during the period covered by the report. ========================================== NASDAQ SYMBOL SMITX ========================================== Over for information on your Fund's expenses. THIS SUPPLEMENT 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. [INVESCO AIM LOGO] invescoaim.com SUM-INS-1 Invesco Aim Distributors, Inc. -- SERVICE MARK --
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 actual ending account value and expenses in the below example are based on an investment of $1,000 invested on October 3, 2008 (commencement date) and held through October 31, 2008. The hypothetical ending account value and expenses in the below example are based on an investment of $1,000 invested at the beginning of the period and held for the entire six month period May 1, 2008, through October 31, 2008. 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 the period, October 3, 2008, through October 31, 2008. Because the actual ending account value and expense information in the example is not based upon a six month period, the ending account value and expense information may not provide a meaningful comparison to mutual funds that provide such information for a full six month 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 CLASS (05/01/08) (10/31/08)(1) PERIOD(2) (10/31/08) PERIOD(2,3) RATIO ----------------------------------------------------------------------------------------------------------- Institutional $1,000.00 $893.40 $0.60 $1,021.11 $4.06 0.80% -----------------------------------------------------------------------------------------------------------
(1) The actual ending account value is based on the actual total return of the Fund for the period October 3, 2008 (commencement date), through October 31, 2008, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's expense ratio and a hypothetical annual return of 5% before expenses over the six month period May 1, 2008, through October 31, 2008. (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 184/366 to reflect the most recent fiscal half year. For the Institutional Class shares actual expenses are equal to the annualized expense ratio indicated above multiplied by the average account value over the period, multiplied by 29 (as of close of business October 3, 2008, through October 31, 2008)/366. Because the share class has not been in existence for a full six month period, the actual ending account value and expense information shown may not provide a meaningful comparison to fund expense information of classes that show such data for a full six month period and, because the actual ending account value and expense information in the expense example covers a short time period, return and expense data may not be indicative of return and expense data for longer time periods. (3) Hypothetical expenses are equal to the annualized expense ratio indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect a one-half year period. The hypothetical ending account value and expenses may be used to compare ongoing costs of investing in Institutional Class shares of the Fund and other funds because such data is based on a full six month period. AIM SUMMIT FUND APPROVAL OF INVESTMENT ADVISORY AGREEMENT The Board of Trustees (the Board) of AIM renewal process, the Trustees receive from one another and attributed different Investment Funds is required under the comparative performance and fee data weight to the various factors. The Investment Company Act of 1940 to approve regarding the AIM Funds prepared by an Trustees recognized that the advisory annually the renewal of the AIM Summit independent company, Lipper, Inc. arrangements and resulting advisory fees Fund's (the Fund) investment advisory (Lipper), under the direction and for the Fund and the other AIM Funds are agreement with Invesco Aim Advisors, Inc. supervision of the independent Senior the result of years of review and (Invesco Aim). During contract renewal Officer who also prepares a separate negotiation between the Trustees and meetings held on June 18-19, 2008, the analysis of this information for the Invesco Aim, that the Trustees may focus Board as a whole and the disinterested or Trustees. Each Sub-Committee then makes to a greater extent on certain aspects of "independent" Trustees, voting separately, recommendations to the Investments these arrangements in some years than in approved the continuance of the Fund's Committee regarding the performance, fees others, and that the Trustees' investment advisory agreement for another and expenses of their assigned funds. The deliberations and conclusions in a year, effective July 1, 2008. In doing so, Investments Committee considers each particular year may be based in part on the Board determined that the Fund's Sub-Committee's recommendations and makes their deliberations and conclusions of investment advisory agreement is in the its own recommendations regarding the these same arrangements throughout the best interests of the Fund and its performance, fees and expenses of the AIM year and in prior years. shareholders and that the compensation to Funds to the full Board. The Investments Invesco Aim under the Fund's investment Committee also considers each FACTORS AND CONCLUSIONS AND SUMMARY OF advisory agreement is fair and reasonable. SubCommittee's recommendations in making INDEPENDENT WRITTEN FEE EVALUATION its annual recommendation to the Board The independent Trustees met separately whether to approve the continuance of each The discussion below serves as a summary during their evaluation of the Fund's AIM Fund's investment advisory agreement of the Senior Officer's independent investment advisory agreement with and sub-advisory agreements for another written evaluation with respect to the independent legal counsel from whom they year. Fund's investment advisory agreement as received independent legal advice, and the well as a discussion of the material independent Trustees also received The independent Trustees are assisted factors and related conclusions that assistance during their deliberations from in their annual evaluation of the Fund's formed the basis for the Board's approval the independent Senior Officer, a investment advisory agreement by the of the Fund's investment advisory full-time officer of the AIM Funds who independent Senior Officer. One agreement and sub-advisory agreements. reports directly to the independent responsibility of the Senior Officer is to Unless otherwise stated, information set Trustees. manage the process by which the AIM Funds' forth below is as of June 19, 2008 and proposed management fees are negotiated does not reflect any changes that may have THE BOARD'S FUND EVALUATION PROCESS during the annual contract renewal process occurred since that date, including but to ensure that they are negotiated in a not limited to changes to the Fund's The Board's Investments Committee has manner that is at arms' length and performance, advisory fees, expense established three Sub-Committees that are reasonable. Accordingly, the Senior limitations and/or fee waivers. responsible for overseeing the management Officer must either supervise a of a number of the series portfolios of competitive bidding process or prepare an I. Investment Advisory Agreement the AIM Funds. This Sub-Committee independent written evaluation. The Senior structure permits the Trustees to focus on Officer has recommended that an A. Nature, Extent and Quality of the performance of the AIM Funds that have independent written evaluation be provided Services Provided by Invesco Aim been assigned to them. The Sub-Committees and, at the direction of the Board, has meet throughout the year to review the prepared an independent written The Board reviewed the advisory services performance of their assigned funds, and evaluation. provided to the Fund by Invesco Aim under the Sub-Committees review monthly and the Fund's investment advisory agreement, quarterly comparative performance During the annual contract renewal the performance of Invesco Aim in information and periodic asset flow data process, the Board considered the factors providing these services, and the for their assigned funds. These materials discussed below under the heading "Factors credentials and experience of the officers are prepared under the direction and and Conclusions and Summary of Independent and employees of Invesco Aim who provide supervision of the independent Senior Written Fee Evaluation" in evaluating the these services. The Board's review of the Officer. Over the course of each year, the fairness and reasonableness of the Fund's qualifications of Invesco Aim to provide Sub-Committees meet with portfolio investment advisory agreement and these services included the Board's managers for their assigned funds and sub-advisory agreements at the contract consideration of Invesco Aim's portfolio other members of management and review renewal meetings and at their meetings and product review process, various back with these individuals the performance, throughout the year as part of their office support functions provided by investment objective(s), policies, ongoing oversight of the Fund. The Fund's Invesco Aim, and Invesco Aim's equity and strategies and limitations of these funds. investment advisory agreement and fixed income trading operations. The Board sub-advisory agreements were considered concluded that the nature, extent and In addition to their meetings separately, although the Board also quality of the advisory services provided throughout the year, the Sub-Committees considered the common interests of all of to the Fund by Invesco Aim were meet at designated contract renewal the AIM Funds in their deliberations. The appropriate and that Invesco Aim currently meetings each year to conduct an in-depth Board considered all of the information is providing satisfactory advisory review of the performance, fees and provided to them and did not identify any services in accordance with the terms of expenses of their assigned funds. During particular factor that was controlling. the Fund's investment advisory agreement. the contract Each Trustee may have evaluated the In addition, based on their ongoing information provided differently meetings throughout the year with the Fund's portfolio manager or managers, continued
24 AIM SUMMIT FUND the Board concluded that these individuals also reviewed more recent Fund performance information, the Board concluded that the are competent and able to continue to and this review did not change their Fund's advisory fees appropriately reflect carry out their responsibilities under the conclusions. economies of scale at current asset Fund's investment advisory agreement. levels. The Board also noted that the Fund C. Advisory Fees and Fee Waivers shares directly in economies of scale In determining whether to continue the through lower fees charged by third party Fund's investment advisory agreement, the The Board compared the Fund's contractual service providers based on the combined Board considered the prior relationship advisory fee rate to the contractual size of all of the AIM Funds and between Invesco Aim and the Fund, as well advisory fee rates of funds in the Fund's affiliates. as the Board's knowledge of Invesco Aim's expense group that are not managed by operations, and concluded that it was Invesco Aim, at a common asset level and E. Profitability and Financial beneficial to maintain the current as of the end of the past calendar year. Resources of Invesco Aim relationship, in part, because of such The Board noted that the Fund's knowledge. The Board also considered the contractual advisory fee rate was below The Board reviewed information from steps that Invesco Aim and its affiliates the median contractual advisory fee rate Invesco Aim concerning the costs of the have taken over the last several years to of funds in its expense group. The Board advisory and other services that Invesco improve the quality and efficiency of the also reviewed the methodology used by Aim and its affiliates provide to the Fund services they provide to the AIM Funds in Lipper in determining contractual fee and the profitability of Invesco Aim and the areas of investment performance, rates. its affiliates in providing these product line diversification, services. The Board also reviewed distribution, fund operations, shareholder The Board also compared the Fund's information concerning the financial services and compliance. The Board effective fee rate (the advisory fee after condition of Invesco Aim and its concluded that the quality and efficiency any advisory fee waivers and before any affiliates. The Board also reviewed with of the services Invesco Aim and its expense limitations/waivers) to the Invesco Aim the methodology used to affiliates provide to the AIM Funds in advisory fee rates of other clients of prepare the profitability information. The each of these areas have generally Invesco Aim and its affiliates with Board considered the overall profitability improved, and support the Board's approval investment strategies comparable to those of Invesco Aim, as well as the of the continuance of the Fund's of the Fund, including two mutual funds profitability of Invesco Aim in connection investment advisory agreement. advised by Invesco Aim and four mutual with managing the Fund. The Board noted funds sub-advised by an Invesco Aim that Invesco Aim continues to operate at a B. Fund Performance affiliate. The Board noted that the Fund's net profit, although increased expenses in rate was: (i) above the rates for the two recent years have reduced the The Board compared the Fund's performance mutual funds; and (ii) above the profitability of Invesco Aim and its during the past one, three and five sub-advisory fee rates for the four affiliates. The Board concluded that the calendar years to the performance of funds sub-advised mutual funds. Fund's fees were fair and reasonable, and in the Fund's performance group that are that the level of profits realized by not managed by Invesco Aim, and against The Board concluded that it was not Invesco Aim and its affiliates from the performance of all funds in the Lipper necessary at this time to discuss with providing services to the Fund was not Multi-Cap Growth Funds Index and the Invesco Aim whether to implement any fee excessive in light of the nature, quality Lipper Large-Cap Growth Funds Index. The waivers or expense limitations because the and extent of the services provided. The Board also reviewed the criteria used by Fund's total expenses were at or below the Board considered whether Invesco Aim is Invesco Aim to identify the funds in the median total expenses of the funds in the financially sound and has the resources Fund's performance group for inclusion in Fund's Lipper expense group that are not necessary to perform its obligations under the Lipper reports. The Board noted that managed by Invesco Aim. the Fund's investment advisory agreement, the Fund's performance was in the second and concluded that Invesco Aim has the quintile of its performance group for the After taking account of the Fund's financial resources necessary to fulfill one, three and five year periods (the contractual advisory fee rate, as well as these obligations. first quintile being the best performing the comparative advisory fee information funds and the fifth quintile being the discussed above, the Board concluded that F. Independent Written Evaluation of worst performing funds). The Board noted the Fund's advisory fees were fair and the Fund's Senior Officer that the Fund's performance was above the reasonable. performance of both Indexes for the one, The Board noted that, at their direction, three and five year periods. The Board D. Economies of Scale and Breakpoints the Senior Officer of the Fund, who is also considered the steps Invesco Aim has independent of Invesco Aim and Invesco taken over the last several years to The Board considered the extent to which Aim's affiliates, had prepared an improve the quality and efficiency of the there are economies of scale in Invesco independent written evaluation to assist services that Invesco Aim provides to the Aim's provision of advisory services to the Board in determining the AIM Funds. The Board concluded that the Fund. The Board also considered reasonableness of the proposed management Invesco Aim continues to be responsive to whether the Fund benefits from such fees of the AIM Funds, including the Fund. the Board's focus on fund performance. economies of scale through contractual The Board noted that they had relied upon Although the independent written breakpoints in the Fund's advisory fee the Senior Officer's written evaluation evaluation of the Fund's Senior Officer schedule or through advisory fee waivers instead of a competitive bidding process. only considered AIM Funds performance or expense limitations. The Board noted In determining whether to continue the through the most recent calendar year, the that the Fund's contractual advisory fee Fund's investment advisory agreement, the Board schedule includes two breakpoints and that Board considered the Senior Officer's the level of the Fund's advisory fees, as written evaluation. a percentage of the Fund's net assets, has decreased as net assets increased because of the breakpoints. Based on this continued
25 AIM SUMMIT FUND G. Collateral Benefits to Invesco Aim payable by the Fund in an amount equal to agreements for the Fund, as no Affiliated and its Affiliates 100% of the net advisory fees Invesco Aim Sub-Adviser currently manages any portion receives from the affiliated money market of the Fund's assets. The Board considered various other funds with respect to the Fund's benefits received by Invesco Aim and its investment of uninvested cash, but not C. Sub-Advisory Fees affiliates resulting from Invesco Aim's cash collateral. The Board considered the relationship with the Fund, including the contractual nature of this fee waiver and The Board considered the services to be fees received by Invesco Aim and its noted that it remains in effect until at provided by the Affiliated Sub-Advisers affiliates for their provision of least June 30, 2009. The Board concluded pursuant to the sub-advisory agreements administrative, transfer agency and that the Fund's investment of uninvested and the services to be provided by Invesco distribution services to the Fund. The cash and cash collateral from any Aim pursuant to the Fund's investment Board considered the performance of securities lending arrangements in the advisory agreement, as well as the Invesco Aim and its affiliates in affiliated money market funds is in the allocation of fees between Invesco Aim and providing these services and the best interests of the Fund and its the Affiliated Sub-Advisers pursuant to organizational structure employed by shareholders. the sub-advisory agreements. The Board Invesco Aim and its affiliates to provide noted that the sub-advisory fees have no these services. The Board also considered II. Sub-Advisory Agreements direct effect on the Fund or its that these services are provided to the shareholders, as they are paid by Invesco Fund pursuant to written contracts which A. Nature, Extent and Quality of Aim to the Affiliated Sub-Advisers, and are reviewed and approved on an annual Services Provided by Affiliated that Invesco Aim and the Affiliated basis by the Board. The Board concluded Sub-Advisers Sub-Advisers are affiliates. After taking that Invesco Aim and its affiliates were account of the Fund's contractual providing these services in a satisfactory The Board reviewed the services to be sub-advisory fee rate, as well as other manner and in accordance with the terms of provided by Invesco Trimark Ltd., Invesco relevant factors, the Board concluded that their contracts, and were qualified to Asset Management Deutschland, GmbH, the Fund's sub-advisory fees were fair and continue to provide these services to the Invesco Asset Management Limited, Invesco reasonable. Fund. Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Global Asset D. Financial Resources of the The Board considered the benefits Management (N.A.), Inc., Invesco Hong Kong Affiliated Sub-Advisers realized by Invesco Aim as a result of Limited, Invesco Institutional (N.A.), portfolio brokerage transactions executed Inc. and Invesco Senior Secured The Board considered whether each through "soft dollar" arrangements. Under Management, Inc. (collectively, the Affiliated Sub-Adviser is financially these arrangements, portfolio brokerage "Affiliated Sub-Advisers") under the sound and has the resources necessary to commissions paid by the Fund and/or other sub-advisory agreements and the perform its obligations under its funds advised by Invesco Aim are used to credentials and experience of the officers respective sub-advisory agreement, and pay for research and execution services. and employees of the Affiliated concluded that each Affiliated Sub-Adviser The Board noted that soft dollar Sub-Advisers who will provide these has the financial resources necessary to arrangements shift the payment obligation services. The Board concluded that the fulfill these obligations. for the research and execution services nature, extent and quality of the services from Invesco Aim to the funds and to be provided by the Affiliated therefore may reduce Invesco Aim's Sub-Advisers were appropriate. The Board expenses. The Board also noted that noted that the Affiliated Sub-Advisers, research obtained through soft dollar which have offices and personnel that are arrangements may be used by Invesco Aim in geographically dispersed in financial making investment decisions for the Fund centers around the world, have been formed and may therefore benefit Fund in part for the purpose of researching and shareholders. The Board concluded that compiling information and making Invesco Aim's soft dollar arrangements recommendations on the markets and were appropriate. The Board also concluded economies of various countries and that, based on their review and securities of companies located in such representations made by Invesco Aim, these countries or on various types of arrangements were consistent with investments and investment techniques, and regulatory requirements. providing investment advisory services. The Board concluded that the sub-advisory The Board considered the fact that the agreements will benefit the Fund and its Fund's uninvested cash and cash collateral shareholders by permitting Invesco Aim to from any securities lending arrangements utilize the additional resources and may be invested in money market funds talent of the Affiliated Sub-Advisers in advised by Invesco Aim pursuant to managing the Fund. procedures approved by the Board. The Board noted that Invesco Aim will receive B. Fund Performance advisory fees from these affiliated money market funds attributable to such The Board did not view Fund performance as investments, although Invesco Aim has a relevant factor in considering whether contractually agreed to waive through at to approve the sub-advisory least June 30, 2009, the advisory fees
26 AIM SUMMIT 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, 2008:
FEDERAL AND STATE INCOME TAX ---------------------------- Long-Term Capital Gain Dividends $41,448,681 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 SHAREHOLDER INFORMATION The percentages of qualifying assets not subject to the U.S. estate tax for the fiscal quarters ended January 31, 2008, April 30, 2008, July 31, 2008 and October 31, 2008 were 20.47%, 20.90%, 20.46%, and 22.42%, respectively. 27 AIM SUMMIT 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 103 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.
NAME, YEAR OF BIRTH AND TRUSTEE AND/ OTHER POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) DIRECTORSHIP(S) TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE -------------------------------------------------------------------------------------------------------------------------------- INTERESTED PERSONS -------------------------------------------------------------------------------------------------------------------------------- Martin L. 2007 Executive Director, Chief Executive Officer and President, None Flanagan(1) -- 1960 Invesco Ltd. (ultimate parent of Invesco Aim and a global Trustee investment management firm); Chairman, Invesco Aim Advisors, Inc. (registered investment advisor); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company); INVESCO North American Holdings, Inc. (holding company); and, INVESCO Group Services, Inc. (service provider); Trustee, The AIM Family of Funds--Registered Trademark--; Vice Chairman, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business Formerly: Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco Aim and a global investment management firm); 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 Head of North American Retail and Senior Managing Director, None Trustee, President and Invesco Ltd.; Director, Chief Executive Officer and Principal President, Invesco Trimark Dealer Inc. (formerly AIM Mutual Executive Officer Fund Dealer Inc.) (registered broker dealer), Invesco Aim Advisors, Inc., and 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Aim Management Group, Inc. (financial services holding company) and Invesco Aim 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, Invesco Aim Distributors, Inc. (registered broker dealer); Director and Chairman, Invesco 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 Invesco Canada Holdings Inc. (formerly AIM Canada Holdings Inc.) (holding company); 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); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltee (formerly AIM Funds Management Inc. d/b/a INVESCO Enterprise Services) (registered investment advisor and registered transfer agent) and Invesco Trimark Dealer Inc. (formerly AIM Mutual Fund Dealer Inc.) (registered broker dealer); Trustee, President and Principal Executive Officer of The AIM Family of Funds--Registered Trademark-- (other than AIM Treasurer's Series Trust and Short-Term Investments Trust); Trustee and Executive Vice President, The AIM Family of Funds--Registered Trademark-- (AIM Treasurer's Series Trust and Short-Term Investments Trust only); and Manager, Invesco PowerShares Capital Management LLC Formerly: President, Invesco Trimark Dealer Inc.; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Director and President, Invesco Trimark Ltd./Invesco Trimark Ltee (formerly AIM Funds Management Inc. d/b/a INVESCO Enterprise Services); Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; 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); 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 (technology ACE Limited Trustee and Chair consulting company) (insurance company); Captaris, Inc. (unified messaging provider); and Investment Company Institute -------------------------------------------------------------------------------------------------------------------------------- Bob R. Baker -- 1936 2003 Retired None Trustee -------------------------------------------------------------------------------------------------------------------------------- Frank S. Bayley -- 1939 2001 Retired Trustee Formerly: Partner, law firm of Baker & McKenzie; and None Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) -------------------------------------------------------------------------------------------------------------------------------- James T. Bunch -- 1942 2003 Founder, Green, Manning & Bunch Ltd., (investment banking Director, Policy Trustee firm) Studies, Inc. and Van Gilder Insurance Corporation -------------------------------------------------------------------------------------------------------------------------------- Albert R. Dowden -- 1941 2000 Director of a number of public and private business None Trustee corporations, including the Boss Group Ltd. (private investment and management); Continental Energy Services, LLC (oil and gas pipeline service); Reich & Tang Funds (registered investment company); Annuity and Life Re (Holdings), Ltd. (reinsurance company), and Homeowners of America Holding Corporation/Homeowners of America Insurance Company (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 public and private corporations -------------------------------------------------------------------------------------------------------------------------------- Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Century Group, Inc. Administaff Trustee (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); and Discovery Global Education Fund (non-profit) -------------------------------------------------------------------------------------------------------------------------------- Carl Frischling -- 1937 1998 Partner, law firm of Kramer Levin Naftalis and Frankel LLP Director, Reich & Trustee Tang Funds) (15 portfolios) -------------------------------------------------------------------------------------------------------------------------------- Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the USA None Trustee -------------------------------------------------------------------------------------------------------------------------------- Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper None Trustee -------------------------------------------------------------------------------------------------------------------------------- Larry Soll -- 1942 2003 Retired None Trustee -------------------------------------------------------------------------------------------------------------------------------- Raymond Stickel, Jr. -- 1944 2005 Retired Trustee Formerly: Partner, Deloitte & Touche; and Director, Mainstay None VP Series Funds, Inc. (25 portfolios) --------------------------------------------------------------------------------------------------------------------------------
(1) 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 Ltd., ultimate 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. 28 AIM SUMMIT FUND TRUSTEES AND OFFICERS--(CONTINUED)
NAME, YEAR OF BIRTH AND TRUSTEE AND/ OTHER POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) DIRECTORSHIP(S) TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE -------------------------------------------------------------------------------------------------------------------------------- OTHER OFFICERS -------------------------------------------------------------------------------------------------------------------------------- Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer of The AIM Family of N/A Senior Vice President and Funds--Registered Trademark-- Senior Officer 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, Secretary and General Counsel, N/A Senior Vice President, Chief Invesco Aim Management Group, Inc., Invesco Aim Advisors, Inc. Legal Officer and Secretary and Invesco Aim Capital Management, Inc.; Director, Senior Vice President and Secretary, Invesco Aim Distributors, Inc.; Director, Vice President and Secretary, Invesco Aim Investment Services, Inc. and INVESCO Distributors, Inc.; Director and Vice President, INVESCO Funds Group Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds--Registered Trademark--; and Manager, Invesco PowerShares Capital Management LLC Formerly: Director, Vice President and Secretary, Fund Management Company; Vice President, Invesco Aim 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); 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 Ltd.; and Vice President, The N/A Vice President AIM Family of Funds--Registered Trademark-- Formerly: Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and The AIM Family of Funds--Registered Trademark--; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Aim Distributors, Inc.; Vice President, Invesco Aim Investment Services, Inc. and Fund Management Company; and Senior Vice President and Compliance Director, Delaware Investments Family of Funds -------------------------------------------------------------------------------------------------------------------------------- Kevin M. Carome -- 1956 2003 General Counsel, Secretary and Senior Managing Director, Invesco N/A Vice President Ltd.; Director and Secretary, Invesco Holding Company Limited, IVZ, Inc. and INVESCO Group Services, Inc.; Director, INVESCO Funds Group, Inc.; Secretary, INVESCO North American Holdings, Inc.; and Vice President, The AIM Family of Funds--Registered Trademark-- Formerly: Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc. and Invesco Aim Advisors, Inc.; Senior Vice President, Invesco Aim Distributors, Inc.; Director, General Counsel and Vice President, Fund Management Company; Vice President, Invesco Aim Capital Management, Inc. and Invesco Aim Investment Services, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds--Registered Trademark--; Director and Vice President, INVESCO Distributors, Inc. and Chief Executive Officer and President, INVESCO Funds Group, Inc. -------------------------------------------------------------------------------------------------------------------------------- Sheri Morris -- 1964 1999 Vice President, Treasurer and Principal Financial Officer, The N/A Vice President, Treasurer AIM Family of Funds--Registered Trademark--; and Vice President, and Principal Financial Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. Officer and Invesco Aim Private Asset Management Inc. Formerly: Assistant Vice President and Assistant Treasurer, The AIM Family of Funds--Registered Trademark-- and Assistant Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. -------------------------------------------------------------------------------------------------------------------------------- Karen Dunn Kelley -- 1960 2004 Head of Invesco's World Wide Fixed Income and Cash Management N/A Vice President Group; Director of Cash Management and Senior Vice President, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc; Executive Vice President, Invesco Aim Distributors, Inc.; Senior Vice President, Invesco Aim Management Group, Inc.; Vice President, The AIM Family of Funds--Registered Trademark-- (other than AIM Treasurer's Series Trust and Short-Term Investments Trust); and President and Principal Executive Officer, The AIM Family of Funds--Registered Trademark-- (AIM Treasurer's Series Trust and Short-Term Investments Trust only) Formerly President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer and Managing Director, Invesco Aim Capital Management, Inc.; and Vice President, Invesco Aim 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 Officer, Invesco Aim Advisors, N/A Anti-Money Laundering Inc., Invesco Aim Capital Management, Inc., Invesco Aim Compliance Officer Distributors, Inc., Invesco Aim Investment Services, Inc., Invesco 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, Invesco Aim Investment Services, Inc. -------------------------------------------------------------------------------------------------------------------------------- Todd L. Spillane -- 1958 2006 Senior Vice President, Invesco Aim Management Group, Inc.; Senior N/A Chief Compliance Officer Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, 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, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc. Formerly: Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company; and Global Head of Product Development, AIG-Global Investment Group, Inc. --------------------------------------------------------------------------------------------------------------------------------
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. Please refer to the Fund's prospectus for information on the Fund's sub- advisors. OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS 11 Greenway Plaza Invesco Aim Advisors, Invesco Aim Distributors, PricewaterhouseCoopers Suite 100 Inc. Inc. LLP Houston, TX 77046-1173 11 Greenway Plaza 11 Greenway Plaza 1201 Louisiana Street Suite 100 Suite 100 Suite 2900 Houston, TX 77046-1173 Houston, TX 77046-1173 Houston, TX 77002-5678 COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN Stradley Ronon Stevens INDEPENDENT TRUSTEES Invesco Aim Investment State Street Bank and & Young, LLP Kramer, Levin, Naftalis & Services, Inc. Trust Company 2600 One Commerce Square Frankel LLP P.O. Box 4739 225 Franklin Street Philadelphia, PA 19103 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801 Americas New York, NY 10036-2714
29 AIM SUMMIT FUND [GO PAPERLESS GRAPHIC] ==================================================================================================================================== GO PAPERLESS WITH EDELIVERY Visit invescoaim.com/edelivery to receive quarterly statements, tax forms, fund reports and prospectuses with a service that's all about eeees: o ENVIRONMENTALLY FRIENDLY. Go green by reducing the number of o EFFICIENT. Stop waiting for regular mail. Your documents will trees used to produce paper. be sent via email as soon as they're available. o ECONOMICAL. Help reduce your fund's printing and delivery o EASY. Download, save and print files using your home computer expenses and put more capital back in your fund's returns. with a few clicks of your mouse. This service is provided by Invesco Aim Investment Services, Inc. ==================================================================================================================================== FUND HOLDINGS AND PROXY VOTING INFORMATION The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund's semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The most recent list of portfolio holdings is available at invescoaim.com. From our home page, click on Products & Performance, then Mutual Funds, then Fund Overview. Select your Fund from the drop-down menu and click on Complete Quarterly Holdings. Shareholders can also look up the Fund's Forms N-Q on the SEC website at sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 942 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-01424 and 002-25469. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or on the Invesco Aim website, invescoaim. com. On the home page, scroll down and click on Proxy Policy. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2008, is available at our website. Go to invescoaim.com, access the About Us tab, click on Required Notices and then click on Proxy Voting Activity. Next, select the Fund from the drop-down menu. The information is also available on the SEC website, sec.gov. If used after January 20, 2009, this report must be accompanied by a Fund fact sheet or Invesco Aim Quarterly Performance Review for the most recent quarter-end. Invesco Aim--SERVICE MARK-- is a service mark of Invesco Aim Management Group, Inc. Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc., Invesco Aim Private Asset Management, Inc. and Invesco PowerShares Capital Management LLC are the [INVESCO AIM LOGO] investment advisors for the products and services represented by Invesco Aim; they each provide - SERVICE MARK - investment advisory services to individual and institutional clients and do not sell securities. Please refer to each fund's prospectus for information on the fund's subadvisors. Invesco Aim Distributors, Inc. is the U.S. distributor for the retail mutual funds, exchange-traded funds and institutional money market funds and the subdistributor for the STIC Global Funds represented by Invesco Aim. All entities are indirect, wholly owned subsidiaries of Invesco Ltd. invescoaim.com SUM-AR-1 Invesco Aim Distributors, Inc.
ITEM 2. CODE OF ETHICS. As of the end of the period covered by this report, the Registrant had adopted a code of ethics (the "Code") that applies to the Registrant's principal executive officer ("PEO") and principal financial officer ("PFO"). 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 Billed to Non-Audit Applicable to Non-Audit Services Provided for Fees Billed for Services Provided for fiscal year end 2007 Services Rendered to the fiscal year end 2008 Fees Billed for Services Pursuant to Waiver of Registrant for fiscal Pursuant to Waiver of Rendered to the Registrant Pre-Approval year end 2008 Pre-Approval Requirement(1) for fiscal year end 2007 Requirement(1) ------------------------ --------------------------- -------------------------- ---------------------- Audit Fees $274,861 N/A $225,022 N/A Audit-Related Fees(2) $ 0 0% $ 20,222 0% Tax Fees(3) $ 49,351 0% $ 55,143 0% All Other Fees $ 0 0% $ 0 0% -------- -------- Total Fees $324,212 0% $300,387 0%
PWC billed the Registrant aggregate non-audit fees of $49,351 for the fiscal year ended 2008, and $75,365 for the fiscal year ended 2007, 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, 2008 includes fees billed for reviewing tax returns and consultation services. Tax fees for fiscal year end October 31, 2007 includes fees billed for reviewing tax returns and consultation services. FEES BILLED BY PRINCIPAL ACCOUNTANT RELATED TO INVESCO AIM AND INVESCO AIM AFFILIATES PWC billed Invesco Aim Advisors, Inc. ("Invesco Aim"), the Registrant's adviser, and any entity controlling, controlled by or under common control with AIM that provides ongoing services to the Registrant ("Invesco Aim Affiliates") aggregate fees for pre-approved non-audit services rendered to Invesco Aim and Invesco Aim Affiliates as follows:
Fees Billed for Fees Billed for Non-Audit Services Non-Audit Services Rendered to Invesco Percentage of Fees Rendered to Invesco Percentage of Fees Aim and Invesco Aim Billed Applicable to Aim and Invesco Aim Billed Applicable to Affiliates for Non-Audit Services Affiliates for Non-Audit Services fiscal year end 2008 Provided for fiscal fiscal year end 2007 Provided for fiscal That Were Required year end 2008 That Were Required year end 2007 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, Invesco Aim and Invesco 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 Invesco Aim and Invesco Aim Affiliates aggregate non-audit fees of $0 for the fiscal year ended 2008, and $0 for the fiscal year ended 2007, for non-audit services rendered to Invesco Aim and Invesco Aim Affiliates. The Audit Committee also has considered whether the provision of non-audit services that were rendered to Invesco Aim and Invesco 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. PwC advised the Funds' Audit Committee that PwC had identified two matters that required further consideration under the SEC's auditor independence rules. First, PwC was engaged to perform services to an affiliate of INVESCO PLC, including (a) consulting with respect to the acquisition by the affiliate of certain assets from a third party; and (b) providing expert testimony in connection with any arbitration proceeding or litigation arising from or relating to the transaction. SEC rules provide that an accountant is not independent if, at any point during the audit and professional engagement period, the accountant provides expert services unrelated to the audit to an audit client. Specifically, PwC would not be permitted to provide expert testimony nor perform other services in support of the client or its counsel in connection with a proceeding. Within days of being engaged to provide the services it was determined that some of the services contemplated in the engagement terms would be inconsistent with the SEC's auditor independence rules. A review of the services performed pursuant to the original agreement was conducted. It was concluded that the services performed were not inconsistent with the SEC's independence rules. Following the review, the initial engagement terms were modified to limit PwC's services to those permitted under the rules. Second, an employee of PwC served as a nominee shareholder (effectively equivalent to a Trustee) of various companies or trusts since 2001. Some of these companies held shares of INVESCO Nippon Warrants Fund (the "Investment."), an affiliate of INVESCO PL, formerly known as AMVESCAP PLC (the "Company"). The investment, which consisted of 2,070 shares, was initially entered into during July 1, 2001 - December 31, 2005. PwC informed the Audit Committee that the second matter could have constituted an investment in an affiliate of an audit client in violation of Rule 2-01(c)(1) of Regulation S-X. PwC advised the Audit Committee that it believes its independence had not been adversely affected as it related to the audits of the Funds. In reaching this conclusion, PwC noted that during the time of its audit, the engagement team was not aware of the investment, as it relates to the second matter, and that PwC did not believe either of these situations affected PwC's ability to act objectively and impartially and to issue a report on financial statements as the Funds' independent auditor. Based upon PwC's review and discussion, the audit committee concurred with PwC's conclusions in relation to its independence. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. SCHEDULE OF INVESTMENTS. Investments in securities of unaffiliated issuers is included as part of the reports to stockholders filed under Item 1 of this Form. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT COMPANIES. Not applicable. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None ITEM 11. CONTROLS AND PROCEDURES. (a) As of December 16, 2008, an evaluation was performed under the supervision and with the participation of the officers of the Registrant, including the PEO and PFO, to assess the effectiveness of the Registrant's disclosure controls and procedures, as that term is defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the "Act"), as amended. Based on that evaluation, the Registrant's officers, including the PEO and PFO, concluded that, as of December 16, 2008, 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 8, 2009 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 8, 2009 By: /s/ SHERI MORRIS --------------------------------- Sheri Morris Principal Financial Officer Date: January 8, 2009 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.